MD-Benefits Guy

Thanks guys, I think I finally understand. I was thinking that once comp hit 350k for the year, no additional matching was permitted. Seems like that is not correct. Sounds like matching dollars are still permitted after the comp limit is reached so long as the YTD match dollars don't exceed the calculated max for the year.

Paul I: The example that I quoted does not reference a limit on contributions, it specifically calls out that matching can only be based on the first 280,000 of compensation. The example that you highlighted refers to a participants ability (or inability in this example) to contribute beyond the max comp....it does not address matching. The plan in question does not have any language that would restrict a participant from contributing after they reach the compensation max and I do not see language in the plan documents that would specifically address what to do for matching once the max is reached. Again, the language in the example I provided states that matching should only be done up until the max comp limit is reached.

This snippet from an IRS webpage makes it sound like matching contributions are supposed to stop once the limit is reached. 401k Plans deferrals and matching when compensation exceeds the annual limit | Internal Revenue Service

How are plans typically set-up with regards to employee deferrals and matching contributions once someone hits the 401(a)(17) limit? I believe most plans will still allow contributions once the limit has been reached (I've only seen one that stops contributions), but curious to know how matching contributions are handled once the comp limit has been reached. Do plans have an option to match once the 401(a)(17) limit is reached or must they stop matching? If stopping is a requirement, what section of the law/code dictates that it must stop? Also, if matching dollars must stop at the limit, won't a plan with a true-up negate some of the negative impact a high earner might experience. For example, a plan that matches 100% of contributions up to 6%, wouldn't that provide up to $21,000 in matching contributions in catch-up? So maybe the impact would be the timing of when an employee potentially receives the match? Thanks in advance.

I am working with a company that has defined compensation as W-2 wages with "sign on bonuses" as the only exclusion in their plan documents. In practice, the company has W-2 earnings from several sources that are not being considered for 401k deferrals & match: - GTL imputed income (all employee have this) - domestic partner imputed income - moving reimbursements (reported on W-2) - equity related W-2 income - imputed income from taxable fringe benefits - vehicle allowances Looks like whoever set-up the 401k failed to list several items that should be excluded. The plan has been small enough in headcount historically to not require an audit, however, for 2025 this will be considered a large plan and will require an audit for the first time. Curious to know if anyone has experienced this before and what's the best method for correction. The obvious first step is to update the plan design to exclude the items above, but wondering if the company is going to have to calculate missed earnings for each employee on each paycheck (along with other items) to make a voluntary correction. I am envisioning a long painful process just to determine what was supposed to be deferred for every employee. FYI, the 401k is with Fidelity. Any advice is appreciated.

Thanks everyone for the replies. To give a little more context...I just started with a new company and noticed that ownership was highly concentrated (there are 2 individuals that own more that 80% of the organization). I also know that these 2 individuals have significant ownership stakes in a couple of other companies. While I do not have full details of the ownership structure at the other companies, I do know that the +80% level at my company, creates the possibility for a brother-sister control group to exist. When I notified my boss that we might be unknowingly a part of a control group, she wanted to know which benefit plans would need to be pooled together for testing purposes. I told her I wasn't 100% certain, but that it would definitely include 401k and probably the other benefits that required discrimination testing. I also let her know that this was a very complex matter that exceeded my level of expertise and that we really needed to speak with legal and most likely involve an ERISA attorney. I know there are lots of experts lurking in these forums so I figured it was worth posting. As of now, I think the boss is waiting to hear back from legal.

If an employer is a part of a control group, which benefit plans and test are pooled together for testing? I know 401(k) plans would be tested as one...what other benefit plans?

Employee is terminated on 11/1. Group Health benefits terminate at the end of the month (11/30). Employer uses a third-party administrator for COBRA and sends termination information over to COBRA administrator on 11/14. What is the deadline for the third-party administrator to send out the COBRA election notice - 11/29 (14 days from notice) or 12/14 (14 days after benefits termination) or some other date? I believe COBRA rules state that employers have 30 days to provide notice to plan administrator and 14 days for the plan admin to send election notices. Employers only get 44 days to send notices if they send out their own COBRA letters directly, correct? TIA

Can someone please confirm that the 415 limit is per unrelated plan? If someone participated in a plan for the first part of the year and maxed out their contributions at 23,000 (in 2024) and then went to another job with a 401k plan that permitted after tax contributions - with the new plan, would the participant be able to contribute a total of $69,000. Do I have this correct? Can anyone point me to a US Treasury Reg or IRS document that spells out that the 415 limit is per plan and not by participant? Thanks in advance.

To provide some clarity, I am trying to determine which wages may be counted towards the acquiring company's $345,000 compensation limit. There are three distinct periods under consideration: I. 1/1/24 - 3/18/24 Company A (acquired company) operated independently with its own 401k. I am pretty sure that wages paid during this time would not qualify as wages against Company B's (continuing company) $345,000 compensation limit. 3/18/24 - Company B acquires Company A....cash sale, all outstanding shares of Company A are acquired and Company A no longer trades. Board resolution is signed announcing that Company A's 401k is terminating 3/18/24. II. 3/19/24 - 6/30/24 - Employees of Company A continue to be paid under Company A's payroll system (and tax ID) but are not eligible to participate in either Company A's or Company B's 401k plan. At this point Company A and Company B are in the same control group, but given that Company A employees are not able to contribute to Company B's 401k, I'm not sure how or if these wages should/could count against Company B's compensation limit. III. 7/1/24 - 12/31/24 - Employees from Company A become eligible for all Company B benefits, including 401k. These wages without question count towards Company B's compensation limit. So, the question is...should I and/or II be a part of Company B's calculation for compensation limit.

Our company was acquired earlier this year. New company has a 401k plan design that stops employees from contributing once they hit the $345,000 compensation limit (even if they are below the 23,000 contribution limit). While not common, I believe this is permissible. The new company defines Eligible Wages as "base pay, annual bonus, sales bonuses, overtime and shift differentials and merit payments, as applicable." Old company was acquired in March of this year and 401k deferrals continued through the close date in March. From March - June, employees were paid on old payroll system and not eligible to contribute to either 401k plan. Starting in July, employees are being paid on new company payroll and are eligible for new company 401k. The problem - several employees are not able to contribute to the new 401k because they are showing as hitting the $345,000 compensation limit? Not sure how or why earnings that occurred under the old 401k plan and earnings that weren't eligible for any 401k contribution at all, are being considered towards the compensation limit under the new 401k plan....I think this might be an error by the new company. The old 401k plan is being shut down (not merging or being acquired by the new company/plan), and will have its own independent testing and 5500. Under these circumstances, is it proper to have earnings from previous payroll be considered as compensation under the new 401k plan? Anyone experience something similar? Thanks if advance.

Brian, once again, thank you for the informative response. Your contributions to this forum have been very helpful to those of trying to navigate the complex world of benefit regulations. It seems like there might be some slightly different instructions between IRC §125 and Notice 2012-40. - IRC §125(i)(1) says an employee may not elect for any taxable year to have salary reduction contributions in excess of $2,500 - Notice 2012-40 says the employee’s total health FSA salary reduction contributions under all of the cafeteria plans are limited to $2,500 Under most circumstances, there would be no difference between elected and contributed amounts...but in this particular situation, there is. Under 2012-40, could it not be argued that the amount that employee could elect under the new employer plan would be Annual Limit - Contributions made under previous HCFSA?

The company I was working for was acquired back in March. The health and welfare benefit plan runs on a calendar year. Acquiring company is moving all employees to the new company's benefit plan effective 7/1 (also calendar year). We are shutting down all existing benefit plans on 6/30. For HCFSA contribution limits, would we treat these 2 plans as affiliated/same control group plans...meaning that between the 2 plans, participants could not elect more than the annual 2024 annual limit of $3200? How do we treat employees who may have overspent their accounts? (Employee elected $3200, only contributed $1600, but already received $3200 in reimbursements?) Can they make an election with the acquiring company, if so, how much? TIA

Our company was acquired earlier this year. We have been told that the existing benefits will terminate on 6/30 and that employees will be given the option to enroll in the New/Acquiring company's benefits. I am getting several questions from FSA participants wanting to know if they can stop contributing to their FSAs given that the plan is scheduled to terminate on 6/30 (normally the plan year is 1/1-12/31.) Participants are being told that they must incur expenses prior to 6/30 and some are claiming that this isn't fair because they had intended to use the money later in the year and they shouldn't be forced to keep contributing, knowing that the plan will end early. I have never dealt with a situation like this and can't find anything that specifically addresses the situation. Can participants make a mid-year election change because the plan has been altered to end early? TIA

Brian, thank you for confirming - much appreciated.

Situation Employee terminates with an underspent HCFSA and is offered FSA COBRA. Employee pays COBRA premium for 2 months, exhausts the annual FSA balance during this time and wants to terminate COBRA premium after 2 months of COBRA. Is there anything stopping the employee from doing this? The COBRA administrator is claiming that if the participant fails to continue payments through the end of the year, any claims paid above what was contributed should be retroactively denied? Thoughts? FYI, COBRA admin is different than FSA admin, so I don't think the FSA admin would even find out, but curious to know what is correct.

Some more info on the situation..... My company and the acquiring company are publicly traded. At the close of the deal, our ticker symbol will no longer exist. The acquiring company does have a 401k plan, but they have made it known through the terms of the merger/acquisition agreement, that once the deal closes, they will terminate our 401k plan immediately. Our legal team is drafting the plan amendment and whatever documents are necessary to close the plan. My concern was primarily regarding the timing of the last contributions into the plan - at one point I was told that no additional contributions could take place after the termination date. But now I am being told that contributions into the plan after the termination date are permissible, provided that the contributions are being made for activity that occurred prior to the termination date. Thank you everyone for your input, 401k closures are not something I do everyday.

David, thanks for chiming in. Just to be clear, the 401k closure is to happen in conjunction with the close date of the acquistion....they are not instructing us to close the plan down before acquisition, just letting us know that they intend to close the plan immediately once they are in control.

Our company is being acquired and the acquiring company has informed us that they wish to terminate our existing 401k plan. Our plan is a Safe Harbor plan (100% match on first 3%. 50% on the next 2%) that incorporates a year end true-up. The acquiring company wants to move fast and wishes to terminate the plan ASAP. I have limited experience with 401k plan closures, so I have a few questions: - If for instance, the plan was set to terminate on March 15th and we have a pay date on March 15th, the regular 401k deferrals and matching contributions would not be deposited into the 401k plan until March 18/19, after the plan termination date. Does this present a problem? - Our plan also has a true-up provision, I'm not exactly sure how soon we would be able to calculate and deposit the 2024 true-up contribution, but it would be weeks, maybe months after the plan termination date...is this OK? - IRS determination letters. I know this is optional, but curious to know if most plans seek the determination letter when closing a plan. For those that wait for the determination letter, how long does that typically take? Any other thoughts or things that I should be concerned about with the closing of the 401k plan? TIA

So it appears that we may be able to simply make an employer contribution for the underfunded amounts, but curious to know how this should be recoded in payroll? Additionally, how would these employer contributions impact discrimination testing?

Curious to know what action (if any) should be taken in this case. Employee makes an annual DCFSA election of $4992 back in January of this year. Given the timing of this election, the benefits system calculates that $208 per pay should be taken from the employee's check based on the 24 payroll deductions. Unfortunately. the deductions don't start from the paycheck immediately and only 22 deductions were made. Only $4576 was taken from the employee's paycheck. This error was only discovered after the last paycheck of 2023 was processed, so there is no easy way to catch-up on the missed contributions. Given that every dollar that was taken from the employee's paycheck was properly deferred to the DCFSA, is there any action needed? With no additional payroll cycles left, what options would be available to correct 2023?

I just recently started with a company and noticed that the company was grossing up STD and LTD premiums (adding the premiums into payroll and then deducting the same amount post tax), but it appears that the claims have been paid as if there was no gross-up (taxes were withheld and benefit was reported as taxable income) and the benefits broker has stated that the plans have always been quoted as non gross-up plans and that the plan documents would need to be updated to reflect this as being a gross-up plan. So my questions are this: - What language specifically within the plan document(s) / contracts would need to change? I've never tried to compare language on a gross-up vs non gross-up plan? Is there typically language contained in the vendor contract the specifies if the plan(s) should be gross-up? - For previous years, how or what type of correction should be done? Not sure if it makes sense to issue W2Cs for everyone, especially when everyone has already filed their tax returns. Can we simply make adjustments to the claims that were paid and that were improperly taxed. - Anyone else experience this? Any suggestions on how to move forward? TIA

Sorry, more specific: Yes, the employer offers fully insured benefits (medical, dental vision) that are bound by a contractual agreement with the carrier. These plans are subject to ERISA. As for employer preference, we are looking for a singular domestic partner policy that is consistent with all benefit plans that allow for a domestic partner coverage while maintaining compliance with local and state laws imposed on employers that offer benefits.

I am working for a multi-state organization that allows for Domestic Partner coverage. I have one vendor contract that requires individuals to cohabitate for 12 consecutive months in order to qualify as a Domestic Partners. In writing a company policy pertaining to the qualifications required to be a Domestic Partner, it would make sense use the most stringent set of rules presented in the collective contracts to develop our official policy. With that said, I'm wondering if this 12 month cohabitation rule might violate any state requirements? If a state's definition of domestic partnership does not require a 12 month cohabitation period and that state/local jurisdiction requires an employer to provide benefits to domestic partners, this creates a conflict. Curious to know how others might be handling things from a policy standpoint.