This has to be pretty common - the harried HR manager puts the deferral amount on the wrong line of the template on the product platform's website so that Particpant A doesn't get his $50, but Participant B does.  We find it months later when we do our annual reconciliation because neither A nor B read their quarterly statements (or any of the gazillion notices, but that's for another day).

Is this a "lost earnings" situation?  On the one hand, Participant A did not have the access to his deferrals, so he was denied use of the money.  On the other hand, the Trust was not shorted anything, and the employer did not have use of the funds.  What takes precendence?  I'm trying to get some outside opinions because I find that people in my office are doing it both ways, and they are passionately defending their side.

Just as importantly - how would you correct it?  Transfer the overage from B to A?  Have the plan sponsor drop in an additional amount for A and short B's next deposit?  Have you had one method work consistently better?

Thanks.

HI I am working on closing a 401(K) plan as two companies merge and move to a single plan.

In the plan that is closing there are two life insurance policies owned by the plan on one of the employees.  The employee, who is retired, wants to take the cash surrender value of the insurance and receive it and then invest with his financial advisor.

Who pays the taxes on the insurance policies as they are distributed - the insured (Retired Employee) or the plan who owns the policy but is liquidating it and sending to the employee.

I am writing a plan with effective date 1/1/2017, but a deferral effective date of 4/1/17 so I can implement an EACA.  Eligibility is currently 21/1 with plan entry dates of 1/1 and 7/1.  Do I have to do anything to make those who would have entered on 1/1 actually active on 4/1?  (Because 1/1/17 there were no deferrals allowed.  Absent any specific language, would those eligible on 1/1 be able to make deferrals on 4/1, or would they have to wait until 7/1?)

My husband passed away and I don't know who the beneficary is...it's not me and not his son!

If a company wants to convert from an S to a C so that the owner/seller can make a 1042 election, will the owner have to then wait three years to meet that holding requirement of 1042? Or does their ownership of the S stock (assuming for three years) tack over?

I could have sworn that the ownership "tacks" but I can't find much support out there. If anyone has some support, I would appreciate it.

Thanks!

Another oddball. Dr. has a practice. A clinic purchases his practice, and hires him or her as an employee. Clinic pays the Dr. large quarterly payments for a year, based on large revenue from Dr.'s former clients. Apparently, this is "run through" payroll, but I have no details of what that means yet.

First, it seems odd that these would go through payroll under any circumstances - seems like they would normally have been 1099 payments to the prior entity. But what I think doesn't matter. Since being "run through" payroll, and plan defines compensation as W-2 wages, wouldn't these be considered for purposes of employer contributions?

So, suppose someone has a split dollar insurance arrangement with their employer. Reaches normal retirement age, and is eligible to have the life insurance policy distributed.

Is this treated as "wages" for purposes of contributions to a qualified plan? While distributions from non-qualified deferred compensation plans are generally considered includible for W-2 purposes, if it is a distribution of a life insurance policy, I don't see how any withholding could be done from payroll. I suppose it could count for purposes of an employer PS or SH non-elective.

Anyone dealt with this before?

P.S. - if instead, the policy is surrendered and the cash value, or a portion thereof, is distributed to the employee instead of the policy, then I assume it would be treated as wages.

But in either scenario above, if the only way the employee can receive the benefit (policy or cash) is to terminate employment, then this would be ineligible "post severance" compensation, and not included for plan purposes?

I am looking for some guidance on how to address the calculation of earnings on a QNEC, specifically how to handle the calculation of earnings for the lag time between the funding of the QNEC and when it actually hits a participant's account.  I am being told by the record keeper that there may be as much as a 3-5 day lag between the time the employer's bank account is debited for the QNEC (plus earnings thru that date) and when it actually is deposited in the participant accounts.  They propose calculating earnings up to the day the money leaves the employer's account.  I read EPCRS to require earnings up to the date the "contribution is made" to the participant account.  For some reason they are balking at carrying the earnings calculation forward to account for this possible lag time.  It would be helpful to provide them with some official guidance, etc. addressing this.  Any help would be appreciated!

Client wants to use the following formula for allocating the match to participants.

0-2 Years of Service - 0% match

3 or more Years of Service - 100% match up to 5% deferrals.

Eligibility conditions for match are 1 YOS (1000 hours) semi-annual entry dates.

I know that eligibility and allocation are not the same thing, but is this allocation formula an allowable one?  In essence they are keeping a participant out of the match for an additional 2  years.

Participant dies with no beneficiary form on file. The document establishes payment of benefit to:

1. Spouse (no spouse in this case) 2. per stirpes (4 children) 3. surviving parents 4. estate

An attorney for the estate is trying to tell the plan sponsor they must distribute benefits directly to the estate due to the estate documents. My response is "no" we must follow the plan document. Is there an instance where the attorney could do something to override the form of payment in the plan document? 

One thought is all four children and parents disclaim their benefits under IRC 2518. The funds then are paid to the estate.

Thank you

Participant passes away and does not cash a few months of pension checks received before his death.  He was receiving a single life annuity.  Under the terms of the plan, the amount of the un-cashed checks is payable to the participant's beneficiary in a single, lump sum.  Is this one-time payment part of a series of periodic payments not eligible to be rolled over?  Or, could it be characterized as a non-periodic payment because it is being paid in a lump sum?  Not sure how to handle this.

Am I crazy, or will a Schedule C Taxpayer pay less in Medicare Taxes than a corporation?

$200,000 of profits bonused to a W-2 owner = payroll taxes of: 10,100.54

Gross: 200,000

SS Tax: (7,347) (118,500 x 6.2%)

MC Tax: (2,753.54)*

*200,000 - 7,347 - 2,753.54 = 189,899.46

189,899.46 x .0145 = 2,753.54 (circular calc)

A Schedule C pays Medicare Taxes of 2,678.15 ($200,000 x .9235 x .0145)

Correct??  I guess the IRS's point is don't overcomplicate for such a small disparity?

Suppose you have a client that has a few leased employees and you determined that they are substantially full time, at the direction of the recipient etc. In other words they will need to be covered under the employers (recipients) plan.

If the plan sponsor pays $50k per year to the leasing company, it is likely the employee only earns about $40k per year. How does the employer report this to the administrator? Do they need to obtain something from the leasing company showing the real wages of the leased employee (maybe a W-2)?

Thanks.

An employee is turning age 65 this summer and considering retirement. Our plan is frozen.  He says he'll choose a lump sum as his payment option. Now he sees something in the newspapers that his lump sum may be higher if he continues working into early 2018 and has asked me how much higher his lump sum will be. As a rough percentage what is the increase likely to be? The plan's actuary has told me what the 2017 lump sum will be but says he isn't ready to do 2018 calculations yet.  

If I wanted to read something in layman's language on this topic please direct me there.

I have read online that 401K plans can adopt provisions to enable after-tax contributions *beyond* the $18K/$24K limits of contribution into a Roth 401K.   Such a provision would enable an employee to contribute the amount to bring the total 401K annual contribution up to $53K/year.    Can anyone refer me to pages that describe these plan provisions in more detail?

Some gateway issues that I would appreciate feedback (and hopefully confirmation) on.

Easiest to put it in example form:

Two participants for 2016 in 401(k) plan with safe-harbor and new comparability profit sharing allocation.
HCE - age 60 - $265,000 salary, $24,000 401(k)
NHCE - age 30 - $50,000 salary, $5,000 401(k)

A) If the safe-harbor were the match and the HCE got $10,600 as SH and $24,400 PS to get to $59,000 maximum would the NHCE need to get $2,000 SH and $1,535 PS based on the gateway being 1/3 of 9.208% ($24,400/$265,000)?

B) If the safe-harbor were the non-discretionary 3% and the HCE got $7,950 as SH and $27,050 as PS to get to the $59,000 maximum would the NHCE need to get $1,500 SH and $701 PS based on the gateway being 1/3 of 13.208% ($35,000/$265,000) and the non-discretionary 3% SH considered as part of that minimum gateway for the NHCE?

C) If the NHCE above terminated employment during 2016 with over 500 hours would their PS allocation change under A or B above?

D) What if the NHCE terminated employment during 2016 with under 500 hours?
 

We just received W-2s for one of our plans.

The W-2 lists 401(k) contribution as well as Roth, the total of the 2 is over $18K.

The plan allows for participant voluntary contributions and the accountant is willing to redo the W-2s.

Any problems?

POP Plan, New employee elected to have his share of premiums withheld from his pay. Health coverage was provided, but payroll service never informed of the election, so no 125 Plan withholdings from pay. Error discovered several months later, after the end of the year.

What would most do in this case? Try to recover the missed amounts over the remainder of the current year on pre-tax basis; recover over the remainder of the year on after-tax basis, or the employer just absorbs the cost? Or something else?

How do you interpret 1.409A-1(h)(2)(ii)? Does it require that a distribution from a 409A plan to an independent contractor be delayed for 12 months from the date of the expiration of the contract(s)?

Plan wants to offer auto-enrollment.  Can I have a basic SH match with it, or does it have to satisfy the QACA match?