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?

I understand that a plan consisting solely of deferrals and safe harbor contributions will get a free pass on Top Heavy testing. If this true even if: 1) safe harbor contributions are NOT made to HCE's, and 2) some of the HCE's are non-key (meaning there are non-key EE's who can never get an employer contribution in the plan)

On the surface, it sounds like the niece would be the Beneficiary, per the plan document. I would also be curious what the annuity/custodial contract says, and is it the same or different from the plan document (a conversation with the vendors legal team may be in order). Given that you have a 1997 beneficiary form, there may be a substantial account balance involved. Sometimes, a plan just needs to get a qualified attorney involved, especially if there is a conflict between the annuity contract and the plan document. Before paying any benefits, I would want to know if there are any potential issues with EITHER the niece or spouce. For example, the plan may want to mail out letters to each, explaning the beneficiary designation it has on file, the one-year marriage rule, the amount of the account balance, and a "preliminary determination" by the plan sponsor as to who it believes the correct beneficiary is. The letter should ask if ANY of the facts are in dispute (maybe the spouse has a beneficiary form that the plan administrator does not), and request that each party sign off before benefits are paid. If they both sign off, then go ahead and pay out. BUT, if one of them comes back with issures/concerns or threat of a lawsuit, then you know you are going to need HELP!! Craig Garner

May I assume you agree that ERISA 403(b) plans are NOT subject to 4975? In which case the correction would be..... -deposit the late deferrals -calculate and deposit the lost earnings -do not file Form 5330 -do not pay the 4975 excise tax -report the late deferrals on Form 5500 -sit back and wait for the DOL to ask for a civil penalty...which may never occur. It is the last step that concerns me. Instead of sitting back and waiting, would the plan be "well advised" to enter into the DOL VFCP, or do 403(b) plans generally sit back and wait?....just asking.

According to my research, late deposits are corrected just like a 401(k) plan: late deposits are made and lost interest is deposited to the plan as calculated on the DOL DFVC calulator. (I know, technically, you should only use the calculator if you are going through VFCP, but I think most use the calculator anyway) My confusion is on the next step: the prohibited transaction penalty (ERISA) and/or excise tax (4975). My research indicates that 403(b) plans are NOT subject to 4975, but they ARE subject (maybe) to ERISA 502(i). Further, Form 5330 cannot be used to pay the 5% penalty under 502(i). Is this true, even for ERISA plans? After an ERISA 403(b) plan has corrected the late deferral PT, what is the next step? What penalties, if any, need to be paid and how do you pay them? And, does the penalty "pyramid" from year to year like it does with 4975 excise taxes? I assume I continue to report late deferrals on Form 5500 until corrected, but I feel like I'm missing something if I don't also prepare From 5330. This is a large plan, subject to a CPA audit, so any cites would be appreciated. Craig Garner

I am aquiring a solo k plan that crossed over the $250k limit on 1/1/12. The sponsor wants a TPA to do the EZ, review the contributions/limits (currently calculated by a good CPA) and help make sure the doc stays compliant. The plan has been around for years and is invested with a mutual fund company. The plan assets consist of both 401k contributions and profit sharing contributions. But, no recordkeeping has ever been done to independently keep track of the money sources. Assuming there are no hardships and withdrawal restrictions are the same, is there any reason to try to go back through time and split the money sources? Or recordkeep the sources into the future, for that matter? As a TPA, it just feels wrong not to recordkeep the money sources.

I have a client who is very concerned that public display of a company EIN (via EFAST2, BrightScope, or otherwise) is an invitation to possible fraud, hacking and other indentity theft at the corporate level. Also of concern, especially for very small plans, is that the plan balance essentially publicizes the account value of the owner. I have not personally heard of any adverse situation arising out of the public information available on Form 5500. However, I wanted to ask this community if clients have ever expressed concern over the public information on Form 5500, or if any adverse situation has occurred based on the public information reported on Form 5500. Additionally, has anyone ever heard any governmental agency express any concern over the public information on Form 5500? (my client believes that a company EIN should be protected the same way we protect SS#'s) Assuming that nobody has expressed any concern to you over this information, I would ask "why not?" Is name, address, phone and EIN insufficient to do any harm? Is the EIN of a company available elsewhere and readily accessible through other sources? I am certain if company EIN's were subject to the same identity theft issues that are associated with SS#'s, we would have heard about it by now. Obviously, there must be a difference between EIN's and SS#'s. If you know what those differences are, please let me know so that I can assure my client that Form 5500 is not an invitation to identity theft.

I have a 401k plan with cross-tested profit sharing. Eligibility is from date of hire for 410k and profit sharing. All participants get a profit sharing at the end of the year except terminee's under 500 hours, so all non-excludable plan participants benefit for profit sharing coverage and discrimination testing. The ADP test fails. Can I restructure the ADP test into "otherwise excludable" and "statutory eligible" participants even though I'm using all participants to test the profit sharing? In other words, is there any consistancy requirement between my testing methods? Craig

In 2008, a participant, who is over age 50, works for two unrelated employers, A and B. In plan A, the participant contributes $15,500. In plan B, the participant contributes $5,000, and due to 415 limits, plan B treats all $5,000 as Catch-up. If plan A fails the ADP test, can I recharacterize ANY of the deferrals as Catch-up? I think "no," but without asking a lot of questions, how would anyone working with plan A know about how plan B treated deferrals? (apparently, I asked too many questions, because I know about Plan B) Thank you for your help. Craig

Plan sponsor has an existing age-weighted Profit Sharing plan, which has been around for a number of years. The time has come to adopt a DB plan, in addition to the PS plan. All the same folks in the PS plan will also be in the DB plan. The PS plan is, of course, Top Heavy. When the DB plan is adopted, must all prior service be counted for vesting or can the plan exclude service prior to adoption for vesting purposes? Thank you to all who take the time to help out on this website!! Craig