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...

Companies A & B are part of a control group. They have been operating their individual 401(k) plans separately for years and have never done any combined testing, etc.

Company A passes all of its tests regularly. Company B's HCE's are getting refunds and failing the ADP test. Both A & B are passing the minimum coverage test.

1) Are both A& B required to perform combined testing or can they continue to operate as they have been, completely separate with different record keepers, etc...

2) If both A&B are required to perform combined testing, and they pass the tests, can they then operate and test as separate individual plans as they were? If so, which tests must they pass in order to do so?

3) Where do I find this information in the regs?

I have a calendar year plan that terminated as of 12/31/2013. We will be filing the 2013 Form 5500 in the near future. The plan will be distributing all assets in February. So the filing deadline is 09/30/2014 without extensions. Has anyone heard if we cannot use the 2013 Form 5500 with dates 01/01/2014 - 02/28/2014. We've done this in prior years (used the proir year form for the current short plan year) when necessary. Thanks...

Have a one man 401k Profit sharing Plan (cross-tested) and the participant's compensation is say $51,000. The owner did not make any 401k deferrals in 2013, and wants to make the full 415 employer contribution of $51,000 for 2013. Obviously, this $51,000 contribution is greater than the 25% deduction limit of $12,750. Other than only being able to deduct only the first $12,750, is there any IRS penalty on the non-deductible portion of the employer contribution, the $38,250. Also, is there any special IRS tax form reporting of the non-deductible employer contribution, such as a Form 5530?

Am hoping someone may have some prior experience with this or may be able to recommend guidance on point.

Employer is a tax-exempt charitable entity that sponsors 457 plans. The entity is in the process of establishing a new, wholly-owned LLC that is neither charitable or tax-exempt and is intended to function as a for-profit entity. (Eventually, a significant percentage of the the LLC will be owned by others (including those providing services to the LLC) but the charity will continue to own / control 80%+ of the LLC foreseeable future.)

Given its status / classification, it would seem that the LLC is not eligible to generally establish a 457 plan on its own nor participate in the existing 457 plans of the charitable parent, etc. The LLC could presumably establish its own deferred compensation plan subject to 409A but not 457 and may consider doing that in the future. For now, however, it is taking time to get the LLC off the ground and its own infrastructure in place, etc. During this start-up / transition period, the charity intends to "lease" its existing employees (some of whom participate in the 457 plans) to the LLC in order to have them focus solely on LLC-related activities. The Plan is for a number of these individuals to eventually be terminated by the charity and hired directly by the LLC and become LLC employees but that is likely a few months away.

Question is whether the individuals can continue to participate in the 457 plans (and 403(b) too I think) during this interim period where they technically remain employees of the charity but are being formally leased to the LLC and focusing just on LLC work. As a technical matter, the charity will remain their employer for general payroll, tax, reporting purposes and be in control of their work but their services will all essentially be for the benefit of this new for-profit subsidiary.

Welcome any thoughts or advice anyone may have on this issue.

Am hoping someone may have some prior experience with this or may be able to recommend guidance on point.

Employer is a tax-exempt charitable entity that sponsors 457 plans. The entity is in the process of establishing a new, wholly-owned LLC that is neither charitable or tax-exempt and is intended to function as a for-profit entity. (Eventually, a significant percentage of the the LLC will be owned by others (including those providing services to the LLC) but the charity will continue to own / control 80%+ of the LLC foreseeable future.)

Given its status / classification, it would seem that the LLC is not eligible to generally establish a 457 plan on its own nor participate in the existing 457 plans of the charitable parent, etc. The LLC could presumably establish its own deferred compensation plan subject to 409A but not 457 and may consider doing that in the future. For now, however, it is taking time to get the LLC off the ground and its own infrastructure in place, etc. During this start-up / transition period, the charity intends to "lease" its existing employees (some of whom participate in the 457 plans) to the LLC in order to have them focus solely on LLC-related activities. The Plan is for a number of these individuals to eventually be terminated by the charity and hired directly by the LLC and become LLC employees but that is likely a few months away.

Question is whether the individuals can continue to participate in the 457 plans (and 403(b) too I think) during this interim period where they technically remain employees of the charity but are being formally leased to the LLC and focusing just on LLC work. As a technical matter, the charity will remain their employer for general payroll, tax, reporting purposes and be in control of their work but their services will all essentially be for the benefit of this new for-profit subsidiary.

Welcome any thoughts or advice anyone may have on this issue.

employer gives a stock grant subject to a vesting schedule. my understanding is in order to exclude this item from 415 compensation you would have to use the comp ratio test. there is an exception for income subject to 83(b) election. can anyone tell me more about this?

CPA firm bought a building with plan assets. They now need to replenish the cash in the plan and want to borrow money from a local bank and use the building as collateral. They pushed back when I told the Banker it was not possible.

Honestly I'm too lazy to look up the citations today so I am hoping someone can point me to a cite to provide them.

Thanks ahead of time for your help.

We just became tpa for Co. A's plan. Co. A is an S Corp.

Person A is a 3% owner on 01/01/2013. On 09/01/2013 Person A becomes a 6% owner. The 2013 K-1 will show pro-rated ownership of 4.25% (or something right about there.)

Prior tpa forwarded us the 2013 ADP/ACP test which has Person A as an NHCE. I spoke with plan sponsor about it. They are hoping to avoid refunds and want to assert that Person A is an NHCE for 2013 because the pro-rated ownership on the K-1 is less than 5%. Does anyone see any validiity to that assertion?

I don't see it. It is my understanding that if an employee is a more than 5% owner at any point during the current plan that employee is considered an hce. I thought it would be worth a stab in the dark though to try to find a valid argument supporting the plan sponsor's "hoped for" result.

Thanks in advance for any guidance.