WCC

I agree with you, it does not satisfy the ACP safe harbor. I think that is clear in Treas. Reg. 1.401(m)-3(d). Do you want to attach a vesting schedule to the 2%? Is there concern that the sponsor can afford 4% each year but may not be comfortable fixing an additional 2%? Why not make the safe harbor 100% on 6%?

exactly what I needed. thank you all

Hello, Participant elects to defer 100% of pay (after payroll taxes, etc.) this leads to $0 in pay. Participant will not exceed 402g as this election will apply only to a few pay periods. Question: I always assumed that you can do this with no issues (plan doc does not have a restriction on deferral %). However, the argument is, can you "pay" someone $0 in a paycheck - I still say yes, as they chose to defer it. Under the Wage Act (of the state in question) section "Deductions from wages" says: "Deductions below the minimum wage applicable under FLSA are not authorized". Based on this, I am being told a participant must be paid the minimum wage in their check. I have never heard this before. Is this accurate? Or is this section of the wage act being taken out of context? Do 401k rules override any state wage act? Thank you

It sounds like they just prefunded a plan year match. Plan year match formula is still in place and the employer needs to decided what the discretionary formula will be for the year. Once that formula is determined, they need to make adjustments (at year end) to the each account in accordance with the formula.

I hypothetically make $400,000 and I complete a deferral election form stating that I want to defer 4.375% of pay with the intent to max out at $17,500 for 2013. 2013 ends and I defer $17,500. The auditor says no, your deferral can only be $11,156.25 (4.375%*255,000). Who is correct? I understand the match can only be calculated on the max comp limit, but does the salary deferral election only apply to the first $255,000 in comp? Thank you

I don't have much experience with 457b governmental plans and a recent discussion has me confused. What is the annual additions limit to a governmental 457b? For example, an employee defers $23,000 to the plan for 2013 (catch up eligible). The employer matches 100% on first 3% deferred. Based on his compensation the match would be $3,000. Total contribution would then be $26,000. However, for some reason I was thinking the annual additions limit was $23,000 (assuming catch eligible) including both employee and employer contributions. Therefore, I am confused on what is the annual additions limit in a 457b governmental plan? Thanks for the help.

Here is a link to a prior discussion that may help. Also see the link svatty provided. http://benefitslink.com/boards/index.php?/topic/29422-forfeiture-acct-use-to-pay-lost-earnings/

This is a good reference. Page 33 references your situation. EPCRS: Correcting 401(k) Plan Mistakes – Two Sessions - July 25, 2013 - (transcript) - Discussed correcting common 401(k) plan mistakes under EPCRS Revenue Procedure 2013-12, and how to find, fix and avoid them. Handout: EPCRS: Correcting 401(k) Plan Mistakes presentation

I have searched prior posts and cannot find a reference to this specific situation. Thanks in advance. An employee terminates on October 1, 2013. Terminated employee receives severance pay. Severance pay is not for services rendered, not for time off or sick leave, would not have been paid if the employee were still employed and not included in the 2 ½ month inclusion rules. Severance pay beyond this is not includible in the definition of compensation. The severance is paid from October 1, 2013 through March 1, 2014. The terminated employee defers and receives the match during this time period. Question: The match and the deferrals will need to be removed from the participants account. Do the 2013 ineligible deferrals need to be paid on a revised 2013 W2? Or can you pay out the deferral to the employee with a 2014 1099 or 2014 W2? How do you correct this? Thank you

I don't believe you will find "true up" wording in that doc (that is the doc we use). The documentation is the adoption agreement which states the match is calculated on a pay period basis, plan year basis etc. If pay period is selected, then the match cannot be "trued up" at the end of the year.

Client did an internal audit and discovered they owe compensation to a few terminated employees. The employees terminated two years ago. The client is now going to pay them for serivces rendered during the time of employement. This is not severance pay, they just did not pay them their full compensation. The question is, do you apply the deferral election form that was in place? I don't think so because they are now termed?? Is there a corrective distribution that needs to take place? The compensation has not been paid yet, so I don't know what the correction would be. I don't think you have a missed opportunity correction. Any thoughts? Thanks

Here is the scenario: The plan sponsor would like to remove a fund from the plan line up due to poor performance (the advisor has suggested this). This fund holds no assets. We would like to remove it immediately without providing a mapping notice. The vendor will not remove the fund without waiting 30 days. My understanding is that the notice is only required to obtain 404c protection. In this case, I don't care about 404c since there is no money in the fund being removed. I have told the vendor this and they say a notice is required (period) and they will not do anything until we provide a mapping notice. Am I wrong in thinking that a notice is not a requirement? Any reason to provide a mapping notice in this scenario? Thank you

Thanks Lou. That is why I am confused on this and asked the question. Why on earth would anyone contribute on a pretax basis if you could immediately avoid the 10% penalty with Roth contributions (I know the potenatial pros to pretax and don't expect an answer). There is a lot of leakage in plans and I don't encourgae employees to take early distributions. But leakage happens and if there is no 10% penatly on the basis of non qualified Roth distributions it wold seem to "encourage" leakage when compared to pre tax deferrals.

This topic was discussed briefly on another thread with a conclusion that concerned me. Is a non qualified Roth 401(k) cash distribution subject to the 10% early withdrawal penalty? Not just the earnings, but the entire distribution? I have always thought it was and would be shocked if both the basis and the earnings are not subject to 10%. However, the below paragraph from the IRS site is confusing me. I have also read material that suggests the basis of a non qualified Roth 401(k) distribution is not subject to the early withdrawal penalty. "Topic 558 - Additional Tax on Early Distributions from Retirement Plans, Other Than IRAs To discourage the use of retirement funds for purposes other than normal retirement, the law imposes a 10% additional tax on certain early distributions from certain retirement plans. The additional tax is equal to 10% of the portion of the distribution that is includible in income. ..... Any clarification would be great as I cannot find a direct statement that says the Roth 401k basis is not subject to the 10% penalty in a non qualified distribution.

This topic was discussed briefly on another thread with a conclusion that concerned me. Is a non qualified Roth 401(k) cash distribution subject to the 10% early withdrawal penalty? Not just the earnings, but the entire distribution? I have always thought it was and would be shocked if both the basis and the earnings are not subject to 10%. However, the below paragraph from the IRS site is confusing me. I have also read material that suggests the basis of a non qualified Roth 401(k) distribution is not subject to the early withdrawal penalty. "Topic 558 - Additional Tax on Early Distributions from Retirement Plans, Other Than IRAs To discourage the use of retirement funds for purposes other than normal retirement, the law imposes a 10% additional tax on certain early distributions from certain retirement plans. The additional tax is equal to 10% of the portion of the distribution that is includible in income. ..... Any clarification would be great as I cannot find a direct statement that says the Roth 401k basis is not subject to the 10% penalty in a non qualified distribution.

I found the below discussion (link at the end of my post) very helpful for my question; however, I would like to ask a question regarding what resolution would exist in the following scenario: Company A buys 100% of company B in a stock sale. Company A maintains a non safe harbor 401k plan. Company B maintains a safe harbor plan. The sponsor intends to keep both plans separate. However, based on preliminary testing, I cannot pass coverage when combined and I don't think I can pass ABT either. For example: Plan A (non safe harbor plan) - NHCE - 150 (all eligible) HCE - 10 (all eligible) Plan B (safe harbor plan) - NHCE - 3 (all eligible) HCE - 7 (all eligible) Coverage testing for plan B is 4.76% ((3/153)/(7/17)) Coverage testing for plan A is 166.67% ((150/153)/10/17)) I must be doing something wrong. I cannot combine a safe harbor and non safe harbor for a combined ADP/ACP test. Given the above participation in each plan, the sponsor cannot maintain these two plans separately, correct? Any thoughts? Thank you http://benefitslink.com/boards/index.php?/topic/34884-safe-harbor-and-controlled-group/?hl=%2Bcontrolled+%2Bgroup+%2Bsafe+%2Bharbor#entry182873

There are many threads on this topic but I cannot find the answer to my specific question: Participant takes a hardship 7/1/2012. Deferrals continue. July 2013 the auditor informs the sponsor that the deferrals for the six months immediately following the hardship must be returned. Vendor sends a check to the sponsor for the deferral amount and says "make the participant whole via payroll". Question: Logistically how does the correction via payroll happen? If the sponsor amends the participant's 2012 W2 then they also have to amend their quarterly tax filing and the participant has to amend his 2012 personal taxes. Is this really the only way to make the participant whole? I am thinking the answer to my second question is yes, but thought I would ask. Thank you

Thank you!

Thanks for the fast response. I agree but they are convinced that they don't want the plan for 3-4 employees who don't defer over the IRA limits. I do have a follow up question. The bundled recordkeeper is telling me that instead of spinning them off in to a new plan and then terminating that plan we should do the following: Treat the employees of the participating employer the same as if they are terminated employees of the plan sponsor. The employees are then considered terminated and a distributable event exists. Their reasoning is that the participating employer is severed from the plan and the employees of the participating employer are no longer eligible to participate; therefore the employees are terminated. The employees of the participating employer are then paid out. This sounds odd to me. In my research I cannot find any documentation that would support that approach. Am I missing something? Does their approach sound accurate? Thank you

Hello, The sponsor of a 401k safe harbor was purchased via a stock sale. The participating employer was not purchased. There is no longer common ownership between the new sponsor and the participating employer. The purchaser wants the participating employer to stop participating immediately. It is not cost effective for the participating employer to create its own plan (but may be necessary). Question: I know safe harbor plans can be terminated for cause if the employer is involved in a merger, acquisition, change of controlled group... However, the plan is not being terminated immediately, the participating employer is terminating participation immediately and they don't want to start a new plan. I am thinking that they would have to set up their own plan, and then terminate it. Otherwise no distributable event exists?? Any other thoughts? Thank you

see IRS EP phone forum September 7, 2012 slide 21. I don't like the idea of a free ride either, but this is one IRS agents answer to that question. http://www.irs.gov/Retirement-Plans/Phone-Forums-Retirement-Plans also copied below: Note: A Plan Sponsor cannot avoid liability to make corrective contributions for the missed deferral opportunity by making its employees responsible for checking pay records to ensure deferral election has been implemented. The employee’s elective deferrals (the sum of deferrals actually made and the missed deferrals, for which a corrective contribution is required) cannot exceed the 402(g) limits and must comply with all other applicable plan limits/requirements.

Hello, Here is the fact patter: participant takes a loan loan payments are withheld according to amortization schedule loan paments are sent to the recordkeeper timely This is where it gets interesting: recordkeeper rejects the loan payments (recordkeeper is the one who produced the amortization schedule and promissory note). the rejected loan payments are sent back to the sponsor and this goes on for two years (payment and rejection) and no questions are asked by the sponsor or the recordkeeper as to why their deposits don't add up. Plan sponsor thinks it must be some sort of fee rebate or something.... participant receives a 1099 for the defaulted loan balance two years ago. The participant just thinks this is normal and does not question the 10% penalty or the taxable amount. sponsor then figures out what is going on and makes a deposit for all the loan payments that were rejected and sent to the sponsor. We have late deposit issues and we can deal with that. The issue now seems to be a double taxation scenario (I understand the loan "double taxation" argument and am not asking for that to be debated again). I am saying that a 1099 has been issued and after the issue date now all the loan payments have been deposited. Question: My solution is to prove to the recordkeeper that loan payments were withheld and sent "timely". The recordkeeper should then issue a revised 1099 showing that there was no taxable amount. Based on the fact pattern, would you agree with that solution? Thanks

I just wanted to throw out the question. This was just a hypothetical and we are looking at the possibility of excluding executives only from the sh match (they would still be eligible to defer). As I was going through this i thought what if the scenario in the original post occured (which everyone agrees would cause problems). Thanks for the clarrification that it cannot just say executives and we must include HCE who is also ..... Thanks

Hello, Company sponsors a safe harbor 401k plan. Plan document excludes "executives" from receiving the safe harbor match. In this case "executives" will always be HCE's by comp except for the first year of employment. Question: company hires a new employee (immediate eligibility just to make this simply). Employee is hired as an executive and falls into this excluded group. However, this employee is not a HCE the first year of employment. I am thinking this employee will be required to receive the safe harbor match even though she is part of the executive group. Otherwise wouldn't we have a higher rate of match for HCE's, who are not excluded because they are not executives, than we would for this one executive who is currently not an HCE? Thanks

Lou - thanks for the answer. It led me to Chapter 6 of "What you should know about your retirement plan" publication by the DOL. This is pretty clear. Masteff - thanks for the discussion link. The SPD provides the info I needed on the claims procedure. Thanks for all your help and fast responses.