Lou S.

The loss on the ROTH is the same as the loss on traditional pre-tax contributions, the only difference is the ROTH returned excess contributions are 100% non-taxable return of basis as opposed to taxable income in the year deferred.

I think the 1099-R would be for $1,000. Though it is all recovery of basis for 2015 so a non-taxable event. The $100 loss is "received" in 2016 and would be a deduction on the 2016 tax return. Line 21 of the 1040 if I recall the discussion from last week correctly.

$0 is fine as long as you pass testing with the individual receiving $0. Once the participant receives any employer allocation, say $1, then they now need to receive the gate-way. Strange but true.

I believe it is possible to do what the OP is describing but it's been a long time since I looked it up. Before they changed the deduction rules with PPA there used to be some interesting timing of of DB/DC contributions to maximize both the allocation and deductibility of contributions. If memory serves the "best" was to do it is to file the taxes return by the non-extended due date (lets say 3/15/16 for corporate tax payer) and make the contribution no more than 30 days. That way you can allocate the contribution to 2015 based on the 2015 pay and limitation year but deduct it on the 2016 tax return. When figuring out the 2016 deductible limit you would use 2016 limitation year pay for determining the 25% limit (assuming no DB/DC combo).

If he's not in the DB plan and the doc says folks only in the DC plan get the 3% TH min then he can get the 3% TH min. But the moment you are testing him with the HCEs to pass testing he now needs to get a gateway, so yes he get's at least 7.5% assuming that's enough to make it pass. So yes you are correct.

It could be any one of the 3 depending on what the Plan document says and whether or not you are testing otherwise excludable employees separately or together with all employees.

Neither the right to any specific investment nor the right to participant directed investments is protected and can be removed.

Unless it is to avoid eviction or foreclosure on the newly purchased property I don't see where it would qualify. He's already purchased the principal residence.

I believe you use the PVAB divided by 2015 factor to determine the 2015 RMD I believe you use (the PVAB - 2015 RMD) divided by 2016 factor to determine the 2016 RMD.

Someone divided by zero. Oh NOES! As others have said, interesting situation. If you test for a4 using his full year compensation and actual 3% TH minimum does the plan pass testing. I mean other than the unusual situation that says he's not getting the gateway when clearly he is getting 5% of $0 = $0. If the answer is yes than I think you are done. If the answer is no it's not as clear. Has some of the $6,000 been earned as a participant up to $3,600 you would have satisfied Gateway and TH with the 3%. I'm not saying this is correct but I think a reasonable approach might be to consider $2,400 earned before he was a participant and $3,600 earned after he was a participant. This would allow you to have compensation for a4 testing that satisfies both TH minimum and Gateway. Again not sure if this the best approach but it's an idea I throw out there as a possible reasonable compromise. This being under the theory that this creates the smallest EBAR for the participant that satisfies both TH & Gateway give his 415 comp for the year.

The excess deferral is taxable in the year deferred. The loss is deductible in the year received. Typically this is discovered around now (after year end) and the distribution is made. Say for example the participant has and Excess deferral of $2,000 and a loss of $100. The participant will receive a check from the plan for $1,900. He will claim $2,000 as income on this 2015 Form 1040 and will receive a 2016 Form 1099-R for $2,000 with code P. He will not receive this until January of 2017. He should receive a letter from the plan explaining he had a loss of $100 on the excess deferral. This $100 loss will be reported on line 21 of his 2016 Form 1040 as you indicate above in your post. Had the excess deferral been discovered in 2015 and the refund with loss of $1,900 been issued in 2015, he would have received a single 2015 Form 1099-R in January 2016 for his 2015 Form 1040 showing $1,900 and code 8, the excess minus the loss since both were distributed in the same year. Hope this helps.

Corrected 1099-R. Letter to the participant. In my experience the platform will not issue any such letter. Legally it is the Plan Administrator who is required to send the letter, the reality is this will often fall to the TPA to at least draft the letter that is to be sent.

I think what is happening is participants get the greater of the age-weighted PS contrib (of which the first 3% is SH non-elective) or a 3% safe harbor non-elective contribution. Because the HCE is so young, probably a kid of the owner, they are getting the 3% SHNE which is yielding an EBAR greater than what he would get if their wasn't a 3% floor. But yes, Tom's suggestion is probably better than mine.

11(g) amendment?

Sometimes prior year testing is better, sometimes current year testing in better, sometimes it is better to use one for ADP and the other for ACP. It all depends on your demographics, participation rates and whether or not your match varies from year to year or not. But I'm not sure which article you are talking about.

If they have the right to defer they are in the ADP test. If they have met the conditions to receive a matching contribution, they are in the ACP test. You can test otherwise excludable employees separately.

It is possible they laid off a bunch of people that zero balance and drop off the count or did a drive to cash out terminated participants with a balance. I've seen plans drop for 120+ to 100- in a year. Usually have to check to see if a partial plan term occurred though. I'm just speculating on My 2cent's question though I assume the OP knows for sure.

Surely the IRS wouldn't request information they are requesting? Yes the IRS expects you to break out the accounting on the Schedule H, likely the auditors do as well. The pleasures of self directed brokerage accounts. Perhaps you're not charging enough to discourage them.

Sounds like a prohibited transaction to me. And yes an appraisal is required annually.

2 times zero is zero last time checked. Other than catch-up contributions, HCEs can't defer using prior year testing.

No you can not assume 3% prior year for 2015, the 3% rate applies to 2014 testing. edit - you could have used 3% for 2015 if you made the plan a profit sharing plan for 2014 and added the 401(k) component with an effective date in 2015 since 2015 would have been the 1st year of the 401(k) component. But because folks were eligible to defer in 2014 (but didn't for whatever reason) you can't 3% as the prior year percentage at this point.

Oh, sorry I did not realize this was a 457, I thought it was 401(k). I'll defer to someone else as 457 is not my area of expertise.

Doing it on payroll is incorrect. The plan should have issued him a check for $900 and issued him the appropriate 1099-R depending on whether this was an Excess Deferral (contribution over 402(g) limit, where the contribution would be taxed in the year deferred but the gain/(loss) taxable in the year received) or an Excess Contribution (for failed ADP test, which would all be taxable in the year received).

It sounds like the Plan is putting the surviving spouse in the state she would be in had the error not occurred.

But Tom these are monies that never should have been contributed to the participant but found their way into the account due only to a payroll error that did not cap the match for some individuals. I agree with your analysis in post #2 of this thread.