austin3515

Once it goes into an IRA, I'm not sure how you could call it a related rollover. IT's been scrubbed clean as far as I can tell... And obviously, I told the client he could just roll it to an IRA and leave it there, but he's got his life savings in one spot right now--in the Plan.

My documents say the same thing so I'm sold. No can do. BUT, let's say he rolled it to an IRA for a day or two, and then rolled it back. I think it would be allowable at that point.

It was...

Participant takes an ISD and within 60 days they realize they didn't need it. Can they roll the mone back into the Plan? Wouldn't it just be a regular rollover? I get that they need to make up the 20% withholding.

Prior post is incorrect - I think there was a similar discussion very very recently if you look back regarding forfeiture/refund. Match is only forfeited to the extent the participant is not vested. My opinion by the way is that there is no excpeiton for the excise tax in this situaiton. I came across the same thing as you before, and looked for an exception and came up with nothing.

Personnally, I think it's just wrotten to leave the owner of the ADP test solely because the business was struggling, etc. There should be an exception for someone working 80 hours a week who is not getting paid because he decided to pay his employees instead... But alas, there is not

But not eligible for rollover treatment thiugh right? So this isn' t saying the ADP Test is a moot point in the year of termination? We would still notifyt the receiving IRA custodian that the amount was not eligible for rollover?

From the EOB: 7.a.HCE takes no compensation for plan year. This issue also arises when an HCE, particular one who is an owner of the plan sponsor, does not receive a salary, and does not otherwise receive any compensation for the plan year. This is another one of those situations where there is no clear guidance from IRS, and it may place a plan administrator "between a rock and hard place" to resolve the issue. The more conservative approach would be to treat the HCE as not eligible, based on the discussion in the prior paragraph. Of course, in many cases the employer would like to treat the HCE as eligible, and then calculate the HCE's deferral percentage as 0% for ADP testing and ACP testing purposes. This is probably too aggressive a position. Even if the HCE is treated as eligible, should the deferral percentage actually be 0%? A case could be made that to defer $0 out of zero compensation is actually a 100% deferral. Given these mathematical gyrations, it is probably a sounder approach to treat the HCE as ineligible until formal guidance is issued by IRS. The IRS acknowledged this to be a reasonable approach at the ASPPA 2000 Fall Conference in Washington, D.C., in a "Q&A" session with IRS representatives. In the Q&A Session, the issue dealt with a partner in a partnership whose earned income was negative for a plan year. Taking nominal salary might be a better approach. This issue, at least where the HCE is a common law employee of the plan sponsor, can be avoided by paying the HCE at least a nominal salary (e.g., $100). So long as some compensation is taken and the HCE does not defer any of that compensation, it is proper to include the HCE in the ADP test at a 0% deferral rate. This won't work in the context of a self-employed individual (e.g., sole proprietor or partner), whose compensation must be based on an earned income calculation. If the earned income is zero or negative, the best approach appears to be to treat the self-employed individual as an ineligible employee.

The point of the rule is that you're not allowed to change the rules on people mid-year. So you can't change the match formula, etc. This doesn't change the rules on anyone in Plan A, so I would think it would be OK. What's more, Company B could itself have started it's own SH 401k plan with no problem at all. The fact that you're doing it in one plan should not change the outcome.

Based on what I've learned we're giving the clients a notice (that looks kind of like a form) for the HCE's, telling them the amount of the refunds, that they'll get a 1099, not eligible for rollover, yada yada, and that by checking the box below, they can opt out of the 10% withholding. So we're not requiring that they send it back, but we are complying with the requirement to provide them with the appropriate notification and opportunity to opt out of the withholding. I'm quite happy with it

W-2' wages is the plan's definition of comp for 415. Plan excludes fringe benefits (Personal use auto, etc). When calculating THM's, should pay be increased for these amounts? Almost all of our plans include fringe benefits (especially the small ones that tend to be top-heavh), but once in a while on takeover, etc., we get one where fringes are excluded, and today I happen to be looking at one that is top-heavy... I'm pretty sure we need to gross it up, but I wasn't sure if it was possible to exlcude them.

Sounds like a 3 year eligiblity to me, which would violate 410(a)... Me thinks this is very very bad...

3405(e)(10) Time and manner of election. -- 3405(e)(10)(A) In general. --Any election and any revocation under this section shall be made at such time and in such manner as the Secretary shall prescribe. 3405(e)(10)(B) Payor required to notify payee of rights to elect. -- . . . 3405(e)(10)(B)(ii) Nonperiodic distributions. --The payor of any nonperiodic distribution shall transmit to the payee notice of the right to make any election provided in subsection (b) at the time of the distribution (or at such earlier time as may be provided in regulations). 3405(e)(10)(B)(iii) Notice. --Any notice transmitted pursuant to this subparagraph shall be in such form and contain such information as the Secretary shall prescribe.

It;s much less refuse as opposed to procrastinate that I'm concerned with. But in either case, the default 10% withholding would apply. I just wasn't sure what the requirements were in terms of opting out of withholding.

BG150, you';re thinking of the calendar year data election, which relates to HCE determination. What I was referring to is different than that. But of course, not every document gives a lot of flexibility in choosing testing comp, although most prototypes do (at least I know ours does). Oh, also, this election relates to cOMPENSATION, not deferrals. So even if you elect to use calednar year comp, you still use plan year 401k. Not sure how that would work operationally, but that's the deal...

Do I have to have an HCE sign off an ADP refund? I know the refund is mandatory, but, for example, they could elect to waive out of the 10% withholding. Or is the employer allowed to proceed without the elections? Is there any guidance on this?

Under 414(s), it can be either the plan year or the calendar year ending within the plan year. Although there does not appear to be a restriction on going back and forth, I would recommend applying it consistently because of the 401k regs that talk about the anti-abuse provisions (i.e., flip-flopping on testing methods for the sole purpose of skewing the testing results). The preamble to those regs apparetnly states that they're not talking about run of the mill stuff (net comp, otherwise excludables, etc), but to me, this seems to be agressive to flip-flop between these two, especially depending on the plan year end, since it could be tantamount to switching between CY and PY testing (for example, if the Plan has an 11/30 year end, and you decide to use the prior 12/31 data--perhaps because a terminated participant deferred 50% of pay in that period!).

PArticipants will be notified if the Employer decides to MAKE the Safe Harbor Contribution. There is no requirement to tell them the decision has been made NOT to make it. That doesn't mean you might give the notice for other reasons, but there is no requirement to do so. From § 1.401(k)-3 Safe harbor requirements. (2) Contingent notice provided. A plan satisfies the requirement to provide the contingent notice under this paragraph (f)(2) if it provides a notice that would satisfy the requirements of paragraph (d) of this section, except that, in lieu of setting forth the safe harbor contributions used under the plan as set forth in paragraph (d)(2)(ii)(A) of this section, the notice specifies that the plan may be amended during the plan year to include the safe harbor nonelective contribution and that, if the plan is amended, a follow-up notice will be provided.

That is interesitng... The first sentence of 3.6 of my BPD says: "An Employee is not permitted to elect not to Participate in the Plan." It then goes on to talk about people who made elections before the effective date of this restatement. Are you looking at the prototype or the Volume Submitter, or maybe the IDP? I'm looking at the prototype. Are you sure yours doesn't say that? Seems very odd that we would have two different versions of this paragraph. I submitted an incident corbel last night to see what was up with this new provision.

The other thing that bothers me is that, as a condition of employment, you are forcing someone to waive out a plan. Maybe it is legal, I don't know, but it just doesn't sound right... Almost like coercion...

Since the election is IRREVOCABLE, I can't see how it can be revoked (ha ha ha)... Interesting not so side note. I went to our new Corbel EGTRRA document which states "An Employee is not permitted to elect not to participate in this Plan." It goes on to discuss how to handle employees who had previously elected out of the Plan before this restatement. Probably one too many plans failing coverage due to someone refusing free money!

And that's why I love these boards...

Most documents used to indciate that if there is a 415 excess, it 401k gets refunded, so someone doesn't lose out on employer provided benefits. I would assume that is still available under EPCRS?

Company A has union and nonunion employees and is owned by Mr. A. Company B is established by Mr. A's wife (Mrs.A) however, Mr. A runs Company B (so spousal exception does not apply, and its one controlled group). Company B was established solely to get non-union work (I'm not 100% sure of the business purpose, but it was something like this). So some of the union employees are also doing non-union work under Company B. Enough of them are doing this so that I am concerned that I will not be able to pass coverage treating those employees as not benefitting following the end of my 410b6c grace period (fortunately, not until 1/1/2011). Is there any issue with treating people both as union and nonunion on the same test?

The sense is that under a failed ACP test, the participant accured the match based on the terms of the Plan. If match is accidentally given on comp over 245, the participant is not entitled to that match.,