401_noob

I was under the impression that all employer contributions are pre-tax.

i once had a plan rescind their termination resolution, after the effective date of their termination, but the underlying plan document didn't allow them to apply a vesting schedule that was lesser than what the the participants were subject to (since they were made 100% vested as of the termination date they couldn't apply a vesting schedule that was less favorable than 100% vesting). It was a Corbel document if i recall correctly, but i don't recall the exact language of the document. So, i say that to suggest that you look at the plan's documents to see if it is possible.

Thanks @leevena

Good afternoon everyone. Forgive me in advance if this is simple question, but I don't know anything about HSAs except that it is a Health Savings Account. I have a HSA from an old job where I had a HDHP. I no longer have a HDHP. I have also since married and had a child. My question is can I use some of the money from my HSA to pay the medical bills, that are in my wife's name, from having our baby last year? I seem to recall that this is permissible, but it has been a long time since I have looked into the matter and I have not been following any changes to HSA legislation to know if anything has changed (assuming my understanding was correct from the beginning). Are there any potential issues to look out for if I proceed as described? Thanks in advance and let me know if you have any questions. Thanks!!

From the EOB/DC-1: The short computation period issue arises not only when the vesting computation period is amended but if a new plan has an initial short plan year and the vesting computation period is defined to be the plan year. When the effective date of a new plan is a date other than the first day of the normal plan year cycle, the plan will start with an initial plan year of less than 12 months. However, a vesting computation period may not be a period of less than 12 months. If the plan recognizes service before the plan's effective date for vesting purposes, then the initial short plan year will not have any effect, because the vesting computation period which includes the effective date of the plan will be the 12-month period ending on the last day of the first plan year. If the plan disregards service before the plan's effective date, the initial short plan year may not be used as a vesting computation period. The initial short plan year will be treated in the same way as an amendment of the vesting computation period. The first 12- month vesting computation period will start on the effective date of the plan, and overlap with the second plan year.

Generally, yes, see 2550.404a-5 (c). https://www.law.cornell.edu/cfr/text/29/2550.404a-5 (c)Disclosure of plan-related information. A plan administrator (or person designated by the plan administrator to act on its behalf) shall provide to each participant or beneficiary the plan-related information described in paragraphs (c)(1) through (4) of this section, based on the latest information available to the plan. (1)General. (i) On or before the date on which a participant or beneficiary can first direct his or her investments and at least annually thereafter: (A) An explanation of the circumstances under which participants and beneficiaries may give investment instructions; (B) An explanation of any specified limitations on such instructions under the terms of the plan, including any restrictions on transfer to or from a designated investment alternative; (C) A description of or reference to plan provisions relating to the exercise of voting, tender and similar rights appurtenant to an investment in a designated investment alternative as well as any restrictions on such rights; (D) An identification of any designated investment alternatives offered under the plan; (E) An identification of any designated investment managers; and (F) A description of any “brokerage windows,” “self-directed brokerage accounts,” or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan. (ii) If there is a change to the information described in paragraph (c)(1)(i)(A) through (F) of this section, each participant and beneficiary must be furnished a description of such change at least 30 days, but not more than 90 days, in advance of the effective date of such change, unless the inability to provide such advance notice is due to events that were unforeseeable or circumstances beyond the control of the plan administrator, in which case notice of such change must be furnished as soon as reasonably practicable.

would you need to reissue 1099-Rs with corrected codes to show the regular distribution and the corrective distribution?

Additionally, this is text from ASPPA's DC2 in chapter 3: Operational Techniques to Facilitate Passing the ACP Test Some plans authorize the employer to adjust the contribution rates of the HCEs prospectively during the year to prevent the plan from failing the ACP test. For example, if the plan permits after-tax employee contributions, the employer might be authorized to reduce the HCEs’ rate of after-tax employee contributions prospectively (on a pro rata basis or through some other acceptable means authorized by the document), so that the projected ACP of the eligible HCEs is reduced for the plan year. This is different from the prohibited methods described above, because the plan is not failing to allocate employer contributions due the HCEs nor are contributions already made being forfeited. Instead, the employer is reducing prospective after-tax contributions by the HCEs that would otherwise be included in the ACP test. Similarly, some plans are designed with a discretionary matching contribution formula, under which the employer can declare a different rate of matching contribution for the HCEs. This lesser rate of discretionary matching contributions for the HCEs produces better ACP testing results. Again, the prohibited methods described above are not being employed with this technique. The employer is not disregarding the plan formula. Instead, the plan formula is designed so that the employer can tailor its rate of matching contribution to produce better testing results. When the plan is using the prior year testing method, the ACP limit is known early in the plan year because it is based on data from the prior plan year to determine the ACP of the NHCE group. This makes it easier to use the techniques described above.

i asked a similar question almost two years ago and this is the thread. The consensus was that it depended on the language in the Plan Document.

I would think so.. Emphasis on think... Like you suggest it is a different source that what the exception allows. I am assuming that your client that wants to add VAT to the Plan is a HCE. Does he think that enough NHCEs are going to contribute VAT to the Plan in order to pass ACP testing?

Or, would it fall under the Small Excess Amounts in 6.02(5)(e) on the very bottom of page 32? (e) Small Excess Amounts. Generally, if the total amount of an Excess Amount with respect to the benefit of a participant or beneficiary is $100 or less, the Plan Sponsor is not required to distribute or forfeit such Excess Amount. However, if the Excess Amount exceeds a statutory limit, the participant or beneficiary must be notified that the Excess Amount, including any investment gains, is not eligible for favorable tax treatment accorded to distributions from the plan (and, specifically, is not eligible for taxfree rollover). See section 6.06(1) for such notice requirements.

I wonder if this would be considered an overpayment and would therefor fall under the recovery of small overpayments exception in 6.02(5)(c)? (c) Recovery of small Overpayments. Generally, if the total amount of an Overpayment to a participant or beneficiary is $100 or less, the Plan Sponsor is not required to seek the return of the Overpayment from the participant or beneficiary. The Plan Sponsor is not required to notify the participant or beneficiary that the 32 Overpayment is not eligible for favorable tax treatment accorded to distributions from the plan (and, specifically, is not eligible for tax-free rollover).

Is it safe to assume that in your scenario that the excess $18 matching contribution was paid out of the Plan to the participant?

I should add that this assumes that the Plan's loan policy allows loans to be suspended while the participant is on a LOA.

C. B. Zeller is correct. See Treasury Regulation 1.72p-1 Q & A 9.