justatester

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.

We have a plan that has a 5% PS contribution. Many years ago they permitted employees to receive the 5% as cash instead of the PS. They eliminated that option but we still have a handful of employees still receiving the cash instead of the PS. Would this be permitted? Would that make the entire ps a coda even though they no longer have the option to take as cash?

Attributable Match associated with an ADP refund.

Are ATM corrections subject to the 3/15 deadline? (for 1/1 plans)

If a plan makes a 3% SHNEC contribution, but also make a match of 50% up to 5% is ACP testing required? Does the SHNEC cover both ADP/ACP?

Here are the facts: Owner/participant retires 12/31/2021, dies shortly after. Plan fails the ACP portion of testing. Owner is due a "refund". Money has been moved to a spouse's account as beneficiary. The transaction was treated as a "funds on deposit" and transferred to the spouse. No 1099R was generated. Question: since the money has been moved, we need to make the distribution, whose ss# should the distribution be taxed under? Also, since the "transfer" took place in Feb 2022, would the plan be considered to have been timely corrected?

Thank You! for the merger side...if the merged group begins participating effective 10/1, but assets do not move until 12/1, does that change the timeline. Also, follow up question: if the employer is part of a MEP plan but terminate mid year (ie: 10/1/2020) what would the timeframe be?

A plan merges into another plan effective on 10/1/2020. The plan performs a short year test from 1/1/2020-9/30/2020. It fails adp testing. When are correction due to avoid the 10% excise tax? 12/15/2020? Similar situation, except plan actually terminates effective 9/30/2020. When is the deadline to correct ADP without penalty?

I am not sure on the timing. The company will declare 10% will be ps as 2022. The additional 6% will either be cash or deferred. So I would think the 10% would be deductible for 2022? Since the other 6% essentially becomes "cash" (whether deferred or paid in cash), I would assume it would be 2023?

The profit sharing portion would be for the 2022 plan year, but the coda piece would be part of the 2023 plan year?

I have a plan that traditionally gives a 16% ps contribution. They would like to allow employees to be able to take a portion in cash. For example: 10% would still be PS, but the other 6% could be cash or deferred. So, I believe I have a CODA situation. That being said, for the 2022 plan year, they would like to start this arrangement. They would make the PS in March 2023. Would the CODA portion be a 2022 or 2023 contribution? I am thinking 2023 deferral? For the amount that is taken as cash, I assume it would be 2023 income.

Well...plan sponsors like to do strange things. The bonusses excluded from deferrals are sign on bonusses and a couple of different other types. The additional extra bonus excluded from SH match appears to be targeted to mostly the HCEs. My guess is for cost savings on the match My SH match compensation passes 414s. After doing some additional research/digging, I don't believe the deferral definition needs to pass 414s. So overall I think I am ok. 26 CFR § 1.401(k)-3 - Safe harbor requirements. (iv) Restrictions on types of compensation that may 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).

Strange one here: SAFE HARBOR Match Plan Plan excludes a number of items from their definition of compensation for deferral purposes (including several types of special bonuses). For the SH match, they exclude the same things as deferral, but have an additional "bonus" exclusion. 414s testing would be required for both the deferral and the SH match definitions of compensation. My understanding is that the plan must pass 414s testing. The plan does not pass 414s for deferral, but does for the SH match. In a Non-SH plan, I would run the ADP testing on total compensation and be done. What are my options for a SH plan? If the SH match compensation failed, I would amend the plan and recalculate the match. Thoughts?

Here are the actual numbers: Deferrals were $8125, SHM $3812.50, PS $17045.67 = $28983.17 (415 prorated $25,416.66) Excess: $3566.51 removed from pretax. After correction has $4558.49 in deferrals. So he can contribute an additional 15,941.51 for 2022? If it was an ADP failure, it would not adjust his 402g for the remainder of the year?

Sorry for the delay in getting back to your question... What I believe happened. The business was sold and the 401k plan was terminated as a results of the sale. Since the plan terminated, the recordkeeper appears to have prorated the 415 dollar limit. ( approx $28,000). The plan had pretax, SH Match and ongoing PS. The combination put the participant over the $28,000 threshold. (I do not have the reason why the prorated the limit..but when the amended the plan to terminate, they may have also amended the limitation year) Without having all the documentation, I can't say for sure what happened (trying to get additional details). The new owner/employer is trying to figure out what the remaining allowable amount for 402g purposes.

Plan terminates effective 5/2022. After testing is completed it is determined that there are 415 excess amounts. The plan removed them from the pretax source. How does this impact the 402g limit for 2022? Participant deferred $8000. 415 excess is $3000. ($2500 is distributed due to losses). What can the participant contributed on a pretax basis for the remainder of 2022 (assume not catchup eligible)?

The SHNEC for some is based on plan comp not gross comp. Does that make a difference?

We have a plan that has a Safe Harbor NEC contribution. Prior to 1/1/2020, the pretax eligibility was 60 days, SHNEC 1 YOS. With those provisions, they lost their top heavy exemption. (of course they are top heavy) 1/1/2020, they change the eligibility for both pretax and SHNEC to 1 YOS. So we thought all would be good. However, they rehired a participant at the time of previous employment met the pretax eligibility. Upon rehire, they are now eligible for pretax, but still have not completed a YOS for the SH contribution. How does this impact their top heavy exemption? Does it still apply or since they have a participant not SH eligible does it not apply? Would they need to give her a TH contribution? If so since the plan excludes comp prior to eligibility, would they have to calculate the 3% on gross comp for those that became newly eligible in 2021?

Good thoughts....Another question... SH plan: Pretax deferrals have immediate eligibility, SH Match uses 1 yos exclusion. Plan is top heavy. If all employees are eligible for the SH match, (there are no employees with less than 1 YOS) does the plan maintain the top heavy exemption?

A plan is a SH match plan. However, they decide to allow for after-tax contributions. The plan is now subject to the ACP testing. I believe the test can be conducted with or without the SH match included. The question I have is...The plan is also top heavy. The plan "loses" the top heavy exemption and is now required to fund the top heavy minimum. Is this still true even if no participants actually make after-tax contributions? My gut says yes they are required to fund because the plan is not considered "solely" safe harbor. Thoughts?