John Feldt ERPA CPC QPA

If the plan has provisions to allow Voluntary after tax (nondeductible) contributions, they are not subject to the 6% deduction limit (they’re not deducted). They still count toward the 415 limit, of course.

I updated Tom's COLA spreadsheet with the actual July 2021 CPI-U, which is the first of the 3 CPI-U figures needed to determine the 2022 dollar limits. The July 2021 CPI-U was 273.003. Based on Tom's spreadsheet, assuming we have exactly 0% inflation in the CPI-U from August 1, 2021 through September 30, 2021, perhaps the 2022 limits might be: Deferral limit: $20,500 (2021 is $19,500) Compensation Limit: $305,000 (2021 is $290,000) DC Annual Addition Limit: $61,000 (2021 is $58,000) DB Benefit Limit: $245,000 (2021 is $230,000) Key Employee: $195,000 (2021 is $185,000) HCE: $135,000 (2021 is $130,000) Unchanged: Catchup Limit: $6,500

If no NHCEs deferred so you don’t have an average NHCE missed deferral to determine the QNEC, I have seen 3% proposed and allowed for the missed deferral. You could ask for that under VCP and see how it goes.

Sure, it could be a friendly IRS letter then, and if so, they should end it with "Have a nice day!" 🙂

https://www.irs.gov/retirement-plans/employee-plans-compliance-unit-epcu This link shows a few “compliance check” initiatives that the IRS states they have in place. Partial Plan Termination is listed 3rd from the bottom (in alphabetical order). A compliance check is when they send a letter to the employer and say something like “We’re not auditing you if you answer these questions in the right way to avoid an audit. But, if you fail to reply or answer, we will very likely audit. And, if you answer in a noncompliant way, we will ask you to prove that you fixed the problem, otherwise we will audit.”

The merger agreement probably addresses this such that the surviving plan can accept any contribution receivables for the plan that merged in.

Same here. They aren’t approving your document or amendment language when you submit under VCP. They’re saying the current adoption of the retroactive amendment is okay to execute - it won’t be considered as untimely if the plan gets audited. But they don’t review the language like they would if they were auditing. Submitting a Form 5310 or even a Form 5300 is more like an audit where you are asking the IRS to review the terms of the plan for tax qualification purposes. They can and will ask for older documents in that case.

Yes. They could go back further too, to the first day of the plan if they want. The statute of limitations determines how far back they can go to calculate a sanction, but does not limit how far they can go to find errors. Usually we see them ask for the prior two restated documents and all interim amendments.

The existing vesting schedule for the QACA safe harbor source continues to apply to the QACA safe harbor contributions made through July 31, even though no further QACA contributions are required for subsequent periods. That won't change unless another overriding event occurs, like a plan termination or a partial plan termination.

Yes, the 2-year cliff minimum vesting still applies to the QACA safe harbor contributions that are required until the date the safe harbor ends (30-day advance notice, and an executed amendment). If plan termination or partial plan termination occurs, then 100% vesting applies. Of course the employer can apply a discretionary amendment to simply apply 100% vesting for the QACA accounts if that's what they are looking for.

To reiterate: make sure the sum of the vested employer amount plus the employee amount, in total do not not exceed the 457(b) annual deferral limit for the year. The employer amount is deemed to automatically meet the 1st of the month rule.

I fired up Tom's COLA spreadsheet to see where we might be headed for 2022. Using the May 2021 CPI-U, which was 269.195, based on Tom's spreadsheet, and if we have exactly 0% inflation in the CPI-U from June 1, 2021 to September 30, 2021, Perhaps the 2022 limits might be: Deferral limit: $20,500 (2021 is $19,500) Compensation Limit: $300,000 (2021 is $290,000) DC Annual Addition Limit: $60,000 (2021 is $58,000) DB Benefit Limit: $240,000 (2021 is $230,000) Key Employee: $195,000 (2021 is $185,000) HCE: $135,000 (2021 is $130,000) Unchanged: Catchup Limit: $6,500

I thought it was 210 days after the end of the plan year. However, to satisfy nondiscrimination regarding benefits, rights, and features, and depending on what is being amended, you may need to notify employees earlier. In your example, if an HCE knows about the option and wants to use it, then you should notify all the affected participants to avoid any perceived discrimination.

And add missed earnings as part of that correction.

1. No, that deadline was not extended. 2. The IRS will notice the excess deferral and when it is distributed after the deadline, my understanding is that it will be treated as taxable, including its earnings, and not rollover eligible, regardless of having been deferred as Roth. So, double taxation is still the “penalty”.

If so, could/would the 403(b) plan be a “deferral only” plan, exempt from 5500 filing, is that also your question?

I think we’ll just apply a reasonable interpretation, since it does appear to require months to be used for averaging. Thanks for the responses.

Company has a traditional DB plan (X% x Years of Participation x 3-year Average Annual Comp) and hires "Guy" 9-1-2017. Wages paid for 4 months in 2017 are $195,000. Paid $500,000 in 2018. After 8 months in 2019, Guy terminates. 2019 wages were $300,000. Vesting is 2-20, so Guy is 20% vested. Comp before entry is not excluded and comp in the year of termination is not excluded. Document says if Guy has less than the 3 years of compensation, the average annual compensation will be the average of "whole and partial years (whole months) of compensation." I think that means we sum the compensation and divide by Guy's 24 months. That produces a higher average for short service employees, but after limiting each year by 401(a)(17) comp limit, the result here is essentially ($195,000 + $275,000 + $280,000) / 24 = $31,250. Well, $31,250 is an annual compensation of $375,000, which exceeds the 2019 comp limit. What is Guy's Average Compensation? The plan has has no prior employee with this fact pattern. 1. We limit Guy to the comp limit in the year of termination ($280,000 annual or $23,333.33 monthly average) 2. We prorate the comp limit for each year for periods of employment (4/12 x $270,000 + $275,000 + 8/12 x $280,000) / 24 = $22,986.11 I read treasury regulation section 1.401(a)(17)-1(b)(3)(iii)(A) and (B), "if compensation for a period less than 12 months is used for a plan year, then the otherwise applicable annual compensation limit is reduced in the same proportion as the reduction in the 12-month period" and "a plan is not treated as using compensation for less than 12 months for a plan year merely because the plan formula provides that the allocation or accrual for each employee is based on compensation for the portion of the plan year during which the employee is a participant in the plan." Based on that, I think #2 above is incorrect as a "plan year" is defined in the document, not by the participant's service. Would #1 be your choice? If so, someone with over 36 months at the comp limit each year who terminates in 2019 would have a lower average compensation, since the 2017 and 2018 limits drag down the average: $270,000 + $275,000 + $280,000) / 36 = $22,916.66 or $275,000 annual. The plan document lacks the detail I'd like to see to clarify this. Any comments are welcome.

QSLOB also has a minimum 50 employee requirement for each QSLOB. If the purchase was recent, use the transition rule under IRC section 410(b)(6)(C) - also check the plan documents. Also, with no HCEs, why provide safe harbor? Your minimum safe harbor percentage will probably be fairly low - based on the high concentration percent you likely have of NHCEs overall - have you tried running the average benefit percent test, assuming your document allows? if none of the above can produce a passing result, you can give employer N an amendment under treasury regulation 1.401(a)(4)-11(g) to provide QNECs and QMACs to enough wisely chosen NHCEs from either N or R to make it pass. But run The average benefits test first and if you have enough NHCEs that are benefiting and younger than the HCEs, perhaps run it on a benefits-basis rather than on a contributions basis.

Yes, "solo-k" is a marketing term. Beware of using certain "solo-k" documents if you might ever add any employee to the business. In your case, with an owner's child in the plan, the plan is now subject to ERISA. A fidelity bond applies, certain notices and disclosures apply, and the 5500-SF applies. Usually a "solo-k" is thought of as an owner-only plan that is exempt from ERISA. It files 5500-EZ only when the assets of all the employer's solo plans are over $250,000. They are not required to provide ERISA 404(a)(5) fee disclosures or blackout notices. SPDs are not required. ERISA 204(h) notices are not applicable, no fidelity bond, the ERISA fiduciary requirements do not apply, etc.). But, IRS tax-qualification rules do apply: you have a qualified written plan document (including good-faith interim amendments and timely periodic restatements), you must operate according to the terms of the plan, etc. So, I think of a solo-k as an owner-only plan: a plan that only covers the 100% owner (and spouse), or if the business is taxed as a partnership, it is a plan that only covers the partners (and spouses). Go beyond that, and you are not an owner-only plan and you are subject to ERISA.

Yes, trying to avoid that aggregation. This plan will pass coverage an nondiscrimination on its own - without aggregation. We just won't offset any gateway required in this plan by any amounts provided in the other plan. In this case, it will still reduce NHCE allocation costs considerably.

Here are the relevant code sections for this question: 401(k)(12)(C) Nonelective contributions - The requirements of this subparagraph are met if, under the arrangement, the employer is required, without regard to whether the employee makes an elective contribution or employee contribution, to make a contribution to a defined contribution plan on behalf of each employee who is not a highly compensated employee and who is eligible to participate in the arrangement in an amount equal to at least 3 percent of the employee’s compensation. 401(k)(12)(F) Timing of plan amendment for employer making nonelective contributions (i) In general Except as provided in clause (ii), a plan may be amended after the beginning of a plan year to provide that the requirements of subparagraph (C) shall apply to the arrangement for the plan year, but only if the amendment is adopted— (I) at any time before the 30th day before the close of the plan year, or (II) at any time before the last day under paragraph (8)(A) for distributing excess contributions for the plan year. (ii) Exception where plan provided for matching contributions - Clause (i) shall not apply to any plan year if the plan provided at any time during the plan year that the requirements of subparagraph (B) or paragraph (13)(D)(i)(I) applied to the plan year. (iii) 4-percent contribution requirement - Clause (i)(II) shall not apply to an arrangement unless the amount of the contributions described in subparagraph (C) which the employer is required to make under the arrangement for the plan year with respect to any employee is an amount equal to at least 4 percent of the employee’s compensation.

Suppose a plan had 3% safe harbor nonelective provisions in place for the plan year ending 12-31-2020 and it was a brand new 401(k) plan. Deferrals were allowed right away upon hire, but to be eligible for the 3% safe harbor nonelective, a year of service was required. Assume they only have deferrals and safe harbor in the plan for 2020. Also, they excluded the non-key HCEs from the safe harbor (a lot of people). Also suppose they are now "enjoying" the top-heavy surprise since not enough non-key employees deferred in 2020 to keep the plan out of top-heavy status (not even close, even with the eligible NHCEs all getting 3%). Based on the language under IRC 401(k)(12) after its changes for the SECURE Act, do you believe they could amend the plan now to adopt a 4% safe harbor nonelective for 2020, making it's eligibility the same as the deferral eligibility, thus making the plan exempt from top-heavy for 2020?

You can’t elect a lump sum without waiving an annuity form of payment, one that would be payable now instead of the lump sum. So yes, you show the options and yes, offer the annuity. I’d check the document again on the forms actually available for payment.

No. They are aggregated for 415 limit purposes however.