AlbanyConsultant

To answer some of the questions... This is a pooled plan, so no single participant individually is overdeposited. They look at their payroll for the month, multiply it by the percentage, and deposit that amount. Which is fine unless someone doesn't meet the hours requirement (in this case, someone left and came back so I told them the person was still eligible... but they ended up only coming back part-time and didn't meet 1,000 hours). "Forfeiting it" and holding it to credit the 2024 allocation is just a paper entry. I'm not sure there is an issue with non-deductible contributions because non-profits don't deduct. While almost a quarter of a century old (!!), I did find this discussion on these boards: https://benefitslink.com/boards/topic/4781-deduction-for-contributions-sec-404/ Kevin Donovan writes that it isn't applicable to an NFP, though there is a dissent where the Pension Answer Book is referenced (noted that the PAB has no citation)... and no further discussion. But since the PAB was brought up, I found an old copy (like, 10+ years old), and Q12:13 "Does the excise tax imposed on nondeductible contributions apply to tax-exempt organizations?" says that there is no excise tax applies if the entity has always been tax-exempt (there are additional caveats and such), citing IRC 4972(d)(1)(B), 4980(c)(1)(A), and a PLR 200020009. While I now believe that an excise tax doesn't apply, this is not a bad idea in general (if they were a for-profit) because the deposit was made due to a reasonable error in estimating compensation (well, eligible compensation). Thanks for the great answers, everyone. I think I'm going to suggest just leaving it in the plan as an excess deposit since there is no penalty to do so. Hmmm, I wonder if that will come back to bite me later when the NFP decides to front-load a large amount 'to be used next year'... nah, that would never happen, right?

I've got a NFP MP plan with an hours requirement to get the allocation. They make deposits during the year to estimate the annual contribution (it's a straight formula, so in theory this is easy to calculate each month). This year, they put in too much because someone ended up not working the required hours. So this is an excess contribution to the plan based on the formula, not the 415 limit for anyone (and not over 404, not that they have a deduction to worry about). Does it have to be refunded? Any penalty? I know the plan sponsor is going to want to let it stay in the plan; is that subject to an excise tax then? Thanks.

I'm so used to extending the termination date out to EOY that I didn't even think of pro rating the limits. Only 415 gets cut back? I'll have to have the purchase/sale document reviewed to see what it says, and then also to see if that's favorable for the owners. If they've already deposited their base deferrals for 2024, they could have already blown the pro rated 415 limit.

I've got a plan (only deferrals and SHNEC money) where the employer is undergoing an asset sale on 1/31/24. We were all set to terminate the plan on that date pursuant to the business transaction (so they can keep the SH for 2024). Today they asked if, since it's an asset sale and therefore they will 'retain the company' after 1/31, they can pay out bonuses after 1/31 through payroll (since they'll suddenly have a lot of cash and they are very nice to want to share it with some of their former employees) and how would it affect any plan calculations. It's not clear yet if they prefer it to be counted or not, but first I want to make sure I've got all the pros and cons right. I think that as long as the 'payroll date' is in 2024, it will get brought in as plan compensation under the post-severance comp rules (which are included for plan compensation). The employees are considered terminated on 1/31/24. Also, since they are retaining their entity (they are an LLC taxed as a partnership), they can effectively say it is open until 12/31/24 and therefore the plan also goes along with that. I'm fine with terminating the plan effective 12/31/24 - it might even give the partners some additional income if they collect money during 2024. But if they want to terminate the plan, say, 6/30/24, do they lose the benefit of the safe harbor since at that point, the plan termination is no longer connected to the business transaction? I suppose they could give a 30-day notice at that point - there are no active employees to get it, so they could just stick it in their files. I'm sure I'm overcomplicating this...

I asked Derrin about that section austin quoted and if/how that affects what he said in an ERISApedia webcast about 401k plans still having to go back to post-2020 years. I won't quote him directly since I don't know how much trouble I'd get in for that (I did just take an Ethics CE), but he reiterated that despite what that looks like it says, you go back to years beginning after 2020 for 401k plans and years beginning after 2022 for 403b plans.

I would love for them to move to full vesting, but they are holding firm on wanting to preserve the old vesting schedule if possible. If I hadn't just taken my Ethics refresher, I might have said "Whoops, not possible, sorry; have to fully vest them!". *sad*

Thanks!

emphasis mine What? I don't think I've seen it interpreted that way.

I think this hits the nail on the head. Thanks. I'm thinking that I can write the amendment to "only" look back to 2021 because it's still more inclusive than the current rules. Unless, of course, it only catches HCEs.

I had forgotten all about this; I didn't find any good answers. I think in the one case I was discussing, they decided to not amend prior returns so it ended up being a non-issue for me. I was happy to hear that!

The biggest obstacle to these is that the plan sponsor and the broker never realized that VAT is subject to ACP testing. So while the owner might have the extra bucks to contribute as VAT, the employees likely won't (and there's no reason for them to 'defer' as VAT as opposed to Roth) and therefore the testing fails. Even including SHM in the ACP test may not be enough to pass. I only use this with one-person plans; I have yet to encounter a situation where it will work otherwise. I'm sure they exist somewhere, just not that I've seen. And for a one-person plan, depending on the compensation it might just be easier to do it as profit sharing and then convert it.

I may have out-clevered myself. We have a bunch of plans with a YOS, 1000 hours eligibility requirement. To avoid LTPTE issues, I suggested that an option was to change the definition of YOS for eligibility to 500 hours. Still gets to keep employees out for 12 months. As I'm writing an amendment to implement this, I realized that this could be more sweeping than I realized: does the plan sponsor have to go back to each person's DOH to see if they meet the new requirements? The EOB says that if you are making eligibility more stringent, you have the option to grandfather in the prior eligibility requirements for those who have already met them (and there are threads on this board that support that). So... if I'm making them more loose, do I also have that option? It seems reasonable. And if I do... then can I limit the looking back to plan years starting in 2021 (basically, the LTPTE period)? Since I'm making the plan more inclusive than it needs to be, I'd think that is OK, too (making good language for that is not easy, but I'll figure it out). I don't want to have to determine if someone worked 550 hours in 2010 and has been at 400 since then. Thanks...

Relatively confident. The MEP passes payroll data including hours each pay period, so the RK would track it just for this transferred source and update vesting automatically. Would I prefer that it all have to be 100% vested? Sure.

That wasn't particularly helpful. Under "Special Vesting Rules", we have 14.05 deals with the 'transfer of assets' (if you have an ASC document, that's what I'm reading); the relevant part is: Subsection (d) outlines "Qualified Transfer"; the Participant getting to make their own decision regarding transferring or not seems to be an important part of this, and they are not getting that right, so it seems that this isn't applicable. That's why I was hoping there would be some kind of rule like if the one plan itself was changing vesting - it spells out who must get the option to keep the old vesting schedule. I'd love to take the lack of specificity to mean that we can bring over the old money and keep it according to the old plan vesting schedule... but at the same time, I wouldn't be heartbroken if something clearly said "must all follow the better vesting schedule".

Hi. I've got a stand-alone plan that has 6-year vesting (2/20). They are merging into a MEP run by a payroll/benefits firm that has 100% immediate vesting. What happens to the vesting for these people? For new money, I presume that it follows the MEP vesting. What about the old money? Thanks.

My understanding is that for a plan started before SECURE 2.0 (and therefore grandfathered in for not being required to have automatic enrollment if over 10 employees), if they add an automatic enrollment provision voluntarily, then LTPTEs are not subject to the automatic enrollment. I don't see anything in the proposed regs that counters this. Am I correct with this? Thanks.

We generally write our plans' loan policies to say that in the event of a participant termination, the loan can be rolled out of the plan - this way, if the participant finds a new plan that will take it (which is a big "if" in its own right), they can transfer the loan to the new plan, establish payments, and not have to deal with the extra taxation. It's a rare moment where I care about the participant. LOL Thankfully, it doesn't come up very often. But we just learned that one recordkeeping platform that we work with will not play nicely with this - their policy is to default the loan due to non-payment and then 1099-R it. They claim it is due to a system limitation. Obviously, we have to issue new loan policies to all these plans to say that they cannot do this. So... could this be a protected benefit and therefore not allowed to be cut back? I figure that since loans themselves are not, then the disposition of them shouldn't be, but I thought I'd see if I was overlooking something. Thanks.

What? Something clearly stated in the instructions? Inconceivable! LOL Thanks.

OK, this one is on me - I started a new 403b plan for a NFP that was winding down their 401k, and I accidentally used plan number 001 in my document. Of course, the 401k plan is using that number, so I should have used 002. Therefore, 002 was not extended for the 12/31/22 5500-SF. Whoopsie. Isn't there a thing where you can use the corporate extension instead of the 5558? And doesn't an NFP have an initial filing date of 5/15, which then gets extended until at least 10/15? This sounds familiar. Is it available for a NFP? Thanks.

I've got a MEP where two of the adopters have to leave the MEP immediately. It's a 3% safe harbor plan. Do they make the 3% SH based on 1/1-9/30 compensation to the MEP, or can it be set up so that the entire 2023 SH is made to the spinoff plan? Thanks.

My co-worker who understands MEPs best is retiring. The rest of us have picked up enough to be able to run them, but are there good resources for in-depth information? I've already got the sections in the EOB tabbed... Thanks.

When running cross testing and need to use the average benefits percentage test, do you have to pass using the same method as you passed 401a4? Ex: pass cross testing only by using the annual method imputing permitted disparity, but one rate group is at 50%. In the ABPT, only the allocation method with permitted disparity is over 70%. Since I have "a" passing method, am I good, or do I have to make the two line up so the same method is used for both tests? Thanks.

Thanks! And interesting side notes. I think in my case, the 5% spouse is not even paying the bills... but I'll double-check.

I came here to ask this almost same question... except that I'm looking at the 3% SHNEC. It's a MEP where the new company started up in 2022 and immediately joined the MEP (with immediate eligibility for deferrals and 1 YOS/semi-annual for the SH). Owners and some employees were hired in June 2022, and the rest (including a daughter of the owner) in Sept/Oct 2022. The only twist I have is that HCEs are not eligible for the SH. If the daughter does not defer in 2023, I think in that year I can satisfy the rules because the only HCE in the otherwise excludable group won't be deferring. For 2022, I think they are doomed. One of the owners deferred $15K in 2022... and only took $28K in compensation (the rest was on his s-corp K-1). Since everyone is otherwise excludable, the HCEs are in that group and therefore it has to be testing. And it's going to be top heavy because none of the employees deferred anything substantial... so at least I'm going to call the 3% TH a QNEC and help with the ADP a little. Anything else I can use or look at? I was really hoping that HCE exclusion would help. I agree with not designing a plan this way, but sometimes we don't get to change provisions on a takeover (like this). @pmacduff, I can't quote the reg, but in the EOB it's Chapter 11, Section XIV, Part I.6. I'm looking at the example in 6.a.1)b) for the SHNEC version.

I'm working with a partnership that is split 95%/5%. I'm being told that the 5% partner isn't really an employee - they perform no services for the entity. I think that I'm able to exclude them from any plan consideration, yes? Does your answer change if I add the detail that the two are married to each other? Thanks...