Pam S.

Thank you, Bri. I believe they just created an account at a Bank. We're checking to see how it was set up (registration). Tom - thank you as well.

A potential client approached us to establish a 6/30 year end 401(a) plan. They are a governmental entity, so it will be a governmental plan. It is September 13, 2023, and the client is expecting to establish the plan effective 7/1/2022, because they've already deposited a contribution for the 6/30/2023 plan year end to a Trust. Can we prepare a plan document with a retroactive effective date at this time? If not, what should the client do with the money that has already been deposited to a Trust? I'm attempting to gather additional information from the client (i.e. documentation for the Trust; any documentation regarding the plan provisions). Any guidance is appreciated.

My firm is taking over a calendar year Profit Sharing Plan where the current document indicates that the vesting computation period is Hours of Service (1000) commencing on the date the employee is hired and each anniversary thereof. We are checking with the client and prior TPA to confirm that is how the vesting has actually been calculated for the participants, but are considering recommending changing the computation period to coincide with the plan year, rather than the employee's employment year. If this change is made July 1, how does that affect the current participants? Will we need to treat it similar to a short period of time and determine hours in 2021 based on their employment anniversary as well as based on the calendar year 2021 and possibly credit them with 2 years of vesting service? Are there other pitfalls to consider with such a change?

Hi All: One of our clients, who historically filed a 5500-EZ Form, filed their final 5500-EZ Form for their 10/31/2019 plan year. The form was marked as a final form. The client received a letter from the IRS dated 12/7/2020 with a heading: Filing Requirements Reminder: Review to determine if you must file Form 5500-EZ or 5500-SF. The letter references the Plan period ending 10/31/2020, for which the client will not be filing a form. There doesn't seem to be anything in the letter that requires a reply of any sort. It appears to just be a reminder to the client that if they are required to, they must file either an EZ by mail or an SF via EFAST2. Has anyone else had clients receive such a letter, and is it safe to just file this in our records for future reference? Anyone know why the IRS is sending these? Are more to follow?

Gotcha - that helps clarify. Thanks.

Thanks, ratherbereading. Do you think, then, that any match that is deposited (even though it was technically safe harbor when deposited), should be ACP tested and not used in the ADP test? I guess I just want to be sure I'm running the testing correctly for 2019 (all 401k deferrals in ADP test, and all match in the ACP test).

This question is a piggy back question to the one posted by ratherbereading back in December of 2019. I have the same situation, and understand that the ADP and ACP testing is applicable to the plan for 2019 since the Safe Harbor Match was suspended mid-year. The Safe Harbor Match was funded to the point of suspension. Are the Safe Harbor Match contributions that were funded to the point of suspension considered SH contributions, and thus can be used in the ADP test since they are fully vested? Or are they to be considered "regular" match (non-Safe Harbor) for 2019 ACP testing purposes (as if the Safe Harbor feature was not in place at all for the entire year)? Thank you.

Good point.

Thank you for your responses. Larry, just to answer your initial question back to me, the document does not limit the number of hardships a participant can take, so monthly would be an option. This participant already has the maximum amount of loans they qualify for, so that's off the table. We're working on an in-service withdrawal of any available amount prior to the hardship, and I guess we'll just take it from there. I agree that circumstances can change at any time for this participant and I think the best way to handle this from a Plan perspective is to process the hardship each month (as requested) as long as the participant is still able to provide proper documentation. Your feedback is welcome and appreciated!

Hello: We have a client whose plan allows for hardships from 401k Deferrals and Safe Harbor sources using the safe harbor rules. The participant is in a situation where his dependent needs to have a $2,000 prescription each month, and the medication is not covered under their insurance coverage. The participant initially asked if it was possible to get a hardship to cover the cost of the medication for the next 3 years ($2,000 each month for the next 36 months). My argument here is that he won't actually have proof of the hardship for a total of $72,000 - he'll only have a monthly bill for the medication. Which leads me to him having to submit a hardship request each month to cover the cost of the medication. Anyone have any other thoughts on this? Suggestions?

Thank you, Bird. You've confirmed my thoughts.

Hello: I have a 401(k) Plan sponsored by a Sole Proprietorship that terminated on 12/31/2018. As part of the process to get all of the participants paid out, it was determined that none of the owner's 2017 401k deferrals were deposited to the Trust. The owner deducted $24,000 on their individual tax return, and it was reported as a contribution on the 5500 form (and included in all of the necessary testing). The accountant is asking whether it is still deductible on the 2017 tax return if the deposit is made today (2019). I'm thinking, from the plan's standpoint, this will be treated as a late contribution and applicable earnings will be deposited along with the $24,000 and the tax return stands as is. His other option is to amend his 2017 tax return to remove the $24,000 deferral. Any thoughts? Let me know if you need more details to provide your feedback.

If your Plan is Top Heavy and the sponsor is making a discretionary contribution in addition to the Safe Harbor Non Elective, then any mid-year entrant needs to receive a total allocation (SHNE + PS) sufficient to satisfy the 3% Top Heavy - on full year W-2 (SHNE can be allocated using partial year comp, difference to get the participant(s) to the TH 3% minimum on full year comp can be PS). The goal is to be sure that all new participants receive 3% of their full year's compensation in total.

That does make sense, Bird. Thanks for your input.

We recently took over the administration of an existing 401k plan (safe harbor 3% - but was SH match years ago) . As the actuary was working on the 2017 combined testing and contribution calculation, they noticed that there was an employee with a rehire date in 2017. Upon collecting the historical employment information, it was determined that this employee should have been allowed to contribute to the 401k plan back in 2009, his first date of rehire (after having met the plan's eligibility during his first employment period from 2/2008 through 9/2008). No problem there - we can calculate the QNEC for this. But, the employee then terminates in 2010 and is rehired again in 2012. And then terminates in 2013 and is rehired again in 2017. Phew. So, my question here is when I'm calculating the QNEC, do I have to do separate calculations for each year for which he was rehired? Or just for the first rehire period and call it good? Technically, he should have been allowed to defer when he was rehired in September of 2009, and again in July of 2012 and now in 2018 (actually September of 2017). Any comments on this are appreciated.

Thank you! Makes sense.

Hi All: Appreciate comments on the following question: If a calendar year 401k plan changes it's eligibility computation period from anniversary year to plan year - the amendment is effective 5/1 - rather than 1/1 - how does that affect a participant that was hired on 9/10/2015? One year of service for eligibility (1000 hours). 1 YOS would be 9/9/2016. If not 1000 hours during this period - we look at 9/10/2016 - 9/9/2017. But the amendment was effective 5/1/2017 - so do we look now at plan year 1/1/2017 - 12/31/2017 or does it switch to plan year for the 2018 plan year (prospective from the date of the amendment)? If this is not clear enough or if more facts are required, let me know and I'll try to elaborate. Thanks!

I'm not sure i can locate the info i have on this, but I went through this a number of years ago and our guidance indicated that Installment Payments was a protected benefit and could not be removed as a form of payment. I'd be interested, as well, to what others say about this.

A multiple employer plan we administer allows for loans. When one of the members of the MEP ceases its arrangement with the PEO and ultimately stops making contributions to the plan, but does not start up their own individual plan - what happens to the employees that may have outstanding loans? The loan payments have ceased being deducted from the participant's pay as a result of the fact that the PEO is no longer handling payroll for the employer. But, the employee is still an active employee of the employer, so in that sense, a default isn't triggered. But a default will be triggered when the Trust doesn't receive loan payments for a period of 90 days. So, is it as simple as drafting the loan policy to have verbaige for this particular situation allowing the participant to continue to make payments directly to the Trust? Has anyone run into this situation before?

Thank you all for your comments. This has been a very helpful exchange. It is our belief, based on a conversation with the participant, that he does intend to just keep the $ and not roll it into the IRA. The reason he called in the first place was to request a copy of the tax document (1099-R) - which we explained had already been mailed to him. He said that the bank (that he was using to roll the $ to) had told him that he needed a different form since the $ hadn't actually been rolled into an IRA. We are going to inform him that he will have to file his taxes and report the income and pay the applicable taxes. We're taking the stance that we (the payor/plan) did nothing wrong and the responsibility falls with the participant and/or his bank. Again - thank you all for your feedback!

Thank you Kevin. That was our initial thought as well - correcting the 1099-R. We were concerned what sort of ramifications it might have on us as the filer of the withholdings - of which there were none.

Thank you Tom. I'll pull that from our books for reference.

Oh, and to answer your questions, jpod, the participant was using the same institution for his IRA that he uses for his personal checking/savings accounts.

Thank you both for your feedback. It is most welcome!

We had a call from a terminated participant that elected to take his distribution from a 401k plan in the form of a rollover to an IRA. The check was made payable to his IRA institution fbo participant name and was sent to the institution (per his instructions on the distribution paperwork). This occurred in 2013. The call from the participant came in a couple of days ago and he tells us that the money was not put into the IRA account, but rather into his checking account. We have already prepared the 1099-R with a code G and submitted the info to the IRS (figures he would call the day after we submitted our filing to the IRS). Do we complete a corrected 1099-R to indicate a lump sum cash distribution with no withholding? Does this create an issue for us as the submitter of the withholdings? What is our exposure? Any replies are welcome!