austin3515

"Asymmetry" is much kinder than Bazaaro 🤣 Truthfully the word I wanted to use was probably not appropriate for a public forum!

New Jersey does not allow you to exclude from wages amounts you contribute to deferred compensation and retirement plans, other than 401(k) Plans. Specific plans that New Jersey does not allow taxpayers to exclude contributions to include, but are not limited to, plans under I.R.C. § 403(b), I.R.C. § 457, 409A, I.R.C. § 414(h), SEP, Federal Thrift Savings Funds, or Individual Retirement Accounts. Employer contributions to these plans receive tax-deferred treatment. In addition, both employee and employer contributions to SIMPLE IRAs, SEP, and SARSEP plans are included in taxable wages (neither receive tax-deferred treatment). https://www.nj.gov/treasury/taxation/njit5.shtml I came to learn of this through work on 457b plans. I had no idea how extensive their bizzarness was, including employer contributions to SIMPLE IRA's and SEPs. I am posting here because they do not even allow deductions for 403(b) Plans. This is really insane. Are people aware of this??

NOTE: If "Special schedule" is selected, the schedule must describe a formula from the options already available or a combination thereof (e.g., single rate formula applies to Group A; two rate formula applies to Group B), be objectively determinable and may not be specified in a manner that is subject to Employer discretion. Regardless I think your solution is the best possible option and that is what I will be doing... Thanks! The FT document is new form me...

I agree but that section is moot unless your using the YOS match. Are we in agreement that that has to be an oversight on their part right? Just makes no sense that that option is not there?

I am trying to avoid the 60 day match notice with a discretionary match. I'll be darned but I cannot find anywhere to cap the deferrals taken into account for the match. So for example we have a lot of clients that have no idea how much match they can afford for a given year. So we hardcode the match as a discretionary percentage of the first 4% of pay (could be first 5% of 6%, you get the idea). FT william uses the term "Matched Employee Contributions." I cannot find any where that I can cap that term at a given percentage. Has anyone run into this same issue before?

Well it really only makes a difference when it is an HCE because one person is a larger share of the total. I literally had a scenario where the only HCE had a signficant missed deferral and I was able to exclude him from the ACP test (it was a 403b plan). That felt weird to me! To your second question, that was the next paragraph (Again this book is really pretty neat) EPCRS does not directly address ADP calculations when an employee was improperly excluded for only part of the year. However, the whole-year correction methods in Appendix A apply to partial year corrections in Appendix B. [EPCRS App. B §2.02] Accordingly: The plan must correct ADP failures before dealing with improper exclusion, and The plan has the option to disregard participants with partial exclusion exclusions altogether from the ADP test. (Note that the same choice must be made for all participants subject to the improper exclusion. [¶6.2.2]) If the plan elects to count participants with partial year exclusions, logically it would count the deferrals the participant actually made and disregard corrective QNECs (which are determined after running the ADP test). Example 9.8.2 Dan should have entered his employer’s calendar year safe harbor 401(k) plan on January 1. However, he was improperly excluded until July 1, at which point he elected to defer 6% of his compensation. Dan’s total compensation for the year was $100,000. His actual deferrals for the balance of the year were $3,000. His ADR for the year was 3% ($3,000 / $100,000). The employer can choose to count Dan or exclude Dan in performing the ADP test. Assume the test passes and the NHCE ADP was 4%. Dan’s missed deferrals are $2,000, Dan’s compensation for half the year ($50,000) multiplied by 4%. The corrective QNEC is 25% of $2,000, or $500, using the two-year safe harbor. [¶9.6.5]

Bazaarly the answer is no. From the ERISApedia Plan Corrections textbook (highly recommend!) The plan must perform ADP/ACP testing before correcting errors resulting from failure to implement or improper exclusion. If the plan fails either the ADP or the ACP test, it must first correct those tests before correcting Elective Deferral Failures. EPCRS adds: In order to determine whether the plan passed the ADP or ACP test, the plan may rely on a test performed with respect to those eligible employees who were provided with the opportunity to make elective deferrals or after-tax employee contributions and receive an allocation of employer matching contributions, in accordance with the terms of the plan, and may disregard the employees who were improperly excluded. [EPCRS App. A §.05(2)(g)]

That's actually not true, there is no notice required. There are tw rules relating to 3 months or less. You guys are referring to the newer 3 month rule, but there is an old ancient 3 month rule called the "Brief Exclusion" rule that has been on the books since the early days of EPCRS (well I just know it predates all the 45 day notice stuff). This one is found in Appendix B of EPCRS and says there is no MDO correction if the participant can contribute for the LAST 9 MONHTS of the plan year. So the failure has to be limited to the first 3 months of the plan year. Still of course 100% of missed match is due. Appendix B, Section 2.02, in this (F). I could not figure out the precise citation because of how the formatting shows up. But this text is there. (F) Special Rule for Brief Exclusion from Elective Deferrals and After-Tax Employee Contributions. An Plan Sponsor is not required to make a corrective contribution with respect to elective deferrals (including designated Roth contributions) or after-tax employee contributions, as provided in sections 2.02(1)(a)(ii)(B) and (C), but is required to make a corrective contribution with respect to any matching contributions, as provided in section 2.02(1)(a)(ii)(D), for an employee for a plan year if the employee has been provided the opportunity to make elective deferrals or after-tax employee contributions under the plan for a period of at least the last 9 months in that plan year and during that period the employee had the opportunity to make elective deferrals or after-tax employee contributions in an amount not less than the maximum amount that would have been permitted if no failure had occurred. (See Examples 6 and 7.

I do not have a link, I just googled it to try and find it. Odd. not sure if others can download? I can download, which I don't think is related to the fact that I posed it (,my browser wouldn't know that). I really think this is the most important text: So, the IRS went on to provide that IRC Section 415(c)(3) compensation can, but is not required, include "deemed Section 125 compensation." "Deemed 125 compensation" is defined as an excludable amount that is not available to an employee in cash in lieu of group health coverage under an IRC Section 125 arrangement because that employee is not able to certify that he or she has other health coverage. An amount is only "deemed 125 compensation" if the employer does not otherwise request or collect information regarding the employee's other health coverage as part of the enrollment process for the health plan.

The most important thing to no about deemed 125 compensation is that it is not any kind of "real" Compensation. It is not taxable. It is not cash. That is where the term "DEEMED" comes in. Really no one would ever want to include it. So many people think it has to do with pre-tax health insurance payments, or with cash payments in lieu of benefits. It is neither of those things. Relius put together this write-up a long long time ago and its the best explanation I have seen from a trusted source (it was 24 years ago) 🙄 I have attached it below. I see document providers included Deemed 125 all the time based on this misunderstanding. I think it is dangerous because, as I mentioned, it is not cash, and it is not taxable - meaning it is never captured on payroll. Meaning it will never be taken into account. Based on the description in this pdf, I have a feeling it is also exceedingly rare. Comp - Deemed 125 Explanation.pdf

From ERISApedia. I assume it is cool to post this, lots of people post the EOB. Anyway, great textbook, I rely on it heavily! In short it is not as clear as I had thought. Mandatory automatic enrollment (MAE) does not apply to a plan year if, as of the beginning of the plan year, "the employer maintaining such plan (and any predecessor employer) has been in existence for less than 3 years." [Code §414A(d)(4)(A); Prop. Treas. Reg. §1.414A-1(d)(4)(i)] The proposed regulations do not define predecessor employer. The Section 415 regulations [Treas. Reg. §1.415(f)-1(c)(2)], which look to whether the new employer substantially continues the business of the old employer, might be a good starting point for making a good faith interpretation of the statute. Under those regulations, a predecessor employer is defined in one of two ways, depending on whether the company being evaluated continued the plan of the earlier company. In particular, the regulation provides that, if the current employer continued the prior plan: [A] former employer is a predecessor employer with respect to a participant in a plan maintained by an employer if the employer maintains a plan under which the participant had accrued a benefit while performing services for the former employer (for example, the employer assumed sponsorship of the former employer's plan, or the employer's plan received a transfer of benefits from the former employer's plan), but only if that benefit is provided under the plan maintained by the employer. On the other hand, if the current employer did not continue the prior plan (i.e., the benefits in the current employer’s plan were all accrued while the employees worked for the current employer): With respect to an employer of a participant, a former entity that antedates the employer is a predecessor employer with respect to the participant if, under the facts and circumstances, the employer constitutes a continuation of all or a portion of the trade or business of the former entity. Example 14.4.27 Fresh Foods swings open its doors on October 1, 2025, ready to serve the community, and promptly establishes a calendar year 401(k) plan. As a brand-new business, Fresh Foods gets to enjoy the "new kid on the block" exemption from MAE. This reprieve lasts until the plan year starting January 1, 2029. For now, the team can focus on stocking shelves and slicing compliance red tape. Example 14.4.28 Now imagine a twist: Fresh Foods, while newly incorporated, buys out Ed’s Good Groceries, which has been serving the same location since 2015. Fresh Foods also keeps many of Ed’s long-time employees. This changes the game. Since Fresh Foods continued Ed’s operations, Ed’s is likely a predecessor employer, and Fresh Foods can’t claim the new business exemption. The MAE rules kick in right away, applying from the moment the 401(k) plan is established.

I just don't see any basis for any sort of predecessor issues. My understanding has always been the only way that could happen is if the buyer maintains the plan of the seller, or some sort of spin-off. Are you saying that a straight asset sale, where the new buyer just so happens to hire some or all of the existing employees might somehow be considered not a new employer?

I think it very much matters if it was an asset purchase or a stock purchase. If your client bought the stock of the business through the LLC (i.e., the LLC owns 100% of the stock of the business that had been ongoing) then the employer is NOT new. If on the other hand it was an asset purchase, I believe there is no question that this is a new legal entity with a bunch of new employees and the 3 year exception would apply. The laws are all very clear on an asset sale not having any successor connections to the prior entity. Note that an asset sale might be for all of a business, or one sliver of a business. There is no requirement that they need to hire the same employees either.

Peter is being very non-alarmist (even though he is of course correct!). I would like to be much more alarming. Fix this immediately, it is super-duper bad. The Plan Administrator made a mistake; that's the plan administrator's fault and they need to pay the expense. At best you can take the position that this is a prohibited loan from the plan to the plan administrator, corrected with interest (etc). Get an attorney involved. This is very very problematic. probably eligible for self-correction under the new DOL Program, but absolutely needs to be corrected.

I was rushing meant to clarify that this is 100% the better solution. There was an IRS FAQ way back when this fact pattern was posed to the IRS and they said that an 11g was acceptable. It wasn't precisely the same but it was pretty much the same. The point was you dont have to be failing a test with no other means of passing to be able to do an 11g amendment, and the question was about making people eligible who were not previously eligible. I found it, it was the ASPPA Annual Conference Q&A from 2010. I know it is from behind the paywall where I got it, so not sure I can share it.