Craig Garner

Plan currently has no excluded employees. Client want to "exclude" most ACTIVE part-time employees by Amending the plan to use the "20 hours per week" exclusion. This idea makes me uncomfortable. Seems more like a violation of "once-in always-in." And, I also understand the related issue of the 20 hour per week rule being impacted by the LTPT rule.

I am certain I will never be able to provide enough information for anyone to form an opinion. I am just reaching out to see if folks think that the client should absolutely obtain legal advice regarding ASG, or if I am totally over-thinking the ASG issue. I received a call from a potential client (with no plan in place currently). He is a surgeon who works for a hospital as an employee and participates in the hospital's 403b plan. He gets both elective deferrals as well as employer contributions. He is also an eminent researcher, who then forms companies to commercialize on his research. He has some equity ownership in these companies, as well, usually between 3%-15%. The companies have their own management and employees. He is not an employee of any of these companies. However, some of these companies pay him, via 1099, for “consulting” to that company. He would like to establish a retirement plan for the 1099 “self-employment” income he receives from these companies. 1) Is it possible that there might be an ASG between his “self-employed business" and any of the businesses in which he has equity ownership? I wonder if his self-employment business could possibly be an A-org, or B-org to any of the companies he has helped to set-up. There is certainly some common ownership, he is being paid for providing services, and these companies are in the medical field. Thoughts? 2) Assuming that a plan for his self-employment income could be established, do we need to aggregate any of his 403b benefits from the 403b plan with ANY plan he establishes for his self-employed income (since he is a 100% owner of his self-employed business). It is my understanding that 403b and DC retirement plans must be aggregated for 415 limits. Does this aggregation also apply for any reason (like deduction limits) between a 403b plan and a Cash Balance Plan, for example? Thank you for your thoughts.

I am trying to determine Top Heavy (TH) obligations in a safe harbor (SH) plan for an employer who has multiple plans. The employer (ER) has both union employees and non-union employees. The ER contributes to 2 union plans (DC & DB) under a collective bargaining agreement. The ER also sponsors a "frozen" ESOP plan in which both union and non-union employees are eligible. And, the ER has a safe harbor 401k, using a SH match formula, for non-union employees. Historically, only non-union employees have been Key employees. Last year was the first year in which a union employee personally owned enough company stock (outside of the ESOP) and earned enough salary to be a Key employee. Based on my understanding of the TH regs, an ER must aggregate all plans in which there is a Key employee. And, based on my understanding, this would include multiemployer, collectively bargained plans that include a Key employee. To confuse matters a little, the regs (1.416-1, T-3) seem to indicate that all of the plans must be aggregated to determine TH status, BUT the TH rules do not apply to union employees if benefits are subject to collective bargaining. So, I'm assuming that even if the plans are TH, I do not need to provide TH minimum benefits to any union employees, only non-union employees. Since the ESOP is frozen, and all of my non-union employees are in the SH plan, I am focused on TH obligations, if any, in the SH plan. Here's my first problem, the union plans do not have any sub-accounting. The account balances/accrued benefits for union employees include amounts earned/accrued with OTHER employers. Logically, it seems wrong to use this data, as it could skew the TH results in one direction or another. The Internal Revenue Manual says an employer can use a simplified method to compute TH ratios (overestimate Key, underestimate non-key). Let's say we do this, resulting in the plans being TH (on purpose!). QUESTION: If the plans are TH, and I do not need to provide TH benefits to union employees, and my non-union employees are participating in a SH match plan, do I have any obligation to provide additional TH benefits to non-union employees who don't get any SH match??? The ER is not making any additional contributions to the SH plan other than SH match. But the ER is making additional contributions to other plans, namely the 2 union plans: union plans that are part of the required TH aggregation group, but benefit employees who are not required to get TH benefits. For the ultimate conservative approach, could I suggest the SH plan switch to a 3% NEC? Or suggest that they simply provide all non-union EE's with a minimum 3% benefit each year? I'm just not sure how I could ever prove that these plans, in aggregate, are TH or not TH. I'm wondering if the best approach is to simply assume the plans ARE TH. Any thoughts you have would be appreciated. Thank you.

Following up on the ability to use Form 5500 to make a "change of address," the 2019 5500-SF instructions for Line 2a say: Use the IRS From 8822-B to notify the IRS if the address provided here is a change in your business mailing address or your business location.

A plan (and the plan document) allow for deferrals up to 100% of pay. Of course, the deferral is not really 100%, but 92.35% due to payroll taxes. However, a client just informed me that a large payroll provider (which will remain nameless) has implemented a new "policy" which will only allow a max deferral of 90%. First, has anyone run into this issue? Second, what problems does the plan have as a result of this? Should the plan amend to use a 90% max? Should HR try to "override" each payroll manually to get to 92.35% each payroll period? Probably both of these options are ok. But, I would think that we can't just leave this alone and only defer 90% when the election is for 100%. Ideas?

For the year in which a sole proprietor dies, can the surviving spouse and/or executor of the estate step in and make a SEP contribution on behalf of the deceased owner/participant based on earned income for that year? I think the answer is yes, because the SEP is an employer-sponsored plan, and the spouse/executor is acting to wind down the business, which may include making SEP contributions. I also have the same question regarding a SIMPLE Plan. Here, I think the answer is no, since the election to defer would have to be made by the owner/participant, and not by a third-party.

1.72(p)-1, Q&A #9 outlines the requirements to avoid a deemed distribution when a participant returns from a non-military leave of absence. There are two options (#1) re-amortize the loan (possibly with higher payments, but never with lower payments) in order to payoff the loan before the 5-year term, or (#2) re-start repayment at the old payment amount AND a "balloon-payment" (my terminology) of the full balance on or before the end of the 5-year term. My question is on option #2. What if the Pan Administrator allows option #2, and the participant gets to the end of the 5-year term and cannot make the final balloon payment? Obviously, a deemed distribution has occurred. But, WHEN did it occur and WHAT is the taxable amount? My reading is that option #2 requires TWO things to occur to avoid a deemed distribution: re-start payments and make a balloon payment. Without both, I think the default date and amount goes all the way back to the "cure period", last day of the quarter following the quarter in which the first payment was missed. (The other possibility would be the value of the loan at the end of the 5-year term, because we were attempting to comply with Q&A #9, meaning basically that the balloon payment itself becomes the default amount). Of course, if the default goes back to the end of the cure period, we have a big mess on our hands and EPCRS kicks in. I guess I'm not sure how much good-faith can be used to assume that a participant will actually make a balloon payment?

I have a 403(b) prospect. 6 operating divisions, same Board of Directors (controlled group). There is one plan document. All divisions can make deferrals (whew!). However, only 3 divisions get a Safe Harbor Match (the other 3 are excluded in the document). I've never thought about doing this, so I don't know the answer....can a plan exclude employees from a Safe Harbor contribution? Let's assume that the plan would PASS coverage for the employees who are eligible for the SHM (assuming that matters). I had always thought that a plan had to make SHM contributions to ANY employee eligible to make deferrals, or to those employees who had attained the statutory 21/1 YOS. If you have cites, that would be great. Thank you.

Tom, thank you for your response. At first, I thought as you do. In doing my research, here is why I am a bit confused. 1.401(k)-3( c)(6): (iv) Restriction on types of compensation that mat be deferred- A plan may limit the types of compensation that may be deferred by an eligible employee under a plan provided that each eligible NHCE is permitted to make elective contributions under a definition of compensation that would be a reasonable definition of compensation within the meaning of 1.414(s)-1(d)(2). Thus, the definition of compensation from which elective contributions may be made is not required to satisfy the nondiscrimination requirement of 1.414(s)-1(d)(3).

I understand that the definition of compensation for the SHNE contribution must be a 414(s) safe harbor definition or another definition that can pass 414(s) using the compensation ratio test. However, what about the definition of comp for the salary deferrals? Can that definition be different than the definition for the SHNE? For example, could a plan exclude bonuses for deferral purposes (for administrative convenience), but include bonuses for the SHNE (to insure a 414(s) safe harbor definition)? Let's also assume that excluding bonuses from comp would NOT pass the ratio test of 414(s). So, my deferrals are using a "reasonable" definition under 414(s), whereas the SHNE is using a 414(s) safe harbor.

This happens to be a (b)(1) & (b)(7) plan. I understand there are some differences between (b)(9) retirement accounts and plans with (b)(1) & (b)(7) annuity/custodial accounts (not only with the type of available investments, but also with regard to the written plan document requirement, for example). ACP testing (IRC 401(m)) refers to the discrimination test on Matching Contributions. (For example, 414(e) religious organizations would be required to do ACP testing).

Based on info from this forum, 403b Answer Book, various articles, websites and vendors....it seems to me that a non-electing church plan may be treated differently for testing purposes depending on the type of plan it sponsors. To be specific, I am referring to a "steeple" church as defined in 3121(w), including qualified church-controlled organizations (not to church affiliated organizations). Here's what my research seems to indicate: A non-electing church plan that is a 403b with a match does NOT need to do ACP testing. A non-electing church plan that is a 401k with a match DOES need to do ACP testing (and ADP, too) So, it looks like the "type" of plan a church sponsors is important to the testing required. Is this correct?

Participant is 75, but is no longer working and is taking RMD's. Spouse is 65, and is still working. Both are participants in the same 401k plan. Participant dies, spouse is the sole beneficiary. Neither is an owner. I know if the spouse were to rollover his account into an IRA (spousal rollover) and treat it as her own IRA, she could stop the RMD's until she turns 70 1/2. After 2001, a spouse could also rollover benefits into an eligible retirement plan (and, presumably, also treat his account as her own and stop RMDs). Since she is in the same plan as her deceased spouse, can she elect a "rollover" of his account into her existing account, treat it as her own and STOP RMDs until she turns age 70 1/2 (or retires)?

I think I would lean toward this being a "correction," as well. My understanding is that draws are not compensation, they are simply advances on what may become compensation. For self-employed individuals, payday is the last day of the year. In other words, self-employed folks have only one payroll per year. Unlike the rest of the employees. If you calculated the wrong employee match for just one payroll, you would go fix that ONE payroll. You would not go back and do a true-up. I think the same is true for the owners. If the wrong Match was calculated for their ONE (annual) payroll, you would go back and fix that ONE payroll.

I have a 401k plan with no 412 money in it. The plan was originally set up (by a prior service provider) with annuity options as the normal form: 50% QJSA and 100% QPSA. The client would like to amend the plan to remove the 100% QPSA spousal death benefit and replace it with a 50% QPSA spousal benefit (I think they want to be able to name a trust for half the death benefit without needing to get spousal consent). Can I amend this plan? Do I have any protected (spousal) benefit issues? Can I amend out of all annuity options, then later go back and add annuities including the 50% QPSA? Or is this a bad idea all around, and why?