AlbanyConsultant

I've got a participant's CPA who is saying that because we haven't electroncially filed the 1099-Rs yet, if his client electronically files their 1040 it will bounce because there is no 1099-R at the IRS to match it up to. I don't think I've ever heard of this before - is this is thing? Thanks.

Thanks, everyone.

A question similar to this started quite a debate at the ASPPA Annual Conference a few months back, but I don't think there was ever a clear answer... Small plan with immediate eligibility, the participants are the owner, his son, and one non-related worker. The son was not employed when the plan started in 2015 (he came aboard in 2016) and has never worked more than 1,000 hours per year. The company is expanding and now wants to change the eligibility provisions to have 1 Year of Service (1,000 hours). If the plan provision is changed to require a YOS, is the son grandfathered in the plan, or is he now considered an excluded employee (i.e., no future contributions) because he has not met the new eligibility requirements? Could the resolution (if the adoption agreement itself doesn't give you the flexibility to do it) be written to grandfather him in? Is that discriminiatory? If the son is terminated (and hopefully paid out) before the change, does it even matter? Thanks.

This has to be pretty common - the harried HR manager puts the deferral amount on the wrong line of the template on the product platform's website so that Particpant A doesn't get his $50, but Participant B does. We find it months later when we do our annual reconciliation because neither A nor B read their quarterly statements (or any of the gazillion notices, but that's for another day). Is this a "lost earnings" situation? On the one hand, Participant A did not have the access to his deferrals, so he was denied use of the money. On the other hand, the Trust was not shorted anything, and the employer did not have use of the funds. What takes precendence? I'm trying to get some outside opinions because I find that people in my office are doing it both ways, and they are passionately defending their side. Just as importantly - how would you correct it? Transfer the overage from B to A? Have the plan sponsor drop in an additional amount for A and short B's next deposit? Have you had one method work consistently better? Thanks.

A client 'fessed up and said that they had given a participant $2,000 in severance pay (that isn't for the payment of unused sick or vacaton time - they actually used the word severance). The participant deferred exacty 10% of gross pay, so while it's still being checked, I'm pretty sure that they took deferrals from the severance, too. Let's say this is the case. Obviously, that is not allowed - if it's not eligible for plan compensation, you can't defer from it. So what is the authority to return those deferrals? It's not a 402(g) failure, and 415 wasn't violated. It's not an excess deferral. What is it? Mainly, I want to know for (a) timing, (b) taxation, (c) earnings calcluations, and (d) to look smart when I tell the plan sponsor. Thanks.

I think that's it. Thanks!

I've got a plan that calculates the employer match on a quarterly basis, and in the back of my head I seem to remember a specific timing issue that relates to when that deposit has to be made. Or maybe I'm mixing it up with something calculated per payroll having to be deposited by the end of the quarter...? And because I don't know what I'm exactly looking for, I can't find anything that makes sense. can anyone figure out what I'm talking about and half-remembering? Thanks.

Hi. I have a 401(k) plan that has terminated effective 12/31/16. The business is still continuing, but the plan is winding down (calculating final employer contributions, testing, etc.). A participant has asked for an in-service withdrawal. Presuming that if the plan were not terminated she would meet the plan's criteria to take one, should be allowed to? I don't see anything that specifically addresses this in our document (Datair) or the regs. Thanks.

I have a new 401(k) plan going in for a client, and we are now getting word that the platform won't have the accounts ready until after the first payroll date, but likely by the second one two weeks later. So the plan document and all the SPDs and the enrollment meetings said that deferrals are effective 1/1/17. There are dozens of people poised to defer with the first payroll in 2017. What are workable options? > I have heard anecdotally that the IRS is actually reasonable in this scenario and will not penalize a plan for missing the first payroll's worth of deferrals. The participants should of course be told in advance that this will happen, but then they can start up with the second payroll with no additional fuss. > The plan document could be amended to allow deferrals starting with the second payroll period. Again, the participants should be told that this is happening. > Take the deferrals from the paychecks and deposit them into a plan checking account that is then transferred into to 'real' plan accounts when they are ready. This is my favorite method, though I'm not eager to see how this unfolds with 50 or 60 participants deferring. The participants are told that their first deferrals will be in a 'holding account' for a short while until the real accounts are ready. > Take the deferrals from the paychecks and hold on to them in the company accounts. This eliminates the extra steps in the last one, but at the cost of lost earnings that have to be calculated. Any options I didn't cover? Any thoughts on these? Any pitfalls to avoid? Thanks.

Has anyone run across as good checklist of information or data request form or something like that to gather the information to review for affiliated service group status? I always feel like I'm missing something, and they tend to become these long, rambling conversations... which are great for building a relationship with the client, but not so great for making sure I get everything I need. Thanks.

Putting in my first plan for a financial advisory firm, and the owner (which is a registered financal advisor) wants to be the trustee and have self-directed brokerage accounts for each of the participants (at least one NHCE). He is OK with giving advice to his participants since that is literally his specialty. All the bells for self-dealing and the sponsor giving participants advice started going off, but there has to be a way this is OK. It doesn't seem reasonable for this employer to have to call a competitor to have them be the advisor on this plan. But the PTEs don't seem to be specific to this situation. Any thoughts? Thanks.

A SH plan sponsor contacted me yesterday asking if she could amend her plan to allow for immediate entry effective immediately. The goal is to allow a new hire to be in the plan now so she can make a 2016 deferral allocation. The safe harbor notice doesn't specifically mention the plan's deferral eligibility rules, instead referring the reader to see the SPD for details. It does mention the eligibility for the SH (which is statutory, though deferral eligibility is currently faster). Obviously, there's no time to give a 30-day advance notice at this point, but I'm wondering if that's really a thing here; the wording in Section III.C. of IRS Notice 2016-16 is not clear to me: It seems like it wants a 30-day notice in advance, but if you can't, no big deal. That can't be the correct interpretation, can it? Is the answer different if the goal is to also make the SH eligibilty immediate, too? Thanks.

OK, so let's remove the safe harbor piece. Clearly, it's discriminatory if the owner deposits $25K into his profit sharing account on January 1 and doesn't deposit the contribution for the rest of the participants until September 15th of the following year. If those deposits aren't meeting a safe harbor allocation, then maybe that's what we have to test, which is why we try to get our clients to not deposit during the year (good luck). But it sounds like we're all saying that, barring something that is clearly discriminatory, it's just one test for the whole year. Is that correct?

Hi. This particular 403b plan has the exclusion for those that normally work less than 20 hours per week. An employee who had been full time (and there a participant) is changing her hours down to per diem, and expected to be <15 per week (though the plan sponsor at this point can't guarantee that). Does she now fall under the exclusion and is therefore unable to defer going forward? That would be consistent with treating this as a 'class exclusion'; she's now part of an ineligible class, have to test under 410(b), etc. Or is this a special case so therefore once she is allowed to defer, she is always allowed to do so? Thanks.

A plan has a maximum of one loan per participant (and it's a large plan, so they don't want to expand that). A participant defaulted in early 2011 on a loan issued in 2010... and now she is asking for a new loan. For loans that are still within the original five-year term, I'd have the participant make the plan whole with an after-tax deposit to payoff the loan (plus interest) before issuing a new one. Can the same apply with a loan past the maximum five years? Thanks.

I had a co-worker bring me this question, and the say she worded it made me reconsider what I thought I knew... For plans that use cross testing, each deposit is supposed to pass testing. We generally get past that by telling the client to make level deposits during the year and then they do the profit sharing after the end of the year. In her example, a plan does just the 3% safe harbor all year long for all participants, and then after the end of the year, they put in 6% for the owners so it passes gateway, 401(a)(4) passes on an annual basis, and we're all happy. Except... do we have to test that last deposit separately? Which would fail, of course, since it is just 6% of compensation for the owners as profit sharing and nothing for the NHCEs. That can't be right, can it?

The only HCE (age >50) in a top heavy plan is deferring $4K on his $100K comp = 4% and is considering not being SH this year. The ADP for the NHCEs is 0.5%. If I run ADP, this will clearly fail, and all of the excess will be recharacterized as catch-up. Fine. But does that affect the TH minimum? It seems a bit chicken-and-egg to me: if you look at TH first, then he deferred 4% so he has to give 3% to the employees. But if you look at the ADP test first, the net "non-catch-up deferral" is only 1% or so, so the TH minimum is less. What I'm finding online and in the EOB is not 100% clear (to me) if "recharacterized as catch-up" is the same thing for this purpose as "catch-up". Is the TH minimum really only going to be 1%? Thanks.

Sponsor wants to amend the SEP to make eligibility more restrictive. Can that be done midyear, or does it have to wait until the start of the new year? I don't know yet what kind of SEP. Thanks.

I've got a 403(b) plan that wants to leave the current fund platform, but there is a decent back-end charge that would hit the accounts. The plan sponsor would like to cover the fee, but the fund company will not bill the plan sponsor; they will only debit the accounts. Is there any legal mechanism for the plan sponsor to 'reimburse' each account for the amount that was taken as fees? This is a plan with no HCEs, so there's not a nondiscrimination problem to worry about...

Hi. So I just now got revised data for 2014 for a partnership, and Partner P who deferred $6,000 is now showing a loss on his K-1. Clearly, his deferrals are no good. I think that means that a 5330 is needed to report this, completing Schedule H (Sect. 4979). Is there anything else I need to do because it is happening now? Or do we wait for the IRS to send a letter demanding interest? Or am I way off base in the first place? Any guidance is appreciated. Thanks!

Forget the fee for a moment - is she really getting more than $472 for the hardship if we gross up for taxes? In theory that could be withheld upfront, so if she takes $500 then she would get $400. Or does the max including the grossing have to come in under the max available, limiting what she gets as a net check? The fee is sort of in the wash - the platform takes it from the distribution, so we add it to the transaction so the net amount is still what the participant wants. It's not counted as a "distribution" in their reporting, so I think we're OK with it putting the total above the max available.

We have a participant who needs a hardship of $400 to pay back rent due. She only has deferral money in the plan; her hardship available is $472, and her total account balance is $550. She has chosen to "gross up" the hardship by 20% for estimated taxes, meaning that the actual distribution is now $500. Is this a problem now that the gross distribution will exceed her allowable amount? Additionally, the product platform takes a $75 fee from the distribution, so we have been doing another gross up of $75 on top of the hardship amount + estimated taxes to cover that for the participants. That put her at $575 total... which is more than she has, so she's going to end up short. I'm OK with that result, but should we not be doing that gross up for the fee? Thanks for your input...

It's still a controlled group (therefore, 5500-SF code 3H) as far as the 5500-SF is concerned rven if the other entity has not elected to adopt the plan, right? Thanks.

Hi. I have a situation where the company sponsoring a plan has purchased back 5% of the outstanding stock and is holding it (as "treasury stock"). Does that affect the percentage owned for the other owners? Example: 100 shares in total, 5 purchased and held by the company. Does an individual who owns 5 shares count as 5/100 and therefore not a "5% owner", or is it 5 / 95 outstanding shares, which is > 5%? Or even 5 plus their share of the treasury stock (so 5 + (5/100), which still puts him in to "5% owner" territory)? Thanks.

Taking over a plan where the timing for distributions to participants with vested balances <$5K is immediate, and for those >$5K, it's as soon as administratively feasible after a BIS is incurred. We typically don't make that kind of distinction in distribution timing - we put in our documents that payouts are done as soon as administratively feasible after the end of the plan year regardless of the amount. I'd like to not have this outlier for distributions if possible. Can I change the current provisions to what we're more accustomed to (the plan sponsor doesn't care)? For the >$5K, I think our timing is going to be the same or sooner in all instances, so I'm OK with changing that side. But is it a cutback for the <$5K participants? And if it is... what's the downside? It might be worth incurring a little extra testing or whatever to ensure that we don't overlook the one plan with a different distribution timing feature. Thanks.