Belgarath

Nah. It's an operational failure. Just correct under SCP.

These situations are so dependent upon facts and circumstances that I think it is difficult for anyone to provide a meaningful opinion that fits across the board. In the situation you describe, I'm guessing that most waiters/waitresses who are working to support their two kids will not wish to report any more of their cash tips than they have to. Some exceptions, of course. (A friend of our daughter's took a substantial pay cut when she switched from waitressing to a full-time high school English teaching job.) Unless your clients and their payroll systems are a heck of a lot better than many of ours, I can forsee administrative angst in trying to properly administer this for all employees. But maybe it'll work out ok with a motivated client who is willing to put in the time and oversight to accurately and consistently handle 401(k) deferrals from cash tips. However you decide to handle it, can you let us know in a year or so how it is working out, and give us any tips (pun intended) on things that work well, and things that don't? Hopefully everything will all work well!

Maybe I'm misunderstanding the question, but in DOL Advisory Opinion 2012-02A, the DOL said that making the matching contribution to another plan would cause the 403(b) plan to be an ERISA Title I plan.

I can see it being reasonable where the platform company is acting as Trustee. Hopefully their requests won't be unreasonable. Where I was having a problem with it is where they are NOT the Trustee.

Certainly the technicalities can be debated. But I don't understand - how are they getting a match on the $1,000 of cash tips? How would the employer even know that they had $1,000 in cash tips? Are you assuming that all participants actually report 100% of their cash tips to their employer? That would seem to fly in the face of common practice, at least as far as I understand it... Assuming for the moment that they do report 100% of cash tips - and cash tips are excluded, there is no dispensation that I'm aware of for 414(s) testing for such an exclusion, so yes, if you EXCLUDED the tips for deferral (and match, for that matter) purposes and the tip amount is known, then it would have to pass 414(s) - IMHO. I'd be very surprised if FIS opines otherwise. Assuming the employer doesn't know how much the cash tips are, then I don't see how 414(s) testing is even possible. Be careful what you wish for - any IRS guidance on this could lead to far worse problems...

I want to see if this is just us, or are others encountering similar things, and also to get other perspectives on the issue - maybe mine is skewed. This week , we have received notifications from a couple of vendors/recordkeeping platforms. To paraphrase succinctly, they are saying that due to the fact that Trust Provisions are no longer in the IRS pre-approved documents, that we need to notify them (the vendor) and send them a copy of the PROPOSED plan restatement provisions, at LEAST 30 days prior to sending them a copy of the restated plan. This so they can "review the provisions" to make sure they can handle the plan. For all I know, this may be something that many vendors are doing. And these are plans where the employer is the Trustee, or it is a corporate Trustee. My feeling is BS on that. It is hard enough to do these restatements and coordinate with the employer, without getting the VENDOR to approve the choices. As far as I'm concerned, we do the restatements as usual, (after getting employer approval of any changes) and send the completed document to the vendor afterward. If they have a problem with it, we can amend the plan, or the employer can find anther vendor if the vendor won't handle the employer's desired provisions and it is important enough to the employer. I should also state that the changes that employers are making are nearly always basic things - maybe eligibility, or adding or removing hardship withdrawals, etc. - normal things that are handled all the time by vendors when plan amendments are completed anyway. Maybe I'm just grumpy and unreasonable this morning. Have you been seeing anything similar, and if so, any thoughts? Thanks.

Some (most?) IRS pre-approved documents have a kind of "catch-all" paragraph where certain compensation, including tips, may be excluded from salary deferral elections if the employer adopts a uniform policy and does not or may not have the ability to withhold elective deferrals in cash for purposes of transmitting them to the plan. So I think cash tips would fall nicely into this category. Have you checked your document to see if it contains such a provision? You use FIS docs, right? They have it - or at least their basic DC Cycle 3 doc does. That may solve your problem. The employer can ignore cash tips, and the salary deferral election the employee signs could be a higher amount than they would otherwise elect, to make up for cash tips (whether declared or undeclared, but we won't go there...)

Perhaps this will help. https://www.irs.gov/pub/irs-drop/rr-02-45.pdf

First, there is no mandatory 20% withholding on a RMD, as it is not an "eligible rollover distribution." The participant could then have elected out of 10% withholding. So although there is no excuse for no 1099-R being filed, there may not be any penalties for failing to withhold. Failure to declare it as taxable income is another story. Beyond that, the son needs to take this to tax counsel. Did the institution agree, in writing, that they were responsible for 1099-R reporting? (I doubt that anyone else was responsible, as "solo-k" plans rarely have a TPA. ) But, the financial institution may be relying on maximum deniability, and be very unhelpful. Or maybe they will step up to the plate. Again, he son should go to tax counsel.

Perhaps this will help? (I'm not an expert either...) In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2021, this limit on your earnings is $50,520. We only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year. If your earnings will be over the limit for the year and you will receive retirement benefits for part of the year, we have a special rule that applies to earnings for one year. The special rule lets us pay a full Social Security check for any whole month we consider you retired, regardless of your yearly earnings. Read our publication, “How Work Affects Your Benefits,” for more information. When you reach full retirement age: Beginning with the month you reach full retirement age, your earnings no longer reduce your benefits, no matter how much you earn. We will recalculate your benefit amount to give you credit for the months we reduced or withheld benefits due to your excess earnings.

Very nice of you!

You are correct. And your company SHOULD be more terrified of the consequences or potential liability for knowingly administering a plan in violation of the document (which almost certainly states the parameters of the exclusion) and in violation of the regulations. Refer your supervisor to 1.403(b)-5(b)(4)(ii), and (iii). And in (iii)(B)(1), have them note the "reasonably expects" clause that you alluded to above. The IRS also provided some additional guidance on this subject in IRS Notice 2018-95. Good luck!

Revisiting this with a slightly different question. Page one of the 8955-SSA instructions, final paragraph in left-hand column on first page, says that you have to report deferred vested benefits if they were previously reported as deferred vested benefits on another plan's filing if their benefits were transferred (other than in a rollover) to the plan of the new employer during the covered period (using Entry Code C in Part III, line 9, column (a);... So: How do you know if they were previously reported on another plan's filing? Do you simply assume that they were reported, and do your filing anyway? Are you obligated to inquire? (P.S. - or do you just use the Code A)? Also, by "rollover" I assume they also mean a direct rollover at the request of the participant? I don't see how it could be otherwise.

Wow, good question. I haven't seen anything from the IRS on this either.

Smart kid! I'm green with envy!

For us, virtually never. What happens more often is that within a year or two, someone is cleaning out the house, apartment, garage, etc., and they find a file or a box containing an annual benefit statement, etc. - they then inquire, and most of the time the total distribution took place prior to death so thankfully there is no benefit remaining. But we do primarily small plans.

Ugh - I'd forgotten all about that question. Chalk it up to CRS Syndrome...

Not having time to do any research on this, I can only give you my gut impression. I'd think it would be the plan year ending within the lookback year of the plan being tested. However, no degree of confidence in that answer. I've never run into it either.

I assume you mean for the compensation test? (The ownership in each corporation is not aggregated for the 5% owner test.) I'm not certain without some research, but I assume (always risky), since the compensation IS aggregated, that it would be the lookback year compensation from both employers. Is the Plan A using the calendar year election? That would probably be too easy...

I'd strongly recommend that the client (whether or not they are, in fact, crooked) seek ERISA counsel.

Are you certain that you don't already have such an amendment? A lot of document sponsors/providers/practitioners adopted this amendment on behalf of their clients.

Hi Lou - nice idea, but it was all deposited in 2020.

Thanks. I did know about the netting for SECA purposes. And I agree that "C" is the safest approach...

Curious as to what approach you take. A sole prop has Schedule C from two different businesses. One has income of $100,000, one has a loss of $50,000. Defined contribution plan. Do you A. calculate based on $100,000? B. Calculate on $50,000? C. Give your opinion (mine is that you do not net the two, so $100,000) to the CPA/Client and let them choose?

Say you have a sole prop with one employee. Sole prop's Schedule C is low enough so that taking into account the contribution for the employee, and the earned income reduction, the sole prop's net "plan" income is, say, $25,500. Sole prop is catch-up eligible, and deferred $26,000. Now, under IRC 414(v)(2)(A)(ii) the sole prop deferral can't exceed $25,500. So I assume the excess $500 is considered a 415 violation? I don't see what else it could be - not a 402(g) violation nor an ADP failure...