JHalligan

Sorry this is so late, but all the custodians I have worked with wanted at least an offer to purchase letter, or a copy of the contract.

This was my first thought too..we acted on the beneficiary information that was in place at the time of death. There shouldn't be a way to change the beneficiary after the fact.

Luke, yes, they signed up asked to defer, and the ER failed to withhold or transmit a payment. As it turns out, the IRS has really specific guidance that I found: If you excluded an eligible employee, you must make up for the employee’s “missed deferral opportunity” by making a contribution of 1.5% of compensation for the period of the employee’s exclusion, plus earnings (calculated from the date that the elective deferrals should have been made through the date of correction). The “missed deferral opportunity” is the economic loss to the employee from not having a portion of compensation deferred on a pretax basis to a retirement account in which the amounts deferred can accumulate tax-free. Since the employee didn’t have a chance to make an election, IRS safe harbor correction methods assume that the employee would’ve elected to defer 3% of compensation. The required corrective contribution to replace the missed deferral opportunity is 50% of the missed deferral, or 1.5% of compensation. If, under the plan, the employer contribution is a 3% match, then the corrective contribution should include a matching contribution of 3% of compensation plus earnings (calculated from the date that you should have made the required contributions through the date of correction). If the improperly excluded employee made the 3% of compensation elective deferral, as assumed in the prior paragraph, then the employee would’ve received a matching contribution equal to 3% of compensation. (Note: This contribution is in addition to the corrective contribution you must make to replace the “missed deferral opportunity.”)

advisor I work with let me know that he has a client that had some employees enroll in 2021, but he never withheld anything, and did not deposit anything for these employees. Can they correct under VCP? how should they handle the fact nothing was ever withheld? I'm having some difficulty trying to figure out the best course of action. if the SIMPLE is being treated as a qualified plan would be, then I think that this applies: P test. .05 Exclusion of an eligible employee from all contributions or accruals under the plan for one or more plan years. (1) Improperly excluded employees: employer provided contributions or benefits. For plans with employer provided contributions or benefits (which are neither elective deferrals under a qualified cash or deferred arrangement under § 401(k) nor matching or after-tax employee contributions that are subject to § 401(m)), the permitted correction method is to make a contribution to the plan on behalf of the employees excluded from a defined contribution plan or to provide benefit accruals for the employees excluded from a defined benefit plan. (2) Improperly excluded employees: contributions subject to § 401(k) or 401(m). (a) For plans providing benefits subject to § 401(k) or 401(m), the corrective contribution for an improperly excluded employee is described in the following paragraphs of this section .05(2). (See Appendix B, Examples 3 through 12.) (b) If the employee was not provided the opportunity to elect and make elective deferrals (other than designated Roth contributions) to a § 401(k) plan that does not satisfy § 401(k)(3) by applying the safe harbor contribution requirements of § 401(k)(12) or 401(k)(13), the employer must make a QNEC to the plan on behalf of the employee that replaces the “missed deferral opportunity.” The missed deferral opportunity is equal to 50 percent of the employee’s “missed deferral.” The missed deferral is determined by multiplying the actual deferral percentage for the year of exclusion (whether or not the plan is using current or prior year testing) for the employee's group in the plan (either highly compensated or nonhighly compensated) by the employee’s compensation for that year. The employee’s missed deferral amount is reduced further to the extent necessary to ensure that the missed deferral does not exceed applicable plan limits, including the annual deferral limit under § 402(g) for the calendar year in which the failure occurred. Under this correction method, a plan may not be treated as two separate plans, one covering otherwise excludable employees and the other covering all other employees (as permitted in §1.410(b)-6(b)(3)) in order to reduce the applicable ADP, the corresponding missed deferral, and the required QNEC. Likewise, restructuring the plan into component plans is not permitted in order to reduce the applicable ADP, the corresponding missed deferral, and the required QNEC. The QNEC required for the employee for the missed deferral opportunity for the year of exclusion is adjusted for Earnings to the date the corrective QNEC is made on behalf of the affected employee. (c) If the employee should have been eligible for but did not receive an allocation of employer matching contributions under a non-safe harbor plan because he or she was not given the opportunity to make elective deferrals, the employer must make a Page 84 of 140 corrective employer nonelective contribution on behalf of the affected employee. The corrective employer nonelective contribution is equal to the matching contribution the employee would have received had the employee made a deferral equal to the missed deferral determined under section .05(2)(b). The corrective employer nonelective contribution must be adjusted for Earnings to the date the corrective contribution is made on behalf of the affected employee.

thank you both. I was reading the 590b, and thought that was correct.

100% of the ira was converted to roth, and taxes were paid. Now, a partial distribution is happening, but the 5-year clock has not been satisfied, making it a non-qual distribution. I think jsut the earnings are taxable, but, can he specify return of capital and not touch earnings, making it a tax-and penalty-free distribution?

one of our clients asked what it would look like if they stopped doing 3%NE SH-if there would be refunds/ how much. Is the simplest solution setting up a new plan and uploading the census and running the tests? I know what I'd do in Datair, but that's not an option right now.

I have a company that has 2 divisons, but they are operated as seperate companies. it is 100% a controlled group, Each of the companies has a 401(k) set up, but one company is an all-union shop, so no participants can be in the plan. recently, a new, non-union member joined the company, so he would be the only participant. is the best course of action to set up a division at the custodian to keep them seperate? does the new employee need to be kept separate from the original 401(k) plan?

Thank you-yes, I was getting my signals crossed on this one.

I have a one-person EZ that all the assets are in a brokerage account with an advisor. Somehow, with the changing of jobs and the relationship between us (the TPA) and them, this was missed. I explained that the VCP is the most straighforward way to do this, but they want to roll the dice. so my questions are: what is the downside? isn't there a max $500 penalty either way? what should the letter look like? addressed to the DOL or IRS, signed by the employer? A basic statement saying her two professional contacts missed the filing? Thank you, this is the first time I've been in this situation.

Honestly, I should know this, but if a plan has no HCEs, can they still exclude classes (job classes) and have no testing?

an advisor called me today and asked about how catch-up contributions are treated when an ADP failure occurs. Teh participant in question always has deferrals returned due to failed testing. However, since Catch-up is not included in the ADP test, how is it treated when there is an excess deferral due to a failed test? My guess is that they would not be able to use the catch-up, so all of the catch-up would come out along with whatever excess was determined. Am I correct in this?

you're right, I just found the notice.

Yes, that's more of less the language. I haven't seen a "maybe" provision in practice.

I have a plan that is asking if they can not to a Safe Harbor (3% NE) contribuiton for 2022. Their document states that there will be a SH contribution But only if the plan sponsor provides a follow-up notice. I have not seen that language before on an adoption agreement. I'm not sure if that qualifier gets them out of having to make one,Edited: they did not distribute the notice last year Also, if they are supposed to make the contribution and do not, The plan is out of compliance, but I'm not sure what would happen after that.

I will have ot find more information, but I got a request today asking for clarification on if two companies were a control group- there are partners who have common ownership; one partner owns 80% of a related business. They are wondering if he sells his interest, bringing it under 80%, will that be enough? I have a feeling that the other partner(s) have enough ownership to make this idea a non-starter. The businesses have seperate DC plans, and have been advised by someone else that they may need to amend those plans (I am assuming this is to provide substantially equal coverage between the two companies). but I thought there was a grace period for that.

Thank you!

I have a few plans where the forfeiture account has increased, either from zero, or from some amount to a higher amount. Do these assets get counted as employee assets? I don't know what was done in past years for these, but I wanted to make sure they are in the correct place.

I have a client with an individual 401(k) that has not reached the 250k threshold in that plan; however, he does have a DB plan for the same business, that is over 300k. The person who administers that plan and files that 5500 stated that I should be filing a 5500 for the 401(k), due to aggregated assets in both plans. He has not made contributions in several years, as the business was dormant. Do I need to file a 5500 for the 401(k)?

I have a plan that is well into Top-heavy territory now, and because of the family/HCEs that will not be changing. They have a match now, but if they change to a SHM, this should fix the top-heavy issue, I believe. My questions are: because they're now 29 days to pye, they cannot amend and fix the issue for 21-22, correct? I don't think they're interested in a non-elective SH plan They have a non-elective profit sharing source now, if they use SHM to avoid adp/acp and top-heavy, will they need to not contribute to that source again to remain exempt? Thanks for your help.