BG5150

We have a company that did not remit it's 12/31/2019 deferrals on time. Using the 7-business day rule, they were due 1/10/20. So do I use a 2020 Form 5330? Can I use a 2019 form? They had 2 other late payrolls during the middle of 2019, so I'm filing a 2019 form anyway. I just don't want to forget about this at this time next year.

The rule is there not to get the funds into participant accounts, but to keep participant funds out of the hands of the employer. As soon as deferrals (and loan payments!) are recorded on employees paychecks/direct deposits, then that money is no longer the employer's. As long as the funds remain in the employer's bank account, it's like an interest-free loan from the 401(k) accounts to the employer.

I guess it depends on if the TPA charges for a failed ADP test.

And remember, with prior years testing, you know how much the HCEs can put away AS A GROUP. So if the NHCE % was 1.5% last year, the top group can put away 3% on average. That's great if everyone is on board. However, say, all the HCEs decide to put away 3% for the year, then one of them decides to spot for whatever reason halfway through the year. The the other HCEs can have the % raised a little. But nobody is going to really know that. The plan administrator cannot say, "hey guys, Erica decided to stop deferring for now, so you can go a little higher on your contributions." I like to reiterate to the clients that if the plan fails testing it's not a red flag with the IRS or anything; and no one is going to turn them into the DOL. It's a fact of life. And again, if the HCEs did the absolute maximum under the testing rules, hit the numbers exactly, then whatever above that is going to be taxed in their paycheck anyway. (And, if the funds go up during the year, they get the earnings in the refund, too. Sure, they pay tax on it, but it's still extra money. It's like saying "here's an extra hundred bucks, but I have to keep $35 for taxes, so I'm just gonna give you $65. For doing nothing, really." I'd take that.

Is it a problem that the test fails? The only issue (to me) for a failing test is that the HCEs will defer income tax on some of their deferrals until the following year.

If a participant and his primary bene are deceased. There are two contingent benes with 50% allocation. If one of the contingent bene passes away, would the surviving bene gain 100%?

What year(s) would that match count for regarding TH remedy? Could it do double duty--first and second years?

GoFileRoom

But the 100% QNEC should be ok, right?

EPCRS calls for a 50% QNEC for failure to implement a participant election. What if the ER wants to make the person "whole" and contribute 100% of the missed deferral? I'm guessing that would be ok, because EPCRS are suggested corrections, and the participant will definitely be better off with 100% vs 50%. But what about 415? What year would that apply to? If the 50% QNEC was supposed to be $5,000 and they put in the full $10,000, what year(s) do these QNECs affect? What about for ADP testing.

Even for a SH Plan?

Can I amend a SH plan now to change PS method from pro-rata to new comp for 1/1/20?

They could, but why would you want to? It's not that onerous to put one together. It'll probably take you longer to answer all the IRS letters you'll get than to prepare the EZ for the next five years.

It applies to QACA. Still have to make the match, though, if that is the SH contribution.

Would a plan get disqualified if no notice was given, but the fine was paid?

What are the hurdles to changing the vesting percentage computation basis? A plan currently has 1,000 hours for YOS for vesting. Can it easily change from hours counting to equivalancy or even elapsed time?

Do you really think the IRS would disqualify a plan over that?

Not at all.

The point of the formula is to calculate the vested balance in an account where there was a partial distribution. If that happens, it's not as easy as just applying the vested % to the account. As in my example, Ppt has balance of 10,000 and is 50% vested. So 50% of 10k is 5k. But if he takes 1,000 he's left with 4,000 vested and still 5,000 unvested. The vested/unvested % is now 44.4%, not the 50% level.

I guess I don't have the relevant account balance correct. I thought the formula would calculate the vested balance using the total balances right before and right after the distribution.

I did mean loans. Thanks.

So, if we are excluding sources, we still use the vested amounts in the verboten buckets to determine max match, and the balance in the available sources can further curtail that...

What reference source is that, KC?

I think there are two things to consider: What sources are available to fund a loan and what sources determine the available amount of a loan. So, in my cases above, #1 would only have $5,000 available and #2 would have no loan available matter how much vested money is int he other sources?

Either my math or my senses is failing me (maybe both!) here. Participant is partially vested in a source. She takes a partial distribution. The BPD gives this formula to determine what her vested account balance will be after the distribution. So I have: P = 50% AB(1) = 10,000 D = 1,000 AB(2) = 9,000 R = 1.111 (10/9) So, the math according to the formula is: .5 (10,000 + (1.111 * 1000)) - (1.111*1000) = 4,444.44 Shouldn't the vested balance be merely $4,000? She had $5,000 vested, took 1,000 of it and so should only have 4,000 vested. Where did I go wrong?