AlbanyConsultant

We still have a lot of plans that prefer to have allocation conditions hard-coded in the plan (probably so that the SPD shows them). For plans with an hours threshold, there are going to be a bunch of participants who normally cleared the bar that don't for 2020 because they were temporarily laid off, or were furloughed, or whatever for part of 2020 and didn't work enough hours to meet the plan threshold in 2020. Do these plans/participants have any options (other than the plan sponsor giving them what they would have given them as a contribution outside the plan as a bonus)? Possibly a one-year-only amendment that says that for 2020 only, the hours of service required for a contribution is lowered to X hours? This is just speculation at this point (for me, at least), but I can see that it might cause coverage issues (in which case, we can start bringing participants back based on highest hours first, but only until 410b is passing and then no further).

Just got updated info from client - owner had stopped deferring at $19,500, but will take a bonus today and defer $6,500 from it to get to $26,000 (it's almost like they don't read our newsletters!). So I presume this is a moot point and that I can go ahead and max him at $63,500. But if anyone still wants to weigh in on the ramifications of what would have happened if that bonus hadn't been made, that'd be appreciated.

I'm looking at a PYE 9/30 401k/PS plan, and for the first time, the deferrals for the owner (who is 50+) are substantially lower then they have been in the past: 10/1/19 - 12/31/19: $2,200 1/1/20 - 9/30/20: $16,800 10/1/20 - 12/31/20: not received from client yet He wants to max his profit sharing for the 9/30/20 PYE in his cross-tested plan. What is his DC allocation limit for the plan year? I know, without that last bit of information there's no exact answer yet, but this is why I hate off-calendar 401k plans. Does he have to actually have deferrals over $19,500 in calendar 2020 to take advantage of the catch-up provision? Meaning if he deferred $4,000 in the last quarter of 2020 for a total of $20,800, would his limit be $58,300? Thanks, and happy holidays!

Right - if we've merged one PS plan into another, for example, then I'd have no problem. And I'm sure they're all thinking "employer contributions are employer contributions". But, alas... no.

Thanks, Bill. The FA was so sure that this could be done that I started questioning myself. Now I have to start questioning him!

I've got a non-profit that is terminating their 403b plan effective 12/31/20 (and is going to be able to pay everyone out) and starting up a new 401k plan effective 1/1/21 because they are getting close to the audit threshold and need to put in eligibility requirements (even the 20 hours/week is problematic). They are impatient about the 2020 employer contribution, though - the question asked is if that can be made to the 401k plan so that they can pay out the current accounts now instead of waiting for them to get us census, etc. which could mean the distributions won't happen until mid-2021. Which isn't a problem legally, except that it incurs plan-level fees that they are trying to avoid. My immediate response was "no"... but is there anything I'm overlooking? Thanks.

We have very few plans that register for TINs anymore. One that just did is for a one-person plan, and now the person is moving. I found Form 8822-B that looks like it might be what is needed to change the address at the IRS, but... does anyone actually do this? Or is it good enough to wait until a return is filed with a new address and let the IRS update their records at that time? Sure, watch this be the one time that the IRS sends a notice to the trust, and they won't be there to receive it...

There were... things in the old plan that we wanted as much separation from as possible. I wish we didn't have to do it this way, either. The CPA decided that they were not going to put in a contribution for the 4/30/20 PYE after all (I don't know why). I feel like it is less necessary to reduce the calendar 2020 limits in the new plan because there is no benefit being given on the 1/1 - 4/30/20 compensation in the old plan.

We started a new calendar year PS plan eff 1/1/20 for a corp that previously had a 4/30 PYE (there are reasons). The CPA who ran the prior plan (who is one of the reasons) is planning out his contributions for 4/30/20. The owners of course want to max their profit sharing allocation for the 4/30/20 plan year. If he uses compensation 5/1/19 through 4/30/20 - and I can't see any reason why he wouldn't - then doesn't that cause an issue for the 12/31/20 PYE? It feels like the 415 limit (and maybe even the comp limit) should be reduced somehow so they're not double-dipping. If we had done this via a short plan year, we would have had a year with less comp and pro rated limits, so it feels odd to benefit by doing it this way (though I know there are other times when doing things in a more convoluted way does give an advantage...). Am I looking for a problem where there is none, or is my gut on the right track? Thanks.

I've got a new plan where the potential ASG issues are complicated enough that I felt that they should go to an ERISA attorney to make sure which side of the line they fell on, and they are in the process of doing so. Are those attorney fees includable in the start-up costs for the new plan credit? Seems like it should be. Thanks.

Thanks, everyone, for your input. These are a lot of the same discussions we were having internally (thanks, @RatherBeGolfing - we knew we had heard about that 'informal guidance' before, but hadn't been able to put our fingers on it!). Thankfully, in this instance, the negative amount is small enough and we're only looking at the 3% safe harbor; I believe that the plan sponsor will be comfortable with the 'treat the negative as zero' line.

Have a client that is a sole prop, but added an s-corp in at the beginning of the year (calendar year 2019; sole prop was left open through 2019) and the employees were transferred to the s-corp as of 1/1/19. It's a controlled group, and the s-corp adopted the plan 1/1/19. The sole prop (which has only the owner, no employees) is booking a bunch of losses, so the net comp is going to be about -$5K, and the owner's s-corp W-2 is going to be $100K. What's the best way to determine the owner's compensation? Is it $100K? $95K? Something else? Thanks.

Yes, in a 403b plan. Thanks.

Calendar year plan, employee is hired during the last week of 2019. However, the first paycheck they receive isn't until the first week of 2020 (and counts on the 2020 W-2). Does the universal availability clause require that the participant be counted as a participant in 2019, even though there is no official 2019 compensation? And this plan has an ACP Test - I would say that the participant had no opportunity to receive a match and therefore can't be counted in the 2019 ACP Test... but I would have to include them in a coverage test. I don't really have a basis for that (yet), but it seems ridiculous to include someone in a test that they had no opportunity to take advantage of (hmm, so then why include them in 410(b) testing?). Any sage advice? Thanks.

Participant P died - he was the brother of the plan sponsor. The plan is terminating, and all of P's beneficiaries have been paid out except for his minor child... because the ex-spouse is not completing any paperwork. The product platform says that the child's parent is the only person who can execute any paperwork for the child. Sure, I've got one or two other non-responsive participants who can be rolled to IRAs, but the platform says that since this has to go to an Inherited IRA, it can't be forced like the others, and that requires a signature. The plan sponsor has tried to contact the ex-spouse/mother via mail and through a grandmother, but has gotten no response. I don't know the situation well enough to try and speculate as to why there is no movement. And we're talking about $50K. Besides "hire a lawyer", is there anything else the plan sponsor can do? Thanks.

Thank you all for the help.

Calendar year plan, integrated pooled PS only. Client forgot to deposit the 2018 profit sharing until sometime in January 2020 (still tracking down date to see if it was "in transit" by 12/31/19). Let's say it was sufficiently late in the month so that argument doesn't hold water (if it even can in the first place). I had a vaguely-related question a couple of years ago (link), and @Tom Poje was great enough to find some IRS language from a 2010 ASPPA Q&A: Does this mean we get to treat this as a correction under EPCRS now? That seems almost too easy. Here's Treas. Reg. 1.415(c)-1(b)(6)(ii)(A): Does it seem to be a generous interpretation of this Treasury Reg that seems to be looking at more extraordinary circumstances to stretch it to cover a situation like this? Is there any other way out? Or is the doctor, who was of course maximized for 2018, doomed to a $1,000 allocation for 2019? Thanks.

I suspect that I already know what the best advice is going to be, but I'm hoping that someone can point me to something otherwise... A new plan is starting up 7/1, and all employees will be eligible only if they have met the plan's service requirement of 1 YOS. This requires the plan sponsor to review their records and see who actually worked 1,000 hours or more in a year for all employees... back to each of their hire dates, right? There's no "only go back seven years" kind of cut-off? The response I got was that they switched payroll vendors several years ago and purged records after seven years. I'd normally try to remove the YOS requirement, but it's needed here because they're large enough with a relatively sizable ~10-15 hour per week staff such that if they included them all, it would put them over the audit threshold (yes, there are ways around that like multiple plans). It seems like the best they can do is to take the records that they have, make notes that these are representative for the ones that they are consistent for, make notes for why they are including anyone who they think would have made 1,000 hours in any year, and keep the notes in their files.

A CPA asked me about this yesterday. His client has money left over, and has no existing retirement plan. So rather than return it, he'd like to open a profit sharing plan for his employees and pre-fund it with the PPP money (understanding that at the moment it may not be deductible). Seems like it would be allowable, if maybe not quite in the spirit of the program...

For those plans that just don't participate in the automatic force-out process and therefore aren't following the helpful provision that's in their document: is it a cutback to remove it?

401k plan changed payroll providers at the beginning of 2019. For the first three payrolls of 2019, they accidentally keyed the employee deferral amounts into the company match line (not sure why that was even set up, since there isn't a match in the plan!). The plan sponsor "fixed" this by taking the deferrals from the first two paychecks out of the third paycheck... but never took the next step of fixing the "match" from the third paycheck. So the net effect is that there is a February 2019 payroll where the normal deferrals were paid by the employer. Since this was never fixed, the W-2s have the wrong amount, in the sense that they don't match the deposits, and also if you multiply the deferral election times the compensation, it's not right... but the W-2 does match what was deducted from compensation, so is it really wrong? Most of the amounts in question are <$50 per person, though there are a couple that are about $100. What kind of correction should be made? It seems like something needs to be done. In the plan, the participant is not short any money; in fact, it's the employer who is short about $2K overall. There is a profit sharing contribution to be done, but it's a set percentage (one of those few plans remaining) - I could recommend that the excess for each participant offset their profit sharing, but I'm not sure that's OK since it was an employer error. It would feel that the employee would be losing out on the amount they should have in their account.

OK, so it exists. But how to use it functionally? Telling plan sponsors to automatically not deduct loan repayments until July 15 seems extreme. #liberateloanrepayments LOL Do they have to ask each participant with a loan how they want to handle it (and for those with multiple loans... ugh)? And then just double-up after 7/15 to get them caught up ASAP so they don't end up in default?

Thanks for confirming, everyone. Now I'm wondering if one payroll company is doing it wrong, how many others are... and who is going to catch it?

But @Belgarath, Notice 2020-23 isn't part of the CARES Act (it was issued about two weeks earlier... which is something else I just learned). I see the FAQ is titled "Coronavirus-related relief for retirement plans and IRAs questions and answers", but it seems to specifically refer to the CARES Act provisions and not the prior Notice (except 2005-92 as referenced).

This is the first question I've gotten on this, so I'm hoping it's an outlier and not the beginning of a trend... The plan uses W-2 definition of compensation. The sponsor noticed that their payroll company was not applying the deferral election for those who elected a percentage of compensation to be deferred against what was being coded as "FFCRA EE Sick" pay on their paychecks (so it was being calculated from "regular wages" only). The plan sponsor asked the payroll company, and the response was to double-check the plan because "by default" FFCRA wages aren't included. I admit that I haven't paid much attention to FFCRA from a consulting standpoint, since I figured that it wouldn't matter - taxable wages are taxable wages, so we'd count them. But this deferral thing is concerning. I don't know what payroll company they're using, but what can they be thinking?