Gilmore

Notice 2020-52 made it clear last year that safe harbor contributions for HCEs can be suspended mid-year without effecting the plan's safe harbor status (notice required), as contributions made for HCEs are not included in the definition of safe harbor contributions. Since safe harbor contributions are generally required for the entire plan year, would I be correct that a mid year amendment to include HCEs back in the safe harbor match would not be permitted? For example, HCEs are amended out of the safe harbor in 2020. 2021 the company begins to recover and would like to add the safe harbor back for the HCEs. NHCEs were never affected. Yes, it can be done, retroactive to the beginning of the plan year? Or, no way, need to wait until next year? Thanks very much.

Hey thanks CB, that was my question.

A 401(k) plan excludes some compensation for allocation purposes. 414(s) passes the ratio test, but ADP results, although failing using gross and net comp, are better using gross comp. Here is the question. Suppose a participant's gross comp is $40,000, and for extremes let's say allocation comp is $10,000. Let's say we give the participant a QNEC of 20% of allocation compensation, which is 5% of gross compensation. This the only ee getting a QNEC so the representative rate would be 0. If we are using gross compensation in the ADP test, are we allowed to use the full $2000 QNEC (as 5% of testing compensation) in the ADP test, or are we limited to 5% of allocation compensation, even though we are not using allocation compensation in the ADP test? Thanks very much.

We had two sets of 5558s sent out the same day in different packages on 7/29/2020. One set is getting the acceptance letter, the other the denial letter. We spoke with the IRS who requested we resend that batch with our proof of mailing. She said in some cases the 5558s got stamped with the day they were opened, and not the postmark of the mailing.

I know that there are multiple (I think three) different options when it comes to entry dates for otherwise excludable employees (not satisfying statutory entry requirements). My question is, can you choose a different entry date when testing coverage in different plan years, as long as you treat everyone the same in the individual plan year being tested? For example, let's say you normally use statutory entry dates when determining the otherwise excludable group. Then one plan year an HCE is in the otherwise excludable group and is messing up testing, but if we used, say the plan's actual entry dates to determine the otherwise excludable group, can we make that change for the plan year as long as everyone is treated in the same manner? Thanks very much.

I think what PensionPro is asking, if I may, is that while excluding bonuses may not pass 414(s), the Plan could still exclude bonuses from the compensation in which a deferral can be made, as long as the bonuses were added back to compensation for ADP testing. Testing compensation has to satisfy 414(s), but the compensation from which a deferral can be made in a non-safe harbor plan has to be "reasonable". So the question is, I think, what is considered reasonable? Or, maybe to put it better, what would be "unreasonable"?

Thank you for your time and knowledge.

Thank you F.E. Then assuming coverage passes in the aggregate, ADP/ACP, etc., would also have to pass together for those years, correct? Here's a separate, but similar question. Suppose instead of an acquisition, the owners of Company A create a separate Company B. Some A employees go to work for B, and there are also new hires at B. Since a controlled group is now created, does A's plan get the benefit of the transition rule, and not need to consider Company B employee for coverage until the end of the coverage transition period, or does this type of transaction not qualify for the coverage transition rule at all? Thank you very much.

Sorry, misspoke above. They were using the coverage transition through the 2019 plan year, not 2020. That's still not correct, I know, but for some reason I guess they thought the rule started with the adoption of the new plan in 2018. From what I'm also hearing is that each company had it's own service providers so each one may have been hearing different facts. That part I do not know. Thanks very much.

Company A sponsors a 401(k) plan and purchases unrelated Company B in 2017, forming a controlled group. In 2018 Company B adopts its own 401(k) plan. The entire time through 2020 the controlled group has been relying on the coverage transition rules. It seems to me that Company A would have reliance, but Company B should not have had reliance since the Plan started after the transaction and during the transition period. If that is correct, and assuming the two plans could not satisfy coverage separately, would the correction be to retest both plans together starting with the 2018 plan year? Thank you very much.

Does the TPA normally provide approval for distributions for this plan? Bird and Patricia are both right. The IRR needs to be permitted by the Plan, and there should be some procedure for processing, which might include the TPA if that's how other transactions are handled.

This might be helpful, at least with respect to where the 2% comes from. I remember this call.

That's what we are doing with our situation.

Thank you Lou. The prior service was my concern. Makes sense to make it clear in the document that the service is credited. Thank you.

Two doctors are partners in a medical practice with a 401(k) plan. The partners are the Drs' personal corporations. A third doctor with two employees joins the practice as a partner. The third doctor's personal corp is now the third partner in the ASG. The two employees have several years of service with the third doctor. The two employees are now employees of the medical practice owned by the 3 doctors. Is the service earned under the new doctor's personal corp automatically considered service under the medical practice 401(k) plan due to now being a related employer in the ASG? Or does the plan need to amend to permit the prior service? I'm hoping I explained that correctly, and thanks very much for any assistance.

We've been using PensionPal for many years. We're even smaller than BFlash so we don't need to do a lot of task assigning like Bill's organization probably does, but PP keeps us organized and on target with deadlines. We also use it for distribution and loan processing. Works well with Outlook. It's pretty easy to customize and support has always been accessible.

I was wondering if anyone would mind sharing their thoughts on how to handle CRDs with respect to top heavy determinations. I'm assuming that a CRD for an active employee would be considered as an in-service distribution for top heavy determination. If that is correct, what happens if the employee rolls the CRD back into the plan? Is the original distribution still considered an in-service distribution, and the rollover treated as an unrelated rollover? I wouldn't think you would treat it as both an inservice distribution and a related rollover. Or is the inservice distribution replaced by the rollover for top heavy determination? What if the employee took a $100,000 CRD. Without a rollover back to the plan I would think that would be an inservice distribution for 5 plan years. That is a static amount for a limited period of time. If instead the rollover replaces the inservice as a related rollover, that then becomes a fluctuating amount for an indefinite period of time. One step further, what if the employee only rolls $50,000 of the $100,000 back to the plan. Is there than a $50,000 inservice distribution for 5 years, and a $50,000 related rollover? Thanks very much.

I wonder if it's also possible the area was declared a disaster area by FEMA under the new safe harbor option. Also, coronavirus-related distributions are still available until 12/30 if the plan allows and the participant qualifies.

Can a participant request a loan today, 1st payment due 12/15/2020, suspend the loan payment under CARES until January, 2021, and also reamortize for essentially a six year loan? Thanks.

And note the changes on the 5500.

I think so, Bill. What if a plan year ends 6/30/2020. A catchup eligible participant is first eligible 7/1/2019. In 2019 they defer $25,000, so $6000 is catch for 2019 calendar year. They then defer $26,000 from 1/1/2020 to 6/30/2020, so $6500 is catchup for the 2020 tax year. In this case I think we would use $38,500 in the ADP test ($51,000 total deferred - $12,500 catchup). So wouldn't the $12,500 also not be applied to the 415 limit for the plan year ended 6/30/2020?

Thanks, BG. Yes, I've got deferrals tracked by calendar year and plan year going back to 2010. In the past the participant has spread the calendar year deferrals over the entire calendar year, so the overlap for the plan year did not exceed the 402g plus catchup amount in the plan year. This is the first year that the participant deferred the entire 402g limit in the short calendar year period that ends in the plan year. So the amount of the catchup to apply to the plan year exceeds the catchup limit for the calendar year. That's what threw me off. Thank you.

Thanks. If the participant defers $20,245 from 1/1/2019 to 10/31/2019, and defers $4,755 from 11/1/2019 to 12/31/2019, then I'm thinking $4755 is catchup for 2019 tax year. Which also means it is considered catchup for the plan year that starts 11/1/2019 and ends 10/31/2020. The participant defers $26,000 from 1/1/2020 to 10/31/2020. $6500 is catchup for the 2020 tax year. To me that would mean that of the total $30,755 deferred for the plan year ending 10/31/2020, $11,255 is catchup. So the total allocated for the plan year ending 10/31/2020, including the catchup, could be $68,255, since the $11,255 of catchup is not considered for 415. So, irrespective of the admin system issue, the total deferrals used for the plan year are $19,500, which leaves $37,500 available to allocate between safe harbor and profit sharing. Looking at it a different way, if this was an ADP tested plan, I'm thinking only $19,500 of deferrals would be used in the ADP test, since $4755 is catchup determined in 2019, and $6500 is catchup determined in 2020. I appreciate the suggestion regarding the admin system, but I'm more interested in hearing if I'm off base on the way I'm treating the catchup contributions. Thanks very much.

401(k) plan year ends 10/31/2020. Deferrals for the plan year: 11/1/2019 to 12/31/2019: $4755, all catchup for 2019 (total $25,000 deferred in calendar year 2019) 1/1/2020 to 10/31/2020: $26,000 So the total deferrals for the plan year ending 10/31/2020, $30,755. The plan makes a 3% safe harbor nonelective, so no ADP catchup to worry about. If the 3% safe harbor contribution is $4860, then I'm thinking I can allocate an additional $32,640 in profit sharing. That would be $19,500 in deferrals ($30,755 less $4755 in 2019 catchup and $6500 in 2020 catchup) plus $4860 safe harbor, plus $32,640 in profit sharing for a total 415 limit of $57,000. So the overall total contributed for the plan year ending 10/31/2020 would be $68,255. Basically the $57,000 415 limit, plus the combined $11,255 in catchup between the 2019 and 2020 catchup deferred during the plan year. Does that sound correct? My admin system is treating the $4755 in last year's catchup as a 402g excess and not permitting the full profit sharing allocation. Thanks very much.

Thanks guys. I've learned sometimes it best to ask what you think is obvious because it's easy to overlook something.