John Feldt ERPA CPC QPA

Will some employees be accruing a top-heavy minimum life annuity benefit within the CB plan until they become eligible for the 401(k) plan? Not terrible, but if so, that is a bit annoying.

What does the plan document say regarding what happens when the 436 restrictions are lifted?

This thread is discussing OEEs. Employees under age 21/1YOS can be tested separately from everyone else. When they are, the OEEs usually have no HCEs or they all have a uniform allocation, and if so, the benefits given to the OEEs won’t need cross-testing to pass testing so no gateway applies to them, period. But, if the OEEs are needed to help the non-OEEs (over age 21/1YOS group) to pass testing, then any minimums that apply to those over 21/1 also apply to those under 21/1, such as a gateway. Component plan testing is different in that it is an option that can be applied to the plan in a way that is not cut off at age 21/1YOS to delineate the components. If any component is cross-tested, then the gateway applies to all the components. If none of those components needed to use anyone under 21/1 to pass, the OEEs, then those OEEs are still not required to get the gateway unless the OEE group itself was cross-tested (super rare).

Check your plan document to make sure, but the regulations don’t require the under 21/1 group to get a gateway if none of their benefits are cross-tested in their group.

You can test those under 21 and 12 months on a contribution basis and I would think the 3% SH would be all you need in that group. The group over 21 and 1 YOS can be cross-tested and the NHCEs benefitting with any nonelective in that group will get at least the minimum gateway. I would think the system could easily do that. Otherwise perhaps look for the system instructions for restructuring or how to test using component plans

If you use the OEE group (under 21/1) to help the over 21/1 group pass testing on a benefits basis, then the NHCEs in the under 21/1 group must all get the gateway since they are all getting a nonelective. You can still component test, however, hopefully you have the right demographics to pass.

Did you try testing the under 1YOS group on a contributions basis? That group does not have to cross-test. What percent of pay is the son getting as a nonelective allocation?

None of the SEP contribution gets counted in the nondiscrimination testing, so the amounts contributed to the SEP count as a zero EBAR and fulfills $0 toward the minimum gateway.

Operational error only, assuming all amounts actually withheld from paychecks were deposited timely. So no prohibited transaction, as Kenneth stated above. The correction should include missed earnings, of course, but there is no employer use of withheld amounts to create a PT, assuming there isn’t some other fiduciary breach here.

So the question should be asked, how does the cash balance plan pass nondiscrimination?

Differing benefits, rights, and features are also subject to nondiscrimination testing. See 1.401(a)(4)-4. You have “current availability” that you can test, and “effective availability” that you can smell.

Amounts shown above are confirmed. https://www.irs.gov/pub/irs-drop/n-23-75.pdf

Correct. True severance pay is not wages for plan purposes since it is not being paid for your services provided to the employer. Severance pay is an amount being paid to stop working, to be no longer employed, usually in exchange for your signature to agree to something regarding your termination. This is something that is paid after termination and would not have been paid to you if you were still working. Post-severance pay is wages for work that are finally paid after leaving employment. Such as unpaid PTO or your last paycheck or an earned bonus or maybe a commission, etc. Items that would be payable if you kept working.

But a non-electing church plan is not subject to ERISA, so the usual ASAP deposit rule and the 7-day deposit rules are not applicable. Unless the plan document requires the deposit to be done that quickly. Check your plan document.

They are Key Employees. They own more than 5% of the employer or they own more than 5% of a participating employer.

“Our interns stay on forever”? They stay an intern forever? What then are they interning for? They mean that after a period of internship, they go full time, right?

Yes, they can. Do they need to? Different question, your actuary can help you there. Sometimes terminating one plan in one year and starting the next plan in the next year will accomplish your goals and save you an unnecessary extra year of administrative costs.

Not on their statement, no. The enrolled actuary tells the plan sponsor how much to contribute. The contribution is not limited to the comp limit, it is limited by code section 404 unless the plan sponsor is tax exempt. The participant statement tells the participant the benefit they have earned based on the terms of the plan document. The assets in the plan are not equal to the value of the participant’s benefits and the contribution for the year is not required to be equal to the value of the benefits being earned for the year.

SSA just announced the taxable wage base for 2024 will be $168,600. https://www.ssa.gov/oact/cola/cbb.html

The CPI-U for September 2023 was published with a value of 307.789. Based on Tom Poje's spreadsheet, the dollar limits for 2024 are projected to be: Almost all increased (NOT Official yet, of course): Deferral limit: $23,000 (up from $22,500) Catchup: $7,500 (unchanged) Compensation Limit: $345,000 (up from $330,000) Annual Addition Limit: $69,000 (up from $66,000) DB Limit: $275,000 (up from $265,000) HCE: $155,000 (up from $150,000) Key Employee: $220,000 (up from $215,000) Just for reference, the unrounded figures are: Catchup: $7,793.00 Deferral limit: $23,379 Compensation Limit: $345,220 Annual Addition Limit: $69,044 DB Limit: $276,176 HCE: $155,984 Key Employee: $224,393

The CPI-U for September 2023 was published with a value of 307.789. Based on Tom Poje's spreadsheet, the dollar limits for 2024 are projected to be: Almost all increased (NOT Official yet, of course): Deferral limit: $23,000 (up from $22,500) Catchup: $7,500 (unchanged) Compensation Limit: $345,000 (up from $330,000) Annual Addition Limit: $69,000 (up from $66,000) DB Limit: $275,000 (up from $265,000) HCE: $155,000 (up from $150,000) Key Employee: $220,000 (up from $215,000) Just for reference, the unrounded figures are: Catchup: $7,793.00 Deferral limit: $23,379 Compensation Limit: $345,220 Annual Addition Limit: $69,044 DB Limit: $276,176 HCE: $155,984 Key Employee: $224,393 This thread is getting a little long, so I will start a fresh new one.

The allocation of the excess DB plan assets that were transferred into the plan are not subject to the deduction limit. They will be limited by the lesser of the annual addition limit ($66,000 in 2023) or net earnings from self-employment.

If you haven't seen Milliman's projections for 2024 yet, we've unearthed Tom's old spreadsheet to estimate the 2024 COLAs. The CPI-U for July 2023 was 305.691 and August was 307.026 (July and August of 2022 were 296.276 and 296.171). We have two of the three months needed to determine the 2024 limits. September is scheduled to be published on Thursday, October 12 at 8:30 A.M. Eastern Time. The sum of the three CPI-U's from last year, July through September of 2022, was 889.255, for an average of about 296.418, giving us an inflation increase last year of about 8.33%. This year we're looking at an increase of about 3.43% if the 2023 September CPI-U is also 307.026 (unchanged from August). This rate puts two limits just under the jumping up point: the Compensation Limit and the DC plan Annual Addition Limit. If inflation from August to September increases by a mere 0.065% for that one month interval (that's under 7 hundredths of one percent, or an annual rate of about 0.79%), then these limits both move a step up. Once the September CPI-U is released, the expected limits for 2024 will be posted here, all based on Tom's spreadsheet (not official limits). ESTIMATED LIMITS, based on September CPI-U equal to the August CPI-U, plus the possible step higher for the two limits as mentioned above: Deferral limit: $23,000 (up from $22,500) Catchup: $7,500 (unchanged) Compensation Limit: $340,000 (up from $330,000), or possibly $345,000 Annual Addition Limit: $68,000 (up from $66,000), or possibly $69,000 DB Limit: $275,000 (up from $265,000) HCE: $155,000 (up from $150,000) Key Employee: $220,000 (up from $215,000) Here are the unrounded figures for your reference, if the 2023 September CPI-U is equal to the 2023 August CPI-U: These limits both get rounded down to the next lower $500 increment: Deferral: $23,360 and Catchup: $7,786.50 This is rounded down to the next lower $1,000 increment: Annual Additions: $68,984 These are all rounded down to the next lower $5,000 increment: Compensation: $344,920 DB: $275,936 HCE: $155,856 and Key Employee: $224,198

The employer contribution limit for a calendar year plan for 2023 for each individual is the lesser of: A) 100% of Compensation, or B) $66,000. The overall deduction limit for employer contributions is 25% of Compensation (exclude Compensation over $330,000 in 2023). Compensation is defined in your plan document, but if the business is taxed as a sole proprietorship, then the term Compensation is the net earned income from self-employment (NESE), which is a simple circular calculation. For example, if your spouse is self-employed and has $1,000 on line 31 of her Form 1040 Schedule C, then you subtract 1/2 of the 164(f) deduction (normally that would be a subtraction of $1,000 x .9235 x .0765), then you subtract your spouse’s employer contribution to the plan to get your spouse’s NESE. That NESE is the limit under section 415 for the total allocation your spouse can have under the plan, excluding any catchup deferrals. 401(k) salary deferrals, other than catch-ups, are also included as counting toward that limit. Keep in mind, deferrals can only be withheld from Compensation, so if your spouse only has $1,000 of income, then the 401(k) deferral and any catchup deferral for you spouse has to limited to fit under the Compensation limit. Just a reminder: once you have the NESE you yourself and your spouse, to multiply that by 25% since that gives you the maximum deductible contribution that the company can contribute for the year.

Safety in numbers.