Lou S.

I agree with Belgarath. 5% may or may not pass 401(a)(4) testing but I'll assume you've done the math on it and it likely works. Don't forget probably no vesting schedule on the extra 2% as you most certainly have a partial plan termination. Lastly you'll want to confirm your plan document allows for the contributions to the terminated participants under one or more of the plan's provisions. If you have a last day requirement for example you don't have a basis to allocate the 2% just yet as it isn't yet required to pass gateway even if you plan on making a larger contribution later on that might require it.

If the document allows for it and you pass all related testing, they yes you can.

I'd take it one step further since he only contributed $20,000 he still has $4,000 that can be recharatcerized as catch-up for 2016 if the PS allocation is "large". He can receive an allocation of $39,000 and not exceed his 415(c) limit for 2016.

What is the Plan's 415 definition of compensation? Is this pay for services rendered, or post-separation severance package?

What does your Participant Loan Policy say? I think legally the participant can direct the company to stop deducting the payments from his/her check. At that point the question then becomes how flexible the employer wants to be on accepting payments (as long as they are in compliance with 72(p)) and when the loan is in default resulting in taxable income to the participant.

It is quite possible the Plan is drafted that way to avoid processing multiple distributions since you may very well be entitled to a 2017 contribution. Though I believe features like the one you are describing were more common in the past, they are still allowable and used by some plans now. It fact the plan can be drafted to delay payment until you reach retirement age.

You could be correct. I just don't see our new Labor Secretary putting this one high on the priority list in allocating department resources to work on it nor do I see this Administration seeing a need to "finish it" any time soon. I think this is likely to to come well after any Tax Reform plans this congress is going to be working on and well after any ACA replacement plan that gets worked on as well. And for what it is worth like you I too am in favor of the rule but I'm not going to hold my breath expecting it to be done anytime in the near future.

Perhaps you missed Trumps eliminate 2 regulations for every new 1 memo. I'd be shocked if the Fiduciary rule gets any traction in the next 4 years.

If he is exactly 50% or less you are OK. If he is more than 50%, then one limit.

Think of it this way, if the $6K had been paid out correctly, his IRA would have been higher and he would have had a RMD that was slightly higher due to the extra $6K being in his account. But since the Plan is paying it now, the Plan has to satisfy the RMD independently of the IRA. And as I think jpod is noting you may have multiple RMDs to calculate depending on his first 70 1/2 year.

A 2012 (or possibly 2013 if the grace period extended into 2013) 1099-R for the defaulted loan should be issued.

FGC, good points and ones I had not considered. May answers and likely others were based on this being a 401(k) plan as that this the subforum it is in, but that could be a faulty assumption on my part.

I seriously doubt that is true. The folks in HR may in fact have no say but Fidelity is us administering the terms of the plan set by the employer they aren't making them up themselves. Generally for a 401(k) plan you can get money out in limited circumstances: separation of service, death, disability. In-service distribution may be offered but there are limits and if you aren't age 59.5 in most cases won't be available. You may qualify for a hardship distribution if your plan allows for them, you might take out a participant loan as someone else suggested or you could get a QDRO as Fidelity implied.

As a practical matter wouldn't the only people effected by that be people hired exactly on January 1?

Information on In-Service Withdrawals, if allowed, will be in your Plan's Summary Plan Description which you should already have. You answer is likely in there. As others have said, check with your HR on plan provisions but Fidelity is probably correct in this case.

The 2015 ADP is the ADP of NHCEs in 2015 so yes he is included in the NHCE ADP for 2015. The 2016 ADP of the HCEs is all HCEs in 2016 so he is a part of that group too. The 2016 ADP of HCEs is compared against the 2015 ADP of NHCEs. This isn't all that uncommon when an employee crosses the pay threshold to become an HCE, marries an owner, or becomes an owner.

If I recall correctly the deadline is 12 months after the plan year for top heavy minimum. But you could have deduction and 415 implications making it in December.

It would be nice if the IRS had crystal clear rules on this. I'm not sure they do but I suspect they would take the position of "walking back" the controlled group rules for purposes of 415 and extending it under the predecessor plan rules. That is to say I would tend to agree with mphs in his analysis above.

If you have a short plan year either due to distribution of assets or merger my answer would change. I'm not sure there is any specific guidance on point with your question as I would argue you don't have a short plan year and you have until 2.5 months after the end of the Plan year which is 12/31/16. I think there is some recent guidance on terminating DB plans where the 8.5 month minimum funding deadline is from date of termination I believe so you could argue your point that it was due 2.5 months after the August termination date but I wouldn't tax that position to pay an excise tax that might not even be due.

Are you going to file a short plan year return for the 1/1/16 - 8/4/16 "plan year"? Somehow I think not.

I'm going to assume that "a" and "b" are both values that satisfy the IRS rules. In the first - you can change the eligibility. Your amendment should be clear whether or not participants who satisfied the old rule continue to be participants after the amendment or if they need to meet the new rule. Both are acceptable as eligibility is not a protected benefit. In the second I'm sure it can be done I've just never quite seen this exact question. I think I would treat it like a change in vesting schedule. That is preserve any vesting accrued though date of amendment and allow employees with 3 years of service to choose which schedule. Though I'm not 100% sure on this reading of the rule.

I guess the answer depends on when it is defaulted/offset and whether or not the terminated employees has the grace period to repay said loan.

It used to be more common when the PS limit was 15% of pay to have a PS plan and a 10% of pay MP plan. Now I suppose someone could have a DB plan and 401(k) plan. The DB Plan could very rapidly go over the $250K limit while the 401(k) might take a long time to hit the $250 limit.

Well in one of the wonderful (and I use that term loosely and sarcastically here) quirks of the IRC, while you got the pleasure of taking that back as taxable income and not get it in the plan tax deferred you get the pleasure of counting it towards the 12/31/15 balance for the TH determination and as BG5150 correctly pointed out a while ago it gets to hang around added back in for the next 5 years as an in service distribution. Sometimes I think they write these laws with philosophy of - "How can we possibly make this make the least amount of senses and be the most complicated to run" But if I'm reading the rest of your responses and questions in the thread correctly it sounds like you'll owe 1% to everyone who met the 6 months eligibility who did not terminate employment prior to 12/31/16. It is possible you can offset some of this if there are forfeitures from your prior top heavy minimum. I wish you luck. For what it is worth it sounds to me like you are going to have this problem basically forever so you might want to consider changing the plan design to something t hat will automatically pass testing like a Safe-Harbor 401(k) (2018 the earliest you can do this) or perhaps some other plan might suit your business needs better. I will echo others who suggest you reach out to a qualified TPA in your local area. It is possible you accountant could suggest one or two to interview.

Yes the 1099-Rs and other forms are required to be filed. You can file a request for waiver of penalties. I have no idea how successful that will be. I have never tried. Yes, if folks have taxable income they didn't claim they will have to file amended returns for 2015 and penalties and interest will likely apply. I'm only a little more sympathetic than Mike. I'm sure some of the folk "forgot" they got taxable retirement plan distributions and just assumed they received all the tax forms they were supposed to. Though there may be some who just thought they were getting away with unreported income, for those I have no sympathy. And if rollovers were done, it's really just a reporting issue. Taxable distribution on the other hand.