Bruddah Kimo

The plan did not file as a small plan in 2014, but filed a Sched H as a large plan. So it sounds like I must file as a large plan in 2015 as well - not good. This is a plan I inherited from someone who told the sponsor they would not require an audit for 2015.

I have a calendar year 401k plan that filed Sched H in 2014 with 98 participants at EOY. On January 1, 2015 five more employees became eligible to participate. Do I need to file a Sched H for 2015 since my BOY participants is now 103, or are my BOY participants considered to be 98 allowing me to file as a Small Plan for 2015? I've researched but haven't been able to find a definitive answer on my BOY participant count. Thank you!

Even though the payments to employees are made 100% by the employer, not though a plan the employer is making contributions to? Would you then be considering it a 'welfare benefit' (even though there is no plan the payments are based on) ? How would it differ from a 'sick pay' or 'vacation pay' payment to the employee?

Having an argument with a plan sponsor over the definition of compensation under their plan. Compensation is defined as Code 3401 comp including deferrals but excluding 1) comp prior to participation; 2) while an ineligible employee; and 3) amounts in Regulation §1.414(s)-1©(3) (i.e., reimbursements or other expense allowances, including fringe benefits (cash and non-cash), moving expenses, deferred compensation and welfare benefits, even if includible in gross income). Here is the issue - throughout the year they may pay 'temporary disability payments' to employees that is 100% paid by the employer and included a taxable income on their W-2. Client claims this amount is to be excluded from plan compensation and that only payment for actual work performed should be included. I argue that since payments are made by employer and includible in W-2 taxable income it is treated no different than sick pay and is included in plan compensation. Can these 'disability payments' be construed to be a payment under §1.414(s)-1©(3) and therefore excludable from plan compensation as the client insists?

Thank you Kevin - I should have mentioned that this is a DC plan. No further contributions are to be made for 2011, they only make EE Deferrals & ER Match. You're right about the loan option, I was trying to get creative and overlooked the fact the participant had already taken out available loans.

I have a calendar year Plan that processed a hardship distribution for a participant in 2011. While undergoing an audit for 2011 it was found it did not qualify. The plan uses safe harbor hardship definitions, one of which is 'payment of tuition, related educational fees, and room and board expenses, for up to the next 12 months of post-secondary education for the Participant, and the Participant's spouse, children, or dependents (as defined in Code §152, and without regard to Code §152(b)(1), (b)(2) and (d)(1)(B));'. While Sponsor approved the hardship request to be processed the auditor found that the hardship was used to payoff outstanding school loans. He is asking what corrective steps need to be taken. Has anyone had experience with a similar occurence? The IRS Fix-It Guide states that 'have participant return hardship distribution amount plus earnings' but this leaves unanswered questions: 1) How to detemine the 'earnings' 2) How to handle tax reporting for 2011 distribution. Amend 1099-R(?) 3) Can it be self-corrected in another manner (reclassifiy as a loan possibly?) Any comments or insights on handling this situation would be appreciated! Thank you!

That's what I was afraid of - it is all Safe Harbor Match or nothing then for this Plan. Thank you!

In realize I'll need to run a ACP test (see reference in my post 'I understand the match formula will not provide a pass for ACP testing') - but the big question is can I have a Safe Harbor Match of 100% on the first 4% deferred and a discretionary Employer Match of 100% of the NEXT 5% deferred?

Here's the situation: I have a new client which currently offers a 401k Plan with an Employer Match equal to 100% of the first 9% deferred. The match is immediately 100% vested. I am wondering if I should make this a Safe Harbor plan to give me an automatic pass on the ADP test. I understand the match formula will not provide a pass for ACP testing. I have a couple of questions: Is it OK to offer Safe Harbor Match of 100% on the first 4% of deferrals made and regular Employer Match of 100% on the next 5% deferred? I have not been able to find an example of this type of formula in the various examples cited in IRS examples and trade articles. Why not offer a Safe Harbor Match of 100% of the first 9% deferred? That would be easy, but right now the employer monies are available for hardship withdrawals. Making all 9% match ineligible for hardship withdrawals might make the decision to go Safe Harbor more difficult for the sponsor. I thought if only 4% were made Safe Harbor they may be more apt to adopt the Safe Harbor provisions. Has anyone seen this type of formula used in a Plan?

Thanks GMK - since the accrued benefit is not in pay status it doesn't look like the state can require the sponsor to issue a distribution to the requesting agency. I will advise the client -

The custodian of the assets of a 401k Plan recently received a letter from a State agency directing the Custodian to pay child/spousal support from the account of a terminated participant. The Custodian sent a letter back to the State agency (and copied the Plan Sponsor) saying they are not able to make a distribution of assets without the direction of the Plan Sponsor. The Plan Sponsor has asked what should be their response to their anticipated receipt of a letter from the State agency. A couple of questions: 1) Does the state agency have the right to demand payment from a participant account which has not been distributed? 2) Does the request need to follow the rules of a DRO have the SSN, address of the participant, name of the Plan, signed by a Judge, etc. to be a valid order? This is the first one of these I have seen and would greatly appreciate any advice which you could provide for how the client should respond. Thank you!

A 401k PS Plan will be terminating effective 12/31/2010. A Notice of Plan Termination was distributed to participants with distribution election forms & tax notices November 30, 2010. The Plan has the following sources of monies: Elective Deferrals Safe Harbor Non-Elective Employer Match The Plan is undergoing an IRS audit (and that's why it is being terminated by the Plan Sponsor). When informed of the Plan Termination Notice gonig out on 11/30, the auditor stated that the Ntoice must be given out 60 days in advance of the Plan Termination. ????????? Am I missing something here? Why would the Plan need a 60 day notice for a DC plan with these sources of monies?

Hi - I'm somewhat new to the 403b world and had some questions put to me by a broker. I'm not sure how to respond. A local municipality is looking to start up a retirement plan - they currently have a SIMPLE. It will cover school EE's and other municipal EE's. They want to make a 3-5% contribution to the employee's. Some questions: 1) can they offer a 401k or are they limited to a 403b? 2) Since it is a government agency must the 403b be a non-ERISA plan or can it be an ERISA 403b? 3) If they can offer both 401k or 403b, what would be the advantage of either? Thank you for any insights you can provide!

BG5150 - It's for a new plan we took on mid-2009. We have them setup for Safe Harbor in 2010. Thanks for your help!

The NHCE ADP is 0.0% which means the max rate for HCE's would be 0.0%, therefore the $5500 deferral made would be characterized as a CUC.

A quick question. The only contribs made to a Plan are Catch-Up contribs made by a Key Employee. No contribs are made by Non-Key's during the year. More than 60% of assets in the Plan are in the Key EE account. Does the Catch-Up contrib trigger a Top Heavy allocation to be made to the Non-Key EE's?

Thanks everyone for your assistance!!!

BG5150 - the Plan does not allow a waiver of participation. Also - this regards the 2009 SHNE allocation to be made to EE's now. Don't think I can retroactively do the Job Classification exclusion without running into cutback issues. David - ER has already asked the EE about the problem about accepting something free. He just doesn't care and does not want the contribution. Unfortunately, I can't tell the ER to fire the guy and 2009 is already in the books anyway. He wants me to provide a citation which proves he must receive the contribution in an account setup for him against his wishes.

Participant in a Safe Harbor 401k is refusing to receive a Safe Harbor Non-Elective contribution as he believes the 'government will take it from him'. He is being adamant that no monies be placed into an account for him and is causing trouble with the employer. He is asking for a citation to prove he must receive these monies. Can he deny receiving the contribution without implications on the Plan's Safe Harbor status? Where would I find the citation regarding this? Thank you!

Thanks guys! I read the same cites and pretty much had the same conclusion, but since it wasn't spelled out I thought I would ask in case someone had had a similar experience. I did what Blinky had suggested and used 8 months (I always take the conservative approach in these matters). Alas, I won't be attending the conference this year - but my Boss just arrived in DC a few moments ago. Maybe next year Tom! Mahalo nui for all of the assistance!!!!

I have a calendar year 401k plan that terminated effective 9-4-2009 due to a takeover. I am preparing the final val and I have a question regarding how to determine the correct 401(a)(17) limit to use. Since the plan did not terminate at the end of a month, I'm not quite sure which is the correct way to prorate the $245K limit. The language reads "If a Compensation Determination Period is less than 12 consecutive months, then the Code §401(a)(17) Compensation Limit will be multiplied by a fraction, the numerator of which is the number of months in the Compensation Determination Period, and the denominator of which is 12. If Compensation for any prior Compensation Determination Period is used in determining a Participant's Plan benefits for the current Plan Year, then the annual Compensation for such prior Compensation Determination Period is subject to the applicable Code §401(a)(17) Compensation Limit as in effect for that prior Compensation Determination Period." What is the correct method of pro-ration? Do I take 8/12ths, 9/12ths or would I actually proprate by the number of days? I'm not quite sure how to proceed on this and would appreciate any feedback. Thank you!

A very good point I will try to impress upon him when I explain his options and the ramifications. Thank you!

I have an Employer that sponsors a small 401k Plan (23 accounts, $2.9M in assets). The Employer was recently purchased by another company and the decision was made to terminate the plan and distribute the assets. The Employer currently pays to have a Directed Trustee (who is also the recordkeeper). When informed of the impending plan termination the Trustee said they must have either 1) an FDL via 5310 filing; or 2) an indemnification letter from the sponsor before they will distribute assets to the employees. The sponsor refuses to do either. He doesn't want the employees to wait for the FDL and he refuses to sign the indemnifciation letter. He floated the idea of amending the Plan to remove the directed Trustee and name himself Trustee of the Plan. Seems too simple a solution so I thought I would see if anyone else had run into this situation before and what their experience was. Anyone have any comments regarding this situation? Any advice would be appreciated!!!

Thank you so much!

I inherited a 401k Profit Sharing plan from a colleague that ran for the hills last summer. This plan maintains insurance policies as part of the trust for some of the older participants as a holdover from a past reincarnation of the Plan. Every year the sponsor pays the insurance premiums out of the assets put aside for a profit sharing allocation. The premium was deducted from the PS allocation payable to the participant. This year however, he has elected not to make a PS allocation to the Plan. He's asking how to go about paying the insurance premiums since they are now due. I want to be careful; this is the first time I'm dealing with insurance as part of the trust. I would think that the premiums should be paid by accessing a fee against the balance of the vested assets in the participant accounts, but I want to be sure this is OK. Anyone have thoughts on the subject? Mahalo for your insight! Excerpt from Plan doc: "(d) Payment Of Premiums: If Employer contributions are inadequate to pay all premiums on Policies, the Trustees may, at the direction of the Plan Administrator, utilize other amounts remaining in the Trust Fund to pay the premiums, allow the Policies to lapse, reduce the Policies to a level at which they may be maintained, or borrow against the Policies on a prorated basis if borrowing does not discriminate in favor of Policies issued on the lives of officers, Shareholder-Employees and/or Highly Compensated Employees."