Gilmore

I understand that if a safe harbor 401(k) plan limits the safe harbor contribution to only the statutory employees and disaggregates the otherwise excludable employees, then the plan cannot use the special rule deeming the plan to not be top heavy as it no longer is solely a safe harbor 401(k) plan. Does the same thing apply if the plan does not provide safe harbor contributions to union employees. An employer with a top heavy safe harbor 401(k) plan is considering allowing union employees to participate. If the union employees do not receive the safe harbor contributions is the plan no longer deemed to be not top heavy? Thanks.

Thank you very much!

Thank you both. Tom, is that conference question somewhere in the archives on ASPPA's website that I would be able to locate? Thanks.

Tom, I appreciate your input on the forfeiture allocation, but would also appreciate your opinion on the main question, which is, if an Officer is hired in 2016, and the 2016 plan year is top heavy, and that Officer makes a deferral in 2016 and at the end of the year they end up with more than $170,000 in compensation, would they be considered a Key Employee for 2016 and trigger the minimum contribution, or are they not considered a Key Employee until 2017? In Sal's book he discusses differing opinions with respect to who is a Key Employee for receiving a top heavy accrual. In the discussion he describes one opinion in which the Key Employees used for determining who is required to receive a top heavy contribution are the same Key Employees who are used to determine if the Plan is top heavy. So the Key Employees determined as of 12/31/2015 are the same Key Employees used to determine who is NOT a Key Employee for the 2016 top heavy contribution. Contrasting that is a differing opinion, in which the Key Employees used in the 12/31/2015 are only used to determine if the plan is top heavy for 2016. Any other employee that meets the definition of a Key Employee on 12/31/2016 would be considered as a Key Employee for determining who is NOT a Key Employee for the 2016 top heavy contribution. So in the contrasting view, if the Officer hired in 2016 makes more than $170,000 in 2016, and the plan does not provide the top heavy to Key Employees, the new Officer would not receive a top heavy contribution. Under that view I would think that if the Officer also deferred, he would trigger the need for a top heavy contribution to be made. Sal does indicate that the first view, the one in which the new Officer would not be a Key Employee for 2016, seems to be the preferred view of the IRS, but I was wondering if you had ever come across a similar situation or your thoughts in general. Thanks.

Thank you for the confirmation that the new employee would not be a Key Employee for the 2016 plan year. No forfeiture issues, but appreciate the heads up on that.

A 401(k) plan has been approaching the 60% top heavy ratio for a few plan years. The current Key Employees, the owners and one long time Officer, have agreed not to defer until the top heavy test is completed each year, to avoid having to make a top heavy minimum. For 2016 the ratio exceeds 60% for the first time. The Keys stopped deferring after 12/31/2015 and have decided among themselves not to defer in 2016. The company is hiring an employee in 2016 whose job functions will classify the new employee as an Officer and the new employee will be eligible to defer in 2016. His compensation will exceed $170,000 in 2016, and no Officers are excluded under the 10% rule. Question is, for 2016, although the new employee will most likely meet the Key Employee definition on the 12/31/2016 determination date for determining the 2017 Key Employees, am I correct that this employee IS NOT a Key Employee for the 2016 plan year, and would not trigger a top heavy required contribution if he defers in 2016? Thank you.

Ok, thanks Mike. Would you have a cite, or Q&A that might address this? Unfortunately my document provider does not agree. They are telling me that the HCEs can be excluded or required to meet allocation requirements, but if they are allowed to receive the safe harbor match at all, it must be the full match. I have a client with a traditional 401(k) plan in which the current match is capped at $5000. They are considering going to a safe harbor but are concerned about the expense. I thought an alternative might be to continue to cap the match at $5000 for the HCEs only, which would reduce the overall cost of the safe harbor match, but not totally exclude the HCE from a benefit they are used to receiving.

Is it permissible for a safe harbor 401(k) plan (basic match) to cap the amount of safe harbor match received by an HCE? I know that the plan can provide that HCEs are excluded from receiving the safe harbor match, or that there can be allocation restrictions for HCEs, but is it permissible to put a dollar limit on the safe harbor match to HCEs? Thanks.

Ok, thanks.

Hi Tom, Thanks. I saw that example as well. But the example illustrates a formula in which the rate of match changes with increased service. I think the example used a 100% rate of match with 10 years of service, with a decreasing rate for fewer years of service, with a 10% rate for less than 3 years. So even though that example illustrates a decreasing match rate, do you agree with Doghouse that, in the formula that I have laid out, each year of service would need to be tested even though the actual rate is the same, but the increased cap causes an increased amount of match. Makes sense, it's just that Sal is usually so thorough and I don't see any mention of an increase in the cap only in any of his examples.

Thanks. So the benefits, rights, and features test for the availability of the match rate is not a concern because everyone gets the same rate of match?

Here is a proposed match formula. Appreciate any thoughts on whether non-discrimination testing of the availability of each rate of match would be applicable. The match rate would remain the same at 50%. The cap on the match would increase with each year of service earned. Less than 1 year of service, no match. More than 1, less than 2, 50% match capped at 1% of compensation More than 2, less than 3, 50% match capped at 2% of compensation and so on up to 5 year and beyond, with the cap staying at 5% of compensation. So the rate of match remains consistent. It seems to me that the increasing cap is more of an ACP issue. Thanks.

Thanks.

I'm not sure of the reasoning behind why they want to limit the plan to a select group, but apparently that is what they want to do.

Company has two 50/50 owners, who are the only HCEs (comps for all others below limit). Owners want to start a 401(k) as a tool to recruit a certain class of their employees. They are not concerned with participating themselves. In order to cover just the certain class of employees and exclude all others the Owners are ok with excluding all HCEs so as to not be concerned with the coverage test, which would be right around the 70% ratio if the HCEs were covered. Should there be any concerns with excluding all employees, including HCEs, with the exception of the targeted group of NHCs? Thank you.

I will ask. I was thinking this might be more of an IRS requirement regardless of what the document provider says.

Is it acceptable to sign a plan Adoption Agreement using a digital signature generated by Adobe Acrobat? Thanks.

BTW, my son is a Combat Engineer in the Army Reserves whose job duty is route clearance, so I would say any pension problem pales in comparison to an IED that is ready to detonate.

Thank you for all of the input.

It will be interesting to see if there is a big increase in the number of people seeking an ERPA designation with the last test cycle in the beginning of next year. It is a benefit, especially for a smaller firm, to have an ERPA on staff. If they are going to do away with my ERPA designation at some point then they should rescind the rule that a non-credentialed practicioner cannot sign a 2848, or they should make exceptions for other industry groups' designations.

I'm trying to think through what a correction might look like. The plan sponsor allocated the safe harbor to every participant that was entitled in 2014, and deposited the contribution within 12 months. If a participant terminated in 2014 and did not have compensation in 2015 does that mean the correction is to take away their 2014 safe harbor contribution? Is the plan no longer a safe harbor plan for 2014 even though the contribution was made within the permitted time?

Understood. And I guess that brings me back to my original question. Is there a 415 violation? A participant has to get the safe harbor and the regs permit the contribution to be deposited within 12 months of the plan year end. How do those two things square if there is no exception for the safe harbor nonelective?

I can advise every year, but the client makes the deposit not me. Hopefully this situation will make for a stronger arguement going forward. I've never seen anything that says the 12 month deadline is for extraordinary circumstances, however, and I also cannot find anything specific to the safe harbor nonelective contributions with respect to 415, hence my original question.

The ER is not trying to avoid providing a safe harbor contribution for any participant. The safe harbor rules permit the nonelective to be made within 12 months of the plan year end, which is what they do. To date this has not been an issue because no additional contributions have been made beyond deferrals and the safe harbor contribution. I see in the EOB that a QNEC made to correct an ADP test that is made beyond the 415 30 day grace period may need to be corrected if a participant does not have compensation in the year the QNEC is deposited. However how can that possibly work for safe harbor contributions? I would think an exception would have to be made if the regulations permit the deposit to be made within 12 months.

3% Nonelective, calendar year, safe harbor plan. ER has historically made the 3% nonelective in December of the following year. ER's tax year is calendar year. For 2015 the ER would like to make a profit sharing contribution for the first time, in addition to the safe harbor. Is the nonelective for 2014 which will be deposited in Dec, 2015, treated similarly to a QNEC in that the 2014 nonelective must be counted in the 2015 415 limit? If that is true, are participants who receive the 2014 nonelective but also terminated in 2014 treated as benefitting under the plan for the 2015 plan year? Meaning would they need to share in any top heavy or gateway contributions for the 2015 plan year? Thank you.