cpc0506

Client has informed us that the President of a Non-profit, which sponsors a 401k plan, will be retiring on 3/31/16. On 4/1/16 and 4/1/17, the Non-profit will be paying the President X dollars in deferred compensation. Is this money eligible compensation for plan purposes in the 2016 plan year? What about the 2017 plan year? FYI: the plan is a safe harbor 3% plan.

We have been asked to restate for PPA an EGTRRA AA which has safe harbor matching provisions written into the AA. It is a basic safe harbor match. We have not done the administration for this plan in any prior year and have not been hired to be the TPA going forward. We have only been hired to restate for PPA. The client then provided us a copy of the last 3 safe harbor notices provided and each notice specifically states that the Employer will NOT make the safe harbor match for the upcoming year. The client indicated that each notice was provided timely. The AA was not amended to remove the safe harbor match language. The client believes that providing a notice that they intended NOT to make the safe harbor match was sufficient. We will remove the safe harbor language going forward but believe this client has a larger problem. Where do we go from here? What advise should we provide this client?

yes, I would say so....

The client has told us the advisor informed them that the plan allowed ROTH. (as we have said to many advisors, 'we wouldn't and can't do your job, you shouldn't try to do ours). So the client allowed a participant to make ROTH deferrals.

We just took over a plan from another TPA. Client has been allowing ROTH deferrals but there are no Roth provisions in current AA. Client informed us that they would like us to include the ROTH change in the PPA AA, but to backdate the Roth effective date to the date they stated allowing ROTH. I am not comfortable with this. Has anyone else encountered this issue and how have you addressed it? Also, this client has been allowing pre-tax deferral amounts less than what was stated in the AA. AA imposes a 1% minimum deferral rate, but client has ignored it. What is done in this instance? We will be taking the lower limit out going forward when plan is restated for PPA.

We have a client who is a member of an Affliated Service Group. Law Firm X owns some of Title Company Y. We have determined that a ASG does exist. X and Y are both covered under Plan XY. Now we have learned that Title Company Y is a control group with Real Estate Company Z. There does not exist a control group between Law Firm X and Real Estate Company Z (not enough common ownership). Company Z has a Plan Z that covers only Company Z employees. We are not the TPA for Plan Z. What effect does the control group status between Y and Z have on the ASG between X and Y and the Plan XY?

I was told it was delivered with the final paycheck that she received, which was the next pay period after her term date.

Compensation for all purposes is defined as: Code §3401 federal income tax withholding wages increased by Elective Deferrals. The only other special provision is that the plan uses participation compensation for any ER contribution for a participant's first year in plan.

Client has a 403b plan which provides for a 10% profit sharing contribution. Client deposits the PS each pay period. (There are no allocation conditions to receive an Employer contribution.) Employee A terminated employment during the plan year. She was paid $4,000 in unused vacation pay with her final paycheck. I think this $4,000 is entitled to a PS allocation as well. Client is calling the pay 'severance' and did not contribute a profit sharing allocation for this pay. What are your thoughts?

Prior TPA showed Life Insurance in the 401k plan. In working through the 2014 valuation work, we, the new TPA, are thinking that what the client actually has is an annuity contract (investment vehicle) and not Life insurance (welfare benefit). We are basing this on the Schedule A information provided by the Insurance Company holding the contract. And the fact that there is no mention of cash surrender value or death benefit on the pages as provided by the Insurnace Company. Am I missing something?

Sorry. This is a 401k plan. My typo. No, it does not allow for after-tax contributions. We are the TPA. The participant with the life insurance policy is a greater than 5% owner.

402(k) Plan contains a life insurance policy for one of the HCE. The policy is in the name of the plan. The participant for whom the policy exists has been paying the insurance premiums himself. Is this allowed? If so, how do you account for the payments within the Trust Accounting for the plan?

I am not sure that I agree with your response. I believe the match is also considered a QNEC if the client currently contributes the match each pay period. If the match is determined at the end of the year and allocated to the participants by the due date of the tax return, then the missed match can be classified as match and subject to vesting.

Can anyone point to me the code that states that an SAR is not required for a one participant plan? Also, does this still apply if the one-participant plan is filing a Form 5500-SF instead of the Form 5500-EZ.

A client missed allowing a few participants to defer and now owe lost salary deferral opportunity. I know that these funds should be classified as a QNEC. But what about the associated match? Are these funds deposited to the match account with vesting attached or are they a QNEC as well? Thanks for any guidance you can provide.

Nothing held at all, no Federal, no State, no FICA, etc....

So are you saying that you don't reflect the distribution on the Form 5500-SF on the line 7e - Certain deemed and/or corrective distributions? Since the employee has not met any distributable event, the funds are due back to the plan and I consider this a 'deemed' distribution.

Why would a payroll report help me in this instance?

We are working on the PPA restatement for a plan. Current plan is a safe harbor plan that uses a safe harbor definition of compensation (no exclusions to comp) for the deferral and safe harbor match portion of the plan. The definition of compensation for Profit Sharing allocation purposes excludes bonuses and overtime. Is this ok? What happens if the Compensation Ratio Test fails? In this case, it is only affecting the Profit Sharing. Does this failure affect the safe harbor status of the plan with regards to SD and SH Match. We want to suggest to the client to use the safe harbor definition of compensation for all sources. Do we have a case to suggest this?

It is discovered in checking the 2014 vaulation work for a DC plan that there were a few employees who should have entered the plan in the 2013 plan year. In calculating lost opportunity, can we rely on Rev Proc 2015-28 with the reduced QNEC of 25% of missed salary deferral for the 2013 and 2014 failures? What if the employee was missed in 2012 and 2013 and 2014? Are we required to calculate the full QNEC (half of missed salary deferral) for all years missed? Or does Rev Proc 2015-28 give us the ability to reduce the 2013 and 2014 QNEC and we only need to give the full QNEC for 2012? Any guidance would be helpful.

Client provided us a copy of all employee's w-2s to verify compensation. Employee A had $50,000 in Box 1 and Box 16 (state wages) of W-2 and nothing else. Definition of compensation for plan is wages, tips and other compensation on Form w-2. I have not seen a w-2 like this before. Are these wages included in compensation for plan purposes?

Plan eligibility is age 21 and 6 months of service, with quarterly entry dates. Plan is a calendar year plan. Employee is 32 years old when first hired. Here is the employment history: Hired – 5/25/2011 Terminated – 9/16/2011 Rehired – 5/18/12 Terminated – 9/4/12 Rehired–5/20/13 Terminated – 9/11/2013 Rehired–1/7/2014 Based on the above information , what would be the employee’s entry date? I raise this question because of the so called 'service spanning rule'. Not sure how it applies when service requirement is less than 12 months.

I agree that the numbers should come out the same. My issue is that the HCE is over 65 and as a result, the testing APR is not the same for him as the other employees. If the same APR is used then, yes, everyone's EBAR is exactly the same. I did decide to run the test using rate banding, and the plan then passes the rate group test. I have not used banding before. but will look into why it passes under this method of running the rate group test.

I have a new plan with 4 employees, one of which is an HCE. I have allocated the Profit Sharing based upon the age-weighted formula as stated in the document. I was under the impression that I needed to run the general test since this allocation method is not a safe harbor allocation formula. When I run the test, the plan fails 401(a)(4). Only 1 NHCE has a EBAR that is greater than the HCE's EBAR. It does not appear that the general test was run last year. How do I fix the allocation to get the plan to pass? What options do I have?

Key employee wanted to take new loan ($50,000) in November 2014. He had a previously loan ($50,000) which he paid off in April 2014. When asked of the TPA the maximum loan amount, the prior 12 month loan balance was taken into consideration and the eligible loan amount was determined to be $10,000. When the year end work was done, it was determined that the plan sponsor approved a loan for $50,000. What options does the participant/client now have other than defaulitng the loan, resulting in a deemed distribution? Under VCP, we can ask to default the loan in 2015, but the money is still due back to the plan. Is that correct?