Bird

Wait a sec Larry, are you saying it isn't at least "aggressive" to say "we're allocating $100 under the existing formula, and amending the plan under -11g to add a new contribution of $50,000 allocated as follows?"

But what does "available" mean in that context? It's either in the plan or not ("insurance benefits are X times monthly benefit"). I don't see any participant discretion there, except perhaps by refusing to complete an app. I am curious as to how this would work in a CB plan (i.e. "offered" or mandated). Seems like DB concepts should apply. Personally I don't like insurance in plans but was asked this very Q and appreciate any insight.

...which, I think, brings up the issue of deductibility (in 2019 or 2020). Not claiming any insight other than I remember someone saying such contributions are deductible in the year the amendment is drafted, not the prior year, and it makes sense to me. (And it was in fact referenced in this thread.) Interesting too that this problem more-or-less goes away with the ability to just draft a brand new plan retroactively effective in 2020.

If that's the last date that deferrals could have been taken then that's the date. If the resolution said "no deferrals after 3/4 (or whatever date - 2/28* maybe?) and the plan is term'd as of 3/31" then I'd use the earlier date. Were there no deposits after 3/4 due to participant choice or other, maybe arbitrary reasons? *To clarify, the deposit date is totally irrelevant. It's the last payroll date that deferrals could have been taken that matters.

Agreed. The easiest course of action is to go ahead and make the IRA contribution, take the deduction, keep the documentation that there were no 2019 contributions, and respond to the inevitable IRS correspondence. It sucks that a payroll company's incompetence results in that but unless the client is ready and willing to stand up to them and threaten to fire them, you are banging your head against a wall. One caveat - they could be right for the wrong reason. If there were profit sharing contributions "for" 2018 that were not known about until 2019, with no deposits in 2018 for 2018, then it would be appropriate to check the box for 2019.

Agreed and I wondered about how it happened. Possibly mangled up with PS but then you wonder how it was caught. Incompetence is a curious thing.

I had a mental block about this for some time and will spell it out for anyone who is similarly confused. The idea is that if you pass the deadline for returning excess deferrals, you leave them in, and whenever they are taken out (termination of employment, retirement, etc., maybe many years later) they are taxed just like any other plan asset. But "taxable in the year of deferral" means that the participant doesn't get a deduction. So in this case the returns are amended to show higher income, and that's about it. Mike is pointing out that when they come out, they are/should be just a regular distribution, with regular coding (1 or 7 or whatever). It's too late for a corrective distribution. If the "regular" distribution wasn't allowed, then that creates a different problem. FWIW and hoping that the freeing of the mental block was in fact accurate...

The other potential source of this "uneducated" opinion sometimes comes from someone being dangerous enough to read the plan document and seeing "W-2 income" elected, and not knowing that the definition also includes earned income. FWIW

Never knew about it until a couple of weeks ago when it was mentioned in a SECURE Act summary, and discussed then. Since learning about it, we have prepared a couple. If we don't do it no one else will.

The numbers add up; see below. Once money is borrowed from a 401(k) it is just money; I don't see why it couldn't be used to create a rollover IRA unless I'm missing something in the regs, which I did not review for this discussion. If your accountant has a cite for why this can't be done he should share it. 401k value before distribution: $225K invested $25K loan $250K total 401k and IRA values after distribution and new loan: $200K invested in 401k $25K 401k loan $25K IRA $250K total

I explained that in my post, or at least made assumptions - the val is being done by an accountant, so it starts out on the (way) back burner. Then the sponsor and accountant are probably making decisions on contributions as late as possible (October) and not finalizing the val until then. So they think this particular participant's account is unknown until then when in reality it can be determined much earlier by allocating gains or losses when determined; additional allocations of contributions are not relevant to this participant's account. As suggested by JackS, they could pay the 2018 balance now and gains later and avoid some of that. If it's a large account relative to the rest of the plan, I would always recommend setting aside an estimated amount of cash so that market fluctuations (specifically a downturn) does not affect other participants. If the market goes up, the participant is SOL...a case might be made for some kind of fiduciary liability but it wouldn't be worth the effort/cost to pursue it. Bottom line, you are right that it shouldn't take so long and a lot of headache and hassles can be avoided by better administration.

I agree with this, but I think an "or" is missing (I added in brackets). If you're sure you had gains for 2019, and in all likelihood you did, then pay the 100%. As a side note, it really shouldn't take until October to determine this person's account balance. He's not getting a contribution, and that is probably why your val isn't completed until October - so that contributions are allocated are included in the val. But the gains or losses should be able to be determined and allocated much sooner than that. But if your plan is being run by your accountant, then it is on hold until s/he's done with tax season...and...you didn't ask for this with your fairly innocent question, but if your plan is being run by your accountant, there are probably lots of things wrong with the way it is being run. That is based on experience taking over plans that were run by accountants.

I think the point of the Act is to make such distributions penalty-free, not to permit them if not otherwise permitted.

The new law just increases the limit so the full language isn't there, but I am pretty much 100% sure that it is per employer...something about the new plan covering employees "...who aren't covered by a plan of the employer..."

If it's part of an account for the first year wouldn't it be part of the account for the second (transferred from a receivable to an invested account, presumably)?

We do that when we set up a plan, but I see where you're going...I remember reading something saying "of course that doesn't apply to deferrals" (the retroactive election). I don't see it in the law as specifically not applying to deferrals. Nevertheless I'm not sure you can make an election for a plan that doesn't exist.

That's a red flag for those of us on this board. Most of us here (I think, at least the ones participating the most) are either owners or consultants of smaller companies that have a hands-on relationship with our clients and know the laws inside and out, or at least know enough to research or ask when unsure. Fidelity is in it for the assets. They may have some fine people on the admin side but they aren't taking the same approach that we are to running a plan. It sounds like someone simply made a mistake - whether it is Fidelity or your employer, I don't know. There used to be a time when contributions were generally limited to lower percentages, and it may be that such a limit is stuck in your payroll system incorrectly. Go back to payroll and ask why you were limited, and if they say because the plan says so, ask to see that section. Don't assume they know what they are doing. Mistakes are made, all the time. Let us know what they say.

It really boils down to the specific plan language that is (or maybe isn't) restricting your contributions. If it simply says "maximum contribution is 20% of pay" then that is pretty clear-cut. But there are several caveats and comments that go with that... if it does say that, it is probably a poor design. Doing the math, you are not a Highly Compensated Employee (made over $120K last year) and your employer should be encouraging higher rates of participation from you. (I'm assuming you are not an owner or close relative of an owner.) Plans might have special restrictions on HCEs but it doesn't seem to fit here. if it does not say that (and my educated guess is that it does not) then the employer and/or payroll company has/have done something dumb, on several levels - they aren't following your instructions, which means that if you want to push it, they should put money in for you, and they might also be artificially reducing certain testing ratios that would allow owners and other HCEs to contribute more for themselves. You gave a lot of info but not enough. I'd want to know the specific language they are relying on to reduce your contributions. Also curious as to how many employees are in the company, and whether they are running the plan themselves or using an outside party for assistance.

Um, this was a bit misleading, sorry. Text from instructions is below. Interestingly (?) it does not specify a due date for the form. I suspect there was some theoretical revenue to be generated (that never will be since the IRS obviously has no intention of enforcing this) to help pass the bill. If you are an entity with an EIN and your responsible party has changed, use of this form is mandatory. Otherwise, use of this form is voluntary. You will not be subject to penalties for failure to file this form.

I don't know about anyone else, but I never knew about this form until I read Ilene's SECURE Act review: Last but not least, a little-known provision of the Code requires plan administrators to file Form 8822-B to register a change in plan name or plan administrator name/address. The penalty for nonfiling of that form will increase from $1 per day to $10, up to a maximum that is going up from $1,000 to $10,000.

I agree. I'm guessing the question arises because of safe harbor notice requirements, and if I recall correctly, way back, it used to appear that you had to include language about how nonelective contributions were allocated, which might seem to preclude changes to said formula. But I think it became clear some time ago that we could just reference the SPD.

I'll take a stab at it for the sake of conversation... If it was truly a mistake on the end of the accounting department, then the plan doesn't have a problem. In other words all of the calcs done and contributions made were accurate. The fact that the matching contributions to the plan were less than they could/would otherwise have been is not a plan problem, it's an issue between you and the company. There might be a couple of ways to fix it: First I'd be surprised if they didn't want to fix it, because if it had been done right in the first place they would have made the (additional) matching contributions and we wouldn't be having this conversation. But that is an option for them (not fixing it) and essentially forcing you to sue them for mishandling payroll or you otherwise getting pissed and leaving or whatever. They could give you a bonus (not in the plan but as additional comp) and gross it up to cover the taxes. That would cost them the most money. They might be able to make an additional "nonelective" (aka "profit sharing") contribution. That would be subject to plan provisions, and also non-discrimination testing since you are an HCE. But if no one at all is getting this, I don't see how it could work on the non-discrimination side. Finally they might be able to just make the additional deposit as a match...it might involve some trickery on the payroll end, and frankly it would require the recordkeeper and/or third party administrator if you have one, either not recognizing it or looking the other way. In other words it's not right at all and while logically these two wrongs do make a right, now you/they are exposing the plan to some risk by not following the terms of the document, and doing so in a discriminatory manner to boot.

A bit lost in the shuffle here is the Q/suggestion about making a profit sharing contribution for 2019 - has that been considered/discussed?

of course no because you can't do that

Yes. *Assume you meant loan