Gilmore

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.

So here is a scenario. Participant has suspended their loan under the CARES Act. Participant is still working, does not have a distribution option under the Plan (other than CRD). The participant has already informed their employer that they do not intend to start payroll deductions in January and want the loan to default as a deemed distribution, taxable with penalties for 2021. Also, the plan permits only 1 outstanding loan with no refinance option (other then the CARES Act reamortization in January), so the participant would be unable to take another loan until the pay off the deemed loan. Would the participant be better off taking a CRD and paying off the loan now. They could spread the tax out, eliminate the 10% penalty, and avoid the deemed loan scenario? Plus they could pay the CRD back over 3 years if they were so inclined? Thanks.

So a last minute client would like to set up a safe harbor 3% in order to make deferrals for 2020. If we set up a plan with a plan year end of 11/30/2021, when can it be amended to a calendar year plan. Can it be amended 3/1/2021 for a short plan year to 12/31/2021, thus providing for a 3 month initial plan year. Or does the first plan year need to run for 12 months before a short plan year can be created, meaning a short plan year starting 12/1/2021 and ending 12/31/2021, and the calendar year plan starting 1/1/2022? Thank you.

Here is a link to a discussion that I started a couple of years ago: The discussion moved into the question that was asked in this post, about revoking payment through salary deduction. My last question was, and I don't recall if it was ever answered, how do these rules work with the plan's inservice distribution rules? Is the ability to revoke your salary deducted loan payments and default on a loan a way to get around the plan's inservice distribution rules?

We have made VFCP submissions indicating the number of days the employer typically uses to segregate the contributions, but added that the actual payroll date was used in the calculations, and have not had any negative comments from the DOL.

So Luke, you would be leery of this type of set up?

I am curious to see what opinions there are on the following scenario. A 401(k) plan uses a 3% non-elective safe harbor, that is limited to non-Highly Compensated Employees. The employer wants to allocate the safe harbor with each payroll. They realize it goes to everyone, and is not a match. They may, and likely will, also make a profit sharing contribution, allocated at year end. Does anyone see a problem with the the NHCEs receiving their 3% throughout the year, and the HCE receiving their profit sharing at a different time? Worst case scenario (I think), the 3% SH is allocated all year in a terrible market year, and at the end of the year the 3% SH that was allocated is now something less then 3%. The year ends and the when the market is at it's lowest the Owners (only HCEs) decide to make a 3% profit sharing contribution for themselves, or maybe even 9% if it passes testing. I like the idea of not having the HCEs receive the non-elective safe harbor, but I'm not sure I'm comfortable with the different allocation timing. Thanks for any opinions.

Perfect Luke, thank you.