K2retire

A client with a controlled group of companies recently created a new company and transferred several plan participants to the new company. These employees were allowed to continue to participate, although the new company is not an adopting employer. The document specifies that "an individual who becomes employed by the Employer in a transaction between the Employer and another entity that is a stock or asset acquisition, merger, or other similar transaction involving a change in the employer of the employees of the trade or business shall not become eligible to participate in the Plan until the Plan Sponsor specifically authorizes such participation." We've been advised that this must either be corrected with a VCP filing, or by returning the ineligible contributions. I'm wondering why this couldn't be self-corrected with a retroactive amendment under the "Early inclusion of Otherwise Eligible Employee Failure" . Meanwhile, the client continues to withhold deferrals and is not ready to make changes to the plan yet....

In my humble opinion

And does he understand that with a hardship it is taxable to him, and possibly subject to the 10% early withdrawal penalty? With a DRO, the 10% penalty doesn't apply and it is taxable to the alternate payee.

It's not a deemed distribution -- it's an actual distribution.

I remember one restatement (EGTRRA maybe?) where Relius instructed us to make it the date of the law change. That was several years earlier than when the actual restatement was happening. I always thought that was far too confusing.

Yep, my prior employer would not allow me to use my real name for that reason.

Why not give the "match" as a bonus to the former employees?

In a law firm setting, people with this type of arrangement are often shareholders or partners. Could you exclude HCEs from the safe harbor contributions and adjust the PS for the rest?

A couple of thoughts with varying degrees of relevance. How are they ever going to know about the existence these loans? The State of Florida's assorted taxes are annoying! We own a vacation home there that we used to allow friends to rent from time to time. They expect us to collect sales tax if we rent it. They also want to penalize us if we forget to file a report showing that we didn't rent it out every single month. Way more hassle than the little bit of income it used to generate!

There's the correct answer!

So the schedule is based on the plan's deposits. Each time the plan makes a distribution, it must also make a deposit of the withholdings for that distribution based on the appropriate schedule. What's so hard about that?

Was the notice addressed to the participant, or to the plan?

The distributable event is the key. Is the participant otherwise eligible for a distribution from either plan?

I received and e-mail in late January that a client wanted to add auto escalation to their plan in time for the first paycheck in February. They were persuaded to make it effective March 1 to allow the recordkeeper time to distribute a notice. The client insisted that the increases were to coincide with each employee's hire date anniversary. The amendment to make these changes was signed in February, but the SMM has not yet been distributed. Yesterday I learned that the notice was mailed with the March 31 statements, no increases have been implemented yet, and the client only wants the increases to be effective on the first of the quarter following the employment anniversary. Because the notices were mailed late, the client doesn't believe that any correction is necessary. What is the correction for failure to provide a timely notice of an automatic escalation provision? Based on the notice going out in early April with an effective date of March 1, what is the soonest that they should implement an increase?

If the person is an owner of certain types of businesses who receives a Schedule K-1 rather than a W-2, he or she won't know the amount of income available from which to make deferrals until some time into the next year. In that case, they would have more time to make a contribution. But since you mentioned an amended W-2, that doesn't seem to apply in this case.

To be a 2017 contribution, it must come from a 2017 paycheck. Since it is not possible to issue such a check (legitimately) after 12/31/2017, the request cannot be honored.

You must follow the terms of the document. If the document excludes that person, you're fine. Otherwise, they have to get it.

no comp = no deferrals or catch up

That works well until they year that they have a loss!

We had a plan that used similar language, precisely because they wanted people to enter without waiting until a full year. It was a nightmare to administer, however.

I can't imagine how overwhelmed you're feeling. Unless you need the funds from this account to meet immediate living expenses, take some time before making any decisions. We often don't make our best decisions in times of great stress. Some experts recommend not making any major decisions for 6 months or so after the death of your spouse. My mother sold many things that she has since regretted due to her grief over my father's death.

At the beginning of 2017 the client's compensation definition was W-2 wages excluding fringe benefits. A bonus was paid to one NHCE, from which they did not withhold deferrals or pay the match. After being reminded by the TPA (me) that they were supposed to treat bonuses just like any other pay check, things got out of hand. The payroll person withheld the amount that should have come from the bonus check from the next regular pay check. Not realizing this had occurred, we instructed them to make a 50% QNEC and 100% of the match. (Too late for reduced QNEC.) Instead, they deposited a 100% QNEC and 100% of the match. All deposits were made in 2017. How do we fix this? And which amounts do we use in the ADP test?

They typically take months or years to make the determination.

Perhaps CEW meant the employer not "the plan". That's a misnomer I often hear. Most of our clients can only get a distribution by having the record keeper issue a check.

When I've had clients try to use negative deferrals to correct something like this, it has typically created more problems than it solved.