Kimberly S

Client is under audit by the IRS. As part of the process, the auditor sent a letter requiring the client to prepare, file and pay am excise tax on testing refunds that were not made timely. The client prepared and filed the forms using the auditor's numbers. However, the auditor's numbers are about $5,000 higher than the actual test results. Is anyone aware of a way to file an amended return using the correct numbers and receive a refund of the overpayment? Does the instruction from the auditor overrule the correction?

If it has nothing to do with the plan it cannot be paid from plan assets.

Under ERISA, the trustee of the plan has the legal responsibility for prudently investing all of the plan's assets on behalf of the participants. Plans are permitted (but not required) to allow participants to direct their own investments.

Employer contributions to a 401(k) plan are not considered to be wages and therefore are not subject to FICA, Medicare or FUTA. Salary deferrals, however, are subject to those things. I don't know the 457 rules.

Before your question can be answered it needs to be determined which of the companies are in a Controlled Group or Affiliated Service Group as defined by the Internal Revenue Code. You have not provided enough information to determine either of those questions.

That could still be true even if you cancel them.

Does your plan have QDRO procedures?

What is the reason for the QNEC? It does not appear to be needed to pass ADP testing. Was it intended to be a make up for missed deferral opportunities?

FWIW, one of my forner employers hired me as an independent contractor to do my old job, during hours that I set, at their location, using their equipment, until my replacement was hired and trained. I always thought that it should have counted that as W-2 wages rather than 1099-MISC income, but the IRS did not question it.

Depending on timing and plan requirements, it's possible to get 3 years of vesting service within about 25 months of employment. Without more information, you cannot assume that she is 0% vested.

Janet, your second paragraph lost me. Why do you say the plan could never have started? My original question was based on the premise that 401(k) plans are a specific type of profit sharing plan. I have read in multiple reference materials that freezing a profit sharing plan effectively terminates it because of the requirement for substantial and ongoing contributions. If all 401(k) plans are, by definition, profit sharing plans, that requirement would also apply to 401(k) plans. Hence my question.

What does their attorney say?

One could argue that terminating employment revoked the prior election, along with any agreement about pay. The best option is still to require a new election on rehire.

An employer who terminates a 401(k) plan is not eligible to establish a new one for 12 months. Before the 12 months are over, employer A is acquired by employer B, creating a controlled group. Employer B would like to add employer A to its 401(k) plan as a participating employer. Must they wait until 12 months after the termination of employer A's plan to do that? Would the answer change if employer A "froze" its plan rather than terminating it? Related question: does freezing the plan trigger 100% vesting since a profit sharing plan without substantial and ongoing contributions is deemed to be terminated?

Don't those limits apply to any bank accounts regardless of who the owner is? If so, it should apply to bank accounts in qualified plans just like it would for any other entity.

A trustee of the bank, or a director? If he is a director of a publicly traded company he has SEC reporting requirements for any stock that he purchases as a trustee of the 401(k) plan. He is also subject to insider trading rules for any shares of the company owned by an entity that he controls. Because there are potential trading restrictions on him as a director, one could argue that it is not a prudent investment for the trust. Does it rise to the level of a prohibited transaction? I don't know.

If you are truly uncomfortable with the way the otherwise excludable rules are being applied to the test for your company, you can always instruct your TPA to not use that option in your test. Your HCEs will not like it, but your other worries will be over.

If you are withdrawing the money to pay off loans, that probably won't qualify as an educational expense even if they are student loans.

I think the reason that so many hackles have been raised is that your conservative view, while possibly defensible, goes against how most of us in the business do the tests and also how the software used for testing is programmed. The truth of the matter is that many issues that we take for granted could be argued from a slightly different perspective. If the end result gives an acceptable answer that is more favorable than your alternative view, why would you want to pay extra for the less favorable result? FWIW, I've been following this discussion looking forward to the new posts each day. After 8 years in the business and 2 professional designations, I had never before heard of any question about how to test otherwise excludables.

If there was no hardship, which seems to be the case after the deal fell through, I believe the participant is REQUIRED to repay the distribution. That requirement likely includes the entire distribution including withholdings.

Does the Schedule H even go to the SSA?

I'd be looking to find a payroll company that can do it correctly, too.

Does the profit sharing plan have a 401(k) feature? If so, you could be on the hook for a TH minimum due to deferrals or match going to the key employees.

No, because occasionally you will have an HCE in the otherwise excludable group. (for example if the owner's children come to work for the company) It's just that "otherwise excludables" are tested separately from the rest of the group.