M Norton

Safe Harbor 401(k) with SH match, Roth and pre-tax deferrals; PS contributions allowed but none made. Plan assets are held in a pooled account with annual valuation. 100% owner has 2/3 of plan assets allocated to him as of 12/31/2018; 2019 deferral contributions show roughly same percentage being contributed by owner. Owner/plan sponsor wants to amend plan document to add plan loans, so that he can take out maximum loan. He is aware that this opens the door for plan loans to other participants. My question: In an account with separate accounts, interest from loan repayments would be allocated to the participant who took out the loan. In a pooled account, is the loan considered just another plan asset, so that the interest is allocated across all participants? Or is it allocated only to the participant who took out the loan? Also, are there fiduciary issues related to the fact that the owner has 2/3 of plan assets allocated to him? Thanks!

plan document allows for in kind distributions. When participants all have separate accounts after move to American Funds platform, it will not be an issue. However in kind is permitted under current document provisions. There are no other participants who are currently eligible for in-service distributions (available to participants who have attained NRA (age 65).

Inservice distributions are available at NRA which is age 65. No other participants are eligible for inservice. The HCE would like to roll these investments out to his IRA rather than paying the expense of purchasing them (again), as they will have to be sold if not rolled out because they cannot be transferred to the American Funds platform. The question being asked is whether it is allowable to transfer them as part of an inservice distribution. Thanks for the response.

SH 401(k) has assets held in pooled account from inception (1997) - no participant direction. Plan sponsor has decided to move assets to American Funds platform and allow participant direction beginning 2020. Some assets in the plan will not transfer to the AF platform and must be liquidated or distributed. They include a Certificate of Deposit and some corporate bonds. Two of the three owners are over age 70 1/2 and must take RMDs. Can they choose which assets are distributed for the RMDs? And if the plan allows inservice distributions for participants who are NRA (65) or older, can those participants (the HCEs) select which assets can be distributed/rolled over to IRA (after satisfying RMD requirement)? There is concern that allowing HCEs to "cherry-pick" assets for distribution might be discriminatory, even though they would be distributed at current market value and there would seem to be no harm to the NHCEs. (There are no NHCEs who are NRA or older.) Thanks for any advice with this!

Thank you very much to all who responded!!

Traditional 401(k) - not safe harbor - plan sponsor had small system glitch in last half of 2018 and one NHCE received $86 more match that he should have. It was discovered during the audit. HCEs received refunds of excess deferrals for failed ADP. Plan sponsor would prefer not to ask for the $86 back from NHCE. Is that an option for them or does that cause other problems? We deal mostly with SH 401(k) plans so we are a little cold on how to address this. Thanks!

84-year-old retired participant is taking RMDs from qualified plan. He dies in 2018, and his 85-year-old spouse receives his 2018 RMD based on his life expectancy. In 2019, his now-86-year-old spouse must begin taking RMDs based on her life expectancy, which is only 7.1 years. Does the RMD have to be calculated using the Single Life Table? Does she get any break as a spousal beneficiary in the year after her husband's death or is the plan required to treat her as an individual beneficiary? If she rolls the amount out of the plan and into an IRA, does that help reduce the RMDs for future years? Thanks!

I had a brokerage try to tell the plan sponsor that the plan had exceeded the contribution limits for a plan year and they would not accept the additional contributions. The brokerage did not know that the contributions in the early part of the year were for the prior plan year. In a pleasant communication with the brokerage, I said I did not realize they had any fiduciary responsibility for monitoring plan contribution maximums. When they heard the words "fiduciary responsibility" they ultimately decided they did not have and did not want that responsibility and agreed to accept the contributions. They are simply the custodian. (Unless they are in fact considered the plan administrators.)

Thanks, Luke! Does it matter that the discretionary ER contribution amounts are not the same for the two plans?

Company A buys 80% of Company B, effective 10/1/2019; Company B's owner retains 20% ownership of B. Both companies sponsor calendar year 401(k) plans, but B's employer contribution is not as generous as A. After Company A buys 80% of B, they become a controlled group. Can A and B continue to maintain separate 401(k) plans with different ER contributions? Do they have to be tested together or can they be tested separately? If they have to be tested together, when must that begin? Thanks for any help!

Can an employer sponsor a 401(k) and a SEP at the same time? Only 3 employees plus owner (who gets no compensation except health insurance reported on K-1 as guaranteed payments). One employee long-term, other two employees less than 3 years service. Owner wants to reward long-term employee but doesn't want to create big taxable income for him, so considering doing a SEP contribution. Long-term employee would meet 3-of-5 years eligibility but other two employees would not for the current year. Thanks.

Physician with calendar year SH 401(k) wants to switch to SIMPLE IRA for 2020. Total 5 employees plus the doctor, but only two employees plus doc contributing. Does he have to formally terminate the 401(k) as of 12/31/2019 or can he just not allow contributions to 401(k) beginning 1/1/2020. (There may be additional contributions in 2020 for the 2019 plan year.) Where is this addressed on the IRS website? Thanks!

RatherBeGolfing - lost earnings were calculated on late deposit of employee deferrals - Employer to deposit lost earnings, plus Form 5330 prepared to calculate excise tax due Thanks.

Small plan - 8 participants including 1 HCE (owner), total assets around $175K. Plan sponsor made a deposit of EE deferrals, and check bounced. Sponsor replaced bad check and funds are in the plan. However, asset custodian charged small fee ($25) for returned check. Must plan sponsor reimburse plan for the returned check fee or can it be netted against earnings? What do the regs say? Thanks!

Thanks, ESOP Guy - most helpful!

A large profit sharing plan with pooled account overpaid a distribution in 2018. The participant reimbursed the plan for the appropriate amount (in March 2019), the year-end reports/ participant statements correctly reflect that, and the 5500 shows a receivable for that amount that was reimbursed subsequent to year end. Lost earnings were paid by plan sponsor to the plan in April 2019, but those lost earnings were not accounted for by the TPA for 2018. The TPA for the plan agrees that those lost earnings will need to be accrued on the 5500, but asked whether or not they have to re-do the year-end work – participant statements, nondiscrimination testing, etc – for the accrued lost earnings that should have been allocated to participant accounts. Is it an acceptable practice to allocate the lost earnings in a subsequent year? Thanks!

401(k) plan participant turned age 70 1/2 in 2018. Attained age in 2018 was 71. RMD should have been made by 4/1/2019. Because it will be late, earnings will also have to be calculated. The distribution is being made for 2018 when attained age was 71. The distribution will actually be made in 2019 when attained age will be 72. If attained age in 2019 is used to determine the factor for the first RMD for 2018, then the same factor would be used again to calculate the RMD for 2019. So the question is: which age factor to use to calculate the first RMD? Thanks!

follow-up question - are future RMDs based on her attained age? Or does she have to take a lump sum?

IRA owner dies at age 64, beneficiary is his older brother, age 69-70; brother dies at age 73 (presume he was taking RMDs), his beneficiary is his wife, age 67. Does she treat the IRA the same as if it had originally belonged to her late husband or are there special rules because she is the second beneficiary of the same IRA? What are her options? Thanks!

SEP is sponsored by a Sch C entity. Now that entity has become a sub-S corporation. Can the SEP sponsorship be changed to the new entity? They want to maintain the same eligibility instead of starting over - also wouldn't mind keeping the same SEP IRA accounts. Thanks!

Trust is the beneficiary of an individual's 401(k) and Roth IRA. Trust specifies distributions be made to decedent's children at age 25, 30 and 35, distributing 1/3 of their share at each age. First distributions were made from the taxable account, which is now mostly distributed. Remaining distribution to be made from the IRA account. If a distribution is made from the IRA funds, can it be rolled over to an inherited IRA for the trust beneficiary? What are the options? Thanks!

And the required beginning date is really 2019. Because it's the first RMD, you can elect to delay it until next April, but only if the plan is still in existence then. As Lou S. said, if he wants to keep the plan open, he can delay termination until 2020 - but he will have to take two RMDs in 2020 then, before terminating the plan.

thanks everybody for all the input! Now to break the news to the plan sponsor!

Sponsor of SIMPLE IRA has employee who did not elect to defer until mid year. Then she deferred 7% until the end of the year. Employer pays match up to 3% each pay period. At end of year, the employee had averaged, say, 3.5% and should receive 3% match on full year compensation. Employer says he doesn't want to pay true-up, that he put it in each pay period and because she chose not to start making deferrals until mid year, he should not have to pay the additional match. Is that an option in a SIMPLE IRA? What are the risks of not making the additional match contribution? The employee is unaware that she may be entitled to additional ER match. Thanks!

Outstanding - thanks, Tom!