Can the same process used to ID catch-up contributions for an ADP test also be used for 415 if the plan has a fiscal year and the limitation year is the same? I am being told that the TAG question below only applies to the ADP test and not 415.

Question:

Is it OK to have 2 calendar year catch ups within a 7/31 plan year and not exceed the Section 415 limitation?

This plan has a 7/31/2006 year end. One of the participants in this plan deferred $18,000 from August through December 2005, and $20,000 January through July 2006 (including catch up contributions), for a total of $38,000 during the 2005/2006 plan year.

The participant in my example would have within the plan year:

$29,000 employee deferrals
9,000 catch up deferrals
15,000 discretionary contribution
$53,000 TOTAL

Is this permissible?

Answer:

Yes. This is a bit counter-intuitive, but example 6 from the final 414(v) regulations makes this clear. Well, clear considering it came from IRS. In example 6 (below), Participant E makes $600 in (402(g)) catch-ups from 11/1/05 - 12/31/05, and $1,000 between 1/1/06 - 10/31/06. The full $1,600 in catch up contributed during the 11/1/05 - 10/31/06 plan year are subtracted from Participant E's deferral in determining the ADP for PYE 10/31/06, but only $1,000 counts towards the 2006 catch up limit.

Can an employer contribute lost earnigs on match contributions even if they match contributions were made be the end of the year but not on the payroll date?

I have a client that made late deferral deposits and as a benefit to the employees they want to contribute not only lost earnings on the late 401k deferrals but also on the match.

Is there any issue with this?

Did anyone notice the asap (14-23, 9/5) effectively saying that if we prepare more than 10 Forms 945, that we have to e-file them?

I'm on the committee, but couldn't make the call or review it carefully before publication, and I have an issue with it and am curious to get others' takes.

The asap is technically accurate, in that if we file for the clients, we have to e-file. But the next section of the cited reg says that if we prepare the return for the client to file, and get them to sign something saying it's ok, that we do not have to e-file. See below.

This is a big deal to someone like me; it's a several-month process to get approved, with fingerprinting and all sorts of BS involved. We're trying to get confirmation from the IRS about the alternative procedure but that isn't going far. Frankly it's right there in the regs and I see no doubt about the fact that we do not need to e-file. Any thoughts?

Related question - are folks paying as much attention to asaps since delivery is part of ASPPA Net? That's meant to be a neutral question but my asking it probably betrays my own opinion.

Ed Snyder

Our DB plan is less than 80% funded. We want to amend it to increase benefits. But we can't because of 436.

Can we just adopt a new plan to provide the additional benefits we want to provide? Or would the adoption of the new plan be combined with the old plan for purposes of 436?

An employer maintains two 401(k) plans, which each provide for plan loans payable only by automatic payroll deduction. An employee has changed status so he is an inactive participant in the plan that holds his contributions to date ("Inactive Plan") and an active participant in the other plan which has a very low balance ("Active Plan"). The employee wants to take a plan loan from the Inactive Plan, but due to payroll issues, the employer is not able to process automatic loan repayments to the Inactive Plan while processing salary deferrals to the Active Plan. Any ideas for how to handle when the employee seems to have a right to take a loan from a plan, but the employer cannot handle the administration of the loan? The plan allows for elective transfers between plans, but the employee may not want to make the transfer from one plan to the other.

Hi,

I have a single-member LLC, and this year I started a 401(k) profit sharing plan. For federal tax purposes, I'm treated as a sole proprietor and I file a Schedule C with Form 1040.

As a single-member LLC, I don't generate a W-2 for myself. So my question is: if I make 401(k) deferrals, do I need to report them to the IRS, and if so, how? For people receiving a W-2, 401(k) deferrals are reported in box 12.

Thank you very much!

http://www.napa-net.org/News/Browse-Topics/Inside-NAPA/Article/ArticleID/3389

Take a look at thus article. How in the heck would ERISA pre-emption NOT apply?

We have a client that remitted funds to the custodian on the 6th business day following pay date, the custodian received funds on the 7th business day, and the funds were allocated to participant accounts per investment election on the 8th business day.

DOL investigator is claiming the payroll deposit is late because the investment allocation/earnings in the participant account began after the 7th business day. Our argument is that the funds were segregated from the employer's general assets by the 7th business day, and therefore there is no prohibited transaction.

Is there a statutory basis for the DOL investigator's assertion that the deposit is late even though the funds were segregated timely from the employer's general assets? Thank you for any help!

The owner of a S-corp wants to make a $5000 contribution to his 401k plan on a pre-tax without it going through payroll. Is this possible? If so, how?

Safe harbor 401(k) has a YOS requirement, but the plan sponsor has been operating as immediate entry.

Per the plan document and SCP, a retroactive amendment will be drafted to correct the inclusion of the ineligible employees. The SCP procedure says that the amendment can only include the affected employees. The employer wants to keep the immediate entry permanently. Can the retroactive correction and the change to future entry requirements be done in the same amendment? Does the language "anyone hired on or after" a specific date, without specifically naming any employees, satisfy the SCP rules and adequately convey the change to the entry requirements going forward?

A professional with 4 employees wants to terminate the calendar year DB plan as of 12/31/2014. The professional's benefit say for the sake of argument yields a lump sum of $1.5 million after taking 415 into consideration. Plan assets would fall about $150,000 short. The professional wants to distribute benefits in the first 6 months of 2015 and while IRS D-Letter approval will be sought, the professional does not want to wait for approval to make distributions. On the other hand, the professional would want within reason to maximize the distribution.

I'm considering the following. Of course, distribute the employees their full benefits. Distribute the remaining assets (except say for $1 to keep the trust open) to the professional and the professional and spouse would execute a benefits waiver. We do not want to fund the plan 100% at this point to avoid the unanticipated possibility that the IRS may disagree with the lump sum calculation.

Once IRS approval is received, calculate the total lump sum at the new distribution date as the lesser of the lump sum at original distribution and lump sum at new distribution date using the then present age and interest rates. In this way, we ensure that the professional does not derive any unforeseen benefit from the delay. Note: the benefits waiver is still in effect. Have the professional fund the difference between the "lesser" just determined and the amount of original distribution, and then distribute this amount to the professional.

Since the waiver is in effect, the professional can contribute any amount up to 415 so the fact that the Plan does not provide for this mish mash should make no difference.

Any comments?

I know that the maximum dollar penalty on any size tax housegold for not having MEC for all months in 2014 is $295 (3 x $95)

I also know that the cap on the 1% of excess income side of the penalty calculation is the national average Bronze premium.

I know I saw it somewhere but now can't find what that maximum is.

Thanks

Participating employer ceased participation in safe harbor 401(k) earlier this year and wants to set up own 401(k) Plan mirroring all aspects of the prior plan. Would 401(k) Plan set up by now non-participating employer into which non-participating employer's employee/participants' assets will be transferred be considered a new plan or an amendment and restatement of the original 401(k) plan? Which way would be better --- consider it an amendment and restatement of the prior plan for purposes of the non-participating employer or consider it a new plan? Would seem practically speaking to be better to treat as amendment and restatement of the former participating employer's "portion" of the prior plan. Thanks for any guidance.

Should the controlling health plan be the wrap plan or the major medical plan that is wrapped into the wrap plan (along with other health plans such as vision and dental)?

One man plan with assets exceeding 250K, so 5500EZ is being filed. If the plan document does not allow for participant directed accounts, would investing in collecibles trigger distributions? For practical purposes this is the same as an individually directed account since the only individual participant is the trustee.

I am preparing a VFCP filing and this particular employer has a check date that is seven days after the payroll end date. For purposes of the both the 7 day safe harbor and lost earnings calculations should we use the check date as the starting point or the payroll end date? I'm pretty sure it is the check date based on §2510.3-102(a)(2) -- "...or the 7th business day following the day on which such amount would otherwise have been payable to the participant in cash."

I've filed several VFCP's apps before and always used check date. I have never been questioned on it, but as far as I can recall the check date has alwasy been within a day or two of the payroll end date. It has been awhile since I've seen this much time lag between payroll end and check date.

Thanks in advance for any guidance.

I have a plan that had deferrals taken from an ineligible compensation (overtime).

One correction under consideration is refunding the overages (plus investment experience). This would be considered an excess deferral. This happened in 2013.

If not an excess deferral, what correction is it then? It's either an excess deferral (as defined by the code or a plan limit) or what?

We were thinking of being aggressive going down the "ineligible participant" route, in that deferrals were taken from an ineligible source of income. This would allow us to forfeit the contributions and make the participants whole outside the plan and also avoid the onerous tax consequences.

Some people in my office just think we should correct moving forward, let the participants know what happened and move on.

I'd like to self-correct, as this plan has over 1,000 people and the cost of VCP is 15,000 just to submit. This affects 80 out of 1200-1300 active participants, and the amount in involved is miniscule compared to total deferrals.

Have you ever come across any restrictions using the same prototype document for a plan that is being spun off from a multiple employer? The spin off will have it's own plan obviously, but using the same prototype sponsor. These are 401(k)'s. Would you check with the document provider to ensure there are no issues?

This is a plan for a plan sponsor who has union employees, but they are an excluded class. There are several employees who were participants while they were non-union and now have moved to be in the union.

I'm fine with the plan not having to give them a top heavy minimum allocation now that they are not in an eligible class (and 416(i)(4) supports this - assuming that retirement benefits were collectively bargained). But are their balances included in the TH determination? They are still active employees, so I'm leaning towards "yes".

Thanks.