401kology

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

Yes, the difference is between the compensation used for allocation purposes and the compensation used for testing purposes and those do not need to be the same.

I am going to pose this a little differently for clarification because my understanding is that if you use a safe harbor match to satisfy the ADP Test that you cannot double dip and use those in the ACP Test with After-Tax contributions. Contribution Only Used Once.Amounts included in the ACR can be taken into account only once. Therefore, any amounts cannot be taken into account to the extent such contributions are used to satisfy any other ACP test, any ADP test, or the safe harbor requirements of the requirements for SIMPLE plans. Similarly, if a plan switches from the current year testing method to the prior year testing method, QNECs that are taken into account under the current year testing method for a plan year may not be taken into account under the prior year testing method for the next plan year. [Treas. Reg. section 1.401(m)-2(a)(6)(vi)](iii) Qualified matching contributions used to satisfy the ADP test. Qualified matching contributions that are taken into account for the ADP test of section 401(k)(3) under §1.401(k)-2(a)(6) are not taken into account in determining an eligible employee's ACR.(iv) Matching contributions taken into account under safe harbor provisions. A plan that satisfies the ACP safe harbor requirements of section 401(m)(11) or 401(m)(12) for a plan year but nonetheless must satisfy the requirements of this section because it provides for employee contributions for such plan year is permitted to apply this section disregarding all matching contributions with respect to all eligible employees. In addition, a plan that satisfies the ADP safe harbor requirements of §1.401(k)-3 for a plan year using qualified matching contributions but does not satisfy the ACP safe harbor requirements of section 401(m)(11) or 401(m)(12) for such plan year is permitted to apply this section by excluding matching contributions with respect to all eligible employees that do not exceed 4 percent (31⁄2 percent in the case of a plan that satisfies the ADP safe harbor under section 401(k)(13)) of each employee's compensation. If a plan disregards matching contributions pursuant to this paragraph (a)(5)(iv), the disregard must apply with respect to all eligible employees. So for this example, let's say the ADP Safe Harbor Match is 100% up to 7% (this satisfies the ADP SH but does not satisfy the ACP Test SH - matches on deferrals above 6% and in aggregate is more than 4%). In this example, the match in excess of 4% could be used in the ACP Test, but you could not use the full 7% because the first 4% is the amount necessary to satisfy the ADP Test.