401king

Forcing them to wait until the next entry date seems unnecessary, unless their entry dates coincide with the salary deferral change request dates. They are already a participant, so they should be able to defer at any time after the 6-months.

And believe me, the assumption that "Management" can't lose more money than lower ranking employees is not based in reality. On the contrary, I think rank & file EEs are more likely to use a pre-allocated fund, whereas higher paid employees tend to believe they can manage their account better than a professional.

It's very possible this correction is just of a payroll matter. The 401k records would obviously have to be updated, but it would just be switching its source to Roth from Pre-tax. The same dollar amount would have been withheld, and the same amount would be in the plan. I don't know what penalties the employer may face for producing incorrect W-2s, but I imagine it'd be the participant still forking over the check to the IRS & State for taxes due (due to the higher income for each year). Maybe the employee would be less likely to insist on the correction if they knew they would have to pay (at least partially) for its resolution.

Tom, would the same result be true if the Plan were started today with just HCEs, today as an auto-entry date, and then they hire someone in a few months? Or is the original example unique because they are backdating the auto-entry date, after having hired some employees?

Our documents have a rule in place on calculating hours worked when exact hours are not ready. You may need to refer to that section of your document. For instance, in ours we credit 190 hours for any month that an employee worked at least 1 hour. You may have Days Worked, where you credit 12 hours for any day that any employee worked at least 1 hour. I think the point is to refer to your Adoption Agreement, and it is probably answered in there.

We have a participant that just notified us that they overcontributed $6,000 between two plans. Can anyone confirm that this is the correct way to process: Distribute excess + earnings - taxable in 2013 and 2014 (code 8 for both years? Two 1099s?) If HCE - distribution remains in ADP test; If Non-HCE, the distribution is removed from ADP testing. Plan would be retested and any ADP refunds would be subject to 10% penalty. I'm pulling this from Rev Proc 2013-12 http://www.irs.gov/pub/irs-drop/rp-13-12.pdf. Page 56: .04 Failure to distribute elective deferrals in excess of the § 402(g) limit (in contravention of § 401(a)(30)). The permitted correction method is to distribute the excess deferral to the employee and to report the amount as taxable in the year of deferral and in the year distributed. The inclusion of the deferral and the distribution in gross income applies whether or not any portion of the excess deferral is attributable to a designated Roth contribution (see § 402A(d)(3)). In accordance with § 1.402(g)-1(e)(1)(ii), a distribution to a highly compensated employee is included in the ADP test and a distribution to a nonhighly compensated employee is not included in the ADP test. Thanks in advance!

OP says it's a SH match. I know it's an unnecessary detail here, but wouldn't the Missed Match be carried as a Match contribution (safe harbor or discretionary, whichever applies) as opposed to a QNEC? In the case of a missed discretionary match it may affect vesting/distributions.

The match would be a QNEC? If it were discretionary would it still be a QNEC?

Sounds like they're doing their own true-up at the end of the year. It's only an issue if the document doesn't provide for a true-up. Doc should specify true-up or no true-up.

Safe Harbor is too big a commitment for many employers. It also adds restrictions to the plan, making it less flexible in other ways. I can see your employer's point of view in not wanting to risk an extra 4% "raise" for each of the employees, just so that a couple could maximize their deferrals. It may not be your role, but you're better off encouraging the employees to start saving. Or ask the TPA if they can host an enrollment meeting to educate the employees. If the company offers a match and employees are not saving it may be an issue of communication.

From our documents: Participants must exhaust all possible methods of obtaining funds prior to a Hardship. I am inclined to agree with the TPA.

I believe he could put $51,000 as a profit sharing contribution, and a $5,500 catch-up on top of that.

Thanks. So you're saying the amounts that go from the 125 to the 401k are "reclassified" as wages subject to FICA?

"Although a cafeteria plan cannot include plans providing for deferred compensation, it can include a profit-sharing or stock bonus plan that has a qualified cash or deferral arrangement under IRC §401(k). Amounts contributed under the employee's election are treated as non-taxable benefits for cafeteria plan purposes. IRC §125(d)(2)(B). After-tax employee contributions under a defined contribution plan subject to the non-discrimination rules of IRC §401(m), are also allowed. Furthermore, employer matching contributions may be made with respect to before-tax or after-tax employee contributions. Prop. Reg. §1.125-2, Q. and A.-4©."

Client's CPA told them their 401k contributions could be passed through a Cafeteria Plan, excluding them from being subject to FICA. This is news to me. CPA provided the attached PDF, which focuses the 401k component on Page 9. Any additional insight? If passed through a Cafeteria Plan, does that mean the funds are added back to FICA wages? Or does this exemption really exist? Chapter-14-Cafeteria-Plans-Employee-Fringe-Benefits-and-COBRA.pdf

Maybe pointing out that the employee is included as a participant in the ADP test (assuming they didn't build their own software). Maybe that will be enough to swing their votes. I always assumed this was a mistake only HR made; not actual TPAs. And if you can pull the summary plan description or plan document the language in there may explain it. For example, ours says, "You will enter the plan on..." as opposed to "You may enter the plan on..."

A plan previously hit the 120-participant threshold (years ago). As of 12/31/2012 the plan dropped below 100 participants so we are choosing to file as a small plan for 2013. It is my understanding that once a plan has reached 120 participants they must file as a large plan until they drop below 100 participants. But, after dropping below 100 participants, is their threshold for a large plan filing going forward to be 100 participants, or 120 participants?

Bonuses and overtime are excluded from definition of comp for deferrals, or participants simply cannot defer from those types of earnings? I'm just not sure why a (Safe Harbor) Plan would exclude those items from deferral definition of compensation.

Participants would be credited, yes, but many would still not be fully vested under a 6-year schedule. I felt the same about it being a default option, but I am not entirely confident that a scrutinizing auditor would view it as a technical oversight.

We are restating a plan from Paychex to our DATAIR document software. The Paychex adoption agreement did not allow matching contributions, but states that matching contributions are 100% vested. Further, their vesting section does not have the option to state, "Not applicable." We are amending the plan to allow for discretionary match, and giving it a 2/20 vesting schedule, but I'm not sure what to do about the current participants' vesting. Can you attach a vesting schedule to a source that wasn't allowed in the first place? If not, then I assume I can attach the 2/20 schedule to all participants. Otherwise, they are subject to the 100% vesting schedule, even though contributions of that source were not allowed.

Encourage your employer to hold an educational retirement plan seminar in hopes of getting more Non-HCEs to contribute, or increase their contributions. You'll have a tough time convincing them to do Safe Harbor as that can be extremely costly. As others have recommended, just max-out your 401k contributions to the most you can afford - then take the refund after year-end. At least that way you know you got the maximum value out of the plan. Sometimes people try to base current year contributions on last year's discrimination test results, although the results can swing wildly each year (depending on the size of your company).

You're saying that once per year he deducted your 3% from your wages - Does that mean that a single paycheck was reduced by 3% of your annual salary? I'm not sure why you waited 15 years to bring this up, why you were the only one, and why everyone else told you to ignore it.

If it's a Safe Harbor plan you would need to wait until 2014 to make it effective.

If it's a SIMPLE IRA and the SIMPLE has been funded this year (2013) then they must wait until 01/2014 to start a 401(k) Plan. At that point, you're just terminating the SIMPLE and starting fresh with a 401k. SIMPLE account holders may rollover their SIMPLE to the 401k (provided it's been two years since the initial deposit).

Under section 1.401(a)(9)-4, Q & A 4, the designated beneficiary must be a beneficiary on the date of the death of the employee and remain a beneficiary as of September 30th of the calendar year immediately following the calendar year of the employee’s death. I take that as saying that if the primary beneficiary isn't alive on 9/30 of the following year, then the contingents become the primaries.