Below Ground

As I understand, if I want to make a VCP Filing for late deferral deposits, Form 8950 is used when filing with the IRS and a User Fee applies. Is it true that filing this same VCP Filing with the DOL has no User Fee and Form 8950 does not apply, if filed with the DOL?

Your first action needs to be obtaining a copy of the Summary Plan Description. That document states exactly what they can, and can not do. If you have not gotten the SPD, focus your energy there.

I have been doing this stuff since 1985. I do not recall it not being 1,000 hours for computation periods, since my start in the field. You might want to look at each year to see how that extra 300 hours impacted operations. If there was an impact, you need to look at correction methods.

Davis Bacon Plans and McNamara O'Hare Plans.

I suggest that what is stated in the service agreement between this firm and the TPA is critical. Hopefully this is not a situation where a service agreement isn't even used. (That thought makes me cringe.) In our agreement we say exactly what we do and what it costs. We also stated that prior errors, issues not specifically related to our service, and/or issues arising from acting in a manner that ignored or was contrary to written advisement we provided, is not our liability. Given the big fat target placed upon the back of the TPA, I just think that as much as possible the terms of service must be clearly defined. Then, the claim that the TPA is somehow responsible for the payroll processing, when that is clearly an issue not under the TPA's purview, is totally baseless. So check out the agreement in effect, and modify future agreements as needed given this new experience. My 2 cents.

Earned Income vs W-2 Pay. Typically called Owner-Employee in plan documents. Just my 2 cents.

If a person qualifies under ANY source of the Plan on 1/1/2018 then that person is a participant. Participation is by virtue of age/service/Entry Date Timing. Everything else is ancillary and irrelevant for the Form count.

You should check your Plan document to see when the document holds the match is computed. Is it per payroll period or annual or at the annual discretion of the administrator? Just because the match is FUNDED concurrently does not mean that the computation is payroll period based. Allocation and deposited are not the same thing. In fact, they can be very different.

Yes, you will indeed be missed. Sorry if I made you uncomfortable, but I think you'd have to look pretty far to find someone in disagreement.

Thanks for the clarification Mike. As always, your comments are most helpful.

The Gateway and Average Benefit Test are just two components of "New Comparability Testing". Personally, I hate that term since it is somewhat misleading. "Rate Group Testing" coordinates with the testing concepts found in the posts by CB Zeller and Lou S., and is the term I prefer. Semantics aside, this type of plan testing is not simply passing the Gateway and the Average Benefits Test. I explain the testing for these plans when needed as you must first pass the Gateway, if you are using projected benefits in testing. (Current rates are used in what is sometimes called an "Age Neutral Plans", and that plan is not subject to the Gateway.) Contrary to one seminar that has since been removed from circulation, giving a 5% of pay benefit to all NCE does not let you do whatever you want. Next, you must satisfy a special form of coverage testing for each rate group where each HCE represents a rate group. A plan level (all sources) average benefit test is needed if any of the rate groups fail the special coverage testing; which assume that no group is classified as below the unsafe harbor percentage. Anticipating negative commentary toward my grossly oversimplified explanation, I know that I am leaving a whole lot out, and don't intend for this post to be a comprehensive explanation. I strongly suggest that to gain the understanding that is required for this type of testing, get yourself a copy of the Coverage and Nondiscrimination Answer Book, which has one of its authors Mr. Thomas E. Poje. Personally, I have found commentary of Mr. Poje to be a great resource. His explanations, including guidance found in "his book" to be among the best explanations of this very complicated topic. (I apologize to the Frank J. Bitzer and Bernadine Topazio for not properly recognizing their contributions to an amazing resource. You deserve similar recognition, and my failure to properly do so reflects my familiarity with Mr. Poje's writing/posts.) Anyway, I also recommend that you do a search of the message boards on this testing, and pay special attention to comments by Mr. Poje and several others who have an obvious expertise with this form of testing (BG5150, Bird, John Feldt, CB Zeller, Lou S., jpod, Kevin C. and Mike Preston are a few off the top of my head.) Good luck!

Just providing confirmation of the BG5150 post. Allocating profit sharing above the SHNEC does nothing to the ACP Safe Harbor Limit. In addition, if your Plan is designed to allow a greater SHNEC than the minimum 3%, that still doesn't buy you a higher ACP Safe Harbor Limit. You still have the limit of not more than 4% of Compensation, and no matching applied to deferrals (summation of Roth and Pre-Tax) over 6% of Compensation.

Just when you think it can't get any more ridiculous, you see something even more "amazing"!

You are welcome Bird. Of course, I still always used Form SF to avoid any question.

Given that the two partners are the only employees, of the firm, they could file an EZ if there is no controlled group, affiliated service group and/or leased employees involving this firm. I don't believe that the type of entity relevant for most firms, provided that the firm is an entity that can adopt a 401(k) plan. I suggest that the use of the term "partner" or "partners" is referring to owners of the firm, in a "generic business partnership". Note the use of the phrase "in a business partnership". It does not say a Partnership. To confirm this perspective, from "PPA SEC. 1103. REPORTING SIMPLIFICATION" we are told .... "for purposes of this paragraph, the term ‘‘partner’’ includes a 2-percent shareholder (as defined in section 1372(b) of such Code) of an S corporation." (preceding text was explaining definition of "One-Participant Plan" for reporting.) Perhaps when the firm is a C-Corp you can't use 5500-EZ, but I think this is "safe ground" when the entity is an LLC taxed as a Partnership or an S-Corp. I must also say for "full disclosure" that I almost never use Form 5500-EZ since a 5500-SF can be filed for a "One Participant Plan"; thereby making it mimic the filing privacy (versus public disclosure) applied to a 5500-EZ vs 5500-SF. So I would just file a 5500-SF and have no issue of concern.

Luke, I really like the concept of a formal policy document. I would suggest that this be given to each HCE right before the testing season begins, under memo saying if this applies to you and you want it done different, then you must submit a written election at this time. Add an election form to the materials distributed, and all bases are covered, I suggest. Anyway, if create these materials I would be happy to send to you for your use, since it would be based on your idea.

I may not be understanding what you want to do, but a Hardship is not rollover eligible. This means that when you receive the money from the 401(k) Plan, taxes will apply. (Medical can avoid the 10% penalty, but income taxes still apply.) You then have the money from which to pay your medical expenses. Putting those monies, which are already subject to taxes by virtual of a 1099R from the Plan, into an HSA doesn't create a new tax deduction. The only thing I see happening is that you then need to go through the HSA to get the money, which is money you already have in your pocket!

When this issue is left as an open administrative function, we typically ask the contact at the firm to have the affected HCE call us for discussion. In that discussion we outline options and expected impact, directing that person call their tax advisor for counsel and then get back to us with a decision. Of course, a deadline is set for response, and a follow-up email is sent immediately after the call, covering what was discussed. If this approach is not allowed by time, or the person fails to get back to us, we discuss the issue with the Plan Administrator and make a decision on default application. Prorata is probably the safest way in the absence of a decision from the participant. Another method is in proportion to the contribution division of that person. We also have plans that are expected to fail send out a "warning notice" to the HCE, asking for them to define their preference.

Thank you very much Mr. Bailey. As you know, to have a controlled group in this specific situation, you would need to have ownership attribution. There are no family relationships, so no attribution. So we can at least take that problem off the table. The services of Firm 1 are definitely services historical employee services for both 2 and 3. Just looking at the relationships between the firms, it really seems to fit the definition of ASG. However, I recall there is an exemption from ASG rules for banks and financial service firms. (In line with your comment on nonexistent regs, I seem to hit one dead end after another with my research.) The addition of the lease employee just seems to make a murky issue, even more muddy. You gotta love our field some days! Again, thanks for you help.

Details Luke Bailey?

I had one where the business owners took all the money in the trust and bought a beach house for themselves. That was back in the 80's when I was an employee, luckily. Anyway, my employer advised that they get an ERISA Attorney and resigned from the case. Not sure what happened next.

Partner A owns 50% of Firm 1 and 100% of Firm 2. Partner B owns 50% of Firm 1 and 100% of Firm 3. Business is wealth management service and all 3 firms are S-Corps. Firm 1 is support staff and expenses, while firms 2 and 3 are the respective partners. Does this represent an Affiliated Service Group? I note that the partners are both licensed. Finally piece of the puzzle is that the one support staff working for Firm 1 is a leased employee, where the leasing firm provides a 401(k) plan with a 100% of 1st 4% Safe Harbor Match. That Match is paid by Firm 1 (indirectly paid by Firms 1 & 2). Is there a coverage issue if Firm 2 and Firm 3 have SEP's that only cover the respective partners? If firm 2 replaced its SEP with 401(k) covering only Partner A would that cause a problem?

Ultimately, the question must be asked: "Why would you want to do that when there are easier, less problematic ways to get to the same end?" I may be dense, but I can't see why this would be a good idea. No disrespect intended.

There are 2 type of Catch-up Contributions. Values related to exceeding plan or statutory limits, and amounts used to recharacterize excess amounts. The former are removed from testing. The latter are created by testing.

I suggest that you must first determine what was actually withheld from actual paychecks. W-2, plan records and account balance must correctly reflect that number. Keep in mind that issues like FICA and FUTA are also involved, and those amounts must be the correct values, not what the employer or participant want the value to be.