cpc0506

Plan sponsor elected to terminate their 401(k) plan effective December 31, 2018. The termination paperwork was signed in May 2018. When does the 100% vested rule come into plan? The effective date of termination of December 31, 2018? Or the date the termination paperwork was signed,?

Yes, but who would the predecessor employer be? The employee who reports the 1099 income?

In the same vein, we have a new client who wants to establish a 401k plan and has paid some of his 'employees' using 1099 and not w-2s. Some have been on their books for 3-4 years. The client is asking if this prior service can count toward service for plan purposes. They intend to pay them w-2 wages for 2019.

My question really centers around the fact that Company A was a participating Employer in Control Group A's plan for 6 months before terminating the arrangement and if the new plan starts 6/1/18, the employees are essentially covered by 2 plans for 6 months of the time. Also, since Company A was part of a Control Group for 6 months, do we need to be concerned about coverage issues (none of the other members of the Control Group are covered by Company A's new plan) for part of the year?

Thanks to everyone for your responses.

I understand the spinning off, but does it matter that Company A was part of Control Group A's plan from 6/1/18 to 10/31/2018 since the participating employer agreement was terminated on 10/31/18?

Bird, Does your answer change if I tell you that the plan is a safe harbor plan?

Company A was part of a control group and was a participating employer in Plan A (company A was not the main sponsor). Plan involved is a 5/31 Fiscal Year End Plan. FYI: Plan A is a Profit Sharing only plan. Company A' s ownership changes effective 11/1/2018 and is no longer a member of the control group and intends to terminate participating employer agreement effective 10/31/2018 and wants to start its own Profit Sharing only plan. Company A intends to sponsor a 5/31 Fiscal Year End Plan as well. The question is: Can Company A's plan be effective 6/1/208 so that full year compensation can be used in determining PS allocation at 5/31/2019 OR does the plan's effective date need to be 11/1/2018 due to prior participation in Plan A?

Client has just informed us that he sold his business back in February 2018. It was an asset sale and last check issued by client was dated 2/23/18. We are NOW doing the plan termination paperwork (a bit late, as you can see) and are having issues with termination effective date. Normally you cannot terminate a 401k plan retroactively but I think using an October 30, 2018 date leads to incorrect pro-rata compensation for plan purposes. Example, owner decides to pay himself 200,000 with last check in February. If termination date is February 23th, then pro-rata compensation limit for plan purposes would be 40,684.93 (54 days out of 365 days). But, if we use a 10/31/2018 term date, pro-rata compensation limit for plan purposes would be $229,041 (304 out of 365 days). And since owner's compensation is 200,000, limitation compensation matters. Any thoughts?

I misspoke, I have now found out that Client A was a member of Control Group A and was a participating employer in Control Group A's plan. Client A was sold and is now part of Control Group B. Control Group B does sponsor its own plan, but Client A wants to sponsor their own plan (with same provisions as Control Group B's plan. Does this change your answer? Would this be a new plan with Client A as the plan sponsor?

Hello. We have a new client - Client A - that was a participating employer in a MEP who has decided to leave the MEP and establish their own plan. We have assigned Plan 001 to the client's new plan as it is the first plan being sponsored by client A. A colleague is questioning why we are using 001 and not 002 for the plan. Is our reasoning correct on the plan number?

Hello. Company A's business entity is partnership. There are 6 owners of company A Two of the partners' net earnings are negative before any calculations are made. Profit sharing amount is determined for rank and file employees. Do these owners also receive a share of the cost of the profit sharing (based on their ownership %) taking their earned income to a greater negative amount? Since there earned income for plan purposes is negative, we are reflecting their comp as zero. Should these two partners be included on the ADP/ACP test?

A prospective client has just approached us to handle their 403b plan. As it turns out, they are running two plans: a non-ERISA plan that is a deferral only plan and an ERISA plan that holds only the employer contributions. We have never seen a set-up like this. Has anyone ever encountered this before? Does it matter if the Employer contribution is a non-elective versus a matching contribution? If anyone can provide guidance, I would appreciate it.

New client has come to us. He is a self-employed author. He would like to start a solo-k plan. He received his business EIN on 8/28/2018. We are setting up the plan for him. Can we use a 1/1/18 start date or does it have to be 8/28/2018? Has anyone encountered this issue before and what date did you use for the plan's effective date.

I concur with WDIK.

The plan passed the ADP test only because funds were classified as catchup.....

Client elected to make a matching contribution for this current plan year. The prior plan year, the client chose not to contribute a match. Plan uses prior year testing. I believe that since the prior year match rate for NHCEs was 0%, all match received by HCEs this year needs to be returned due to a failed ACP test. Do you agree? Note that this is NOT the first year of the plan's existence, nor the first time that the client is contributing a match.

Employee A was hired on 12/19/2017 and terminated 1/3/2018. He was subsequently rehired on 6/1/2018. Plan requires 2 months of service for deferrals and 6 months of service for employer contributions with monthly entry dates. No minimum age requirement. Is Employee A eligible for plan on his rehire date of 6/1/18 for deferrals due to the service spanning rule? And therefore eligible for PS as of 7/1/2018?

Note: you need to be absolutely certain that she is not an eligible participant. We have seen many solo-k documents written with no age or service requirements (pitfalls of using advisors, and not TPAs, as document providers) and immediate entry. Paying someone wages reported on a w-2 , under these provisions, would negate the ability to file a Form 5500-EZ and subject the plan to all other ERISA requirements.

We have a client with plan year ending 6/30. We completed valuation work for plan year ending June 30, 2017. At that time the plan, called Plan A, both failed the ADP Test and the plan’s assets were merged with another plan, called Plan B, so that the ending balance on the 2016 Form 5500 for Plan A was reported as zero and a final return was filed. Assets merged into Plan B as of 6/30/17. Plan B has a plan year ending 12/31. My question has to do with the deadline for returning ADP failures before a one to one QNEC is required. Is the based on old Plan A’s plan year end or new Plan B’s plan year end? And if it is based on new Plan’s plan year end, was the deadline 12/31/17 or does it extend to 12/31/18? In order words, what was/is the final date for making refunds under this scenario?

Hello. We are TPA for a plan that utilizes an auto-enrollment feature in the plan. Client realized that he missed enrolling a handful of employees in 2017. The client did not contact us to determine the best way to handle this situation. They enrolled each employee approximately 3 months late. Client did not know that by not providing a notice to the participants within 45 days of starting the deferrals, that client is now subject to QNECs for these participants. 1. Have we interpreted the ruling correctly that the client is now subject to making required QNECs for the affected participants? 2. How are the participants reported on the ADP Test? Do we include the QNEC contribution in the testing? Please advise. Thanks.

Hello. The alliance that holds the assets for a client of ours just added funds to the plan due to uncashed checks from 2012. Yes, I said 2012. The amount totals $195 for 3 participants. How are these funds reported on the 2017 Form 5500-SF if the client has chosen not the restore the funds to each participants' account with the understanding that if the terminated participant comes looking, they will need to provide the funds? Do the participants need to be reported again on a Form 8955-SSA that they still have benefits due, since they were reported as having been paid their vested balance in 2012? Thanks for any guidance you can provide.

Thanks for your response... :)

Yes, we do. We are using Relius and it does not appear that it is picking the number up this year.

Can anyone provide guidance on if corrective distributions should be reported on the Summary Annual Report? If so, do you include them with the distribution amount or should the amount be reported some other way?