justatester

If you have an off-calendar plan (3/1/2025-2/28/2026): Plan Limit excess: a High FICA person has $1000 that needs to be redesignated as Roth Catchup as of 2/28/2026, since it is considered a 2026 catchup, can the sponsor correct the w-2 (2027 w-2 has not been created)? Or would it need to be corrected via 1099?

Parent Company is in Korea. US Company is part of the controlled group. They have some Korean Employees who soley worked in Korea for 2024. They are now in the US working and getting paid US dollars. For 2024 HCE determination, do we consider 2023 Korean income?

Here is the plan information: Plan has a prevailing wage contribution that is NOT an offset contribution, but a straight QNEC. Plan also has a 4% PS contribution: It excludes participants who "receive" the PW contribution from the Profit Sharing. In reality, they excluded all hourly employees from the PS contribution. Of course, the plan does not pass coverage testing on the ratio basis. Additionally, I believe the plan needs rate group testing as they have different levels of ER contribution. Question: Can the plan be tested on an accural rate for the ABPT for coverage, then on an allocation basis for the rate group testing?

Plan has SH Match. Eligibility is 1 YOS, 1000 hours, monthly entry Plan Excludes NRAs with US Source Income. I don't believe this group can be considered "Excludable". The company has approx 900 Employees of which 700 are in this "NRA" class. These employees are long term employees who work over 1000 hours each year. The ratio is about 35%. Plan fails ABT testing. Question: Can they do a QNCE to fix the 401(k) coverage only? This QNEC would allow them to pass the ABPT giving them a lower ratio threshold for the 401(m) coverage. I am thinking no since not all of those "eligible" for the Pretax would be receiving the SHM. I also believe it should be a 3% contribution since it is a SH Plan? They also have H2B visa employees. How are these employees treated?

Yes that appears to be the case for deferrals of 3 and 5%. Very strange.

We have a client that has a crazy match. Defer 2% get 300% match (6%) Defer 4% get 150% match (6%) Defer 6% get 100% match (6%) No match on deferrals less than 2%. If you defer something other that 2,4,6...then match is 100% of deferrals. No one in the plan defer more than 6% even though they could defer up to 100%. We think the plan sponsor verbally doesn't allow it. It is a very small company (45 participants). It doesn't seem correct. For BRF, everyone has the ability to defer and receive the match. Any thoughts?

Question: Is the employee's termination date the last of active employment or the first day of non-employment? For example: I worked on 1/31/2023 is that my termination date? or is 2/1/23 termination date?

Plan has a NCP PS allocation with each in participant in their own group. For 2023, the client has made 3 groups. Group 1 & 2 = 3% Group 3= 0% Do I need to run a 401(a)(4) General Test or if they pass coverage, am I good?

Participant defers $20,000 in Roth and $18,500 in pretax for 2022. Obviously, we are beyond the 4/15/2023 deadline. Does the participant have the option to tax the excess from Roth? What were the tax consequences on the 2022 filing? Did they have to claim the pretax as excess? Which source is the better option to take the distribution from?

Didn't think so...but trying to be creative.

Here is a good one: Safe Harbor NEC plan. Plan does an additional match of 25% up to 8% of compensation. So ACP testing is required. Question: Can you run an ADP test (assuming it passes) and the run the ACP test with borrowing from the ADP side?

Confused is a good word for the situation. I am being told that the w-2 reflects a $2000 excess. They only returned $1000 excess by 4/15. The additional $1000 is still in the participant's account. Historically, we take the position that there is no distributable event to allow for the 402g excess to be removed after 4/15. It remains in the plan to be distributed at a later time. At that time, it is taxed again.

The situation gets even better. The w-2s showed the correct amounts withheld. For example, the w-2 showed $22,500 in deferrals (not c/u eligible). Prior to 4/15, they only corrected $1000. When they finally deposited the money in Sept 2023, they realized there was an additional $1000 in excess. I am guessing maybe the prior recordkeeper said we only received $21,500. Something seems a bit fishy.

During the 2022 plan year, the company made the deductions from payroll, but they were never submitted to the recordkeeper. They were in the process of changing payroll providers. When the contributions were deposited (late) in 2023, 3 participants were over the 402g excess. The plan sponsor is now requesting a distribution of these excess amounts. The accountant is telling the client remove the 402g excess and report/pay penalty on the form 5330. I believe they are confusing the late contribution and needing to file a 5330 for that. Since none of the impacted participants are over 59 1/2, can they distribute the money from the 402g excess? I realize they will be double taxed (2022) and then in year of distribution. If they are allowed to distribute, I believe they are subject to the 10% premature distribution penalty. Can/Should they distribute the money? I am thinking there is no distributable event to permit the distributions, therefore the money stays in the plan. Thoughts?

Can a plan have an age based match formula? Assuming it would pass BRF testing. For example: 50% of deferrals up to 6% of comp for those under age 45 75% of deferrals up to 6% of comp for those over age 45

Plan discontinued SH match in April of 2020 due to business hardship from Covid. Never amended the plan to remove SH for 2020, 2021 or 2022. Restarted match in May of 2022. Plan filed a VCP to retro amend plan out of SH status for 2020-2022. It was approved. How does this impact vesting? The SH Match is 100% vested and the regular match has a 5 year schedule. Is the match that was originally deposited as a "SH Match" considered fully vested under SH rules or no since the plan was "amended" to be Non-SH? If deemed to be non-safe harbor could the also retro amend to make the match 100% vested?

Secure 2.0 Roth Catchup contributions. The information indicates that it applies to taxable years beginning after December 31, 2023. Since catchup is a participant contribution and they used the word Taxable years, does it impact the catchup do to plan limit, 415 or ADP Catchup in early 2024? Example: Plan year is 2/1/23-1/31/24. Plan fails the ADP test. It is my understanding that any catchup due to and ADP failure become catchup as of the last day of the plan year. With secure 2.0 does that mean, anyone over the $145k threshold, their ADP catch up must be Roth? If so what do you do if they did not make enough contributions in 2024 to cover the ADP catch up amount.

For the Roth catchup provision for off calendar plans, is the $145,000 look back comp based on plan year or calendar year? Also since this is starting in tax year 2024, does this provision start earlier for off calendars. For example, a 4/1/2023-3/31/2024, would the Roth requirement start with contributions made in calendar year 2024?

Company A: Plan uses prior year testing method. Company A acquires company B on 9-1-21. Company B uses current year testing method Effective 12-1-22, Company/Plan B merges into Company/Plan A. We are testing Plan A for full year and including Plan B only from 12/1-12/31. Both populations are approximately the same. What average do I use for the prior year testing adp/acp average? Do I need to do a weighted average? (Ideally, they should have waited to merge until 1/1/23. Or tested together for entire plan year). Thoughts?

Plan document has 1000 hours/last day rule for the PS contribution. In addition, they have an appendix in the plan document that says you must be employed on the "determination" date which is usually in February after the plan year ends. We have told them this is not possible. For 2022, they got mad and decided not to fund for the 2022 plan year. However, they have now decided to fund a contribution for the 2023 plan year as of February 2023 based on 2022 wages. We have told them this is creates issues. They have been told that they will need to true up the calculation at the end of the year based on 2023 wages. In addition, they will need to forfeit any contribution that went to a terminated participant. If the terminate participant took a distribution, they would likely need to recovery that money. What other problems will the plan face with "prefunding" this contribution?

Question: For the Covid distributions that did not get paid back, do they count as an in-service distribution that needs to be added back/included in top heavy balances?

Thank you for the information! Some additional information since original post. The plan is on a volume submitter document. They added to the appendix that they must be employed on the day it is declared. Does that make them an individually designed plan? I was leaning towards it would be a 2023 allocation since that is the date the final conditions were met.

I have a client that wants to declare a profit sharing allocation. The Document currently has a last day/1000 hours. However, they want to have the allocation condition be "you must be an employee on the day it is declared." The plans sponsor declared the PS contribution effective 2/13/2023 based on 2022 plan year compensation. Would this be permissible? Would the contribution be a 2022 or 2023 plan year contribution?

It appears to be from around 2006. No, I am not looking forward to breaking the news to them. Not sure if they meant it to be a CODA. The client indicated in the "past" they had their choice but no longer do...I am thinking they should have started giving these participants the PS amount. Not sure there is a good fix here. The good news is they pass adp testing with or without the coda...so we have time to resolve the issue.

That is what we are questioning on how they are still able to receive the cash. Last day no hours for allocation conditions. They are not receiving the PS allocation to the plan. Seems a bit fishy to me.