Belgarath

Yuck! But amusing. Tom, I see you are in Pilgrim mode again. When you cross off a completed task on your to-do list, do you refer to it as Pilgrim's Progress? Reminds me, in a way, of a Smothers Brothers skit (that I thought was hysterical) where Jim Stafford is dressed in a ridiculous turkey suit, and does a "Thanksgiving Blues" song. I can't do it justice here, but uses classic blues, and goes something like this: Ba-dum, ba-dum I was born a turkey, Ba-dum, ba-dum, been a turkey all my life, Ba-dum, ba-dum, all my kids are turkeys, Ba-dum, ba-dum, got a turkey for a wife, Ba-dum, ba-dum, they say that this Thanksgiving, Ba-dum, ba-dum, is gonna be my last, Ba-dum, ba-dum, they want to cut my head off and stick stuffing up my (censored).

But you don't have much time to get the termination notice out. According to the IRS, the notice must be sent out before November 2.

FWIW - when setting up new plans in such situations for an owner only, might be worth considering using cliff vesting. Delays the distributions a bit longer if that is something they want. I'd certainly consult the plan actuary before actually recommending it to a client.

Thanks.

Nowhere near 20 employees, but they would like to ELECT to be covered by, or provide, COBRA benefits. Can they do this?

Ah, so each company adopted, therefore no eligible NHCE's were excluded. Now it makes sense to me that this was permitted under the basic check-box filing. Thanks for the additional detail.

No can do, generally. See 401(k)(2) and 401(k)(10).

Luke, I'm curious - was the employer part of a controlled group for longer than the transition period? I guess what I'm asking is were any of the other controlled group employees eligible and not covered? In that situation, I don't think a simple "checkbox and stop doing it" would be sufficient.

The title of the post says SEP, but the question says SIMPLE. Let's assume for the moment it is a SIMPLE. You need to do a VCP as PensionPro says. Honestly, I haven't yet read the newly updated Revenue Procedure to see if it changed this, but under RP 2016-51, Form 14568-D deals with ineligible employers. Why was the employer ineligible? If for one of the listed reasons, it is a checkbox. If otherwise, you might have to do something fancier.

When I resign, they'll replace me with a stuffed monkey...

This is sort of unanswerable, as there are SOOOOO many different factors that numbers of plans are sometimes nearly (but not totally) meaningless. Size of plans, complexity, combined plan testing, support staff assistance (if any) "user friendly" systems and procedures, investment platforms, quality of client HR personnel, TPA services performed, etc., etc. - some plans are giant time-sucks, and some are relatively smooth. You could go on and on. Having said all that, I would say that 120 plans would typically be considered on the high side, but on the other hand, if he's been able to handle it without working an excessive number of hours per year, then it probably isn't "too many." Good luck with whatever you decide.

Hi Bird - FWIW, I think we'll just agree to disagree. From my myopic viewpoint, it can't possibly be an excess deferral, because there can be no "deferral" if there is zero income. Just as an aside, it was properly documented that this was intended as a deferral. They just screwed up, and in the initial calculation of income, determined that there was income from which to defer. Then when numbers got finalized there was a "whoops." Fun stuff..

It is not a 402(g) issue. Plan does have other participants. The issue is less one of actual taxation (his Schedule C loss is such that even with the $24,000 refund, he'll still have a loss, so it isn't going to result in income tax anyway) than it is the mechanics of required reporting/withholding on the part of the plan. If it had been deposited during 2018, this would all be easy - we'd just count it as a 2018 contribution and leave it in the plan, but it unfortunately was contributed in 2017. And just to confirm - the vendor did refund it to Acme Sports. This is one of those things that we all obsess about ('cause that's what we do) that in real life makes no practical difference because in the situation at hand it isn't ultimately taxable anyway! Thanks for all the feedback and discussion. I think I'll put this one to bed at this point.

Thanks. This was helpful.

If a legitimate "change in status" takes place during the plan year, is there a specific timeframe by which the employee must make a change in election? I'm looking at a document that was done in 2008, and it doesn't specifically address this question. I presume it must be prospective only, and can't be retroactive? As an aside, does a new union contract effective during the plan year constitute a "change in status?" Seems like it should if it changes the level of benefits/reimbursement with regard to health insurance, and maybe this is contemplated under 1.125-4(f), but it isn't specifically listed under 1.125-4(c)... and could a health FSA election be changed in this circumstance? I'm thinking I saw somewhere that it can't. Thanks.

I had another thought - why not treat it as a mistake of fact? I know, I know, mistake of fact is very limited, etc., etc. - but it seems reasonable that in a sole prop situation, if a deferral amount is contributed based on an erroneous calculation of income, and it is subsequently discovered that there is no income, that it should qualify. Thoughts? P.S. - it turns out that the vendor apparently already refunded to Acme Sports, rather than to John Q...trying to confirm if this is true...

Acme Sports is a sole proprietorship. The John Q. Owner defers on a draw throughout the year. Contributes $24,000. After end of year, taxes get done, and it turns out he has zero earned income. So there's a 415 excess to be refunded. Should the check be made out to Acme Sports, or John Q. Owner, or does it not make any difference? Since he had no income from which to defer, it seems to me that it should go to Acme Sports - but then how does one report it on a 1099? Probably easier to refund directly to John Q. Owner, report on a 1099? With 10% withholding (unless he elects out of it)?

Right, so you have to actually do the testing in this situation. Thanks for responding.

So have I got this right - probably not... POP plan has salaried qualify after 1 month of service, and hourly after 3 months of service. Since the eligibility to participate for "that plan year" has everyone being eligible, does that mean it passes the reasonable classification? Or am I misunderstanding, and each "sub-class" must pass the safe harbor or the unsafe harbor test? Edit - Well, they wouldn't necessarily ALL be eligible for the Plan Year, if they were hired quite late in the plan year. So I suppose that you would have to do the safe/unsafe harbor testing, which normally would pass with flying colors anyway.

Hi Kevin - certainly this position is safe and unassailable. However, I've seen a lot of plans that, as long as they pass 414(s), do exclude bonuses, overtime, etc. One could argue that the regs don't actually preclude this - in other words, you can defer "eligible comp" up to the limits in 1.403(b)-4(c), and this doesn't violate the requirement. Sal has a reference to the 2010 ASPPA Conference where (in a Q&A session - not allowable as formal guidance, I know) the IRS suggested that it was ok as long as it passed 414(s) testing. Have you, ar anyone, had this issue addressed upon audit, and if so, with what results?

Thanks.

As an additional item in this area - an employer is considering doing something to provide higher benefits to lower income individuals. For example, say they have an HDHP with a $5,000 deductible, and maximum OOP of, say, $10,000. They are considering an HRA that would provide that no one would pay more than (x)% of income, and the HRA would pay all the rest. So if you make $20,000, your maximum that you'd have to pay would only be 1/2 of the maximum that would have to be paid by someone making $40,000. Seems like a nondiscriminatory way of doing things. Do you see any problems with it? I wasn't sure if, for example, another member of the household (such as spouse) was getting health insurance through a health exchange, if this would cause any problems?

Thanks. Now, suppose the only people enrolled in family coverage are HCE's - would this run afoul of 105(h) automatically, or is it just subject to normal testing? (I'm assuming the latter) - thanks again.

Can an HRA base the reimbursement levels upon health insurance status? By that I mean, can it be $1,000 if you are enrolled in the health insurance as a single, $2,000 if as a 2-person, and, say, $3,000 if you have family coverage?

Plan document appears to say otherwise, but I'm confirming that. Thanks for the suggestion.