Belgarath

Everyone's favorite subject...I just want to see if I'm understanding this correctly, with regard to safe harbor plans using Otherwise Excludable Employees exception. So, in a safe harbor plan that does NOT use the OEE provision, LTPT employees can be excluded from all employer contributions, and the plan does not automatically lose its top heavy exemption, assuming only contributions made are deferrals and safe harbor match or nonelective. However, the loss of top heavy exemption remains in place if the safe harbor plan uses the OEE exclusion, even though LTPT employees are still permitted to be excluded from safe harbor and top heavy if the plan is top heavy. Have I got that right? For some reason, I'm finding this very confusing.

I think this (paying back to the plan to avoid a taxable event so the entire amount could be rolled over) was more important before the QPLO rules. Since the participant terminated employment, it should be treated as a Qualified Plan Loan Offset (QPLO), and the employee has until extended tax filing deadline for the year of the offset to use other funds as a rollover. So, seems to me that there's nothing much to be gained from a tax perspective by depositing those funds back to the plan to repay the loan. Maybe easier administratively somehow by having it all directly rolled over in one lump sum, I suppose. Maybe I'm missing something here...

Very quick answer - distributions (including rollovers) from a plan are reported on a 1099. I suggest you go to the IRS website, and read the instructions for a 1099 - there are many different situations and reporting codes, and these boards are the wrong place to try to get detailed answers to a laundry list of all the potential situations. Once you have read and digested the instructions, then if you have a specific question on a situation, these boards are very helpful. Good luck!

So, suppose a calendar year plan is terminating in March. The plan must, of course, amend for SECURE and SECURE 2.0 - (CARES amendment was done way back). I believe that technically, since the amendment is ADOPTED in 2024, and there is a 210 day period following the end of the PLAN YEAR IN WHICH THE AMENDMENT IS ADOPTED (hence 210 days into 2025) that no SMM is required. Now, employees were previously notified if certain provisions applied - QBAD's, for instance, albeit not in a formal SMM. If I'm correct, this makes the plan termination process easier, because the SMM's can be wildly variable with the voluminous possible changes, and are a royal PIA. Thoughts?

Thanks for the info. Fortunately, in the situation I was working with, the final paycheck (which included the true "severance pay") was paid several days AFTER the severance from employment date, so I wasn't worried about excluding this from the eligible "post severance pay" category. But it got me to thinking about a situation where it was paid on the severance date.

Wow, we're dropping like flies! Congratulations, and best wishes for a great retirement!!

Thanks Bird. Appreciate your thoughts.

1/29/2024 update - it is now available.

Really stupid question here. Suppose a participant terminates employment on (X) date, and receives final paycheck 3 days later. Included in that final paycheck is a "severance" payment that would not otherwise qualify as "post severance" pay. Because the paycheck date is AFTER the severance date, this is considered under the post-severance rules, and is excluded. Now, suppose the final paycheck date is, in fact, the day before the actual severance date. Now it just falls under the regular rules, and if plan defines as W-2, then it would be included, right? You can't call it post-severance if it is pre-severance, agreed? Now for the real question. If paid ON the actual (X) severance date, would you classify as pre or post severance? Any "gray" on this - for example, if it was paid as a separate check instead of being included in one big, final check?

Just be careful to distinguish between the ADP safe harbor match, and the ACP safe harbor for discretionary matching.

Here is an excerpt from something by the CG/ASG Guru, Derrin Watson. I would recommend ERISA counsel if you have an actual situation: Code section 414(m)(5) also provides for management affiliated service groups. A "management affiliated service group" is a group consisting of [Code Section 414(m)(5)]: (A) an organization, the principal business of which is performing, on a regular and continuing basis, management functions for an organization or for an organization and other organizations related to the organization, and (B) the organization and related organizations for which such functions are so performed by the organization described in subparagraph (A). Note that unlike organizations affiliated under other provisions of section 414(m), 1) there is no requirement of common ownership of the managing and managed entities; and 2) is there is no requirement that any members of the group be a "Service Organization."

Great idea!

As high as the employer wants to go, unless you have a document with a hard-coded cap. But realistically, you have to consider deduction and 415 limits, for example.

I'm sure you are right. I didn't even think of that aspect!

Plans get terminated all the time, for a variety of reasons, and it isn't necessarily an indication of financial difficulty. Sure, it COULD be, but very well may not be. If the plan is subject to PBGC, the participants should generally be ok anyway, up to the PBGC maximum. (Caveat - I'm not a DB person, so the actuarial wizards here may give you a different take on this. I stand in awe of folks who don't have to count on their fingers.)

What C.B. said. The document should address this question. I will say that in my experience, once you miss the initial 2-month eligibility, most of the time you would be looking at a Year of Service (usually, but not always 1,000 hours in the "eligibility computation period" of January 23, 2023 to January 22, 2024), and the entry date would be February 1, 2024.

Actually, I think you want line 31 for a sole prop as your starting point. You might find this publication useful. https://www.irs.gov/publications/p560

Could you be a little more specific about what actually happened? Was there an employee deferral that was inadvertently deposited to the wrong "bucket" and treated as an employer contribution? Etc.? Without knowing any facts, I doubt VCP would be required.

It depends. If the express rule provides for the necessary flexibility, and the provisions that we want, then I'd vote for an express rule. The problem is, the express rule may not be what we want, or provide sufficient flexibility in all situations, in which case we might be better off leaving it to "good" judgment. The IRS has historically, in my experience, been very reasonable about waiving RMD penalties. Perhaps with the reduced 10% penalty, they may be less inclined to waive penalties - only time will tell. Now there's a useless noncommittal response for you...

Assuming the SH notice is a "maybe not" notice, then such an amendment has the effect of reducing the safe harbor 3% (in this case) contribution. This is permissible under the requirements outlined in 1.401(k)-3(g)(ii), and will take the plan out of safe harbor status for 2024, requiring ADP test for whole year, etc., etc. - all requirements as outlined in the regulation. Anyone disagree with this outcome?

Thanks. It might. I'm first looking to see if there is a simple "clean" fix - likely to depend upon what the custodian will or won't do, and how they will do it. That's being investigated currently. Follow the bouncing ball...

Interesting that you should ask. As I find out more details, it appears that the plan's administrator DID know, but things got delayed and many signals crossed due to the paperwork received from the legal guardian and the scope of the guardianship, etc., etc., etc... - which STILL apparently hasn't been settled. The ball has apparently been dropped by various parties at various times, probably because the amount of money is so small - or perhaps for other reasons. So the forceout was processed in error.

Some details are sketchy, but as far as I'm able to determine at this point... A participant terminated employment in early 2021. Left funds in the plan. Less than $5,000. There should have been a mandatory forceout in 2022 when the 2021 valuation was done, but for reasons unknown, it wasn't. When the 2022 valuation was done, (in 2023) this was caught, and a mandatory IRS rollover was processed in the fall of 2023. Unknown to everyone, (apparently) the participant had died in the summer of 2022! Just to make it more interesting, no named beneficiary, and minor children involved, but that's a separate issue. I'm really not sure what the ramifications are here, and it is a small amount of money, so I'm sure the Plan Administrator is willing to take a little "risk" if necessary, to clean this up without excessive time and effort. If the vendor is willing to reestablish this as a plan account, (they are being questioned now) then it should be simple, other than correcting the 1099 (which may or may not have been issued yet - I don't know) - the death distribution will simply be processed according to plan provisions. Any thoughts on this? I've never encountered this situation... Thanks.

Honestly, I haven't bothered to figure it out yet. I fully plan to be retired by then, so selfishly, it'll be someone else's problem. I did see something about this somewhere, but I just skipped over it, so I don't know what it said...

It depends. Are you talking about IRC 318 attribution, or IRC 1563 attribution? What is the situation, specifically, and for what purpose(s) are you attempting to determine the attribution? And for 1563, the ages may matter in some situations.