JRN
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JRN last won the day on November 2 2015
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G8Rs -- Just to clarify, I'm not suggesting that certain fringe benefits might be taxable or non-taxable. That's not the question here. I'm asking about excluding fringe benefits from the definition of Compensation under the Section 414(s) safe harbor definition. CuseFan might have a useable bright line test, i.e., if the fringe benefit is payable in cash, include it. If it's not payable in cash, exclude it.
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"Fringe benefits" may be excluded to determine 414(s) compensation. My question is what types of compensation can reasonably be treated by the employer as being "fringe benefits"? I don't see that the IRS has a clear definition of "fringe benefits”. For example, Pub 15-B, which provides guidance on how certain fringe benefits are taxed, simply states, "A fringe benefit is a form of pay for the performance of services." "Fringe benefits" seems to be a business term. Thus, it would seem that almost any form of wages other than regular pay can arguably be considered by an employer as a "fringe benefit" in interpreting their 401(k) plan document. Take "paid leave" for example. Can the employer adopt a written policy regarding whether to include “paid leave” as compensation under the Plan or exclude “paid leave” as “fringe benefits”. The issue can go either way. But adopt a policy and then be consistent in how you apply the policy. Thoughts? Thank you.
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Because the plan has automatic contribution features, I think the special safe harbor correction method would apply. The term "Employee Elective Deferral Failure" is defined simply as "a failure to implement elective deferrals correctly". I don't see that a different rule applies if the failure occurs after the initial enrollment.
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Right to match is a BRF that must also pass (a)(4) testing.
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https://benefitslink.com/boards/topic/55013-cp-220-notice/ Here's a link to prior discussions on this topic.
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Adopting ESOP as of 12/31/23
JRN replied to RetirementPlanTPA's topic in Employee Stock Ownership Plans (ESOPs)
EBCatty, thanks for correcting me. -
Adopting ESOP as of 12/31/23
JRN replied to RetirementPlanTPA's topic in Employee Stock Ownership Plans (ESOPs)
What you have "always thought" is not correct. Assuming your S corp has a calendar year fiscal year. You need to have taken action on or before 12/31/2023 to adopt the written ESOP plan documents. The effective date can be retroactive to Jan 1, 2023. Whether the company is on a cash- or accrual-basis has nothing to do with the requirement to adopt on or before fiscal year end. You have until due date for federal income tax return to make contributions and deduct for fiscal year end 12/31/2023. -
Distinguishing between ADP and ACP safe harbors. I agree that Nic's enhanced match formula satisfies ADP safe harbor.
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Nic, Clarify whether you are proposing that the match satisfy the ADP safe harbor or the ACP safe harbor. My initial thought was that you are talking about the ADP safe harbor using an enhanced match formula. The match would then be 100% vested and subject to distribution restrictions. But, your reference to "the max comp for Safe harbor is 6%" confused because that is an ACP safe harbor requirement. Your proposed match formula would satisfy ADP. But, would not satisfy ACP safe harbor if that is what you're trying to do here (i.e., match subject to vesting schedule) because the match is more than 4% of compensation. And, remember -- you can't use the ACP safe harbor unless you are also satisfying ADP safe harbor (e.g., with 3% non-elective employer contribution).
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Employers are not required to make non-elective or matching contributions on behalf of participants who are eligible to participate solely by reason of the LTPT rules. If the plan sponsor removes the “hours of service” exclusion, then part-time employees become eligible without regard to the LTPT rules. My concern is that the non-discrimination (and top-heavy) rules would now apply to this otherwise excludable classification.
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Here’s my understanding: SECURE Act 2.0 amended IRC section 403(b)(12(A) to make the universal availability rule subject to new ERISA Section 202(c). This means that 403(b) plans can still exclude students and employees who normally work 20 hours per week. But, once an employee who is expected to work less than 20 hours per week meets the definition of LTPT, that employee must be permitted to make salary deferral contributions under the Plan. Because the “student” employee exclusion is not based on service, that classification is not impacted by the LTPT rules. The issue where further guidance is needed is how does IRC Section 410(b)(4) impact this. Under IRC Section 410(b)(4), the “20 hours per week” exclusion cannot be used unless all employees within that exclusion category are excluded. Does this mean that if one “20 hours per week” employee later meets the LTPT requirements, then all “20 hours per week” employees must be covered? I think it probably does. I do not think 403(b) plan sponsors that are excluding “20 hours per week” employees should necessarily amend their plan to remove the “20 hours per week” exclusion. Here’s why: Employers are not required to make non-elective or matching contributions on behalf of participants who are eligible to participate solely by reason of the LTPT rules. If the plan sponsor removes the “20 hours per week” exclusion, then part-time employees become eligible without regard to the LTPT rules. My concern is that the non-discrimination (and top-heavy) rules would now apply to this otherwise excludable classification. Agree, disagree? Thanks.
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Is jury duty pay a fringe benefit or regular pay?
JRN replied to PensionPro's topic in Retirement Plans in General
The IRS does not have a clear definition of "fringe benefits”. Rather, "fringe benefits" is a business term. Almost any form of wages other than regular pay can arguably be considered by an employer as a "fringe benefit" in interpreting their 401(k) plan document. The Employer should adopt a written policy regarding whether to include "jury duty pay” as compensation under the Plan or exclude the pay” as a “fringe benefit”. You can go either way. But adopt a policy and then be consistent in how you apply the policy. -
Missed Opportunity To Defer -- Is There a De Minimis Exception?
JRN replied to HCE's topic in Correction of Plan Defects
Corrective contributions are required to be made with respect to a current or former participant, without regard to the amount of the corrective contributions. See Rev. Proc. 2021-30 Page 33 of 140. -
To true-up or not to true-up... that is the question.
JRN replied to 401kSteve's topic in Retirement Plans in General
Under the 401(k) regs, a sole proprietor’s compensation is not currently available until the last day of the individual’s taxable year. -
Retroactive amendment for discretionary match to include true up
JRN replied to karl's topic in 401(k) Plans
Current law provides that plan amendments must generally be adopted by the last day of the plan year in which the amendment is effective. This precludes an employer from adding plan provisions after the end of the plan year, even though the provisions may be beneficial to participants. Section 316 of SECURE Act 2.0 allows discretionary amendments that increase participants’ benefits to be adopted by the due date of the employer’s tax return. But that section is not effective until plan years beginning after December 31, 2023.