cpc0506

Hello. We have a prospective client that is looking to pull out of a MEP and start their own plan effective October 1, 2019. Current MEP provisions include a safe harbor non-elective contribution. New document to include a safe harbor non-elective. 1. Does the client lose safe harbor status by pulling out of the MEP before the MEP plan year ends? I think so. What are your thoughts? The new plan being established is also a safe harbor plan. Does that make any difference? Do the ER contributions made in the MEP and the contributions made to the new plan need to be tested together? New plan has a new comp allocation formula. Still waiting for prior MEP Participating Employer agreement to determine prior ER contributions and allocation conditions. 2. In the above example, what if the client is pulling out of the MEP (safe harbor provisions) because it has been purchased by an other entity, Employer A. And Employer A is setting up a new plan effective 10/1/19 , which is not safe harbor? I believe that safe harbor provisions are preserved due to business transaction. what are your thoughts?

We have a plan that is a spin off from another plan. Do we have issues regarding protected benefits that need to be addressed in the new plan's AA? Thank you for your replies.

We are working through our list of clients that need the PPA restatement for their current documents. I have come across a plan for a Boys and Girls Club. I know that 'nonprofit recreational clubs' are tax exempt but cannot sponsor a 403b plan. Would a Boys and Girls Club fall under this definition of 'nonprofit recreational clubs'? Does anyone reading this blog have Boys and Girls Club as a client who have a 403b plan? Or is it enough that the Form 990 reflects the company as a 501(c)(3) organization? Thanks for any guidance you can provide.

Client has a safe harbor plan and allowed a hardship distribution to a participant last week. Current AA does not allow for hardship withdrawals. Can I retroactively amend a safe harbor plan to add hardships? I thought that a 30 day notice requirement still existed for making mid-year changes to SH plans. Does Rev Proc 2019-19 allow for this type of Self-correction? I could not find any language regarding safe harbor plans. Thanks for your input.

Is a Simple 401(k) considered a successor plan to a 401(k) plan. We have a client who wants to terminate their 401(k) plan as of 12/3/19 and start a simple 401(k) plan as of 1/1/20. Is this allowable under the successor rules?

No, he is not selling his business. His lease is up at his current location and is closing down this practice as of that date.

Client is closing down his medical practice on July 31, 2019. He sponsors a safe harbor 401(k) plan. 1. Does he have reliance on safe harbor status even though plan is not a full year? 2. Is a notice to participants required? 3. Is there any special language needed in the amendment to terminate? The small firm that I was employed by has been bought by another firm whose termination procedures were very different from the way we handled plan terminations. I am looking for guidance on how others handle plan terminations. Thanks for your reply.

Employer A was a participating employer in a PEO. PEO had a safe harbor 401k plan. PEO plan is a calendar year plan. Employer A has decided to leave the PEO 401k plan and establish its own plan. Effective in April, they want to spin-out of the PEO into their own plan. It is my understanding that client would be subject to ADP/ACP test for the short year under the PEO since the safe harbor provisions were not in effect for a 12 month period. Is my assumption correct? My thought is that the Plan ( effective in 2019) would essentially be a new start-up plan for this Employer A with assets attributable to them being transferred from the PEO. This would be Employer A's #001 plan. However,... If the 2019 Plan is a start-up (effective April 1, 2019) and this Employer wants to have a fiscal year end 9/30 PYE, would they be eligible to establish this Plan as a Safe Harbor plan? There would obviously be more than 3 months left in the PY to make elective deferrals. BUT would this fail the safe harbor rules of no consecutive short plan years? What about establishing the Plan Year as April 1 to March 31 for an initial full 12 months and then change to another fiscal year end in the future if need be. This is the first time we have come across this kind of request. Any guidance or cites you can provide would be greatly appreciated.

Plan allows for partial withdrawals so long as the amount is at least $85. Is this a protected benefit? If so, can the client change the minimum amount or is that protected as well?

Client (solo-k) claims assets have never exceeded $250,000 so no Forms 5500-EZ

The background: Solo-k client is moving assets from one Investment Company to another. The new Investment Company requires that a client use their AA (for which we provide the service.). So, our firm was asked to restate the plan onto our document. Per the advisor, the plan was effective 1/1/2014. We always asked for the prior AA for compliance and mapping purposes. Well, client cannot provide a document - no AA, no SPD, no resolution adopting a plan, nothing and asked that we just use our default provisions for the restatement. This is clearly a VCP issue. Client has asked prior Investment Company for the document, but the client claims the Investment Company will not provide any data (sounds fishy to me...) Has anyone had any experience with filing under VCP for what would be now an new plan effective 1/1/14 and basically asking relief for it not being signed until 2019? Any guidance would be greatly appreciated.

We have a 401(k) safe harbor plan that is top heavy for the first time in the 2018 plan year. There are employees who only receive Davis Bacon prevailing wage contributions who have not met the eligibility requirements for any other portion of the plan (including deferrals). Client is making a Profit Sharing contribution this year, so top heavy waiver no longer applies. Does the client need to provide Top Heavy minimum contributions to these DB employees?

She turned 65 in November 2017 and entered the plan on 1/1/2013. So, I don't think her 5th year anniversary occurs until 1/1/2018 and she was not employed on that date.

It was my understanding that RAP had to do with interim amendments and not discretionary amendments which still have a Year End adoption date requirement.

Client paid out a participant in 2018 as she terminated employment and was age 65. The only problem is that the NRA in the plan is the later of: 65 or 5th year of participation. Employee only had 4 years of participation at termination. She terminated one week after reaching age 65. Client does not want to ask for the unvested funds back. Can the client adopt a retroactive amendment to change the NRA to 65 only?

Plan uses compensation, excluding taxable fringe benefits, as the definition of compensation for plan purposes (eligible for deferrals, match and PS). NOTE: Catch-up contributions are not eligible for match. Participant A’s gross compensation is 160,000 and comp less fringe benefits is 150,000. We are running the ADP test using gross compensation as it provides better results. The issue is the plan is failing the ADP test and refunds are needed. The ACP test passes. Participant A is having refunded to him $5,000. Remaining deferrals are $11,500 which yield an effective deferral rate of 7.67% (using remaining 11,500 deferral divided by plan definition of compensation for deferral purposes of $150,000). Match is calculated as 50% of first 5% of deferrals and 10% of next 5% of deferrals. Participant A initially received match of $4,500. Even though the ACP test did not fail, I believe that match needs to be forfeited since his effective rate of deferrals has changed. I calculate the amount of match that needs to be forfeited as $349.50. Is my reasoning correct? Now we have Participant B. Participant B is not required to receive a refund as $1000 has been reclassified as catch-up. Because some of her deferral has been reclassified, is she now required to forfeit the match associated with these funds since catch-up is not eligible for match?

We have a new client who came to us. They were part of a MEP as of 6/1/16 and have decided to terminate their participation in the MEP and want to start their own plan this year. We have conflicting thoughts in office as to what is the effective date of the new plan. I say this is a new plan and its effective date should be 2019. My reasoning for a 2019 date is that this if the first time that the employer has sponsored their own plan. Others are saying the effective date of the plan should be the date they entered the MEP as a participating employer. Can anyone provide some guidance?

Mike, are you saying that just so long as you use the same definition of compensation when running the combined ABT, that is all that matters and it does not even have to be one of the definitions of compensation used in either plan?

We have a client who sponsors both an ESOP and a 401k plan. ESOP owns 100% of company. Client is looking to split the 401k plan into 2 separate plans - one a safe harbor plan and one a tested plan. We know that we will have to run the ABT for the plans as the coverage test will not pass the 70% threshold. Right now the ESOP and the 401k plan use different definitions of compensation. It seems that the same definition of compensation must be used to run the ABT. Can the plans still apply 2 different definitions of compensation for allocation purposes and just use the same definition for testing purposes? Or do both documents need to specify the same definition of compensation? The ESOP currently excluded commissions in excess of $150,000 (and yes, there are a handful of employees for whom this exclusion does apply.)

Would you have responded differently if the original plan in question is a safe harbor plan and the newly established spin off is only effective for 1 day?

Not sure what you mean? I know that participants include eligible and those terminated/beneficiaries with balances. My counts are still accurate in my breakdown. What I am concern about is what the true count of Plan 001 would be and that it falls below the 100 threshold, as it was an audited plan in 2018 and needs to go below 100 to avoid audit for 2019.

We are in the process of splitting a plan into 2 plans so that there is no longer an audit. The intent is that the effective date of the new plan and the amendment to the old plan (removing some employees) is 1/1/19. We know that audits are determined based on the number of eligible employees in the plan at the beginning of the plan year. So if count on 2018 Form 5500 at end of year is 130 and on 1/1/19, 60 of these participants are now participants of plan 002 and no longer participants of plan 001, am I correct that as of 1/1/19 the counts in both plans are now less than 100 and no audit is required?

Client currently sponsors an ESOP and a tested 401k Plan. The ESOP owns 100% of the company stock. Both plans are audited. Client is interested in breaking their current 401k plan into 2 separate plans to avoid the cost of audit. The two plans would consist of one safe harbor plan covering salaried employees and one tested plan covering hourly employees. All HCEs would be in the safe harbor plan as would 32.97% of the NHCEs. The remaining 67.03% of the NHCEs would be in the tested plan. Can this be done when the third plan sponsored by the client is an ESOP? We have not encountered this situation before. Can anyone provide guidance or reasons this is not feasible?

Hello. We have a client that just informed us that they would like to convert their FYE 11/30 safe harbor plan to a FYE 12/31 safe harbor plan, so we would basically have a 12 month SH plan that ran from 12/1/17 to 11/30/18, then a 1 month SH plan (12/1/18 to 12/31/18) followed by a 12 month SH plan (1/1/19-12/31/19). So I do believe that we meet the requirements to make this change and keep the SH status intact. BUT... My issue is the timing of the amendment, since the short plan year has already started. The EOB indicates that the amendment should be signed BEFORE the short plan year began, which has not. Has anyone else ran into this issue? Or has there be some further guidance that the amendment can be signed after the short plan year begins, but before ends. Also a concern, is that a new SH notice should have been provided by 12/1/18 for the 2019 PY. FIY: the plan provides a safe harbor non-elective contribution of 3%.

Client just called and one of his employees works for another company and the employee has determined that he contributed too much in salary deferrals and now has a 402g limit issue. Can the funds with earnings be returned now or do we have to wait until 2018 has ended and return the funds in 2019 before April 15, 2019?