Is it permissible for an employer to allocate an employer non-elective contribution based on account balance rather than compensation?

Fairly common situation in small DC plans that I have not seen definitively addressed:

Two participants for 2015 Profit Sharing Plan:

Key Employee - salary $100,000

Non-Key - salary $20,000 and terminated employment in 2015 after getting 500 hours

Plan has a last day requirement on both the PS and TH contributions.

If the idea is to maximize the contribution for 2015 will it be:

A) $25,000 being 25% of the $100,000 salary for the Key Employee who would get it all

B) $30,000 being 25% of both salaries

If your answer is (B) then how much of that $30,000 would the Non-Key employee have to get?

Every day this week is a palindrome.

The following situation is of course purely hypothetical. In such hypothetical situation, the services of an actuary would be engaged, as would legal counsel if and as necessary. But in wandering through this exercise to educate myself, would appreciate any input from the DB experts. I could see this being a very difficult VCP filing just due to the potential volume of calculations/payouts that might need to be corrected.

In this hypothetical situation, suppose there is a Governmental plan (state level, not federal, if that matters), currently using volume submitter document. Going back an as yet undetermined number of years, (could be a lot of years) the plan document specified actuarial equivalence assumptions using a sex-distinct table, rather than a unisex table. (As many of you may know, I'm not a DB person, so I'm very hazy on this - is it possible that a table that appears to be sex-distinct to the non-actuarial mind, such as GA ’51 project age 65 (male) is in fact acceptable, whereas the 1951 GAM is not - or are these really the same thing just with different title)?

Also assume that regardless of the specified table, whether acceptable or not, all alternate benefit form calculations and payments have definitely been made on a sex-distinct rather than unisex basis. The plan never had an actuary review any of the calculations for alternate forms of payments - actuary only reviewed funding assumptions/contribution requirements.

First, am I correct that the fact it is a governmental plan doesn't matter, and that unisex rates are required for all alternate forms of payment? (I seem to recall that is what the Norris decision was all about)

Second, is there a choice amongst various acceptable actuarial equivalence rates/assumptions that may be allowed, or is there only one acceptable table/set of rates?

Assuming that there is more than one acceptable rate/assumption(s) allowed, is it permissible, if submitting through VCP, to select rates/assumptions that minimize the additional cost to the employer to correct?

Maybe there is no across the board answer to this one, but if sex-distinct rates were used, I'm under the impression that this would typically result in males getting a higher payout than females for the same accrued benefit at the same ages, due to the shorter life expectancy? But perhaps that isn't necessarily true in all situations? Also, is it possible that an allowable unisex table might produce higher payouts for ALL participants than a given sex-distinct table, but that the amount of the increase is just smaller for women than it is for men, or vice versa?

Any off the cuff thoughts/observations are appreciated. Please don't take a lot of time, as this is hypothetical, and if such a situation were ever encountered in real life, the services of an actuary would be engaged immediately. Thanks!

Client's old FA set up a calendar year non-SH 401(k) effective 4/1/2016 which excludes leased employees. Can it be converted to a SH-401(k) covering leased employees now? Client has leased employees that he is happy to include now that he knows he needs to in order to pass testing. Solutions much appreciated.

ok - I have the code section about stopping deferral contributions for 6 months after a hardship withdrawal (Reg. 1.401(k)-1(d)(3)(iv)(E)(2)).

A plan fails to stop contributions for one participant who has taken a hardship withdrawal.

Can I assume one correction would be to return those contributions to the participant?

Is there information for self-correction of this error? I went through the 401(k) Fix-It guide as well as the SCP info on the IRS site but could not find this situation. (The hardship related errors & corrections that I found were more for allowing hardships when not stated in the Plan.)

thank you in advance.

On the Form 5500-- I have a DC plan. What is the difference between Line 6(b) Retired or separated participants receiving benefits and Line 6© Other retired or separated participants entitled to future benefits?

Thank you in advance!

Has there been any recent discussions on the participant counts at the end of one year and the participant counts at the beginning of the next year for the Form 5500.

For example, calendar year, 12/31/2014 participant count of 10. 2014 Form 5500 shows 10 for participants on last day of plan year. Two new participants with entry dates of 01/01/2015. On the 2015 Form 5500, how many participants at the beginning of the plan year... 10 or 12. Way back, I recall using 10 so that the end of one year equals the beginning of the next. Our 5500 software does this. But I'm inclined to use 12.

Will using 12 instead of 10 for the 2015 Form 5500 cause any problems? Any recent experience?

Same issue for active participant counts.

Also, will impact plans that may go over 120 (assuming filing 5500-SF in prior year).

Thanks...

Hello Everyone, I am from India and working in the filed of 401 k plans from past 4 years. I am looking forward to pursue ASPPA certification RPF-1 & RPF-2 in 2016. Can someone please guide me how to apply for and also provide the latest study material regarding the same. Your help is really appreciated.

Regards,

Pankaj SWami

Can anyone offer suggestions on the best way to handle missed contributions? I have an employee who should have been enrolled in a 401(a) plan (non-ERISA) requiring an employee contribution and an employer match. Due to an administrative error, the employee was never enrolled and we have to make-up 3 years.

Can the adjustment be made currently or do we have to go back and retroactively amend tax forms?

Thanks.

I have a participant requesting a hardship. I just have a few questions. The plan in questions allows 1 loan at a time and allows for hardship distributions from Elective Deferrals for the 6 typical circumstances .

The participant has a loan and is now requesting a hardship. Typically we have all ours plans send in documentation for the hardship(over due mortgage bill, tuition bill, etc).

1. If the participant has a loan and is going to stop contributions for 6 months is documentations needed? I saw this language that states if its deemed necessary to satisfy an immediate and heavy financial need that 401k plans use this rule so they do not need to obtain proof of financial need.

But looking at the IRS website - I see that it states the plan sponsor is required to keep documentation of the hardship reason.

2. A participant is sending bills for medical services from 2014 and 2015 - can those invoices still be used or should the plan obtain updated invoices?

Thanks In advance for any comments. The documents discusses hardships but is silent on documentation of proof.

We all may know the DOL safe-harbor of 7 days for depositing 401k deferrals. I am trying to find specific language that states that this deadline refers to getting it into participant accounts (i.e. knowing the participant allocations) and not just sending a check to the custodian. Everything I read speaks about check timing, deposit, etc. I have no doubt that the spirit of the law is that participants must have it in their accounts but is there specific language? Thanks.

For an employee stock ownership plan (with employer securities that never traded and never will), the employer has stated the plan as an individually-designed plan. The employer is a Cycle A employer. In 2011, it applied for the IRS’s determination, which the IRS furnished in 2014. The 2014 determination states it was based on the 2010 Cumulative List.

As I read the 2015 Cumulative List, I see nothing that would call for adding, deleting, or changing any provision of this plan. Likewise, as I think about recent years’ changes in tax law, I can’t think of any that necessitates a change in this plan’s text.

Notice 2016–03 states: “Rev. Proc. 2007–44 will be modified to provide that expiration dates included in determination letters issued prior to January 4, 2016, are no longer operative. Future guidance will clarify the extent to which an employer may rely on a determination letter after a subsequent change in law or plan amendment.”

I am wondering whether it now makes sense to apply for a determination.

If (i) the determination the plan already holds does not expire, (ii) there has been no tax-law change that matters to this plan, and (iii) there has been no amendment of the plan since the most recent determination, what value (if any) could be obtained by seeking a determination now?

For whatever expense one might incur to obtain another determination, what value is provided?

(I’m not presuming a conclusion; I really want to know what BenefitsLink mavens think.)

We have a client that is looking to acquire an unrelated business to expand into a new market. They are going to fund the purchase as an asset sale, and hire the seller as an employee to transition the business, retain clients/contracts, etc.

Our client currently has a 401(k) safe harbor match with no profit sharing allocations.

Currently, the buyer and seller are not close in terms of the selling price (say $500,000).

The idea has been floated that when the seller is brought on as an employee, we count his prior service so he (and the other employees that come along) are eligible for the 401(k) plan immediately. In addition, we would then give the seller a profit sharing allocation up to the 415 limits assuming some performance metrics are met. This additional contribution would be used to reduce the current difference in sale price (the buyers would pay a little bit more overall, but would have a tax deductible expense, and the seller would have a deferral of income on the contribution).

So, for example, the compensation we pay the seller would be under the HCE limit (say $75,000), and he would get a $53,000 profit sharing allocation, with no other employees receiving a profit sharing allocation.

Since this is an asset sale, I don't believe that there would be a lookback year to determine HCE status, and since only NHCEs received a profit sharing allocation, there would be no minimum gateway or top heavy minimum issues.

Is there something I am completely missing, or would this work? Does anyone have experience with this sort of set up? The other idea that has been floated around has been a cash balance plan.

I have a client with a defined contribution 403(b) with deferrals and match, on a 2008 Ascensus 403(b) document provided through TIAA-CREF - considered a large plan and requires an audit. Qualified plans were required to restate their plan documents for PPA by April 30, 2016. Is there a similar restatement requirement for 403(b) plans? If so, what is the restatement deadline?

Hi, I have a plan that looks like it will fail 414(s), it excludes bonuses and one NHCE gets a bonus of about 43% of her compensation. ( comp is $20,000 and bonus is $15,000). HCEs are all owners and earn about $20,000. I am thinking that if I have a definition of compensation that excludes compensation in excess of $20,000 that will solve my problem. I read in 1.414(s)1(d)(2)(iii) that ... " a definition of Compensation is not unreasonable merely because it excludes all compensation in excess of a specified dollar amount" Am I missing something?

Thanks for any guidance you can offer....

We have a plan that calls for payment on change of control. It was recently changed from trigger based on change of control of a subsidiary to change of control of the parent. Is there any issue with this?

My understanding is that there is a choice between filing an SF electronically with the EFAST on a public wesite or an EZ on paper. We are a CPA firm. So, we file more than 250 forms per year.

But I don't like the idea of filing the form on a public website. Can I prepare the form 5500EZ and have the client mail the paper form to the IRS?