Connor

I think I got hung up on "five years - whichever is greater". I thought it was referring to the prior YOS - quite a convoluted sentence - no wonder the author of the article said it was "a real nightmare of a topic". We use FT William's doc which uses a more simplified version as default language for the Rule of Parity: "If an Employee does not have any nonforfeitable right to the Account balance derived from Employer contributions, Years of Eligibility Service before a period of five (5) consecutive One-Year Breaks in Service will not be taken into account in computing eligibility service. Elective Deferrals are taken into account for purposes of determining whether a Participant is a nonvested Participant for purposes of Code section 411(a)(6)(D)(iii)." This is also their default for the Rule re vesting service. We've used other vendors and have seen various docs from takeovers & if I recall correctly just about all of them had language similar to FT William's. I guess we have different experiences, ESOP Guy, but that's one of the things that makes this board worthwhile. The only employer contributions made to the plan in question are safe harbor matches, so it's actually not that rare for participants not to defer, and thus not get any match, and then they terminate with perhaps several YOS but no vested benefit. I definitely would prefer the 'once a participant always a participant' approach but we have quite a few clients protesting even the use of the above Rule. Thanks everyone!

The only contribution the sponsor makes is a safe harbor match, so the eligibility requirements for allocations cannot be restricted. The reasons the sponsor wants this are for 1) administrative ease mostly, and 2) smaller contributions secondarily.

Great - I agree with what's being said. Thank you for the comments and the Rule of Parity link. I believe the only situation that wasn't addressed was what if the participant had 2 -4 BIS and never had a nonforfeitable right to a benefit - would prior service be disregarded?

IMO, it would be the latter, with my reasoning being that the allocation of excess assets would happen before distributions are made, and the RMD is carved out of one's benefit when the payouts actually occur, especially since the RMD is not payable until 12/31/25 (or perhaps 4/1/26).

A plan sponsor from time to time rehires employees - sometimes several months, sometimes 3 or 4 years after being terminated. These employees occasionally were participating in their 401(k) plan prior to their termination and are deemed to be participants immediately when rehired in almost all circumstances, according to the plan document. The sponsor has asked whether it would be possible to force such rehires to meet the eligibility requirements all over again after they are rehired if they were previously terminated at least a year before their rehire date - I'm thinking it's probably impermissible to do this. They're currently using an FT William doc coded for the basic rule of parity provision, however, the program allows for modifications as an open entry item, i.e., anything at all can be written in to customize this provision, and the question of whether amending the plan to use this open entry item to enforce the one year restriction mentioned above arose. Is it legal to force requalification for such rehires after being away only one year?

I also agree, but this situation made me think of a CG question that's was going around our group without much resolution recently. If it's determined that both companies are members of a CG (or an ASG), does company B need to sign a joinder agreement/resolution adopting the plan? I was leaning more to the 'No' side, since B would already be required to have its eligible employees automatically covered by A's plan. Am I off base on this?

Had a situation just like this not too long ago and our actuary insisted that the 110% rule still applies.

Super - thanks again!

Thank you , John - that's great! If I may ask additionally: regarding how the discretionary match is described in the plan document and the safe harbor notice, a definitive formula must be stated (e.g., 66 2/3% match of the first 6% of comp up to 4% of comp), so the only discretionary thing is whether or not that contribution is made, not how it's allocated. If the employer decides to make a discretionary match but wants to allocate it a different way, a plan amendment would have to be done to revise the formula - do I understand this correctly?

Is it possible for a plan with a safe harbor match to also offer a discretionary match and still retain its safe harbor status, i.e., avoid adp/acp testing & TH mins? In other words, a triple stack match without a fixed match - could that still be considered a safe harbor plan? If so, what would be the limitations on the discretionary match?

The formality of how they look is definitely a plus for the IDPs, but I prefer them for the table of contents that they usually have - we've taken over a lot of plans that use prototypes and I don't think I've ever seen one whose adoption agreement has a TOC. I have to think there must be some that have them, as that feature would be no-brainer, especially since some adoption agreements are now 40+ pages long, but we have yet to encounter one. In a prototype doc, if you want to delve into a provision past its most basic parameters you would have to refer to two documents, the adoption agreement and the basic plan document that it would reference (which is like an IDP), so an instance like that would make the IDP easier to use IMO.

Plan currently provides that all participants receive a SHNEC. The 100% owner wants to make a PS contribution but the test results are destroyed because her participating daughters are getting a SHNEC - would there be any BRF issues if the plan is amended to just give the NHCEs a SHNEC? I can't recall if BRFs are ever an issue if it's just the HCEs that would ever get affected by an amendment. Thanks in advance for any assistance.

Good thing I asked - thank you for your assistance.

I know I've seen a thread discussing this before but I'm having trouble locating it. A non-owner employee works for a company that sponsors a 401(k) plan to which she defers regularly, sometimes the maximum amount, and receives employer contributions. She also owns her own company and is considering adopting a 401(k) plan for it. If I recall correctly, she would be able to defer the full 402(g) limit as well as contribute the maximum 415(c) limit to her own plan even though she's deferring and being allocated profit sharing amounts in her employer's plan - is this accurate?

What I have seen done is the participant is first given a notification to sign stating that they understand the requirements for a hardship withdrawal and have abided by those requirements, and that if it turns out they misrepresented their situation, they would be liable for all damages to the plan and/or employer. However, I don't believe there are any penalties if the plan administrator follows the self-certification rules in good faith.

This may be another way to look at it. If vesting were to get bumped up to 100% upon the attainment of NRA while not being employed, why would a partially vested terminated participant ever take a distribution before they attain their NRA? Everyone would wait after they terminate until their NRA to get paid so that their benefits can become fully vested, resulting in a sometimes very significant increase; in your example, the benefit would automatically quintuple on 1/1/28 even though the participant terminated years earlier - that can't be right.

Got it - thanks, John!

It has been a while since I last had to do testing, so please bear with me. I recall that any NHCE who benefits (even if just getting a 3% SHNEC) is entitled to a gateway contribution - in this case, a total of 4.33%, i.e., 1/3 of 13%. Wouldn't the terminee get a 1.33% PS alloc, even if the plan has a last day requirement, to satisfy gateway? Also, wouldn't it be possible for both NHCEs to be in the HCE's rate group if the terminee was significantly younger than the other two participants? I recall the testing that I used to see created an EBAR by projecting the current year's alloc to 65 using a set interest rate, dividing by a monthly APR, and then dividing by the participant's comp. If this is the allocations-tested basis, how does the benefits-tested basis differ? TIA for any clarification offered.

Thanks guys!

An Employer has a pooled PSP that holds, among other assets, raw real estate as well as trust deeds. She would like to amend the plan to a self-directed 401k with brokerage accounts, however, she would like to keep the RE and trust deeds - is there any way to do this without having any kind of pooled arrangement? Could she allocate these assets in the brokerage account to all the participants like a stock, or possibly allocate them all to herself if the plan never adds any more of these types of investments going forward?

I find that The 401(k) Answer Book is a very good resource.

I'm having a brain cramp here. Joe owns 100% of company A, which sponsors a DB plan - he is the only employee. Joe also owns 79% of company B and the other 21% is held by Bob. Joe is the only employee of company B. A and B are not part of either a controlled group or an ASG. Is Bob permitted to borrow from the DB plan sponsored by company A?

Thank you for your responses - yes, her allocation was at least 1/7th.

An overfunded 1-life DB plan terminated, with the final return filed for PYE 9/30/22 - all of the assets were distributed in 2022. An RMD was paid, the assets representing the participant's remaining PVAB were rolled over into her IRA, and the excess assets were transferred to a new 1-life qualified replacement 401(k) plan whose first PYE was 9/30/22. The excess assets were placed in a suspense account within the QRP, with only a small portion allocated to the participant by 9/30/22. Is only her 9/30/22 balance used in calculating her 2023 RMD, or do you have to also include the amount that's still in the suspense account for this calc? The plan also excludes service before the 10/1/22 effective date of the plan, so she's 0% vested since there's a graded vesting schedule and NRD has the 5 YOP requirement. I cannot recall - is it DB or DC benefits that are always considered 100% vested for RMD purposes regardless of what the vesting schedule indicates? If the actual vesting can be used, is she not required to take a 2023 RMD? I'm also hoping that the terminated DB plan can be disregarded for this purpose. Has anyone been involved in such a situation?

Hard to believe the doc purposely wouldn't discuss the timing - you may wish to double check with the vendor on this. I imagine such a small plan uses a pre-approved doc. Many (if not all) such docs offer the provision for death benefits to be paid up to five years after the participant's death. If this option hasn't been selected, and only if the unpaid status of the benefit is not currently running afoul of the document, couldn't the provision be amended to the five-year option? Some docs allow options to delay the payment even longer for spousal beneficiaries if I remember correctly.