Gilmore

Our document allows for a "Special Participation Date", that provides for immediate participation for anyone that is employed, or technically an "Eligible Employee" on that date. There is also a provision for limitations, such as keeping the age requirement, for example. I was just thinking that if there was a date in time that brought in the employees you wanted to bring in even though they did not meet the actual entry requirements, if your document also has such provisions that might work. Of course that may bring in more employees than intended depending on what date you choose and how many new employees are also employed on that date.

Would an open enrollment date bring in more employees than they would like?

Per the client, when a participant exercises their stock option the taxable spread is included in their compensation on that day, just as you had stated Luke. What the HR manager has to do is calculate the payroll tax associated with the compensation and the participant writes a check to the company for the payroll tax, and the company forwards the tax payment on behalf of the participant. So let's say this happens on a normal payday, and the normal pay would have been $1000, but is now increased by the $20,000 compensation from the stock option. If the participant's deferral election was 10%, again assuming compensation is defined as W-2 compensation, would the deferral then be $2100, and the participant would need to send that in as cash as well? Or are the deferrals assumed to be made strictly from the cash portion of the compensation? Thanks.

Got it, ok makes sense Luke. Thanks. They are currently using W-2 comp. From the limited information that I received it sounds like perhaps this participant received compensation in the manner that you describe, and since it was their first experience with this scenario, the deferral election was not applied. This may be a knee-jerk reaction then to the error. I really appreciate your help.

Thank you Former Esq and Luke. The company was a privately held company that just went public. I guess they now have some employees exercising stock options. The client said they would prefer not to have the participants be able to defer from the compensation arising from exercising the stock options. I'm not sure what they meant by that, as I did not think this was compensation from which a deferral could be made? For example, when the compensation is recognized, does it appear as part of their payroll? So would it be subject to a deferral election? I intend to advise the client that they review with their attorney, but appreciate the additional knowledge you have both provided.

I had a couple of question regarding nonstatutory stock options. A nonstatutory stock option is includable income in the year granted if it is includable in the employees taxable income. But what exactly are the circumstances that would cause the option grant to be includable or not includable in income, and how is that income generally reported. I know that it would be on the employee's W-2 at the end of the year, but is it reported as part of their paycheck, for example, when the option is granted? So if they had a deferral election for a 401(k), the compensation related to the grant would be included in that deferral election, unless the compensation was excluded? If a plan were to switch from using the W-2 compensation definition to a definition that excludes stock options, would the safe harbor 415 compensation be the better option, since that excludes not only compensation from exercising an option, but also when an option is granted? Thank you very much.

Sorry to bring up this topic again, but 2 questions on the PPP loan forgiveness. First, the only employees of an S-Corp are a husband and wife, each 50/50 owner. They want to prefund a portion of their 2020 DB contribution and use it for PPP loan forgiveness. Is the max that can be used 2x's $15,385? Second, and I apologize for losing track, but was the issue of deductibility ever resolved? I seem to remember that if an expense was used for loan forgiveness it could not be deducted, which causes issues especially for plan contributions. Thanks very much!

Just curious on Scenario 1. Our document also says that if the employee left as a participant they are a participant upon rehire. But the information just says the employee was a participant, which I'm assuming means he earned 3 months of service in his prior employment. But wouldn't you have to confirm that he also had earned a year of service in his prior employment for him to be eligible to receive safe harbor if the document has that requirement for safe harbor?

Thanks everyone. The $500 is not an issue, it was just the idea floated to me to see if it was possible. If a discretionary match is made just for the NHCEs in addition to the safe harbor match, is it only the discretionary match that is used in the ACP test, so ACP is satisfied with no additional match to the HCEs other than the safe harbor match?

Thanks CB. So even if the document remained discretionary in terms of the profit sharing, and the amount of the allocation was determined outside of the document, the fact that it is communicated to the participants as relating to their deferrals it would be considered as a match?

I'm leaning on the 3 month requirement side. The intention is to make the plan a safe harbor plan, which requires that participants have at least 3 months to defer. Otherwise it's just a 401(k) plan with a 3% or 4% profit sharing contribution.

Company sponsors a safe harbor 401(k) plan. Plan uses the basic safe harbor formula. Plan also allows for profit sharing, each participant being there their own allocation class (with last day requirement). The Plan Sponsor would like to encourage more participation from lower paid participants. They are thinking of making an additional profit sharing contribution to non-HCEs only that hit certain deferral limits during the year. For example, if they defer half of the 402g limit they would receive $500. If they defer the full 402g limit they would receive $1000. Has anyone had a plan that had such a program? If yes, how did you communicate the program to the participants? I'm thinking at the very least you would have to be crystal clear about who is eligible each plan year and exactly how much they would have to defer to reach a profit sharing contribution level? Any thoughts would be appreciated. Thanks!

I agree with RBG that the participant count issue is a big deal. Not sure which is more complicated, dealing with multiple eligibility and vesting rules in one plan, or trying to manage two plans. Either way there should be some balance between covering more employees and making the plan so complicated that the employer just says forget it and doesn't cover anyone.

Sorry about coming to this thread late, but I have a question on this issue of vesting for LTPT ees. Part C of n-20-68 states, "Under § 401(k)(15)(B)(iv), the special vesting rules of § 401(k)(15)(B)(iii) continue to apply to a long-term, part-time employee even if the long-term, part-time employee subsequently completes a 12-month period during which the employee completes at least 1,000 hours of service". So let's say my plan has a "One Year" wait for eligibility (1000 hours in a 12 month computation period). The plan also requires 1000 hours of service for a vesting year. Employee A is hired on 1/1/2023 and earns 1000 hours of service, and enters the plan on 1/1/2024. Never considered to be a LTPT. Employee B, is hired on 1/1/2021 and earns 500 hours in 2021, 22, and 23, and enters the plan on 1/1/2024 under the SECURE Act rules (and I'm assuming also has 3 years of vesting service). Plan does not provide match for LTPT eligibles. During 2024 Employee B earns 1000 hours of service and effective 1/1/2025 is now a "real" participant, and starts receiving match. Based on the quote from n-20-68, does Employee B continue to earn vesting service after 12/31/2024 with each year of 500 hours, while Employee A who was never an LTPT is required to earn 1000 hours? Or am I misapplying the quote? Thanks very much.

I think I am overthinking. You can't really have safe harbor without elective deferrals, so I'm thinking 10/1/2020 would need to be the start date for the safe harbor too.

I have a last-minute startup 401(k), calendar year, going with 3% non-elective as the safe harbor with discretionary profit sharing. Prior to the SECURE Act we would make the plan effective 1/1/2020 for the profit sharing portion of the plan, and the deferral and safe harbor portions effective October 1 allowing for implementation time and the safe harbor notice. Now that the SECURE Act no longer requires a safe harbor notice (although for now we are going to continue to provide safe harbor notices for non-elective plans), and the nonelective can be added after the fact, is there any reason the safe harbor cannot also be effective January 1, 2020, or does the safe harbor still need to be effective on or after the date the deferrals are effective for the first year? Or let's say they want to wait on the safe harbor until the year is over and are ok with the 4%. The deferrals still need to start 10/1/2020 so we have a 3 month initial plan year for the deferrals, but what date would we make the safe harbor effective in this case? The nonelective must apply to all of 2020, correct, so wouldn't the effective date need to be 1/1/2020? Or possibly I'm overthinking this because the recordkeeper needs the plan design yesterday to set up for Oct 1. Thanks for your help.

Thanks Bird, makes sense.

Company A is purchased by Company B. Company A's 401(k) plan is merged into Company B's existing 401(k) plan mid plan year (both calendar year plans). After the merger a final 5500 is filed for Company A's plan showing the transfer of assets to Company B's plan. Is a final SAR also required for Company A's plan, or does the fact that Company A's plan is continuing on as part of Company B's plan mean that no SAR is required? Thanks very much.

ASPPA Connect today has an article on the excessive fee suit against ADP Total Source. The article says, "With regard to those administrative expenses, the plaintiffs highlighted a certain irony in the defendants’ arguments that the administration of the MEP was “far more difficult and expensive to administer and recordkeep than the single-employer plans that Plaintiffs use as comparisons.” "

"By allowing most of the management and administrative responsibilities of sponsoring a retirement plan to be transferred to a pooled plan provider, PEPs will give employers, especially small unrelated employers, a way to offer their employees a workplace retirement savings option with reduced burdens and costs compared to sponsoring their own separate retirement plan." That little marketing piece comes straight out of the DOL's NPRM. When I saw that I wondered how they can know that before any plan is even up and running?

I was wondering how audits were going to work. If the PEP has over 100 participants is every participating employer subject to audit? If my company has 10 participants in a 500 or 1000 participant PEP, am I part of that audit process? And if not, why not?

I found my answer in some presentation material that Sal Tripodi provided in a webinar that he did, I think for FT William, on the SECURE Act. He provides an example of a new calendar year end plan adopted 11/1/2021 with a retroactive date to 1/1/2021 (401(k) portion effective 11/1/2021). Sal offers that the plan could not be a safe harbor plan for 2021 since the 401(k) portion is less than 3 months, regardless of whether the safe harbor is a match or nonelective. Makes sense. The intention of the 3 months is to allow everyone the chance to make 3 months of deferrals regardless of a match or 3% non-elective. Without the 3 month requirement I guess an owner could set up the plan for 12/31 and give himself a bonus to defer from and no one else gets that opportunity.

Thank you Kevin. I forgot to respond to my own post that I found the same answer that you concluded.

CB, I got sidetracked and could not get back to this. Thanks very much for the information.

With the new Secure Act provisions for 3% non-elective plans, is a new 3% safe harbor non-elective plan still required to be adopted by October 1 (assuming a calendar year end). Could the plan be adopted for December 1, 2020 as a 3% non-elective? What if the plan was adopted on December 1, 2020 as a non-safe harbor plan with a calendar year end, but amended in 2021 to be a 4% safe harbor? I guess what I'm really asking is, if the plan is a non-elective safe harbor, must the first year still be at least 3 months long? Thanks very much.