Belgarath

P.S. - W-2 instructions. See page 8. The payment would not be included in Box 1. I'm not understanding why the payment would be on a W-2 issued to the estate - that doesn't make sense to me. It appears the estate should receive a 1099-MISC, and the payment on the W-2 to the employee, while wages for SS purposes, would NOT count as eligible plan compensation? https://www.irs.gov/pub/irs-pdf/iw2w3.pdf

Hard to believe this has never come up, but... Participant died mid-year. S-corp owner. Rightly or wrongly (and I have no opinion) "he" is receiving no W-2 income for 2018, but his ESTATE received a check for his accumulated wages or whatever that is being classified as W-2 income, paid to the estate. Is this compensation considered as W-2 paid to "him" for plan purposes?

Although it still doesn't "feel" right, darned if I can find anything prohibiting it. And since no HCE's, coverage/nondiscrimination testing isn't an issue.

What if the contribution in question is an employer discretionary contribution? For example, the plan has each participant in their own classification for purposes of employer discretionary contributions. These contributions have NOTHING to do with whether the employee DEFERS in the 403(b) or not. However, they are based on whether the employee takes the employer-offered health insurance. So if you take the health insurance, no employer contribution to the 403(b). If you don't take the health insurance, you get an employer contribution of "x." While this seems to satisfy the letter of the "contingent benefit" rule in 1.403(b)-5(b)(2), it doesn't seem right somehow. It almost seems like a "sideways" impermissible CODA, although there is no option to take the funds in "cash" - any thoughts on this?

Yes. If you are using a pre-approved document, check the service crediting portion - the document usually will provide for such an option.

Thanks - yes, plan doc defines compensation and limitation year as the plan year (calendar). The whole situation does present some logistical difficulties, as the deduction is being taken for the fiscal year ending in the plan year, yet the extended tax filing deadline falls December 15th, which is before the 2018 compensation is even finalized. They should probably amend their plan year to track with the fiscal year...

I remember looking into this once upon a time. Perhaps what they are talking about (and I didn't open the link to read it, so I am just speculating based on the "post retirement contributions" comment - 1.403(b)-4(d) deals with contributions for former employees. Under this section, the employer can make NONELECTIVE contributions based upon the “deemed monthly compensation” that the employee would be deemed to receive for up to 5 years after the end of the tax year in which the employee terminates employment. This would NOT permit elective deferrals – only an employer contribution – which could well be part of a severance package – the employer offers, for example, to contribute (x% or x$) to the employee’s 403(b) account for the next (x) years as part of the severance package.

I'm having difficulty wrapping my head around a screwy situation. Plan year is calendar year 2018. Limitation year is 2018. Fiscal year is 4/1/2017 - 3/31/2018. Extended tax filing deadline is 12/15/2018. Plan excludes pre-participation compensation. Eligibility is 3 months/250 hours, monthly entry. Participant is hired in 2018 - let's say on June 14th, enters plan October 1, 2018. Compensation form Date of Participation is, say, $30,000. Prior TPA has been allocating contributions made for a given fiscal year for the prior plan year, based upon prior plan year compensation. Example - for 2017 plan year, allocations were made based on 2016 calendar year compensation. I don't see how this can work. While you can theoretically allocate a contribution made in a current plan year, with the fiscal year ending in the current plan year, for a prior plan year, how can you allocate for 2017 (in the circumstances above) based on 2018 participating compensation, when the only participating compensation is during plan year 2018? There is no 2017 plan year compensation. Am I missing something?

Thanks!

The end of the calendar year is completely safe. But I expect that the "general" deadline will apply. The "general" - I think - rule is that plans have until the end of the second calendar year beginning after the issuance of an IRS-issued “Required Amendments List” reflecting the new rules.

Thou shalt not get any argument from me on that point.

I've always understood that you can add an EACA mid year AS LONG AS it is limited to only those employees who become eligible on or after the date the EACA provision is effective. But then, as you note, the 6 month correction period wouldn't apply. The plan could then be amended for, say, the following plan year to expand it to everyone, and then the 6-month correction period could apply. As I recall, Sal has a write-up on this - you may want to check it out. I think it was one of those things where the IRS confirmed this interpretation at an ASPPA meeting, so I don't know that everyone would necessarily agree with this interpretation.

I agree with EsopGuy. If the amount is trivial, the Employer/Plan Administrator isn't going to pay the money to consult an attorney. If the amount isn't trivial (a subjective determination) then regardless of the state's limit - the Employer is going to at least check with counsel to make the determination. Or to perhaps be more accurate, we are going to RECOMMEND that they check with counsel. Whether they do or not is up to them, as always.

I think I understand this, but I'd love any input, 'cause maybe I've got it wrong. Plan has premium conversion account, and an FSA. Plan document, and plan forms/administration appear to be at odds. My understanding is this: No premiums can be paid through the FSA. Premiums for group health insurance offered by the employer, or individual policy premiums for "excepted benefits" such as dental or vision, can be paid through the premium conversion account. However, premiums for individual "health" insurance may NOT be paid pre-tax through the cafeteria plan. First, is that right? The document appears to support this interpretation, yet the forms/administration have been allowing pre-tax treatment through the cafeteria plan for individually purchased HEALTH insurance, as long as it isn't purchased through a federal or state exchange. I believe this is incorrect? Thanks!

Thank you both.

Just wanted to make sure I've got this right. IF someone qualifies for this, it is a deduction taken on the individual owner's 1040. In other words, for unincorporated owner you would calculate Schedule C income and corresponding contribution as usual, and THEN, when they file their 1040, they would take an additional deduction from the otherwise taxable income (if they qualify).

I stand corrected. Don't know why 6 years stuck in my head...

Sure - FIS/Relius. Their PPA DC Prototype/VS document handles this - has a whole section dealing with it. P.S. - without checking, I'm thinking that the period is 6 years, not 7.

I have the same question. In the old post referred to above: I am faced with this same situation. Employer is going out of business and is terminating all health plans including the FSA. My question is what happens to the employee contributions that haven't been used to reimburse expenses. They are plan assets and presumably they cannot revert back to the employer, correct? Anyone have any thoughts? Amounts that the ER has not had to pay to EEs as part of payroll due to pay reductions elected to cover the cost of cafeteria benefits, but then not needed to pay those expenses are cafeteria plan 'experience gains'. The ER may retain them. Prop Treas Reg § 1.125-5(o). I have the same question - and the Prop. Reg. referred to above also appears to also allow for return of the excess to employees. Is there any other guidance on this? It can't be an unknown situation, yet the guidance/information seems sketchy. Allowing the employer to keep the unused money just seems wrong!

Hi Larry - let's see, it is Chapter 1A, Part B.5.a.1 and a.2

And FWIW, Sal says the guidance on this issue isn't clear, and you have to make a reasonable determination. His 2018 EOB is in our conference room, and I'm too lazy to go get it, but the 2017 version has an example of this - see pages 1a.442 and 443.

Is a hero just a form of a Greek Gyro, or is it a type of sandwich not in a pita/pocket type of bread? I've never known, as up here, we have subs or grinders, or a gyro in a Greek place, but no hero sandwiches.

It has always amused me - I've heard them referred to as soda, tonic, pop, cola, fizz, and probably other things I can't recall. Kind of like grinders, subs, and hoagies...

Did the Tax Cuts and Jobs Act, in and of itself, affect Dependent Care calculations? I found the following table for 2018. Does anyone know if it changes for 2019? Total Gross Annual Income Tax Credit Up to $15,000 35% $15,001 to $17,000 34% $17,001 to $19,000 33% $19,001 to $21,000 32% $21,001 to $23,000 31% $23,001 to $25,000 30% $25,001 to $27,000 29% $27,001 to $29,000 28% $29,001 to $31,000 27% $31,001 to $33,000 26% $33,001 to $35,000 25% $35,001 to $37,000 24% $37,001 to $39,000 23% $39,001 to $41,000 22% $41,001 to $43,000 21% $43,001 and Up 20%

I don't think a partial termination is the issue. It revolves around the determination of whether the IRS considers the plan "terminated" - and therefore 100% vesting - due to a "complete discontinuance" of contributions. Perhaps others here have had more experience with this - and it is somewhat of a facts and circumstances determination. My (limited) experience has generally been that 5 years would be a complete discontinuance. See 1.411(d)-2(d)(2) for information on when a complete discontinuance becomes effective. Note that if there were 401(k) deferrals, you should be able to count this as an "employer" contribution for these purposes, although I'm not sure that is ironclad. I think the IRS may determine a complete discontinuance takes place earlier than the 5-year mark in some situations. Again, others may be able to give you an answer based upon more actual experience.