Belgarath

I'm interested in actual audit experience with this. We have never yet had an auditor ask for it. I'm not advocating not doing it, just saying that certainly some auditors don't request it. Also, just FWIW, I had posed this question (probably 3 or 4 years ago) to a prominent ERISA attorney, and he said he wasn't aware of any such regulatory guidance that mandated this. All that said, I still think it is good practice

Yup, we don't have a set in stone answer for this either. We recently had one, very small, and I think it just got thrown into other income, but I'm not certain about that.

Hi Bird - the PLR provided that the plan would be AMENDED to offer this program. I'm talking about utilizing the flexibility of each participant being in a separate group to do this WITHOUT amending the plan. The idea being that you wouldn't necessarily have to take a plan out of pre-approved status by amending it to implement such a program. A "side door" approach in a manner of speaking. Not saying I like the idea, and not saying I think it is valid - just a discussion. P.S. - just random thoughts bouncing around - if in a given pay period someone participating in the program has a 2% or more student loan repayment, they are not eligible for the matching contribution. Instead they get the 5% nonelective. Is this a BRF issue with regard to not being eligible for the match?

With regard to the whole issue due to PLR 201833012, and a 401(k) plan with a new comparability formula with everyone in their own group: During discussion, an idea was floated about not formally amending a plan, but (if limited to ONLY NHCE's) if an employer could simply make a contribution to the accounts of anyone who made student loan repayments. This is an interesting question. It doesn't pass the "smell" test, but based upon the PLR's analysis of the contingent benefit rule, what rule(s) might this violate? Certainly won't hurt coverage/nondiscrimination testing, if limited to NHCE's. No requirement for a participant to defer to receive this benefit. It's hard to imagine that the IRS would allow this willy-nilly for all situations. Car loans. Mortgages. Whatever. Since it is a PLR, they could simply say "no dice." I'm just curious about general thoughts. (I wouldn't even have raised this question in the old days of definitely determinable benefits, but with documents that allow for employer discretion to each participant, subject to coverage/nondiscrimination testing, it raises some interesting discussion.) Thanks.

Yes.

Sure. The IRA contributions will just be (most likely) either partially or all nondeductible. But that's their issue, not the TPA's issue.

No - if the parent owns >50%, then the adult child's ownership is attributed to the PARENT. If the adult child's ownership is >50%, then the parent's ownership is attributed to the adult CHILD. This is for Section 1563 attribution. Very different under Section 318 attribution.

There was a discussion thread on this very recently. You'll see differing opinions in that thread, so you "pays your money and you takes your chances."

Hey Luke - Sorry, I meant to say fixed. I was working on a proposal and had "discretionary" on the brain. So it seems like you are basing this more on the implied "promise" to employees that they will receive a match? What about a Money Purchase plan, which certainly has a "fixed" formula, and therefore an implied promise that you will get a contribution if you are there until the end of the year? Do you believe that the Money Purchase formula can't be amended prior to the end of the plan year if it has a last day/1,000 hour requirement (with appropriate 204(h) Notice, of course, since it is a pension plan)? Anyway, I think we'll just agree to disagree on this one.

Agree, subject to the normal caveats about option attribution, separate stock classes, etc., etc.

I agree with MWeddell. I also infer "all" in such situations. For example, if you infer "any" such conditions, it renders a normal of 1,000/last day meaningless - as soon as someone attains 1,000 hours, you can no longer amend the plan to reduce/remove. This flies in the face of everything I've ever seen, been taught, or done (and back in the day, when determination letters were made all the time, the IRS had to see all the amendments and never once (with us) raised this issue on such mid-year amendments which were very common). Is your answer the same if it just a straight Profit Sharing Plan? If not, how do you arrive at that distinction? Anyway, FWIW, I would not hesitate to currently amend a discretionary match plan with 1,000/last day requirement to receive a match allocation, and remove the discretionary match for the entire year, if the the amendment is done prior to the last day.

And this is the key, which I didn't really fully grasp during the document presentation (the brain starts to go numb after a certain amount of information packed into a session) and I thank you for highlighting this. For many of our clients, I think this will work well. For the others, well, sometimes you can't have your cake and eat it too. If you want maximum flexibility, the Notice is the price you pay. Sort of like Gateway - if you want to cross-test, that's the price of admission. (Having said that, I still think the Notice requirement, to use the technical term, sucks.) But I think FIS did a good job of providing options.

Maybe I'm cracked. Plan has 2 year eligibility. (Money Purchase plan) Years of Service for eligibility are 1,000 hours, measured on employment ANNIVERSARY years. Participant must have "two consecutive years of service" without an intervening break year to be eligible. Let's call the end of the employment anniversary years in question, for ease of discussion, 2017, 2018 2019, 2020. So first employment anniversary year ending in 2017, has 1,000+ hours. Terminates before the end of the first employment anniversary year, then is rehired during second 1-year period. Has LESS than 1,000 hours, but MORE than 500 hours, during the second employment anniversary year period, so no break in service for Anniversary year 2018. Has 1,000+ for both employment anniversary years ending in 2019 and 2020. Since there was no break year, I believe the 2 year requirement, even though it is a "consecutive" years requirement, is satisfied on employment anniversary year ending in 2019. Participant isn't treated as a new hire, to start counting "2 consecutive years" from rehire date, since no Break in Service. So year two is "washed out" and year 3 counts as the second "consecutive year." Agree/disagree? Should it still have to be two "consecutive 1,000 hour years" STARTING AFTER the rehire? I don't think so... Gracias.

Right, not a 1-participant plan.

Agree, I'd expect this to be in the BPD.

I think you are "combining" part of 415 and 402(g)? I don't see any "lesser of" provision in 402(g).

BG - I believe that it should be spelled out in your plan document. If the document says that the requirements for an allocation are "proportionately reduced" or some such language - so that in your case, apparently 250 hours would suffice to get a contribution - then I think you can't rely on the 500 hours to consider this person an "excludable employee" under 410(b). At least, that's my recollection.

Thanks, but I'm forced to disagree, if by "excess deferral" you mean a violation of the 402(g) limit? That limit is a dollar limit, and that dollar limit hasn't been violated here. It isn't an ADP failure, so I don't see any option other than to consider it a 415 violation. Perhaps I'm misunderstanding what you are saying?

Well, that's what the CPA would like, and to a certain extent, I understand where he is coming from. Let's say he defers maximum in 2020 based upon the draw, but it turns out there is really a $250,000 loss. If this amount had not been deferred, his loss would still be such that he has zero taxable income. So in a way, this is turning non-taxable funds into taxable income. Sort of a doubly whammy in a way. I'm just not aware of any applicable special reporting code for the 1099-R that states that the distribution is non-taxable, but I want to be sure I'm not missing something.

Florida Swampland Realtors is a sole proprietorship, no common-law employees. The owner and sole employee, I. M. Cheating, defers maximum based on a salary draw for 2020. After end of year, taxes get done, and it turns out he has zero earned income - actually a big loss. So there's a 415 excess, plus earnings, to be refunded. Refunded in February of 2021. 1099-R is issued with the amount being shown as taxable, right? In other words, no way to use a special code to report this as non-taxable? A CPA is questioning this, and I want to make sure I'm not cracked. Thanks.

Safe Harbor matching plan - standard matching formula - plan definition of compensation EXCLUDES bonuses. Now they want to amend to include bonuses in compensation for the 2020 plan year. From IRS Notice 2016-16, under the 'prohibited changes" section: 4. A mid-year change (i) to modify (or add) a formula used to determine matching contributions (or the definition of compensation used to determine matching contributions) if the change increases the amount of matching contributions, or (ii) to permit discretionary matching contributions. However, this prohibition does not apply if, at least 3 months prior to the end of the plan year, the change is adopted and the updated safe harbor notice and election opportunity are provided, and if the change is made retroactively effective for the entire plan year (which may require a plan that provides for periodic matching contributions as described in §§ 1.401(k)-3(c)(4) and (5)(ii) and/or 1.401(m)-3(d)(4) to be amended to provide for matching contributions based on the entire plan year). Now, here's the twist. They are making this change because 2 HCE's already received bonuses early in the year. They may or may not pay bonuses to everyone else at the end of the year. At the time this amendment is made, it seems it would be discriminatory on its face, but, if they pay bonuses at the end of the year to the NHC employees, then subject to compensation testing, it could pass. Edit - of course, after thinking about it a bit, I now realize that it isn't a matter of compensation testing - if bonuses are INCLUDED, then there isn't any compensation testing for 414(s). I am concerned, however, that a mid-year amendment changing the definition of compensation when it benefits only HCE's in this situation is a nondiscrimination issue. Thoughts?

Here's an older thread that may be helpful.

And while that may be likely, I'm sure you are aware that you cannot rely on a telephone conversation with IRS as any official guidance.

If you have access to the Erisa Outline Book, see Chapter 3b, Section XI, Part C. (Page 3b.735)

I'm inclined to thing entry date for the ESOp/SH is 1/1/20. Completion of eligibility requirements is 2/27/20. 1st entry date preceding that date is 1/1/20, right? I think the same "logic" - and I use that term loosely - applies to the second situation, so it would be 1/1/20. I see BG beat me to it.