AKconsult

If the employer (who currently has a cross-tested formula) is wanting to instead allocate the profit sharing contribution using an integrated formula with something other than the full SSTWB as the integration level, then an 11-g corrective amendment may be used to conform the plan to one of the safe harbors (including integration) . However, without the 11-g amendment, the general testing must be performed using full SSTWB, as noted above.

I would think the credit for adding an automatic contribution arrangement could also apply for 2020 and 2021 if the arrangement were added in 2019. The language of the Act states that "The credit period with respect to any eligible employer is the 3-taxable-year period beginning with the first taxable year for which the employer includes an eligible automatic contribution arrangement" and the effective date is "taxable years beginning after December 31, 2019." There is nothing that indicates that the arrangement had to be implemented after 12/31/19. So I don't see anything that would preclude an employer from getting the credit even if the arrangement were implemented prior to 2020. I would think if the arrangement were implemented in 2018, then the 3-year period runs for 2018, 2019 and 2020 and so the credit will be available for 2020.

BTG - I can respond to this from a practical standpoint My husband broke his ankle several months ago while hiking in WY and has been receiving short term disability payments from AFLAC. His premiums are deducted from his paycheck on a pre-tax basis, so the disability income payments will be reported on his W2 from his employer (actually, the employer failed to do this on the original W2 so is in the process of redoing the 2019 W2 now). When applying for the disability payments from AFLAC, we were not given any opportunity to make any sort of withholding elections. AFLAC automatically withheld for FICA but that is it. No federal, state or 401k withholdings were taken from his payments, nor was that an option. So in our case, and to answer your question - No, the insurer does not withhold for 401k. Of course, this is just our experience with AFLAC, and may not be true with other insurers.

Perfect, thanks Luke!

I am trying to determine if interest on a 401(k) account is available for someone eligible for a Qualified Reservist Distribution. Our document language (which mirrors what I am reading in the Code) says that the distribution may be taken from "amounts attributable to elective deferrals described in Code §402(g)(3)(A)…" So my question is - does that mean the whole 401(k) deferral account can be withdrawn, including earnings? I don't see anything specifically prohibiting earnings, but I am not entirely sure if "amounts attributable..." is only referring to contributions? Thanks!

We use the ASC document and the Loan Policy has language in it that gives the Plan Administrator the discretion to deny a loan if a participant is not credit worthy. But if your document does not have this language, then the loan should probably be approved. Here is the language from our loan policy: The Plan Administrator may refuse to make a loan to any Participant who is determined to be not creditworthy. For this purpose, a Participant is not creditworthy if, based on the facts and circumstances, it is reasonable to believe that the Participant will not repay the loan.

I found this whole discussion a little humorous. For us old folks who worked on plans in the days before daily valuation and employees being responsible for self-directing their accounts, loans were ALWAYS just another investment in the plan and the interest from the loan repayments was part of the overall investment return that was allocated pro-rata to all participants. When I started in this business, this was everyday plan accounting. Of course, it is not as common now with daily valuation and self-direction, but it is absolutely permissible. In a pooled account, the loan is a plan asset, like any other investment, but if the participant defaults, then the defaulted loan amount is only assigned to the borrowing participant, meaning the participant's account is offset and the participant gets a 1099.

Per Regulations: If an employee becomes eligible after the 90th day before the beginning of the plan year, the notice is timely if it is provided no later than the date the employee becomes eligible. So think about this in the context of a BRAND NEW plan. If the plan is effective 1/1/20, then ALL employees will be eligible on 1/1/20, which is less than 90 days before the beginning of the plan year. In which case, the notice just has to be provided no later than the date the employees become eligible (1/1/20). So, in other words, if it is a BRAND NEW PLAN, you don't have to apply the 30 day requirement. You just have to provide notice by the first day of the new plan year.

Belgarath, our TPA firm does exactly what you have described here - we receive an "efficiency allowance (EA)" (ie, revenue sharing) from many of the large recordkeepers, and we apply that against our TPA fees to the client. This money is not a plan asset. It is simply the recordkeeper sharing a portion of their profits with our firm because of the fact that we have a relationship with them and we provide a service to the plan that the recordkeeper would have otherwise had to provide, if the plan were bundled rather than using a TPA. The money is paid directly to our firm, usually monthly or quarterly. It is never in an ERISA account, etc. In response to your question: 1. Is there really any reason why a new engagement letter couldn't simply say that the TPA will keep the accumulated revenue sharing immediately, as long as the Plan Fiduciary doesn't have a problem with it? In other words, does it have to be allocated over the next (x) number of years until depleted? I would say that the accumulated revenue sharing should continue to be used to pay future plan fees until it is depleted, but that probably depends on the terms of your service agreement. Our agreement with our clients specifically says we use ALL revenue sharing payments to offset our future invoices. So I think that if we were to change the terms of the agreement in the future to where we were instead keeping the revenue sharing, we would still be obligated (at least morally) to honor the initial agreement regarding the use of any revenue sharing that had accumulated up to the point that we changed the terms of the agreement. 2. What happens if the client leaves? Wouldn't this money go to the TPA anyway, as it certainly isn't a Plan asset, or anything "belonging" to the Plan Sponsor? Hopefully this has been addressed in the service agreement. Ours states: Services already provided, but not yet billed, plus any contract discontinuance charges, will be reduced by any unused revenue sharing. Because revenue sharing is not considered to be a plan asset, if any unused amounts remain, they will be forfeited. Hope that helps

My understanding, and the way our document works, is that the participant is EITHER auto enrolled OR makes an affirmative election for something else. Then auto escalation is just the next step of the auto enrollment. In other words, only participants who do not make an affirmative election and are therefore auto enrolled will later be subject to the escalation. But any of that can be stopped at any time if/when the participant makes an affirmative election. So, if Nancy is auto enrolled at 2% (because she did not affirmatively opt out of the auto enrollment), then she should be automatically escalated each year UNTIL such time as she makes an affirmative election. Once she makes an affirmative election, that will override any automatic changes. So she could be auto enrolled at 2%, automatically escalated 1% each year until she hits 4%, but then she would need to complete an affirmative election saying she only wants to defer 4%. Now she is no longer an auto-enrolled person and therefore escalation does not apply to her. In your OP you said she completed an enrollment form. That fact in and of itself, to me, indicates she was not auto enrolled. In which case I would think she would need to complete a form saying she wants 2% withheld, then later amend the form to say she wants 3% withheld, then later 4% withheld, etc. I don't think she would be swept into the auto escalation process at all if she ever completes a form.

One consideration - is this a daily valued plan on a recordkeeping platform? Nearly all of them require the employer to choose a default fund as part of the initial set up of the plan on the recordkeeper's platform. I would check with the recordkeeper to see if they are showing a default fund for the plan. The financial advisor may well have set that up when the paperwork was completed. If so, I don't think the employer can take the position that the participant has to make an investment election in order to receive the profit sharing contribution, because a smart participant is going to argue that they don't have to make such an election, there is already a default fund in place. Although this makes me wonder how the employer is currently enforcing the provision that the participant must have made an investment direction in order for the deferrals to be valid. Maybe they aren't on an investment platform(?)

There are several steps to looking at a leased employee exclusion. 1. First of all, a worker who is leased is not a "leased employee" UNTIL he works for the employer on a substantially full-time basis for at least 1 year. If the individual has been a leased worker for less than 1 year, he is not yet a "leased employee". Meaning he is not considered at all for plan purposes. (I am not getting into any discussion about whether someone may have been categorized as leased when in fact he is a common law employee..) 2. Once the leased individual works substantially full time for at least 1 year, he is a "leased employee" -- EXCEPT that he is not a "leased employee" IF he is covered under the leasing employers MPP and the "leased employees" do not make up more than 20% of the nonHCE workforce. (see Luke's comments above about how to determine 20%). So, if the worker is not covered under a MPP of the lessor, then at this point he is a "leased employee" and must be considered for plan purposes. 3. The "leased employee" will now either be allowed into the plan the same as any other employee or the plan may excluded "leased employees". But that exclusion, like any other, must be tested to comply with the coverage rules. Hopefully I have not misstated any of this, but please comment if you don't agree or want to add additional thoughts.

If there is a fee to process the distribution, some recordkeepers will allow you to "fee out" the account. For example, our TPA firm charges $50 to review/process distributions. So some recordkeepers have allowed us to notify them via a form or spreadsheet of any participant with less than $50 where whatever is in the account is sent to us as a distribution fee and that effectively closes out the participant's account.

According to the OP the participant deferred $19,000 in calendar year 2018. The fact that the plan runs on a 7/1-6/30 plan year is not relevant. (yes it is possible to defer $37,500 for the PLAN YEAR 7/1/18 - 6/30/19 but that does not change the fact that he cannot defer more than $18,500 for calendar year 2018). There was a 402g excess for 2018 of $500 that was refunded. No match should be calculated on the $500 excess that was returned.

Agree with JustnERPA. The ACP may be performed on all of the matching contributions, or just on the match that exceeds 4% of compensation. However, you may find that the test results are better if you use all the match in the test, not just the match over 4%.

Most loan policies have language to this effect: "A Participant loan must provide for level amortization with payments to be made not less frequently than quarterly." I don't see anything in the loan policy used by our document provider that specifically discusses the timing of each loan payment, that is nothing that says that a participant couldn't pay the next 12 payments in 1 lump sum and then not have to start paying again until January, 2020. Think about it this way - if your mortgage payment is due on the 10th of each month, when can you make that payment? Is it ok to make it on the 5th? Is it OK to make it on the 25th of the previous month? Sure it is. If you send in a payment on the 25th of May for the June payment, and then send in another payment on the June 5th , the lender is probably just going to apply that 2nd payment to July, so you are basically "ahead". So if the loan payment is $150 per pay period, I don't see anything that would prevent someone from paying $1,800 and having it applied to the next 12 payments on the amortization schedule. I think the only issue will be determining what the custodian can/can't do. Lou has already indicated that in my example the custodian would want to apply the $1,800 as a one-time principal payment, though, so that does not accomplish what the participant wants. So I think unless the custodian is able/willing to handle the $1,800 as 12 separate $150 payments, this is a no-go.

I want to see if there is agreement of my understanding of the Regulations on this situation. I have always understood that the regulations with respect to eligibility/entry dates are designed so that basically if a person must work 1 year/age 21, then the entry dates must be set in such a way that ultimately the person is not required to work more than 18 months before he enters the plan. So a plan with a 1-year requirement and quarterly entry dates is fine, because no way would someone have to work more than 18 months before entering the plan. HOWEVER, in looking more closely at the regs, they require that the person must enter by the earlier of: the 1st day of the plan year after meeting the 1 year/age 21 requirement OR 6 months after meeting the 1 year/age 21 requirement. I am thinking this essentially requires every plan to use the first day of the plan year as an entry date, but I want to see if that is correct. We have a calendar year plan that wants to use entry dates of 2/1, 5/1, 8/1 and 11/1 to coincide with open enrollment for other benefits. I think they MUST also use a 1/1 entry date. EXAMPLE: a person hired 11/15/18 works one year by 11/15/19, he must enter on 1/1/20, he can't wait until 2/1/20. I initially thought the 2/1 entry date was fine because the person would be entering with 18 months of hire, but I think in this case, he must enter 1/1. Agreed? Any other thoughts? Thanks!

Thanks for the responses. Yes, I know how to apply for the TIN once we have an EIN, it is just not having the EIN that is creating the issues with our document system. But I agree, we don't really have a need for the EIN /TIN until we file a 5500 or prepare a 1099.

Thanks! I am telling the CPA to go online with the IRS and create an EIN for the sole proprietorship for "banking purposes."

Thanks Mike . The IRS site is still up as of now at least :) I have to put something in for the "EIN" in my document system before I can even create a document. And I don't want to put a bogus number in there or the SSNO...so from that standpoint it seems like I MUST have an EIN to set up a plan.

Thanks Lou. It looks like if one applies for an EIN as a sole proprietor, the reasons are only: started a new business Hired an employee banking purposes changed type of organization purchased a business. I don't see anything for "started a plan". Thanks.

CPA has come to us at the last minute (of course) with a self-employed consultant who wants to set up a plan. CPA is telling me that he does not have a business, he is being paid directly and to set up the plan under his SSNO. I told her we would not set up the plan with a SSNO. Now CPA is asking me does he have to create an LLC just to sponsor a plan? Any suggestions? Thanks!!

I have done some additional reading on the this in the Code/Regulations as well as the EOB. I am now of the understanding that if the ACP safe harbor has been "blown" by virtue of either a SH matching that doesn't meet ACP safe harbor or because there is an additional discretionary match that takes the plan out of ACP safe harbor, then the ACP test must be performed on all matching. EXCEPT the regulations also give the option of carving out the first 4% of pay match when the ACP is performed. Thanks!

the regulations say you are permitted to exclude matching that does not exceed 4% of compensation. What does this mean mathematically? Lets say you have a SH formula of 100% of the first 4%. then a discretionary match of 0% on 1-4% of deferrals, but 100% on 5-7% of deferrals. this passes ADP but does not pass ACP. The Regulations say I am permitted to run ACP by excluding match that does not exceed 4% of pay. If a person has pay of $30,000 and deferrals of $3,000 and a match of $2,100, how much of the $2,100 must go in the ACP? So is this person's ACP $900/$30,000 = 3%?

I think I know the answer to this but want to see if there is agreement. If a plan uses a SH match of 100% of the first 4% to pass ADP, then also allocates a discretionary match of 100% of deferrals between 5-7%, it looks like 401(m)-2(a)(5)(iv) says that we have to run the ACP test on the 5-7% match (in other words, anything over 4%). Is it dependent on which SH formula we use? For example, what if the SH match was 100% of the first 6%, then a discretionary match on 7-8%? In that case would we have to run the ACP only on the 7-8% match, or on any match over 4%? Thanks for any thoughts!