BG5150

Or, at least I think the site is wrong in this case. On the page Is my 401(k) Plan Top-Heavy? (https://www.irs.gov/retirement-plans/is-my-401k-top-heavy), the section titled "Making Minimum Contributions..." it says: "If the average contribution for all key employees is less than 3%, non-key employees also receive that lower percentage instead of 3%." I do not believe it's the average, but the HIGHEST Key EE contribution that is considered here. So, I have one Key EE with a contribution of 2.5% and another with 1.5%, the the TH minimum is 2.5%, not 2%. So who do I contact at the IRS to ask about it? (Or am I really wrong? I consulted Treas Reg 1.414-1 M-7 and the EOB Chap 3B Sev IV Part A.2 which seem to agree with my position)

If it was a pro-rata allocation based on participation pay, but got allocated on full-year pay, it would be considered an excess allocation (unless an 11-g amendment was done and testing then passed--which it would b/c it was only NHCE). Or pro-rata and these people just so happened to get allocated too much by accident.

Update: one of the Key EEs is under 50. I thought they were brothers, but the owner is the father and the otehr key is the son. Ages 60 & 28.

Plan has two key employees who are the only HCE. Plan passes ADP test b/c they defer low amounts, let's say $3,000 each (and they each make $100,000) for simplicity. Both are over age 50. The Plan is top heavy. Because they aren't failing the ADP test, nothing is re-characterized. They did not run afoul of any other limits. Do they owe the 3% TH? Or can we say b/c they are both over age 50 and their deferrals were less than $6,500, they can be considered catch-up and not used in determining the Key employee allocation for the year? (There are no employer contributions.)

So not in time to get it closed out this year...

Why remind everyone about the match every year if you do not have to do it for the NEC?

Is there a way of doing an 11-g amendment letting them keep the higher match? Are they mostly NHCEs?

No. Any SH Match (basic, enhanced, basic QACA, enhanced QACA) MUST get the notice. At least that is my understanding of the rules and the chart I got from the FIS seminar we did in September.

Geez. That's a lot.

But how long will that take?

I would err on the side of caution and make then 100% vested. Unless there is something in the employee's file that said they quit voluntarily (like a resignation letter).

How much was the extra match?

That is really none of your business.

One thing to examine is your firm's procedures regarding "EZ" plans. Our year-end correspondence always asks if the client hired any employees during the year, whether part time or full time, whether they were there at EOY or not. And who told him to stop contributing? Did he do that on his own? On the advice of his accountant? His TPA?

Before you start down that road, did any of those employees satisfy the eligibility requirements of the plan?

[Insert Dungeons & Dragons joke here]

Thing about IRAs, once over RMD age, can't you take what ever you want when you want to, it's just you HAVE to take at least the minimum? Qualified Plans don't necessarily have that feature.

In anticipation of other employees?

It was the sponsor's discretionary decision to move TPAs. But because of that, they need a new document, as the old one is no longer being supported. Let's just assume this is NOT a required restatement for Post PPA.

Plan is moving TPAs. Old TPA (obviously) will not continue to support their plan doc. When the plan is restated to the new TPA's doc, can that expense be passed on to the trust? Either forfeiture or participant accounts?

Is $54 really that big of a deal for him to contribute? How much was the match to begin with?

You may or may not. The partners will just be 100% in the 414(s) test. Just run the test. Can't be too hard.

If the revenue you derive from the 3(16) Service outpaces the fiduciary insurance premiums and covers the cost of the extra work with some profit at the end of the day, then I think it could be a win.

CLE401kGuy: I would certainly get a separate 3(16) Service agreement in place. Make it air tight--dot your t's and cross your i's. Get your counsel to sign off on it. If you are being paid extra for that, be careful of prohibited transactions. Especially, if the fees may come from the plan.

Who is paying if the funds have lost money since distribution, but would have gained money in left in the plan. For example, my distribution was $10,000 and I rolled it into my IRA. I was invested in Fund A in the plan. When the money hit my IRA, I put it all into some stock. I get a letter from the Plan Administrator that I have to return the money. But the stock sank, and is only worth $8,800 now. But if I kept it in the plan, Fund A was up 5% since I took it out. Who is compensating me for the loss in principal and loss of earnings in the plan?