I've run into an unfortunately situation for my company.  I own a hair salon (50/50 partner) with another individual.  We use Paychex to administer our 401k plan and was just informed that we are Top Heavy as of 12/31/2015 (60.7%) and owe $49k. This is a horrible as there are less than $100k of assets in the plan. I'm beyond frustrated as I was told back in spring that we were in compliance and now they are being entirely unhelpful in answering my questions, so I'm hoping someone here can help.

It's a basic deferral plan.  I've never made an employer contribution.

Questions:

1)  They are calculating the TH penalty contribution as being 3% of compensation for every employee who was employed in 2016.  Is this correct, or should it only be employees eligible to the plan (6 months of service and over 21 years old) as of 12/31/2015?

2) what happens if an employee is terminated during 2016?  any impact?

3) Myself and the other owner only made 1% contributions during 2016.  I've heard I may be able to make a 1% contribution, rather than 3% for all employees.  Is that true?

4) Is the vesting for the 3% contribution immediate?

Thank you so much.  I can't wait to get this behind me and replace Paychex as a provider. 

What is the correction for failure to implement auto enrollment in 401k plan where the employee has since temrinated?  For example, Employee A was hired in 2014 and eligible for auto enrollment.  Employee A was not auto enrolled and continued working until 2015.  The error was discovered in 2016.  I am aware of the correction procedure in Rev Proc 2015-28 but it requires "correct deferrals" to begin within a certain time period.  We cannot do this because there is no compensation for this employee.  Which brings me to the general correction for exclusion of an eligible employee - 50% QNEC.  How is this contribution made?  There is no plan account - is one created and then distributed to the former employee?  Any advice is appreciated!

Working on a single employer DB plan.  For a participant receiving an RMD (monthly annuity) while continuing to work, I have a question with regards to offsetting benefit distributions against continued accruals.  Citing 1988 Proposed Regulation 1.411(b)-2 as the latest (and only) governing code/regulations I could dig up.  Section (b)(4)(ii) allows for offsetting continued benefit accruals by prior benefit disbursements, meeting certain criteria.  One of these criteria is that the benefit payments could have been suspendible (w/o regard to 401(a)(9)) with regards to 203(a)(3)(B) of ERISA (Suspension of Benefits rules).

Does this mean that I can't offset future accruals by any distributions made for a month in which the participant worked less than 40 hours (because those payments can't be suspended - did not have 203(a)(3)(B) service for that distribution period)?  If you are allowed to offset all actual distributions, then what is this section of the regulation referring to.  Also, I assume that if the plan doesn't typically suspend payments (or at least doesn't suspend them as stringently as they could), that this isn't an issue.  What matters is whether the regulations would allow them to suspend, not whether they actually suspended? The obvious scenario being when someone is impacted by 401(a)(9), but this plan does have SOB rules in place, but they only do it when the participant works at a rate that is greater than the 203(a)(3)(B) service definition. 

It may not seem to be a common issue anymore, since in-service RMDs are only required for 5% owners since the SBJPA changes, and those participants are likely to be working more than 40 hours a month.  However, I'm working on a remediation project which includes many pre-SBJPA RMDs, as well participants that commenced in-service prior to SBJPA, and the in-service payments were elected to continue.  

With In-Service retirements after PPA, this issue may have gained additional scrutiny, but I haven't been able to locate any more recent legal guidance.

One last question:  Another set of plans I'll be addressing allows for benefits to grow even after they've transferred out of the prior plan.  This occurs even if the transfer is outside the Controlled-Group.  When someone transfers from CG(1) to CG(2), they are treated like a termination in CG(1) plan (this is not in question by the employer's legal counsel - and I agree with this).  So for RMD purposes, they must commence benefits under CG(1) plan even though they are still actively working for the employer. The CG(1) benefit can, and often does, increase after "termination".  So, in a nut shell, it behaves like an in-service RMD under CG(1)'s plan.  Referring to the question above regarding offsets for benefit payments, it appears that all benefit distributions are not suspendible under CG(1) plan, and thus, there will need to be an increase in the CG(1) plan benefit that is being paid?  

Sorry for the long set of questions, but I haven't been able to locate a single citation (legally binding, or otherwise) that addresses this specific issue.  All the examples in regulations/industry publications seem to either gloss over the "suspendible" issue with the distributions, or I'm off-base with my interpretation.

A colleague has been receiving different responses to the following. I don't pretend to know! Any thoughts? Thanks.

Is it permissible to offer both an HSA and HRA to employees participating in an HSA eligible group health insurance plan?

For example; is it okay to have an HSA cover the first $1,300/$2,600 in deductible expenses and then have an HRA pick up some or all of the remaining deductible and/or co-insurance expenses?

Are there other options, say where the HRA pays the first $X in deductible expenses and the HSA could pick-up expenses after the HRA benefits have maxed out.

A Participant completed a beneficiary form naming his spouse as the primary beneficiary and his sister as the contingent. The participant gets a divorce but does not revise his beneficiary form. He then dies. Isn't the ex spouse still the beneficiary?

Is anyone aware of the corrections method for failing to provide forms 1099-R for 2014?  Income tax WAS  remitted, but Form 945 was not filed either.  Thanks.

I received a DRO from a state child support enforcement agency attempting to grab some death benefits from a plan that are payable to the participant's designated beneficiary.  Can a DRO attempting to assign benefits from a beneficiary (instead of a participant) be a QDRO?  Anyone dealt with this situation before? 

A Form 5558 for 2016 was filed mistakenly for a plan that had a 2013 final return completed. Will this cause a problem? The plan is terminated.

Bob is an owner of a sole prop with DB and PS plans and just invested in a 50% partnership of another practice.  No attribution, affiliated service, or any other relation.  Since this is not a controlling interest, the employees of the partnership do not need to be covered by the sole prop plan.  Further, if the partnership wanted a qualified plan, Bob could benefit from fresh 415(b) and (c) limits.  Seems like a nice fit and wanted to double check if anyone had any objections.

Further, I think Bob is ok to have separate plans until he owns 80% of the partnership. 

Cheers,

Dan

In order to receive a PS contribution:

An Employee must be employed with the Employer on the last day of the Plan Year.

So, if someone has a term date of 12/31, do they get an allocation.  I would say yes, because, generally, your term date is the last day you worked.  Therefore, a DOT of 12/31 means you worked on that day and, thus, you were employed on that day.

Your thoughts?

I have a plan whose eligibility is 6 months of service and age 21. Entry date is first of month following. An employee was hired 5/13/16. Left on 6/21/16 and came back on 10/6/16. The system is making him eligible as of 11/12/16 and entering on 12/1/16. He basically only worked 2  of the 6 months. FT Williams says this is correct.

Any thoughts?

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§ 1.401-1(b)(ii) permits a profit-sharing plan to have discretionary contributions, but requires that it have a "definite predetermined formula for allocating the contributions made to the plan among the participants."  My question is whether a profit-sharing/401(k) plan can provide for board discretion to determine after the close of the plan year, but before a contribution is made, to which groups of participants the contribution will be allocated.

Specifically, what we want to do is to specify in the plan that the board can decide to make discretionary contributions as follows:

1. No contribution at all.
2. Contribution to be allocated solely to the accounts of collectively bargained employees.
3. Contribution to be allocated to the accounts of all employees (including collectively bargained).

In any given year, the employer could elect to make contributions under 2 and 3.  However, the employer would not be permitted to elect to make a contribution solely to the accounts of employees who are not collectively bargained.

On the one hand, it could be argued that the formula is not predetermined, because the board's characterization of the contribution could result in its all being allocated to collectively bargained employees, or allocated to all employees.  On the other hand, this seems no more objectionable than having two plans (one for collectively bargained, one for everyone else), and having discretionary contributions to each.

For various reasons, we don't want to split the plan.  Does anyone have any thoughts about whether this is a problem within a single plan?

Working with a BCBS group health insurance contract that gives employers the chance to elect "Pre-65 Retirees (Before Eligible Retiree Coverage) as a special eligibility / coverage category in addition to the default coverage for active, full-time employees working 30 or more hours per week.  There is a box for checking yes or no but no real request for additional information or parameters.  Employer has in the past attached a simple addendum explaining their general early retiree health insurance benefits (not sure if BCBS has required / requested that they do that or simply what has happened in the past).  In any event, the employer's Pre-65 coverage is not spelled out under their retirement plan or other policies in any detail--i.e., it's just sort of loosely reflects how they have in the past decided to administer this coverage.  Included among this is a general understanding that coverage will not be provided to individuals who are eligible to elect early retiree pension benefits who are involuntarily terminated by the employer or quit to take another job and so are not truly "retiring."

Am wondering if this is common place or routine and, in particular, what sort of parameters, if any, BCBS places on Pre-65 Retiree eligibility?  BCBS is not being very forthcoming with how to think about their own contract / forms.  Thanks. 

Our ESOP administrator reinstates shares for those rehired participants that terminated employment with a 0% vested balance. There is no time limitation for reinstatement.

It was my understanding that if a participant terminated employment 0% vested the terminatino date was considered a distribution and the 5 year Break in service rule calculation would start.

Is there a limitation on reinstatement for 0% vested rehires?

The plan doc does provide language for partially vested balances reinstated within the 5 year break in service for those that return the vested shares. 

Does anyone have any experience with tax reporting on distributions from this type of Plan?

We can't decide whether the funds should be returned to the City and paid out as W-2 wages or if the Trust pays the Firefighter and reports this payment on a 1099-MISC.

Any help from someone with some experience in this area would be appreciated. Thanks

In mid-2015, we switched to a new TPA and therefore adopted new plan docs.  In the process, the wrong box (Pro-Rata Formula) was checked for our Employer Profit Sharing Contributions rather than the Integrated Formula that had always been used.  We actually calculated the 2015 proift sharing allocation using the integrated method.  This plan doc error was only discovered in the last week while researching another process error. 

I have a few questions about how to correct, but don't know what is allowed:

1. Can we make a retroactive plan amendment to correct the method and leave the 2015 calculation alone? (What provisions/regs apply to retroactive amendments?)

2. If not, I assume the only alternative is to go back and use the pro-rata approach for 2015?

3. If we execute an amendment immediately (January 2017), do we still have to follow the existing plan doc for the 2016 contribution that has not yet been calculated?

I don't know if it sets any precedent for administering according to the plan doc even when errors were discovered, but we corrected another similar error found in mid-2016 regarding last-day requirement for PS eligibility, and in that case we did make a contribution for the employee who left mid-year.

Thanks for your assistance.

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mike

Have a plan that did not auto enroll a few employees going back 3 years.  Am I crazy or is EPCRS silent on how to determine ADP in the case where the plan is tested separately for otherwise excludables?  Do I run one single test?  I guess that is the answer, but I can't find anything. Even the EOB seems to ignore this obviouis question...

Is a cafeteria plan responsible for the costs of changing HSA custodians or can it force the burden on the participants?

While the HSA accounts are opened and owned by the participants, the plan selects the designated financial institution where the employer contributions (including employee payroll deductions) are deposited. The plan has sole discretion in selecting this institution and any change to other institutions