justatester

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?

If a SH plan terminates with an effective date of 8/31, the termination is due to the company being acquired. The final paycheck is not due to be paid until 9/9. Can the plan continue to accept pretax and SH match contributions from the 9/9 paycheck?

We have a client that is inquiring about the Mega Roth IRA conversions. I have a pretty basic understanding, but have a few plan specific question. The plan has 1 HCE and the maximum pretax/roth contribution he could make is 4.5% due to relative low NHCE average. On the match/after tax side, he would be limited to 1.96%. (plan uses prior year testing) If he maxes out his Roth contributions of $26,000 (Roth deferrals plus catchup) and then puts in an additional $21,000 in aftertax (plus $11,000 in match) to reach the 415 limits and then fails the (adp/acp) test, how does that impact the conversion? Participant is savvy enough (which the plan we are talking about is very likely) and takes a distribution of full Roth and Aftertax money via rollover to an IRA account. How is the ADP/ACP test then corrected? Is the money associated with the ADP/ACP correction not available for rollover? If not, is the 1099 need to be “updated”? Or is there no impact on the rollover since it is all aftertax money?

Thank you for your reply...yes a very unusual situation. I have 7/9 HCEs needing to receive a Top Heavy contributions as they were either not deferring or did not get the full 3% via match. Plan has only 12 NHCEs and 5 termed with more than 500 hours...so a perfect storm of events. No fail safe lanuage...so we will be going the corrective amendment route.

Pretax eligibility is 3 MOS SH Match eligibility is 1 YOS Plan is now top heavy It is my understanding the plan cannot use the top heavy exemption. Based on this, it is my understanding that the top heavy minimum contribution needs to pass coverage testing. Well, it does not. The coverage ratio is 48.75%. The plan passes ABT, but since the coverage ratio is below the 50%, it does not pass coverage. I believe the only solution is to add people back into as "benefiting". Does this seem reasonable? The plan design is not ideal for top heavy plans. I would have the plan change the eligibility requirements going forward, but they are in the process of terminating the plan.

Thank You...as far as the 402g, if the 415 limit is only $14,250 wouldn't by default (only pretax contributions) the participant would not be able to contribute $19,500 as it would exceed the 415 limit.

We have a brand new start up plan. The effective date of the plan is 9/30/2020. Calendar year plan. Document indicates a short plan year. Compensation is defined as plan year. So, I believe I need to prorate the compensation. The question is do I use 3 months or 4 months? Or should I be using days? For the 415 limit for contributions, there is language in the document that states: The Limitation Year for Code 415 purposes will be the 12 month period ending on the last day of the Plan Year instead of the "determination period" for compensation. Based on this language, do I need to prorate the 415 for contributions?