I have a plan that has a portion of their match as a QMAC. We typically "reverse borrow" a portion into the ADP test to improve the results. In the past we only "borrow" a portion that does not cause the ACP test to fail. Is this a requirement? Or can we borrow more then Shift back a portion of deferrals to allow the ACP portion to pass.

Hello Everybody,

I am a controller of a company who just acquired another larger company who has a Safe Harbor 401K plan. We, the acquirer, do not have a plan.

We are adding the parent company employees into the acquired 401K plan.

The plan is administered by a payroll company.

My concerns are:

1. The plan name is still named the subsidiary name 401k plan. The employees of the parent company are not employees of the acquired company. Shouldn't the plan name be changed to the parent company's name and it's EIN#?

2. Control groups and testing.

3. Board resolutions? Plan amendments needed?

Unfortunately, our management sees this as an afterthought and everything is left for me to figure out. I do not trust the payroll company 401K department to do this correctly. He just wants me to write a letter to change the plan name. Don't we need to amend the plan to add the parent company employees??

Thank you for your comments and knowledge on this!

I’ve got an interesting (and a bit confusing) question for everyone. Here’s the background.

1) I was on an EPO from Jan to Oct 2013 and on HDHP from Nov 2013 to Dec 2013.

2) I have an FSA for whole of 2013, with balance of $100 at end of 2013. As of now, I still have an outstanding bill for $150 for 2012 expenses which needs to be claimed. This should make my FSA balance 0.

3) The FSA has no grace period, but in 2014, the new rules permits FSA carry forward of $500.

4) The FSA became a limited FSA from Nov 2013 onwards despite the fact I have not contributed to a HSA. (but the HSA account was setup automatically)

5) From Jan 2014 onwards, I’ve started contributing to the HSA via payroll.

Q1) Can I utilize the last month rule to contribute the full $3250 to my HSA for 2013? From what I have read (extensively) I know I should be able to, but yet, contributing seems to contradict the rule that I can’t contribute to HSA if I have a FSA for the year.

Q2) If not, would I be able to use the last month rule once I've completed the FSA claims for 2013 and fully deplete my FSA to 0 today?

Q3) If I didn’t contribute to a HSA in 2013, will my FSA still be limited to dental and optical regardless?

Been puzzling me to no end... Any tax/IRS/HSA experts care to share your thoughts?

Hi,

the 403(b) Lifetime catch-up definition states "To qualify...plan participant must also have contributed an average of less than $5,000.00 a year to the plan."

Does this mean an average over their time of employment?

Does this mean an average over the length of their contributions?

Ex: Dave Smith began his employment in 1990. He has 24 years of service, so he qualifies. He has contributed $9,000 the past 6 years for a total of $54,000. Would he qualify for the lifetime catch-up?

Thanks

-John

After reviewing prior posts, it seems as if it is no surprise when a takeover plan document is unsigned. Has anyone come across a situation in which a company acquires another company (let’s call the other company, “Target”). Target has a signed 401(k) prototype plan. Prior to sponsoring the prototype plan, Target sponsored an individually designed plan, which was never signed. The prototype vendor used the unsigned document to create the prototype and never asked for anything more. Company wants to merge Target’s 401(k) plan into its own 401(k) plan but is concerned that Target’s prior unsigned individually designed document will taint its 401(k) plan. Should we simply ignore Target’s prior unsigned document, or is this a real concern that would justify a VCP filing?

The financial institutions are advising that they do not track deposits ( what I would call basis ) into Roth IRA accounts.

So does that mean that every person will need to track their basis in their Roths ?

If so - most people do not retain their old statements and therefore do not have this figure. One fund company told me recently that they do not even retain statements prior to 2000 any longer.

If the above comments are true then how does a 50 year old for example figure his basis when he cashes in his Roth IRA account ??

THanks

Participant has an In Roth Conversion account balance in his prior employer's plan. The participant has not attained age 59 1/2 nor has the 5 year period expired. The participant would like to transfer this roth balance to his current employer who also allows for roth contributions.

Is he allowed to transfer the funds directly from the prior plan to the current plan and not jepordize the roth account balance.

Thanks

A large doctors group carved out >100 employees who were sold to a hospital group. These employees continue to work in the same capacity for the doctors group, and the hospital pays the doctors group to manage them. The hospital group offers full benefits, including a 403b plan - we don't have knowledge yet of whether or not the hospital group matches deferrals at this point.

The doctors group has @ 80 remaining employees - all upper level management and doctors. They would like to max out the plan between Safe Harbor NEC and cross-tested profit sharing allocation (entity is a partnership).

If the hospital does not offer an employer contribution, will the doctors group have to fund safe harbor and profit sharing for the group that is being leased back?

A participant who had been deferring to a 401(k) plan elected to stop their deferrals in May of 2013. The participant was employed by two separate divisions within the organization and the plan sponsor correctly coded the payroll system for 1 of those divisions to stop the deferrals, but they failed to do so for the other division. As a result, whenever she was paid from 1 of the divisions from May of 2013 through current, she had deferrals withheld that should not have been. She did not work too much for this division and her deferral percentage was fairly low, so I am not surprised that she did not notice the withholding on her pay stub. All told the amount that was deferred but should not have been was less than $60 and the amount of match she received but should not have was less than $25.

Question is, what do we do to correct this error. Should we treat the deferrals made in error (plus associated earnings) as an excess amount and distribute it and forfeit the associated match (and earnings)?

So the EOB is pretty clear that where a W-2 employee has no comp, it is "probably" to aggressive to include as a zero in the ADP test (0 / 0 is either imaginary math or 100%, but probably not zero). It does not address a Schedule C though, which I think is a little bit different as the individual had no control over the outcome. Anyone have any thoughts about whether or not they would include as a zero in the ADP test?

We have a 401(k) plan with ER match, and the owner of the corporation, is already a participant. He has stopped working (no hours and no compensation reported) but is not officially terminated. How is he treated in the 410(b) test?

• Benefitting in 401(k) with 0% deferrals and non-benefitting in match (since he hasn't satisfied requirements, and there is nothing to match anyway); or
• Excludable - since he didn't work there during the year

I could also ask this as it applies to an employee who is on leave the entire year but has not officially terminated.

If the market value of the property in an escrow account falls below one hundred ten percent (110%) of the remaining restricted amount, the Employee must deposit additional property to bring the value of the property held by the depository up to one hundred twenty-five percent (125%) of the restricted amount.

Let's say the HCE does not have the wherewithal to fulfill the additional property obligation, what happens? So, if the remaining balance is returned to the Plan, must the participant select a new distribution option? Suppose the escrow value has severely depreciated?

Has anyone seen an HCE select the escrow arrangement and then default?

Employee is excluded for half the year as a class exclusion. Plan is top-heavy. Does the participant get the THM for the full year compensation, or just compensation while not an excluded employee.

Plan Administrator will correct a 2013 calendar year failed ADP test with a reverse allocation QNEC.

In calculating the QNEC, I allocated the lowest paid NHCE participant who was still employed on 12/31/2013 a 5% QNEC, Did the same 5% for the next lowest paid NHCE participant and the next until the plan would pass the ADP.

Plan document provides that the Administrator will limit the allocation of any Operational QNEC only to some or all NHCE participants who are ADP participants and must elect whether to allocate a) pro rata, b) in the same dollar amount, c) under reverse allocation method or d) under any other method provided that the QNEC is subject to targeting limitations and not conditioned on whether the participant made a deferral

Plan document further provides that under the reverse QNEC allocation method, Plan Administrator will allocate a QNEC first to the NHCE participant with the lowest comp for the plan year .... with any remaining amounts allocated to the next highest paid NHCE participant(s) ... and continuing in this manner until the Administrator has fully allocated the QNEC.

Plan Administrator now advises that while the first lowest paid participant was employed on 12/31/2013, he terminated employment shortly after 01/01/2014 and Plan Adminstrator does not want to allocate that participant a QNEC and has asked me to recalculate the QNEC for the next lowest paid NHCE participant.

In reading the plan document provisions, is it your opinion that we can skip one NHCE and choose the next in line?

OK a plan that we just acquired called me on Monday to tell me that 2 RMDs should have been done in 2013 and was not. Why didn't I catch this? This was a recent acquisition to our TPa firm, and we rec'd a copy of the 410b and ASC 401k report (asset data only, no census or plan specs). These 2 participants were not on the proposal data we rec'd since they no longer work there. It also turns out that they have died (not recently, in 2010 and 2011).

So we need to get these issued right away, but what else do we need to do to "correct?"

Apparently 4 of the siblings are the benes. These two were owners as some point in the past. I have done many RMDs since 1995, but I don't ever recall doing one for a bene, let alone 4. Do we calc the RMD on the dec'd's age then divvy it up, or on the age of the youngest bene? I am still waiting on a copy of each beneficiary form for the dec'd participants.

I forgot to ask this at the ERPA Workshop and APC that SunGard had here in Orlando this week (and I went to). So I am turning to y'all for help!

I am doing a review of our state tax withholding and related practices and was curious if anyone had any comments/information on the following:

1. The state tax withholding for Mississippi (MS) used to be mandatory on premature distributions at 5%? Now I am seeing some record keepers refer to this being optional. Does anyone know anything more about this that this may have changed?

1. As a preparer of a 1099-R is there anything that needs to be done to the state copy for states where the retirement distribution is not taxable or does the participant/tax preparer need to know this. For example, retirement distributions to participants of retirement age in Mississippi and Pennsylvania are not taxable. The employer source of distributions to residents of Hawaii are not taxable while employee contribution source of distributions are taxable. Is it correct to show as taxable and let the participant/tax preparer figure the nontaxable amount out?

1. I noticed some providers round state tax withholdings? Does anyone else do this? Do you round federal taxes too? I noticed some states require the withholding to be a round dollar amount. Rather than try and keep track of what states require rounding and when they change it seems best to just round all state withholdings.

1. A few providers also will not hold if the amount of state tax to withhold is less than $10. This makes sense especially if a smaller plan and the withholding is for a state that may not have any other withholding deposits that would need to be made. Does anyone else adopted this practice. Any ramification if do this?

1. By the way, the 1099-R coding for a qualified plan distribution of before tax funds rolled over directly to a Roth IRA (code G but put taxable amount in box 2a) is a bit confusing. I would think it would be best to come up with a new code. It used to be code G meant nontaxable. It seems like TurboTax and some other software programs at one time were treating as nontaxable too.

I have a Mulitple Employer 401(k) Plan - calendar year that uses the Prior Year Testing Method. For the Plan Year beginning 01/01/2013, there was a change in the stock ownership; and now the the non-Conrolled Group member is part of the Controlled Group.

For Plan Year 2013, I have calculated the weighted average for the ADP and ACP testing, for the two sub-groups. However, I am wondering if this would have the same "transition period" as the 401(b) coverage testing.

Any comments would be appreciated.

Employer has a group health plan, and pays 100% of the premium. No employee contribution at all.

Employer wants to establish a dental plan, voluntary participation, where employees would pay 100% of the dental insurance premium. Apparently, no coordination between benefits paid under the dental plan and any dental benefits that might be available under the health plan. But I don't KNOW that.

Eligibility for the dental plan would be if you are eligible for the health plan. Not eligible for health plan, not eligible for dental plan.

Is there any reason why the dental insurance can't be offered pre-tax through a cafeteria plan? Does that fact that eligibility is based upon eligibility for the health plan make any difference?

Trying to figure out the answer to this hypothetical and would appreciate people's insight.

Single individual owns 100% of a business that has been in existence for many years. Business has many full time employees, and does NOT have an existing retirement plan. Same individual starts up a new business in the form of a new C-corporation. Individual will be 100% owner of new business as well so it will be a controlled group upon the new entity's formation.

New C-corporation is going to establish and sponsor a new 401(k) plan and offer it to all employees of both businesses. The eligibility provisions of new 401(k) plan is 1 year/1000 hours (and no immediate participation or anything similar). The plan is drafted such that it does not specifically recognize service with any other employer.

What service/hire dates are used for the employees of existing business? Does the fact that plan doc does not have recognition from other business mean that you use date that the 2 entities became a controlled group as existing employee's hire date? And that is when the clock of the 1 year/1000 hours starts?

Or because they are a controlled group, they really are the 'same employer' and so use employee's original hire date (even though they were not a controlled group on the original hire date) and they likely become eligible on day one of the plan and you need to go back to through old payroll records and figure out hours from way back to determine eligibility and vesting as of the start of the plan?

Thanks -

Just fyi - had a random audit come up on a small plan - everything clean so no issues. The IRS did ask for GUST docs and subsequent amendments, even though it was an audit for 2012 Plan Year.

I have to grumble a little bit - I know they can ask for anything they want, but it just seems a little obnoxious to ask for documents going back 10 years prior to the audit year. Grumble, grumble.

Oh well...