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C. B. Zeller, My document says the same, but I guess my question was more related to the daily administration side. Clients usually focus on the actual paycredits and think that's what they are providing each year to the participants. I wanted to see what experts are advising to clients to prevent "surprises" at the actual payout time. Thank you.

Hello, If the paycredit rate (say 5%) is enough to pass the 401(a)(4) test, but not enough to meet the Top Heavy benefits, what do you do? Say an employee earned $1,000 in paycredits for 2018. Plan passes 410b and 401a4. Say the hypothetical account balance for the employee is $2,000 as of 2018, but if the employee terminates now and therefore receives the Top Heavy minimum, the amount must be increased to $5,000. So you know the paycredit for 2018 is not enough for the "distribution" amount.... Do you increase 2018 pay credit for this person with a discretionary amendment? I don't think 11g amendment applies since there is no failed test? If you leave the paycredit at $1,000 for 2018, do you inform the client that the actual payout amount would have to be $5,000? Creating a DC plan would be the best option, but let's say the client is not interested in adopting one. Thank you!

Hello Mike, Thank you so much for your valuable time and reply. Very much appreciated. I reduced owner's and wife's Profit Sharing to $25 each (I hope this does not create another issue... I typically use $100), and the wife is deferring 24,500 out of 30K salary (which fails the ABT), and every single employee is older than the owner, except one.. and that employee is only one year younger than the owner, so it is difficult to pass 401a4... And the assets did not do well in 2018 (like many other plans), so the MRC is more than the paycredits, which requires some explanations to the owner because he does not understand where the rest of the money goes to (MRC - paycredits=$x "who gets $x").... I am not trying to make excuses, but in addition to this, employees' paycredits are flat $, not percentage, so the fact that employees' wages are going up every year makes things worse.... I try to make design changes, and the client is open to it, but every year, somehow someway, it works out to his "ok" satisfaction, so he does not feel it is urgent to change things.... In reality, the $10K is a lot smaller, but this is one of my difficult clients so I wanted to be prepared, and getting replies from you means a lot! Thank you. ML

40K has not been deposited.

Hello, Funding Target is 1,156,000 and the asset is 996,000. Normal Cost is 160K and the shortfall installment is 40K (not sure if this is helpful or not..). MRC due at Val date is 200K. Yes all participants are in both plans. I am really hoping your answer is still yes... (yes 230K deduction for 2018). I think the DC contribution above 6% (10K) is not deductible in 2018, but will be deductible for 2019... (no way of deducting it for 2018...).. Would you still agree?? Thank you SO MUCH for your time. ML

Hello, A plan sponsor has DB and DC plan. Eligible compensation for deduction limit is $500K. 25%=125K, 6%=30K. DC ER contribution is 40K, in order to pass 401a4 (over 6%). DB MRC is 200K as of the valuation date. I am confused what the deposit amount and the deductible amount are. My understanding is... Deposit amount - 240K (DC 40K, DB 200K), Deductible amount = 230K because the DC amount over 6% cannot be deducted?? If the DB deposit is made after the Val Date, would the deductible amount increase accordingly? Am I close or totally off..... Is there a way that a sponsor can deduct full 240K, if the increased DC contribution is due to the failed 401a4 test (I think I read this in one of the posts......but not sure how it works with the actual deduction amount). Thank you in advance.

Hello, Two entities (A & B), controlled group, each entity has its own plan. Entity A provides SH 3% + PS, entity B provides PS only. Entity A calculates SH and PS based on entity A's compensation only. Entity B calculates PS based on entity B's compensation only. Each plan passes coverage on its own. Each plan passes 401(a)(4) based on 415 compensation (combined comp from both entities). Gateway and TH are calculated based on 415 comp. My question is... do I need to do the 414(s) compensation ratio test for the Safe Harbor contribution type for entity A, because the Safe Harbor allocation is not based on 414(s) compensation? I thought... since 415 compensation is used for the 401(a)(4) test, which tests both SH and PS, I did not have to do a separate 414(s) compensation test....... But maybe that's the reason why I have to do the 414(s) compensation test, because testing both SH and PS cannot be used to prove that the Safe Harbor (alone) is calculated based on 414s compensation? If so, what happens if the 414(s) compensation test fails? Increase SH to meet 3% of the 415 compensation? I guess increasing SH will reduce PS anyway, so the outcome is the same for the 401(a)(4) test.... Thank you very much!

Hello, When you set up two new plans (401k 001 and cash balance 002) with the same effective date (1/1/2016), is it possible to exclude prior services for the vesting purpose for one plan (CB) and not the other (401k)? Cash Balance will exclude services prior to the effective date of the plan. 401k plan will consider all services including prior to the effective date of the plan. Thanks.

Hi, Does anyone know if this webinar (link below), Practicing Before the IRS - Circular 230 A to Z Rebroadcast, would meet ERPA Ethics CE requirement? In the past, IRS Webinars did state if it qualified for the ERPA credit. But it appears they do not state that anymore.... now it just says "Tax Practitioners".... I think there are some webinars that could qualify for ERPA CE requirements, but since they do not specifically state ERPA, I am not sure...... I wonder how other ERPAs keep their CE requirements, especially those who would like to utilize all free webinars....... https://www.irs.gov/businesses/small-businesses-self-employed/webinars-for-tax-practitioners-1#practicing Thanks!

Non safe harbor 401k plan... Plan was terminated and the assets were distributed during 2015. Later, it was discovered that one participant did not receive a profit sharing/matching contribution (between $1,000-$2,000). The participant's account balance was rolled over to a new employer's 401k plan upon plan termination. What is the best way to provide the missing contribution to the participant? I think it is best to have the plan sponsor write a check directly to the participant's new employer's plan as a rollover. The contract between the plan sponsor and the financial institution where the plan's assets were invested was completely terminated upon asset liquidation. So, there is no way to physically deposit the contribution to the participant's old 401k account. Also, how should it be reported on the final 5500-SF (or maybe it is not final 5500 because it will have a receivable/ending balance for the amount of the missing contribution)? Lastly, would the earnings calculation be required? Profit sharing was a discretionary (once a year deposit), and the matching was a discretionary per payroll calculation/deposit. Thanks!

BG5150 You got it. It has been passing with 5% gateway for years. Thanks.

Lou S., Thank you. I think I am okay too as long as it is amended before 7/1. It is not a safe harbor plan, so that's good (profit sharing only plan). Just to make sure I understand your last point, the client wants to minimize the contribution for this employee and that's the reason I need to amend the plan's compensation definition for the allocation purpose. Our document allows the compensation definition for the testing purpose to be either full year or partial year while a participant regardless of what definition is used for the allocation purpose. Thanks!

Hi, Profit Sharing only plan. 12/31 Plan Year End. Allocation formula is new comparability where each individual is in its own class. There is no allocation condition to receive a profit sharing contribution. The compensation used for the profit sharing allocation is full year compensation. There will be one new participant who will enter the plan as of 7/1/2016 (entry dates are 1/1 and 7/1). Can I amend the Plan effective 1/1/2016 (retroactively) to change the compensation used for the profit sharing allocation purpose? I'd like to amend the plan to include the wording - Exclude compensation paid during determination period while not a Participant. Or, is this considered a cutback and therefore can only be amended for future years? Maybe it is okay as long as the amendment is adopted before 7/1/2016? I was thinking maybe it is a cutback because current document has no allocation condition. However, the current formula is "each individual in its own class", which means no one actually earned any right/benefit until the individual percentage is determined by the employer. Thank you for your help.

An employer owns company A and B (they consist a controlled group). Each company has its own 401(k) plan. Both plans have the same plan year end (1/1-12/31), same testing method, and same provisions. Company B was sold (asset sale) to a unrelated company, which resulted the employment termination for all employees as of May 1, 2013. Company B's Plan Year for 2013 would still be 1/1/2013-12/31/2013 as the assets were not distributed during 2013 (no short plan year for 2013). Can company A and B be permissively aggregated for the ADP and ACT test for the 2013 Plan Year end? I have no issue passing the coverage testing with/without the permissive aggregation for both plans, however, I would like to permissively aggregate for the ADP and ACP purpose. I am concerned that company B was only active for 4 months of the year (even though the Plan Year for the Form 5500 would still say 1/1/2013-12/31/2013). Thank you.

Thank you..