MWeddell

The bonus might be viewed as covering the prior year, which is a different pay period than the usual semi-monthly or bi-weekly or weekly base pay covers. Again, I don't favor that argument but I wouldn't say that it's just flat out wrong. If the employer believes it was right to have taken the $500 from the bonus and has done so for past years, then one might be open to that argument.

I think Mike Preston gave the best answers already, but I'm open to the idea that it wouldn't be arbitrary and capricious to interpret the plan has requiring the $500 to be taken from the bonus amount too if that's what ends up happening.

Larry, the definition of "Excess Allocation" is immediately after the "Excess Amount" definition you quoted. It's on page 21 of Rev. Proc. 2019-19: (b) Excess Allocation. The term "Excess Allocation" means an Excess Amount for which the Code or regulations do not provide any corrective mechanism. Excess Allocations include Excess Amounts as defined in section 5.01(3)(a) (i), (ii), (v), and (vi) (except with respect to § 401(m) or 411(a)(3)(G) violations). Excess Allocations must be corrected in accordance with section 6.06(2).

It should be the employer's decision. Surely the recordkeeper doesn't claim to have the authority to decide when and to whom distributions should be made. The corrective methods under the EPCRS usually are not mandatory but are safe harbor methods of correction. In other words, if one follows the corrective methods, one knows for certain that they suffice, but other reasonable correction methods are possible. It strikes me as reasonable to conclude that when the only employee affected doesn't care about the correction and there is enough time left in the plan year for he or she to take actions to reverse the impact of the operational failure that doing nothing would be reasonable. There's a problem though. For this particular error, it is not clear whether the EPCRS's correction method is merely a safe harbor suggested correction or a mandatory one. Rev. Proc. 2019-19, Section 6.06(2) (correction of excess allocations) starts with the phrase "in general" which implies that other correction methods are available but it also includes this sentence -- "Excess Allocations that are attributable to elective deferrals or after-tax employee contributions (adjusted for Earnings) must be distributed to the participant." I would prefer that the client's legal counsel interpret that but if it were me I would say that it is not mandatory, that read in context of the first sentence of the paragraph that it is still the "in general" correction method but not the only one. Your interpretation may differ.

Agreed that participants who are eligible for the match even though they are contributing 3% or less still count as benefitting for the 410(b) test, eligible employees in the ACP test, and benefitting for the current availability BRF test. There is some concern that this type of match formula could have problems with the effective availability portion of the BRF testing.

These message boards are frequented by employee benefits professionals throughout the US. You are unlikely to obtain a response here from someone who claims to be familiar with California employment laws and regulations.

Well, you are setting up a separate plan and one plan has intended to be a 401(k) / 401(m) safe harbor plan and the other plan's employer contribution is discretionary. It sure sounds like you intend for the two plans to be tested separately. If tested separately for ADP / ACP tests (such as one is a safe harbor plan and the other is subject to ADP / ACP testing), then they have to be tested separately for 410(b) coverage testing and other testing purposes. I admit that the facts of your situation are not entirely clear to me given that you mention 403(b) in your first post.

It sounds like for other legal purposes, the employer is treating A as a current employee still. It is typically up to the employer or plan administrator to interpret the plan document, but it seems to me there is some danger that the employer's interpretation is arbitrary and capricious if the employer says that A is terminated for qualified plan purposes but not for state employment law purposes. Also, check the plan document. Occasionally they have definitions of what constitutes a termination of employment. Tell the client that it's not a big deal to notify A of the retirement plan. If A earns no compensation from this point going forward, there will be no cost. As far as what must be provided, the SPD must be distributed within 90 days after July 1, 2020. When the enrollment kit must be distributed isn't regulated as tightly, but I wouldn't treat A any differently (assuming the employer concludes that he is an employee still).

The amendment excluding employees to be leased out to other companies from the current plan can't be made in the middle of a plan year. Make sure the client understands that passing coverage testing assumes that the employee leasing business doesn't become too large as a % of the company. Will the cost / administrative burden of having two plans be less than the projected cost of contributions if the employees to be leased remained eligible for the 4% safe harbor match? Other than that, everything sounds fine.

This is a matter of interpreting the plan document, which is not a type of question easily handled on these messages boards. Larry is correct that there should have been a "everyone else" allocation group.

I agree with Kevin C. You need to remember that permitted disparity is the lesser of two times or the base + 5.40% in your case. You need to do some basic algebra. You also need to make sure that your understanding of what is in the plan document is accurate. Let x be the allocation rate. x times $106321 + 2x times $173679 = $18600. Solve for x. x = $18600 / ($106321 + 2 times $173679) = 4.09981506748163%. If x > 5.40%, the maximum excess percentage, then you need to change the first equation to x times $106321 + (x + 5.40%) times $173679 = $18600 and solve for x a second time. To give you something to check against, your second employee should be allocated $12,040.28. That assumes that I didn't err.

If it is split into two plans, then Company A's plan will need to be amended to provide that Company B's employees may no longer have contributions made to it. If it's a midyear change, that'll wreck Company A's plan safe harbor status. Can only be allowed if the participant notice contained the magic language or the plan sponsor was operating at an economic loss. In short, I'm less optimistic than Luke seems to be that you can preserve the safe harbor status for either company.

A mid-year change to make some employees cease to be eligible for a 401(k) safe harbor plan (because they are now eligible for a spin-off plan) is prohibited by Notice 2016-16, Section III.D.2. In other words, I don't believe that Bill Presson's latest idea works.

We know that it does not disrupt the top-heavy exclusion. In Revenue Ruling 2004-13, Situation 4, the IRS said that a plan that doesn't give the safe harbor matching contribution to those with less than a year of service but lets them contribute to the plan would not meet the exclusion, but it didn't seem to have a problem with allocating the same match to HCEs. I do think your argument has some merit, that my position seems to be inconsistent with the top-heavy exclusion for safe harbor plans. However, the place to look for how "safe harbor contribution" is defined in Notice 2016-16 is Treas. Reg. Section 1.401(k)-3 because that is what that Notice is interpreting.

We won't agree 100% of the time. At least we've laid out the opposing arguments so that other readers can decide. Of course, I'm not trying to make a "creative interpretation," just trying to make a correct interpretation. Those of us who aren't practicing law also should suggest that the employer review the issue with their legal counsel.

Who has the power to amend the plan document? That entity can decide whether to revoke the safe harbor status. However, there are restrictions on doing that. The participant safe harbor notice must have the magic language or the employer must be operating at an economic loss.

You could merge the 401(k) plan into the 401(a) plan however.

1. I understand that a 401(k) plan feels similar to a 403(b) plan because they are both tax-deferred retirement savings plans. However, they are subject to different sections of the tax code that don't always communicate well with each other You cannot merge a 401(k) plan into a 403(b) plan. Doesn't matter whether it is a safe harbor 401(k) plan. Doesn't matter whether it is mid-year or as of a plan year end. 2. Yes, it will lose its safe harbor status. Furthermore, it is not permitted unless the participant safe harbor notice contained the magic language or the employer is operating at an economic loss. Consider postponing the change until the plan year ends. It is permitted to have employees of a not-for-profit entity contribute to a 401(k) plan. 3. Can't merge the 401(k) plan into a 403(b) plan.

Note that a plan sponsor may choose to be more restrictive than what is permitted by law. You will want to ask for the rules applicable to your plan. Typically, there is a call center run by a third party administrator that should be equipped to answer your question if the plan sponsor has made its decisions.

IRS Notice 2016-16 fulfills this requirement. - Section III.B(iii) does not apply because the contributions to HCEs are not safe harbor contributions, although one has to look up several cross-references in the regulations to verify this. - The conditions listed in Section III.C apply because this is a change in contributions (other than the safe harbor contributions) and that's one of the items that is required to be in a participant safe harbor notice.

Well, one can't cut back on a protected benefit. So I am only suggesting that contributions to HCEs could be reduced prospectively. The safe harbor participant notice's required contents includes a description of other contributions and the conditions under which they are made, so one would first have to distribute a supplemental participant notice at least 30 days before the effective date of the change. In short, there are restrictions, but one can do it without losing the safe harbor status for the plan year.

You are not allowed to permissively aggregate 401(k) and 401(m) arrangements that have different testing methods, e.g. one plan is 401(k) / 401(m) safe harbor and the other uses ADP / ACP testing. If Comp A and Comp B are indeed members of the same controlled group, then the client is looking at years of corrective contributions to fix the coverage testing problem and a VCP filing.

For larger plans, requiring a year of service before one is eligible for the safe harbor match works fine. Top-heavy testing, although legally still binding, is seldom a concern for large plans. Having a 5% owner-employee also is seldom a concern for larger plans. One must still check annually whether there is an HCE in the otherwise excludable employee group. Don't get too cute with stretching the one year of service eligibility too far by also including an entry date requirement, which can cause HCEs to slip into the otherwise excludable employee group.

I looked into this a couple weeks ago thoroughly and came to Luke's conclusion. If one tracks the cross-references from Notice 2016-16 to the 401(k) regulations, I found that "safe harbor contributions" are the contributions required for the NHCEs and that contributions made to the HCEs (even though the plan document and the SPD might call them safe harbor contributions) are not safe harbor contributions. Therefore, the barrier against a mid-year reduction or suspension in contributions doesn't apply to the HCEs. One still has to provide a supplemental participant safe harbor notice 30 days or more before the effective date that the contributions to HCEs are reduced.

It seems like the trouble starts when a plan document calls for match to be computed over the entire plan year but match is deposited and credited to participants' accounts before the plan year ended. Try to avoid that situation. I realize it's too late for 2020.