justatester

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?

Does it impact the SH status of the plan?

No....I get when it is due...but what happens when not funded by due date?

If a plan funds the match on a per payroll period, but the "computation/determination" period is annual per document, we calculated a "true up" calculation. The clients now owes additional 2019 SH Match. What happens if this amount is not funded by 12/31/2020? I can only find reference to it must be funded, but no real answer as to what if not funded.

Scenario #1 MEP adopter terminates services with MEP effective 1/1/2020. Per agreement, once termination occurs, they immediately are no longer eligible to contribute to MEP. New plan is not effective until 5/1/2020. It is established as a new plan with a short plan year in the document. Can the employer withhold contributions from 1/1/-5/1/2020? I am assuming no since there was not a "plan" in place. If the answer is no, if the employer withheld contributions, what should the ER do with them? Since there is a gap in the time from leaving the MEP to the new SEP, how does this impact testing? Would HCE determination be from 5/1/18-4/30/20? What about prorating the compensation limit? For top heavy, would the 12/31/20 balance be used for 20 &21? Scenario #2 MEP adopter leaves the plan effective 4/30/2020, New Plan is established 5/1/2020. Document indicates it is a short plan year for the first year. How does impact testing? HCE determination. Do we test contributions from 1/1-4/30 under the MEP and only test contributions from 5/1/2020 through 12/31/20?

Ok...New added twist to this question... MEP adopter terminates services with MEP effective 1/1/2019. Per agreement, once termination occurs, they immediately are no longer eligible to contribute to MEP. New plan is not effective until 5/1/2020. Can the employer withhold contributions from 1/1/-5/1/2019? I am assuming no since there was not a "plan" in place. If the answer is no, if the employer withheld contributions, what should the ER do with them? Since there is a gap in the time from leaving the MEP to the new SEP, how does this impact testing? Would HCE determination be from 5/1/18-4/30/19? What about prorating the compensation limit? For top heavy, would the 12/31/19 balance be used for 19 & 20? Let's say, the ER left the MEP effective 4/30/19 and new plan established 5/1/19, based on the above, you would test everything for the full year?

An employer is part of a Multiple ER plan. They decide to leave MEP plan and establish there own SEP plan. Would the SEP plan be considered a "new" plan? Additional Questions: 1) If new plan is established with an effective date of 5/1/2020, can the contributions/compensation be combined in the new plan for the entire year? (assume 12/31 PYE for both) 2) Does it matter if it is a Safe Harbor plan?

Plan has a fixed match with last day/1000 hours requirement (waived for RDD) 12/31 PYE Effective 7/1/2020 they amend to remove the match. Are they obligated to fund the match through 7/1. I say no since no participant (except RDD) met the last day/hours. For the RDD, I would think if the terminated prior to 7/1 they would be owed the contribution. What if the plan is a 6/30 PYE and they amended the plan effective 6/30 to remove the fixed match? (Plan has last day/hours requirement) I am thinking they owe the match since it was removed on the last day. Had they amended the plan on 6/29, I think they would not owe the match. Thoughts?

Plan has 1 YOS/age 21 for pretax, match and nonelective. Based document (not AA) has language that indicates no age/service requirements to receive DB contribution. So in theory, all employees are eligible for DB contribution. However, to actually receive a contribution you must work a DB job. Here are my questions: 1) For ADP/ACP, do we only include those with 1 YOS/age 21? What if someone received a DB but did not have 1 YOS? 2) Plan is top heavy, of those employed on the last day of the plan year, who receives the Top Heavy allocation? Only those with 1 YOS/age 21? 3) Can the Davis Bacon contribution be used to off set the Top Heavy obligation? The plan has the option to use the DB as a QNEC for ADP or to Off set ER contribution. Does this matter?

Follow up question: The plan makes a discretionary match of 25% up to 4%. If they use the new Secure Act SH NEC option, are they ACP Safe Harbor as well.

Plan wants to add a SH NEC via the Secure Act provisions. This gives them ADP SH but not ACP. The plan typically only passes ACP using borrowing. Can they still borrow from the ADP if it is SH? Also, testing method was prior...I assume they should amend to current for the ACP portion?

Makes sense..thank you!

Is there a reason why? THey can pay other "bills" with the forfeiture money.

Can the plan sponsor use the proceeds from the forfeiture account to pay the excise tax due on late ADP corrections? I understand they will need to pay it directly and the potential get reimbursed from plan.

We have a PR plan that only uses base pay for their definition of compensation. So they have excluded comp. Does this require 414s testing? Does it matter if it is dual qualified? Do you have the PR code reference?

Along this line...Here is what the client has said. The received extra funds from a Small Business Association from a business loan and they would like to put the extra money into the Retirement Plan. They have to use the funds within 8 weeks (by June 16, 2020). Is this permissible? would it be a 2020 or 2019 contribution?

Sorry for the confusion. For my top heavy question, the plan does not have a SHNEC, just a 4% PS that has an hours/last day. So you have participants who only receive the top heavy 3% and not the PS.

Plan makes a 3% SHNEC contribution-all ees receive contribution Plan makes a 4% ER PS contribution-this contribution has a last day/hours requirement. Not all EEs receive. For 410(b), it is my understanding that all ER contributions must be tested together. Since all ees are not receiving the same allocation rate (due to last day/hours), this triggers the need for a 401(a)(4) rate group test. In reading through the EOB, it seems that if you can pass 410(b) on each source separately, then you are ok. What is the best approach to solving this? You need to run the 410b on an aggregated basis, but then run separately to satisfy the rate group? Or do you aggregate and go to rate group testing? How do these rules come into plan when you have a ER PS allocation and a Top Heavy minimum? Example: ER has 1000 hours/ last day. Employee is employed on last day, but does not met hours. This EE receives a Top Heavy min contribution of 3%, but not the ER allocation is 4%. Does the same logic apply to this situation as it does to the SHNEC/ER allocation?

I would agree that giving the HCEs a PW is not a good idea. They specifically opted in the document to "allow" HCEs to get the contribution. In this case, it is an owner's son who got contribution and is only 27 years old making only $16k. I have attempted to run on accrual, but can't get it passed gateway. In addition, the owner's wife contributed 30% in pretax (only 6 HCEs) so my ABPT percent is very high...in comparison to my NCHEs. The employer contribution provision is TWB not individual groups. They are just in a really bad place currently. We are going to recommend HCE do not receive the contribution going forward to avoid this.

Ok..so crazy question...If I am allowed to shift the Davis Bacon as a qnec for the ADP, what amounts are then required to be included in the general tests? Do I need to pass the general test with and without the amounts shifted to adp? For example if I use the entire HCE DB contribution in adp testing, what amount is included in general testing? I realize it will negatively impact the ADP, but that seems to be an easier correction then fixing the General test.