Bri

Hey yeah, thanks - I forgot that he could go back to "regular" (non-catchup) deferrals in Q4. (Good thing, too, when I get an email like, "he's not going to take a refund"!)

Plan year end is 9-30-14. With the audit just about done, it's a good time to do the 401(k) test, right? (Shh!) Plan fails. Three HCEs, all over 59½, would be in line to get refunds of about $1,000 each. But, they hadn't used any of their 2014 catchup amounts yet, and so those amounts are supposed to be recharacterized as 2014 catchups. (Calendar year in which the plan year ends.) None of them actually got to 17,500 by Sept. 30, though. The problem is, at least one, if not all of them, probably got to 23,000 total when you throw on their 4th Q 2014 amounts. That's clearly a problem - they will have done too much in catchups, since their catchup limit for 2014 should then have been 5,500 MINUS that thousand dollars to be recharacterized. And so amounts over the catchup limit are deemed to be excess deferrals. So that's why I'm glad they're over 59½ - I can't refund the amounts as excess contributions from the test. It's after April 15, so at least their age provides a distributable event to get the money out. So typically you'd say the amounts are subject to double taxation. But their W-2s will not have shown an excess deferral, as back in January before the tests were run it certainly didn't SEEM like a problem to have $23,000 on the W-2. Are they going to beat the double taxation, or should tax forms and returns be amended? Thanks... --bri

My client's 401(k) profit sharing plan document (I believe it's Sungard Corbel-generated) says that contribtuions may be conditioned upon deductibility. And "to the extent any such deduction is disallowed....whether by agreement with the Internal Revenue Service or by final decision of a court...." the Employer could get the money back within one year. My question is, what constitutes "agreement" with the IRS? Here's the backstory - small doctor's office, and they advance-fund their profit sharing throughout the year and true up the rest after 12/31. Last spring they adopted a DB plan for 2014 to get a huge deduction. But as a non-PBGC plan, that capped DC contributions to 6%. Which they easily exceeded by December. (And they were pretty close to the actual 6% number in the DC plan by the time the first DB deposit was made last June.) Does 404 basically constitute "agreement" by the IRS that the excess amounts are not deductible? Or is this something that requires a written edict formally disallowing the deduction? thanks.... -bri

My vote was that they did indeed qualify, which is why I brought it up with the actuary. The counterargument being if they aren't considered a participant for 401(a)(26), then why should they be a participant for purposes of top heavy accruals either. Not sure to the strength of that argument, since plenty of times folks don't qualify for an accrual year but don't lose their standing as participants. Seems like the actuary threw it to TAG and got the same answer. (And the warning not to exclude them by name in the document for reasonable classification purposes..) thanks.

So, I've taken a job where some of the DB plans have separate accrual rates for separate groups of employees. A lot of the times, the accrual rate for a specific group is 0%. We're not counting people in these groups towards our 401(a)(26) count, since there's no meaningful benefit accruing for them. Now - let's take an example where the plan is combined with a 401(k) plan, and they're top heavy. The employee in question is Highly Compensated but not Key, and he's in one of those 0% accrual groups. Who out here thinks he counts as a participant in the DB plan, for purposes of needing to get a 5% top heavy minimum in the DC plan (the plan where the top heavy is taken care of for all)? Versus who'd think he's not really a participant in the DB and can get by with just 3% in the DC.... I wish the document had excluded these employees in the eligibility section, where it would be much clearer that they're definitely not "in" the DB plan. But that's not what I've got. Thanks... --bri (insert witty signature here....)

Agreed - I've got a profit sharing plan that allows in-service after 5 years of participation. Folks would take hardship distributions for their kids' college expenses. Then suddently when they hit 5 years of participation, they were subject to the 20% mandatory withholding, which caught them by surprise, since they could elect out of withholding on hardships. -bri

That was my sort of thinking - if she e-filed on Sunday, but the extension had gone out Friday (or, if her postage meter at least had Friday's date on it even though the mail had already been picked up), how would they ever verify the true order of events?

Accountant came to me this morning with an odd one - Instead of e-filing for an extension on Sunday, she inadvertently e-filed the tax return itself. So she's all freaking out, because now our common client has a day to come up with his 2013 retirement plan contributions for himself and the staff. I inquired why she couldn't just STILL file for an extension, either on paper or electronically, and that way the employer (sole prop) could still take until October 15 and use the extension to file a perhaps-amended return? She mentioned that once you've filed, you can't then request an extension. Anyone know the statute on that, of the top of their head? Thanks. --Bri

Thank God for that. I once let a 401(k) plan accept the rollovers for the proceeds from the company's ESOP distributions (the cash value, not the shares) for terminated employees.

Ok, plan started 9-1-02, had a short plan year for 2002, now is a calendar year plan. This was a plan started by a new business that took over the operations of some existing manufacturing company, and credited past service with that employer. Plan document is a simple SungardCorbel-created prototype. Here's the question: Are the past years to be calculated on the typical calendar year basis, or do I have to count back periods from 9-1 to 8-31, to determine the past years? Someone was hired 8-23-00. Do they get credit for 8-31-01 and 8-31-02 for the prior employer, and then 8-31-03, 12-31-03 (vesting computation change), and 12-31-04 with the new employer? Or should the years before 2002 be looked at on a calendar year basis? This is intriguing, and a bit nebulous, I fear, within the scope of the prototype. --bri

Well considering most of us here probably get paid by the employers and not the participants for a living, sympathy may be hard to come by.... However, are you specifically referring to the company match on the 401(k)? You'll probably want to check your Summary Plan Description (which they are required to have given you) for the allocation of the match. Check to see if the plan is *required* to match the contributions during the year. A lot of plans actually do their match after the end of the plan year, and it's written that way in the plan document and SPD. And a lot of plans require you to be employed at year end to share in the contribution. If your company is just adding this year-end employment requirement out of the blue, then yes, you do have an ERISA-based gripe....they'd be cutting back a benefit without providing advance notice. But check the SPD, if you have it, or the plan document (you have a right to see it, for the cost of copying). If they changed the allocation requirements, you should be getting at least a Summary of Material Modifications to your SPD. It may turn out your employer was being nicer than they needed to, and now resorting to less niceness.... --bri

This plan fails multiple use. There are two HCEs who don't have the necessary hours or last-day employment status necessary for receiving a match. Therefore, only one of the original three HCEs is actually in my ACP denominator. And because of that, her 2% match provides me with a 2.00/1 HCE = 2.00 ACP, and that's slightly too high. Question is: Is it possible to treat even a dollar of a terminated HCE's deferrals as match? This has the effect of "forcing" him into the ACP test, doesn't it? Then my ACP is 2.00 + 0.01 = 2.01, divided now by 2 HCEs giving me a nice 1.01 ACP, and a plan that now passes multiple use. The specific regulation 1.401(m)-1(B)5 says that any of the deferrals treated may be treated as matching contributions....if they are deferrals of employees eligible under the plan being tested. Now, this guy was previously ineligible for the 401(m) component....but it doesn't REALLY say component plan, it says plan. And this guy was eligible for the 401(k) arrangement. So I *think* I'm on to something here. Anyone want to say yes or no to that? Thanks bri

Got a 401k plan sponsored by a brokerage house. Everyone's got their own account. Sometimes commissions on stock trades are going directly to the participant as agent of record (that's a no-no). Sometimes the commission goes directly to the firm (also a no-no). Question is, what can we do with commissions generated? Keep them in the participants' accounts so that no outside income is generated?

Well in this scenario, the participant gets 1.5% per year of service. Let's say there's a guy who's 70 with an accrued benefit of 832 per month according to the formula. If he works another year, he'll get another 1.5% tacked on to his benefit, although computed at a new average pay. If the actuarial equivalent of last year's benefit is now higher than the new formula, is the participant automatically entitled to the higher number?

For a participant past NRD, does the law require you to give the greater of actuarial increase vs. continued accrual, or just continued accrual ?

EGTRA-EGTRA-read-all-about-it says that employee 401(k) will not count as employer contributions toward the section 404 deduction limits. Does anyone know whether they will still be counted as employer contributions for the purpose of determining top heavy minimum accrual requirements. In other words, does this mean owners in a top heavy plan can defer the maximum without having to give everyone else a 3% minimum? --bri

Participant has taken a loan from her 401(k) for eighteen months, and is later terminated. Plan allows her to continue making repayments, rather than making the entire balance payable right then and there. Does it seem wise or practical to allow the participant to re-amortize the loan to spread out the payments, say, to the five year maximum, at a lower per payment amount? More importantly, since the plan allows active employees to do this, does it *have* to allow the ex-employee (who, rumor has it, may return to work for the employer in a few months) this option?

I did just think of this....What if a guy took a hardship withdrawal on 12-31-99....He wouldn't be eligible to defer in all of 2000 (unless he's got a 12-31-00 paycheck). Yet I know that he's still included in the ADP test for the year in that case. So I guess you would have to keep them in. oh well, just thinking out loud... --bri

Here's a completely theoretical question but thought-provoking.... Let's say a plan year just ended on 6-30-2000, and now the company is changing to a 12-31 year end, so there's a short plan year for the rest of 2000. We have an HCE who already deferred $10,500 in the first half of 2000. I would like to at least suggest that the participant is not eligible to participate in the 401(k) arrangement in the plan year, or the 401(m) match arrangement (assume no post-tax allowed.) I mean, it could be lousy not having a zero in your ADP test (not eligible to defer), but it may improve your coverage ratio for the 401(m) part of the plan. I doubt there's any code to back me up, but what do the experts say? --bri