AlbanyConsultant

I'm getting all turned around on this one... Due to purchases, a controlled group has ended up with two plans. Plan R (that I just found out about) is 401k and safe harbor match with no HCEs but ~1/2 of the NHCEs excluded in a "per diem employee" class ("well, we have no HCEs because the owners don't take compensation, so we don't have an issue"). Plan N, my plan, is 401k and regular match, and has 2 HCEs. So I'm pretty sure this is going to fail coverage: R total NHCEs: 216 R benefitting NHCES (under either deferral or SHM): 114 N benefitting HCEs: 100% N benefitting NHCES (under either deferral or regular match): 33 I tried for a QSLOB, but the owners say that they are involved in managing both businesses... yet they don't draw pay from either one. So this is a 410(b) problem on both the deferral and the match side. This is where I'm stuck - I don't see a way forward. Even making the N plan safe harbor for 1/1/22 might not fix this, because with all those excluded NHCEs in the R plan, that's always about 40% of the NHCE population. How do I fix this? Thanks.

The conversion rep just keeps saying "that's our minimum, and we can't change it" every time I say "but it wasn't in the document up until now - is your legal team OK with it being added now?" So either (a) he is totally going back and confirming this, or (b) they're just going with it and assuming no one will ever check. I'm sure it's (a) and nothing bad will come out of it. 🙄

Thanks, Bill!

We've administered this non-safe harbor 401k plan for years, and now they are moving to a new asset platform that insist on using their plan document, to which we grudgingly complied. One of the provisions they say they need to have is a $500 minimum on in-service distributions and hardships... but there wasn't a minimum in the plan before. That sounds like a cutback in available benefits to me. Am I reading too far into this?

Thanks, all. @EBECatty, isn't appointing a new trustee an amendment that will take the plan out of the transitional relief period?

We were just told yesterday that effective 12/31/20 Company M sold out to Company S in a stock sale such that M is a wholly-owned subsidiary of S. We are the tpa for M's plan (401(k), safe harbor, profit sharing), and S's goal is to terminate M's plan in 2021. M's employees are still being treated as belonging to a different entity, and are still deferring into M's plan. Obviously, we want to take advantage of the transitional relief rules so that we don't have to deal with S for testing in 2020 or 2021. This brings up a few questions: 1. Can M as a corporate entity be the plan sponsor of M's plan post-12/31/20? 2. Can the trustees of M's plan (who were the former owners of M) stay on as trustees of M's plan? I don't see why not, though they may not particularly want to. If we amend, we lose the transitional relief, so I'm wary of that. It's funny - the articles about this topic all seem to be written from the point of view of the purchaser, not the seller. Maybe I should be dumping this all on S and telling them to have their TPA figure this out! Oh, wait - they don't really have one; they use a bundled low-cost product, so they have no one to give them any advice (except their attorney, who I'm sure charges much more per hour than I do!). Thanks.

This is kind of an off-shoot of another question I had earlier... For the many plans that have a YOS requirement (or some other hours... but mainly YOS, I suspect), there might be an issue where employees who were otherwise expected to be working enough hours to meet eligibility had their hours reduced due to COVID (layoffs, etc.) and now didn't meet that threshold in whatever eligibility computation period you're looking at that covers 2020. These people just... don't become eligible yet, right? Nowhere in any of the regulations or relief was there anything like they get additional credit for some number of hours for purposes of X, Y, and Z including retirement plan eligibility, was there? Not that I'm expecting that people who were out of work for months to be putting retirement savings at the forefront of their financial decisions, but this also likely affects eligibility for safe harbor and other employer contributions, so they're going to be a year behind (in the best-case scenario) for those contributions.

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.