Bird

Shrug. Could be it just isn't on their radar and whoever came up with the example never thought about it that way. I just don't believe they are dodging the question. I dunno, but I am in no way uncomfortable with basing % deferrals on any/all comp (and saying that payroll company that limit it are stupid and wrong). Plus I was going to say I think they have addressed this sufficiently and it looks like Tom posted a pretty good cite for that.

Could go either way, IMO. We (I) would generally be inclined to combine plans of companies owned by one person or otherwise part of a controlled group (i.e. have only one plan). I get the idea about splitting up a plan if it is near the audit threshold but it's just my nature to try to keep things simple, or at least as simple as possible in this silly business. The advisor might be right about reducing recordkeeping costs (e.g. if there is a $2,200 base fee) but she might just be looking to score points and take over the plan(s). (I'm pretty sure I could find an alternative if that is the only consideration.) My approach would be to price out the 2 (or 3 scenarios), taking into account all costs - recordkeeping (including indirect costs), admin, audit, etc. and see what things look like - of course also considering non-monetary factors, like plan design and objectives. And as noted, if you have a controlled group but different plans with different plan provisions, you might have testing issues that are not being addressed properly.

Personally I don't think it required any more guidance than we had, but I'd take this new guidance as being definitive. The part below seems pretty clear; they contemplate that a plan could base deferrals on the first $270K but lead off with the phrase "although not common." What more do you want, something that says "we are hereby answering Austin Powers' question once and for all..."? ? What does your plan say? Although not common, a plan can specifically require that salary deferrals cease once a participant’s compensation reaches the annual limit. If your plan specifies that salary deferrals be based on a participant’s first $270,000 of compensation, then you must stop allowing Mary to make salary deferrals when her year-to-date compensation reaches $270,000, even though she hasn’t reached the annual $18,000 limit on salary deferrals, and must base the employer match on her actual deferrals.

Probably not illegal or any kind of breach on the part of "the company we hired to manage the 401K ." The question of whom to blame depends on your relationships - is one company handling the investments and "third party administration" (in your view, that is probably preparing the Form 5500, although there is a lot more to it than that)? Or do you have one company that does the investments and one that does administration? In a perfect world, you and/or the payroll company know enough to stop payments on the first loan when that loan is paid off, and the administrator and/or recordkeeper recognize this and have no reason to ask questions. In a less perfect world, loan payments keep coming but someone, probably the third party administrator, recognizes this and says "wait a sec, did you mean to keep doing this?" (Often, participants want to continue the same total payments in order to pay off the second loan sooner.) In a less, less perfect world, loan payments keep coming and someone shrugs their shoulders (or an automated system effectively does the same thing) and applies the payments to the second loan. I like to think of our firm as being in the camp that would recognize and address this right away, but depending on a lot of factors, we might not even know about this until well after the fact. Not to be too blunt but ultimately any legal liability lies with the participant and the employer for not knowing enough to stop payments when the loan is paid off. When an investment company receives money they have to do something with it and applying it to another loan is the most logical option. Whether someone else c/should have caught this earlier depends on relationships and what you are paying them to do.

Yes. It's essentially a plain old mistake, and it does not affect the payroll system or tax reporting for the participant. It is part of his or her after-tax cash that should have been received in a paycheck, and mistakenly went to the plan.

More to make sure I'm not mis-thinking, would you feel differently if he deferred $18,000 and then had income of $10,000? The extra $8,000 is still not any kind of deferral? (Ironically, I just learned that I have a client who is facing this very situation for 2017...)

We have a compliance questionnaire where we ask the client to tell us if there were any late deposits. Whether that is adequate "cover" or not, we've never had the misfortune to have it tested. (But, if we can't help but know of egregious failures, we make them fix them.) In this case, I have no problem playing the blind monkey. And I think your approach of saying that if you had to you could slide money from one source to another works; we do that too.

If I understand correctly, you have a SEP IRA to which you are no longer contributing, and a 401(k) to which you are or will contribute. The potential problem is about contributing to both, in or for the same year (if you are using the IRS model SEP and it's not known if you are). I don't see a problem even if you are.

My mistake in saying "402(g)" - but I think it is an "excess deferral" for exceeding 100% of pay and my comments were meant for that definition. Interesting fact that there are other participants. If not well-documented that this was intended as a deferral contribution, it might be argued that it is profit sharing and should be allocated.

In plans with recordkeepers, this will typically get added to earnings and that's how we show it. For plans without recordkeepers...well, same answer. Good point about it being deductible but from an accounting standpoint I think it might be carved out as an administrative expense.

You have to use some common sense. I'd go to them and ask if they want to implement the lower elections going forward. Tell the client some things aren't fixable.

It's Monday morning and some knowledge may have leaked out, but I think if you have a 402(g) violation (forget about the sole proprietor for a minute; let's say someone put in $30,000 to two different plans), that you (the participant) have to claim the excess as income in the year deferred, and will get a 1099-R the following year that effectively says the money was refunded but not taxable in that following year (the year distributed). For a sole proprietor, he simply doesn't take the deduction in the current year, and isn't taxed in the year the money is distributed.

Good point. But I think because of the way the Ft William doc sets up the SH in one section and then uses the Matching section to set up the SH contribution amounts, the optional true up still applies. I'll leave it to someone else to follow those connections, or as you suggest, just ask them. FOLKS - for the record, it is Ft. William (no "s").

I don't think it is a mistake of fact. I think that is limited to mathematical or clerical errors. I don't think it matter who gets the refund; a sole prop and individual are theoretically the same. The 1099 should be in the name/SSN of the individual.

Agreed, 1 year/semi-annual is generally best for keeping employees out as long as possible. Your job is to make him understand that (and help ID 7/1 entrants).

Are you sure it has to be allocated for 2018? Sometimes (often?) the doc will say it has to be allocated in the year of the forfeiture or the next year. I'd try that first. Otherwise, I'd try to use it on admin expenses. Last choice would be to allocate it as a profit sharing contribution, assuming the plan allows match ff to be allocated to PS. Which raises another caution flag - will this create nuisance accounts for participants who otherwise would not have an account? If you wind up allocating $25 or whatever so someone who doesn't have an account, that is a waste.

It looks like it is totally flexible. The language below is in the Basic Plan Document. The concept of contributions being "definitely determinable" lost all meaning some time ago, for better or for worse. (b) Contribution and Allocation of Matching Contributions. Matching Contributions shall be made to the Plan and promptly allocated to the Matching Contribution Accounts of Participants who meet the requirements of Subsection (a) and in the amount determined pursuant to Subsection (a) as soon as administratively feasible after the end of the periods described in the Adoption Agreement. (1) The Company may make an additional Matching Contribution ("true up") on behalf of each Participant in the amount of the positive difference, if any, between the Matching Contributions that would have been allocated to his Account had such contributions been determined on the basis of Compensation for the entire Plan Year and the Matching Contributions previously allocated to such Participant's Account.

There's a potential debate about whether a resolution can rise to the level of a plan amendment but effectively, that's what you need - a plan amendment. It needs to be memorialized for future restatements, SPDs, etc. Depending on the number of people involved, it might make sense to amend Plan B to include that feature for everyone - it's not a huge giveaway and keeps things simpler going forward to have everyone with the same benefits.

Agreed it is not a distribution. Don't worry about any "other" line being negative.

I hate to do anything to prolong this thread but while that is theoretically possible, I have never seen any evidence of that and don't believe they do it - except in an audit. And as noted that is easily explained.

If both the overpayment and refund happened in 2017, I'd think they would offset and net to $0 - no special entries needed. If the overpayment happened in 2016, then there was an error in the 2016 reporting and theoretically that should be amended. For $50, I'd just bury it anywhere. (But this wouldn't happen in our reporting system since we reconcile everything.)

Are we agreed that in the case originally posed, there is no RMD? She did NOT terminate. I'm confused by subsequent responses which see to overlook this detail and are off to the races - in the wrong direction, IMO.

I stand corrected, I guess. This is one of those things that was hard-coded in my brain by my first employer. I can still not like it though.

I'm not a fan of letting the investment tail wag the plan dog, and that sounds like what is happening. You could be experiencing either actual investment limitations in the 401(k) due to it being a broker-sponsored plan, or it might just be a perception. But what you propose sounds ok.

If the change is very simply limited to changing the eligibility requirement and/or the entry date, that will not affect someone who has entered the plan. It can't be retroactive. Having said that, I think there is some (in my mind theoretical and preposterous) way to effectively "kick them out" but I don't think we are talking about that.