austin3515

Seems to me there should be one standard that we're all using to decide if our clients have to spend $20,000 on an audit. Man I hope someone clarifies this... I feel like ARA or ASPPA needs to get an opinion. Without clarity I take the very reasonable position of whatever is best for my client. Shameful the the DOL did not realize that this was an obvious question to be answered.

110 people have account balances at 12/31/2023. 100 people get a profit sharing contribution after year-end, including 20 who do not have accounts presently so if I could the receivable only participants, there are 130 participants. Has the DOL gone to trouble of defining what they mean by "account balance" and whether or not it includes receivables? Obviously it's the difference between an audit and no audit.

Definitely add plan terminations to this list.

@Tom thank you!

60% of $50,000 is $30,000. Not every plan has $100MM. Personally I don't see how this could possibly be considered an Excess Deferral. The contributions never should have happened in the first place because they were not eligible. EPCRS says the plan should be put in the position they would have been in had the failure never occurred. I find it extremely hard to believe that when a plan that uses the Key Employee exclusion as you describe in a pre-approved plan, and then has a failure where a key contributes through some oversight (like a new hired family member contributing), that the response is to give the top-heavy minimum. I would implore anyone who has a preapproved document that excludes keys to pose this precise question to their document provider. If the response is "the top-heavy minimum is due" then there is essentially no point to that checkbox. That checkbox is just a nondynamic way of doing the same thing I am proposing, inoculating against top-heavy. I'd say the plan is worse off having made the election, because not only do you have to do the top-heavy minimum but you also have to refund all the contributions. What would be the point? You could have just told the keys not to contribute (again you're talking about just the sole owner typically).

This is all not correct in my opinion. In a plan that requires this language we would monitor in the same way we monitor that plan already. Calendar reminders, etc. Annual mentions on phone calls. This can be done and we are already doing it for plans on the brink of top-heavy (say 50%+). Implementing this provision is no different than what HR already has to do to prevent the top-heavy minimum in the first place, and believe me we are making a big deal about this on those plans (as everyone should) because we know the radioactivity is off the charts. In anticipation of your next question, the need for the exclusion is because despite our best efforts it is still humans who are in charge of execution and sometimes humans make mistakes. Not to mention if their kid/spouse works over the summer and sees fit to do 401k. So in case you thought the purpose of this Innoculation was to avoid of sound administration, I would like to correct the record. And as far as operational failures go I do not need to tell you I'm sure that EPCRS has guidelines for correcting contributions to ineligible to participants. You're suggesting the only correction for non-compliance is to do the top-heavy minimum and that is not the case. EPCRS tells me how to correct. And as a reminder, it is Austin Powers International Man of Mystery. Not Don Quixote 🤣

Our opinions of what makes sense for how clients should spend their money often coincides but not always. I doubt it will come as a surprise to you that we ran all sorts of projections, SHMAC, SHNEC excluding HCE's. It just didn't fly. SHMAC without HCE's was barely $25K. Let's face it as a small business owner, a $25K expense is a Big Frigging Deal. Nope, they didn't want to do it. And absent the top-heavy rules, that would be a perfectly fine plan design and in fact Congress had no problem with a 401k only plan design for them for the first 6 years of the Plan. The only thing that's changed is some turnover among the staff but NOT the owners. Again the injustice is that if you happen to have 300 employees and 3 keys a plan can have this plan design no problem. The sole difference is one is big and one is small. If you can find me another difference between the two I'm all ears.

The nature of these plans is such that we are excluding either 100% of the HCE's or something similar, and maybe there will be one Key NHCE. So sure passing coverage is never a given but this should be as close as you can get to deemed passing. Now, hopefully anyone who is designing plans will be paying attention to whether or not the design will pass coverage.

Well those are not viable options for the clients I am talking about. Not one of them. So again because they are closely held and in business for a while, they are severely limited in their options (and therefore so too are their employees). Anyway I am a big fan of the Top Heavy Innoculation clause. Curious if any last thoughts on whether or not other people think it works. Thanks you @C. B. Zeller!

OK I must be the only person in the industry who thinks these rules are unfair (except I'm not). One thing I can promise you is my client who just found out they have to drop $60,000 for a THM is not a big fan (takeover plan for us). I'll speak on their behalf 👍.

I do know that contributions every year are tested for nondiscrimination. And I do know that the reason that plans become top-heavy has a lot more to do with a) how many relatives work for you; and b) how long they have been in business (owners balances go up, and employee balances stay consistent due to turnover). And if you think there is an injustice plaguing the employees of small plans that needs to be remedied when the higher ups accumulate too much money, then those concerns could be easily addressed in larger companies as well. How about a rule that says if the average account of the C Suite Execs exceeds a million then that plan is top-heavy? Just because they're bigger, is your concern about this unfairness alleviated? And that's precisely what some have to do in response to these insane rules. Tell me how that serves the American People, a worse plan with lower limits and no match of any kind. All to avoid the top-heavy nonsense. Austin Powers For President - 2024. Yeah Baby!!

I'll just mention too that my position is the same even if they wanted to have say a 25% on the first 4% match.

None. This is intended for the small employer, where the owner makes say $80K a year wants to save what they can in 401k and provide a payroll deduction contribution opportunity for their employees. I think it's easy to forget that no one wants to be forced to right a check for tens of thousands of dollars, which is what happens to the "victims" in these scenarios. It's hard to overstate what this means to real people who suffer the consequences of this dastardly rule. If I can make sure that NEVER happens to them, I have done a substantial public service. You almost got to hear my soap box speech at how cruel these rules are, particularly because of who they do target (small closely held businesses) and who they do not (Microsoft and IBM and PricewatershouseCoopers and the like). I'll bet the director of HR at Microsoft does not even know what top-heavy is. That's a shame.

Since I'm excluding ALL key employees, there would be at least one HCE that is excluded under this. Figure that's 33% of all HCE's and I'm excluding say 1 out of 20 NHCE's. These are made up numbers but because the vast majority of the excluded class will be HCE's coverage would be a lock.

I mean I'll be honest, from where I sit the difference between my proposal and the exclusions sitting in al of our pre-approved documents excluding HCE's is barely noticeable. They're out because a condition determined as of the last day of the preceding plan year was met. That's exactly the same for both exclusions. And your commentary about people wanting to "unring the bell" I do not think is on point. In a top-heavy plan if the keys were eligible to contribute and they did we are on the same page, you cannot unring the bell. I'm preventing the bell from ever being rung.

"In the event hat a Plan is top-heavy for a Plan Year, no Key Employees shall be eligbile to participate to make any Elective Deferrals under the Plan." Is that a valid exclusion? What I'm trying to do is have a stop-gap in the plan so that even if a Key Employee contributes to a plan that ends up being top-heavy they just have ineligible contributions and not a top-heavy minimum. We have plans where we 'know' it's going to be top-heavy eventually. We just don't know if it's in 1 year, 2 years or 3 years for example. And of course we tell them to stop contributing in January until we can run the test but I'm afraid if someone forgets it could cost them tens of thousands. I will tell you I asked a guru and he felt that operationally it was a cutback. I would be comfortable explaining that risk to the client but telling them on the plus side their plan as written can never be required to fund the THM. And that is invaluable.

Politically or legally, LOL. The ones that I am doing I'm saying if you were eligible for the SIMPLE you're automatically in the 401k/. LEgally, there is nothing in the law that says whoever is eligible for the SIMPLE has to be eligible for the 401k. I'm frankly surprised it does not say that, but it does not and as I mentioned above the law says what it says and it doesn't say anything else 🤣 But seriously, that's just rude, you should waive eligiblity for them anyway in my humble opinion (which is easier to say when it's not your money I get it).

Well I have done one already, I'm on my 2nd and my partner is doing 1 now too. Mad rush? No but if you multiply our experience by the hundreds of us there must be a ton going on, and its only Marc. And when I asked my "guru" they said "It's amazing how many questions I'm getting on this topic." Plus unlike something silly like self-certification of hardships, there are a lot of complexities to this. What will an allocation look like in this year? I haven't see anyone run through it yet and I think someone really needs to to give us some guidance here.

Well FWIW I asked a guru and that person said they agreed with me (just sayin', LOL). IF the worst sin I commit here is to use 12 months of the max comp limit in the absence of something definitive I will comfortably fall back on a good faith interpretation anyhow. I sincerely hope ASPPA and company put something together on this stuff ASAP. It's hard overestimate that if they don't provide the guidance now, it's almost not worth it. Now is when these things are happening. Like right now.

I disagree. The law does not say "initially effective on or after the date of termination." That's what I meant by the law only says what it says and doesn't say anything else. Established / maintaned "as of the day after termination" to me leaves the door wide open for an effective date prior to they day after the termination. If the Plan was effective January 1, 2024, with the 401k effective the day after the termination of the SIMPLE, then I'll be darned if someone can tell me I did not have a Plan in place "as of the day after termination." I did. I hope others will chime in. Hard to overstate how important this all is, and how very much in real time it is. These are happening right now...

OK, I posted some thoughts on that thread!!

The red text is my anaylysis. From SECURE 2.0 “(11) REPLACEMENT OF SIMPLE RETIREMENT ACCOUNTS WITH SAFE HARBOR PLANS DURING PLAN YEAR.— “(A) IN GENERAL.—Subject to the requirements of this paragraph, an employer may elect (in such form and manner as the Secretary may prescribe) at any time during a year to terminate the qualified salary reduction arrangement under paragraph (2), but only if the employer establishes and maintains (as of the day after the termination date) a safe harbor plan to replace the terminated arrangement. It seems to me this is accomplished without regard to the effective date of the new Plan. The only stipulation is that there be a safe harbor plan in place the day after the termination of the SIMPLE. Nothing here precludes the Plan itself being effective 1/1/2024 (and thus the profit sharing component). We have met the requirements necessary to terminate the SIMPLE IRA and there are no other restrictions. From 408(p)(2)(D)(i): An arrangement shall not be treated as a qualified salary reduction arrangement for any year if the employer (or any predecessor employer) maintained a qualified plan with respect to which contributions were made, or benefits were accrued, for service in any year in the period beginning with the year such arrangement became effective and ending with the year for which the determination is being made. In my opinion, you can only read the text above to be completely obsoleted if the new provisions of SECURE 2.0 are met. That requirement simply must be considered as waived in the year a replacement plan is implemented. This reminds of me of something I learned a while ago – the law says ONLY what the law says and nothing else. There just isn’t anything in SECURE 2.0 regaridng when the replacement plan can be effective – ONLY that it be in place on the day after the term date of the SIMPLE. OK now everyone tell me what I’m missing!

I have about a million questions. I'm writing this as though I know these to be true but they are only educated guesses... 1) I presume the SIMPLE IRA contributions are from January 1st through let's say May 31st, be they Nonelective or Match. 2) Then, the Safe Harbor 401k contributions, be they Nonelective or Match run from June 1st through December 31st. 3) Profit Sharing / Gateway Minimum / Cross-testing / top-heavy minimums would all be based on comp data from 6/1/2024 through 12/31/2024 4) The 415 regs are crystal clear that ALL defined contribution plans are aggregated for 415 purposes so I would be targeting the 415 limits based on the sum of the above. My plan doc already says the 415 limitation year is always a 12 month period so no need to prorate the 415 limits. 5) I suppose I would need to pro rate the comp limit though? That could be problematic, so I guess I might need to have a 1/1/ effective date after all and just have the 401k safe harbor contriubtions effective June 1, 2024 and determine my top-heavy minimums as 3% of 12 months of pay, offset by any Safe Harbor, and SIMPLE IRA contributions. I think my point really is, there are so many answers to so many questions. HAs anyone sat down and tried to figure this out? Has ASPPA or Ferenczy or ERISApedia answered these questions at this level of detail? These are happening right now so we need a playbook...

As an example, Charles Schwab PCRA account (which is used by several RK's as the SDBA) has an application. On that application you can restrict the investments available in several ways, including options, individual securities, and even taxable vs non-taxable mutual funds (and several others). I've seen TD Ameritrade SDBA applications do the same thing. These applications are plan-level set-up applications, not the individual. I actually think it is the norm for these types of accounts. You're asking about the recordkeeper but that's not the right question. These elections are made with the brokerage account provider on their applications. The RK has no control at all over what happens inside the brokerage accounts.

Let em put it in there if they want it but I am not even thinking about LTPT on a plan with elapsed time. That's a bridge too far.