K2retire

Just one more reason that excluding compensation is usually a bad idea!

I had a case like this several years ago. They retained sufficient amount of the account balance to collateralize the loans. It was a nightmare.

And keep in mind that the type of personality it takes to sell your services is very different than the type of personality it takes to do the detailed work. Very few people can handle both well!

Thanks for the good information!

Thanks for the clarification. The participant in question was hired in 1991 and first went over 1000 hours in the 6/30/2016 plan year. Apparently the expectation was reasonable. So he is in for the year ended 6/30/2017. If he goes back to fewer than 1000 hours in that year, does he stay in?

I have a very small client who, I suspect, does exactly that. The first year of auto enrollment, everyone magically elected the default percentage. My best guess is that they do not understand the concept of auto enrollment.

Now I'm really confused. An article in Plan Sponsor quotes Mary Lou Bailey-Fund, senior internal revenue agent, Office of Employee Plans, as saying, "...if the employee was hired with the expectation they would work less than 1,000 hours in a 12-month period, but they work more hours than that, they can continued(sic) to be excluded."

Sounds reasonable to me.

I've heard that before -- and I agree that it is totally unacceptable. I don't remember now who it was, but apparently they prioritize their testing according to plan size. If I were the sponsor of a small plan, I would be looking for a new recordkeeper ASAP.

We used to suggest that the participant might want to take a partial distribution now (75-80%) and the rest after the first of the year. Many balance forward plans would allow an allocation of gain or loss so long as part of the balance is still in the plan.

Going forward, that seems to be a good solution. Unfortunately, we're looking at a QNEC and match for the time that this person was excluded because the employer didn't realize he had to be included.

I have a somewhat related situation that I'm hoping you can help me figure out. I have a 403(b) plan that excludes employees who normally work less than 20 hours per week. The plan allows for both salary deferrals and employer match. The document makes no mention of union employees. They have a number of union employees for whom they make mandatory contributions to the union's plan. An employee who works on a per project basis that was expected to meet the hours exception ended up working 1072 hours in the year ended 6/30. He is also one of the employees covered by the union plan. Does he have to be covered in the 403(b) plan?

Typically it's because no one wants to pay for another year of administration.

And, of course, when you do it correctly you will be the bad guy.

This case is further complicated by pooled assets that are only valued as of 8/31 each year. The RBD was 4/1/2013. Since at least 9/1/2014, she's been withdrawing $12,000 per month.

We took over as TPA on a fiscal year plan with two owners who were taking monthly distributions toward their RMDs. The amounts were substantial. When preparing the 8/31/2015 valuation we (foolishly) assumed that the large distributions we were seeing were based on amounts calculated by the prior TPA. While preparing the 8/31/2016 valuation we noticed that the distributions to one of the two owners were not sufficient to meet the RMD requirements for 2015. We are now drafting a reasonable cause statement for her to file with her excise tax return. How much detail is required in this statement? Are they typically approved, or is it questionable? Any other tips about what works or what doesn't?

Don't forget that all participants must be 100% vested upon reaching Normal Retirement Age.

"there is no attribution between husbands and wives" Are you sure about that detail? Avoiding that attribution is only possible in very limited circumstances.

Who owns the corporation? Ask them!

Besides tracking the employee vs. employer money types, you would need to track pre-tax vs. Roth. If the plan allows hardship withdrawals, you also have to track the amount of employee contributions vs earnings on them. Who will be calculating the employer contributions? If the employer is a sole proprietor, that is a complex calculation.

Oh goody -- another year of explaining to clients why that section of the form is blank.

I've often provided SPDs as well. I once asked a mortgage company person why they were requesting information about plan assets when they could not be used to secure the loan and no withdrawal was being used to pay for the down payment. That person responded that they use the existence of a significant plan balance to help determine the financial responsibility of the borrower when setting the interest rate for the mortgage.

So did the form that the person did complete include an amount or percentage high enough to get her to the desired catch up?

Ken, The rule is that the sum of the new loan and the highest outstanding balance of any loans in the previous 12 months cannot exceed $50,000.

Given that an employer must wait at least 12 months after terminating a 401(k) plan before they are eligible to sponsor a new one, it really doesn't make sense. Perhaps the accountant was confusing the terminology and meant to amend the 401(k) or move it to a different investment platform.