AlbanyConsultant

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.

Isn't an RMD "periodic"? It's every year. This is from IRS.gov: Or is that overruled by the specific clause in the W-4P instructions (assuming that payment of an RMD is "on demand" since it can be requested at any time during the year, and co-opting the IRA rule) {emphasis mine}:

Thanks. I don't suppose there is anything I can point to to show this guy that such a thing is kosher?

We usually get direction on a plan distribution form, but this person didn't complete that and sent a W4-P instead.

I have a client who, when requesting his RMD, sent a W-4P "so I could calculate the withholding". Huh? Usually, participants complete a distribution form that lets them indicate a percentage or amount to withhold. Is this really the way it's supposed to be done? Is there some kind of easy conversion chart from "W-4P deductions" to "percent to withhold"? Thanks.

It is a DC plan - should have included that.

I have a plan that has terminated, but the employer is still continuing. We are now working on the final administration, etc. before payouts. A participant is requesting an in-service distribution (which was allowed by the plan). Is this still a valid request after the plan termination date? Thanks.

Yes; effective for those hired going forward.

The basic plan document language is: And the adoption agreement says: And, for completeness, I got this response when I asked Datair: The second sentence there is a bummer, but it sounds like there is room to argue that point, and I think it's a point worth arguing. I intend on amending the AA effective now to say that only service with D through the date of the split is counted in D's plan, essentially changing A7c to say "D (only service prior to 1/1/98 will be counted)". I can't go back and take away service from anyone who was already credited, but at least this will stop the issue from continuing. If I apply it only going-forward, it shouldn't affect any current participants, so I think I'm in the clear on this. Thanks, and any further thoughts are always welcome.

My client is law firm "G", which was formed when G and his buddies left law firm "D" in 1997. When they started a retirement plan a couple of years later (not with us), their plan said to count service with D for all purposes (eligibilty, vesting, allocations, etc.). We took the plan over two years ago, and in the PPA restatement said the same thing. Now there is a new employee of G who was previously an employee of D. The thing is, she was hired by D in 2005 - years after the split. Is there some kind of 'reasonableness' (ha!) standard on this? Obviously, the plan sponsor doesn't think this new employee should get the benefits of working for basically a competitor. Or do we have to amend it prospectively to only count service with D through 1997 and just know that one 'got through'? Can we even write an amendment like that? If it helps, I'm using a PPA Datair volume submitter adoption agreement format document. Thanks.

They are actively searching for new employees and want to have the plan available to them. I have suggested this; if they're going to hire someone at ExecDir-level, do they really want a one-year wait for deferrals? I have resigned myself to having to answer a question from the IRS about this plan when they get the zero participant filing.

The board of a small NFP with a 401k/SHM plan terminated the contracts of the executive director and his assistant. They were the only two employees - and participants - of the plan. The board is currently looking for replacements. They were both fully vested, so I don't have an issue there. The plan allows immediate distributions, so both of the terminees are looking for their money. Once they get paid out... is this still a plan? The sponsoring entity still exists (well, it still has a board), though it would be hard to say that it is actually performing any service for anyone. The plan has a one-year eligibility; even if they hire someone now that employee won't meet eligibility until 2017, so the 2016 Form 5500 is going to show that it ends at zero participants. Is there going to be a problem with a plan that has zero participants, no money, and not marked as "final"? Thanks.

When we got our 2015 census data for Client M, they mentioned that they have leased employees that started with them in late 2014 and are still employed. It seems that they meet the requirements of 414(n) at this point so they are considered "leased employees". The plan has a six-month eligibility for 401(k). If we're supposed to count service back to the original date of hire, do we have a missed deferral opportunity? It seems like we shouldn't, since they weren't eligible as of that date. My thought is that we count them as eligible as soon as they meet the criteria to be counted as a leased employee. Thoughts? Thanks.

This is technically a hypothetical, but when it came up I didn't have an answer: We've all had the cases where the participant's beneficiary form is old and doesn't match the current legal beneficiary (cases of re-marriage being the most common). So let's say the plan beneficiary designation form has Spouse 1 as the beneficiary, but Spouse 2 is the current for-all-purposes-outside-the-plan legal beneficiary, and they are both less than 10 years younger than the participant. Whose DOB should be used for calculating the plan RMD? Just curious.