401kology

acm_acm - Funny you should mention that as that is what I had done and said - will you be on the hook for all of the headaches that will occur once the 5500 is filed? They said they would not and so I said, well yo better use the correct effective date for this new plan then. LOL

I am asking this in a half rhetorical manner. Client had been a single employer for 5500 filing and filed under 001. Then employer became a related employer due to an acquisition and joined parent's plan as adopting employer. Initial 001 Form 5500 had a final filing when the assets merged into the parent's plan. A few years later and due to ownership change, they are no longer related so the current plan is a MEP and the Client is spinning out their portion of the MEP into a stand alone plan (June 1, 2023). My experience has been that the effective date of the newly established spin-off plan should be June 1, 2023. The Client would use 002 since 001 had been previously used. Since this is a spin-off, there are protected benefits and no distributable events (that is not the issue). The service provider is insisting that the effective date be 1/1/2018 (effective date of the prior parent's plan). My concern is that once filed, the EBSA is going to ask about all of the missing prior 5500 filings, which could be avoided with a new effective date and I also believe that the 5500 must be marked as "First Year Filing". Any experience out there with using a prior effective date and what notices get generated? I vote for the 2023 effective date and 002 for the plan number. Thanks!

Here is just some additional commentary for thought. Even if the PA were to approve it, there is a high likelihood that the participant will be asked by the IRS to provide back up to support the hardship when the participants files their 2023 income tax return. I experienced that first hand with a medical hardship. Now, I don't exactly know what can/would happen if the IRS states it did not meet the hardship reasons but that is another thing to consider. I get the situation, but she already co-owns the property and I researched what Derrin Watson had to say on the matter and his response was "no". Its hard in these situations, maybe the court order would do the trick but I would make sure the fiduciary knows it is their responsibility to make the call.

Unfortunately, refinancing does not meet the regulations which specifically states the safe harbor hardship is for "costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments)." Refinancing of the mortgage does not satisfy the requirements.

You may want to refer to Situation #4 in Rev. Ruling 2004-13 as it addresses the otherwise excludable employees and top heavy. You do not get the top heavy exemption since some employees who are eligible do not get the safe harbor non-elective. https://www.irs.gov/pub/irs-drop/rr-04-13.pdf Also - Starting in 2024 (plan years after 12/31/2023), SECURE 2.0 changed the OOE rules and top heavy and the otherwise excludable employees are not required to receive the top heavy minimum.

I agree with RatherBeGolfing - Also noting that you generally cannot choose cash basis one year and accrual the next, so if it is accrual based and the terminated employees are partially or fully vested then your count is 121.

I tend to agree that this would be a function of payroll, especially given that the $145k prior earnings limit only applies if that employee worked for that company in the prior year. The TPA/RK may be able to offer assistance but from a practical standpoint think there will need to be payroll controls and policies in place for this.

You also must make up 100% of any missed match if the plan provides a matching contributions. I wrote a blog on this if you find it helpful: https://www.newfront.com/blog/401k-ology-the-missed-deferral-opportunity

The 45 day notice period would begin on the date of the paycheck/pay date as that is when the 1st correct deferral begins.

Wanted to ask if anyone has any experience with clawbacks of sign on bonuses when the plan has immediate entry and the employee defers from this compensation but it is clawed back at a later date. My understanding is that the impact on employer contributions depends on the definition of compensation in the plan document (one of the safe harbors). It is also my understanding that the 401(k) deferrals, once made are eligible deferrals at the time of deposit so that the clawback would not impact the amount of 401(k) deferrals in the employee's account. The employer contribution, and any adjustment, will depend on whether the clawback occurs in the same tax year or crosses over tax years. Does anyone have a good reference point or other items to consider? Noting here that my recommendation would be to not have these included in eligible compensation to prevent any impact on the 401(k) plan, but many large companies have immediate entry these days. Just looking for others experience. TYIA!

Agree with John here, happens quite frequently when there is a new plan established mid year. Plan drafters will use the 1/1/2022 effective date for the plan as a whole so there is not a short plan year and hence prorated 415 and comp limits, and will have the deferrals and match start no later than 10/1 of the year. Alternatively, they could have adopted a 3% safe harbor nonelective for the full year, just depends on the other plan provisions and overall design.

I would definitely check with the plan actuary but if there is a majority owner they can waive the benefits so that the additional funding is not required. Assuming the wife is not a direct owner, the husband would waive but the spouse would get the full benefits (or vice versa if the wife is the owner).

Great summary Bill! RTR!

Agreed. The PW is treated as a discretionary PS contribution under 401(a) and if the plan is top heavy would require the THM (although the SHM and the PW contributions may both be used to offset the THM)

I agree with Cuse Fan here as well. Why would you not have a safe harbor definition of compensation for the SH Match? Agree - why would the definitions be different for deferrals and SH Match?

I agree with Cuse Fan - The employees are becoming eligible for a new plan and they must elect to make deferral elections specific to that new plan. The acquisition has no impact because the prior plan was terminated before the transaction. Therefore, there is no basis to carry forward any elections from a terminated plan.

I believe that the question comes down to if there are any key employees in the 403(b) plan and if the plans must be aggregated for purposes of 401(a)(4) or 410(b). Then one must look to required aggregation groups and permissive aggregation groups. Code Section 416(g)(1). But it also just refers to Defined Contribution Plan (and a 403b plan is a DC Plan). I also could not find any specific reference to aggregation with a 403(b) although SEPs are specifically singled out.

@Coleboy1- you can use the SHNEC in a plan that utilizes new comp (cross-tested) as an allocation formula. You cannot use it in an integrated allocation formula but it can be used to offset the top heavy required contributions for anyone who was not eligible for the integrated PS allocation due to hours requirement

Agree with all of the "absolutely not" comments. Discretionary contributions (match or profit sharing) that do not have allocation conditions cannot be amended mid-year to add conditions. If the requirements had been last day or 500 hours of service, you could amend before any participant has earned the right to the contribution (i.e. before anyone has completed 500 hours).

You may be thinking of the chart that was published some time ago by TAG I believe but it was for the Controlled Group Determination. ASG determinations are much more difficult unless it is a textbook case with physician or law practice. Because there are so many nuances with some ownership or management oversight, it is always best to seek a legal opinion in the case of an ASG (or potential one).

Agree with Bri - you can take advantage of the disaggregation using the statutory minimums in your coverage testing

Both 403(b) plans are subject to ERISA. The 2 401(k) Plans will be merged. The 401(k) Plans are Safe Harbor plans. It is my understanding that the 403(b) Plans could be terminated and the employees would have a distributable event and that the distributions must be made within 12 months and they could rollover the assets to the 401(k) plan but are not required to do so. Is there anything that would prevent the plan termination of the 403(b) Plans on 6/30/2022 with the covered employees becoming immediately eligible for the existing 401(k) plan on 7/1/2022? I know if this were 401(k) Plans, the only option would be to merge the plans but because this is a 403(b) Plan, it cannot be merged into the 401(k). Thanks!

Agree, the DC document likely states that the THM is 5% if there is a DB Plan. Always check the documents for both plans regarding the Top Heavy coordination. More than likely it is 5%.

If the employee worked on 12/31 and quit that day, then they were employed on 12/31 and due an allocation if that is what the allocation requirement is for that source of money.

Agree, if they never met eligibility that applies to both 401k and SHNEC