cheersmate

Thank you, Paul. I agree with the above. My concern is whether there is a conflicting Plan Provision that absent its removal or modification (like Lou S suggested) effectively prohibits it being a loan offset (though the employee is terminated) consequently causing it to be a loan default (and an eventual loan offset, not QLO, when his account is eventually withdrawn next year) - OR - because of the Loan Offset regs it is a Loan Offset (QLO if within 12 mos) irrespective of any plan termination distribution provisions to the contrary (e.g. delay of distributions until after plan year closes) regarding otherwise vested account sources.

Are you confirming there can not be a "Plan Loan Offset" distribution in 2025 (based on the fact pattern) even though the Participant is terminated (Treas. Reg. Section 1.72(p)-1, Q&A-13(a)(2)) because the plan does not otherwise provide a distribution at this time? i.e. a plan loan offset is not an exception for terminated participants.

Participant terminates in 2025. Plan provides termination distributions following the close of plan year in which termination occurs (and no partial withdrawals for termination distributions). Therefore termination distribution can occur in 2026. Participant has a Participant Loan balance at termination. Loan Programs states it is due and payable upon termination of service. Q: Since the Participant is not yet eligible for a termination distribution, and further the plan does not permit partial withdrawals for Termination, is the loan balance a 2025 "deemed distribution" due to default (end of calendar quarter following quarter first payment is missed), which must be carried on the plan's books with (phantom) accrued interest until such time the Participant requests a termination distribution presumably in 2026? Or is it a 2025 "plan loan offset" since the Participant is terminated even though the Plan does not permit a termination withdrawal at this time, or partial withdrawals for terminated participants? Concern with the latter: Treas. Reg. Section 1.72(p)-1, Q&A-13(b) provides that, in the event of a "plan loan offset", the amount of the account balance that is offset against the loan is an actual distribution for purposes of the Internal Revenue Code (IRC), not a deemed distribution under IRC Section 72(p). The concern being an actual distribution is not yet payable by the plan - it is not clear to me if this would (inadvertently) be an operational failure. Thank you.

Thank you everyone! The Plan does permit permit in-service, in-kind for loan balances, and partial distributions at age 59.5. To sum it up: Participant is going to request an In-Service Withdrawal equal to the Loan Balance, using the proceeds to payoff (offset) the loan in its entirety. There will be no remaining funds for tax withholding purposes. Form 1099-R will be Code 7 (but no M). Agreed?

401K Plan permits In-Service withdrawals beginning age 59-1/2; partials of at least $1000. Participant is past Normal Retirement Age, actively employed, and has a Participant Loan with a substantial balance; let's say it is $40,000. Business has been flat this year and making the loan payments is increasingly more difficult. Last payment was end of November 2024. Next due is end of December (monthly payroll). There is a strong chance no wages will be paid for December. Participant would like the Loan Balance "distributed" this year, as the tax implications would be minimal due to extremely low income, per the CPA. There is hope that things will improve next year but not certain how quickly it may turn around or to what extent if any it will turn around. If the December 2024 loan payment is not satisfied, a default would occur and the correction period would run to 3/31/2025 per Loan Program. Can the Participant request in essence a (permitted) partial withdrawal equal to the Loan Balance, or in other words request a Loan Offset and no additional cash distribution at this time (i.e. in service)? And if yes, then Form 1099-R would be Code 7 but not Code M (since not termination of service or plan, not QPLO), zero taxes withheld? Thank you.

Thank you, John. That is what I had thought, however, reading another post about adding 401k SH mid-year mentioned the 30-day notice... made me question my thinking and concerned me. There are no deferral provisions currently. Thank you again!

Can an existing Profit Sharing Plan with a 1/31/2025 plan year end be amended before 11/1/2024 to add Safe Harbor 401k provisions with the Safe Harbor contribution being the traditional Safe Harbor Match? My concern is with the 30-day Notice for Participants in advance of this new feature. The first pay date in November is mid-month.

Thank you so much for taking the time to reply.

Safe Harbor 401k Plan with Cross Tested Profit Sharing There are 2 Participants at 1/1/2023: 1 HCE and 1 NHCE The NHCE terminates in 2023 with 1000+ hours credited (i.e. no "Break-in-service"), is 40% Vested, however, has $0.00 account balances (and therefore $0.00 vested account balances) in all sources (never contributed 401k therefore never received SHMatch, and no PS allocated in years participated). Q: Is the NHCE counted on Form 5500SF as of 12/31/2023? It is a Relius document and Forfeitures definition includes the "deemed" to have been paid... However, if a Profit Sharing or Forfeitures had been allocated in 2023, the NHCE would have shared in them. Forfeiture definition goes on to say irrespective of the above, Forfeiture will not occur until the end of the first Plan Year for which the Participant is not eligible to share in the allocation of Forfeitures. Q: does this force counting the NHCE as of 12/31/2023? Q: Is the NHCE counted simply because no Break-in-service as of 12/31/2023? Thank you!

If you wouldn't mind, I have a question with respect to your final sentence as it relates to the client's existing 401k plan and eligible Compensation to be used: If the client kept their existing 401k Plan (even if only for the month of December), would the wages paid by the PEO under the PEO's tax ID for the month of December be included when computing the client's existing it is con401k Plan's 2023 contributions - i.e. how are PEO paid wages considered "Compensation" for purposes of the client's existing plan? And assuming PEO paid wages are considered "Compensation" for the existing 401k plan, wouldn't the employees' December deferrals then be deposited into the client's existing 401k Plan, too? Thank you.

Thank you Bill, I agree. Also, no -11g amendment needed. FWIW, the terminated participant is 100% vested and the employer really cares for the participant - wants to boost the contribution anyhow! Happy Holidays!

Profit Sharing is discretionary and allocated on a "grouping method" whereby each participant is a separate classification. There are no conditions to share in the allocation (no minimum service or last day requirement).

We have a small cross-tested 401k Profit Sharing Plan that provides 3% SHNEC to all plus a discretionary Profit Sharing (PS), all in their own PS allocation rate group. 3 HCEs 2 NHCEs 1 is newly eligible, older and 0% vested; 1 is a younger, long service employee who has terminated this year with less than 501 hours and is 100% vested (wage is about 1/3 of the older NHCE). Q: (1) Is it permissible to increase the terminated NHCEs PS allocation rate in order to pass (a)(4) testing? (2) Could it be argued effectively that increasing the terminated NHCE is more reasonable than the active NHCE because the terminated NHCE is 100% vested whereas the active NHCE is 0% vested? (3) If this could be considered abusive on review, would it be acceptable if both NHCEs received the increased PS allocation rate, noting that in doing so the terminated NHCE would still be the only one contributing to a passing test result? Thank you

The basis for my asking this is to do with SECURE changes, allowing a "regular" 401k to adopt "SH" provisions as late as 11/30 of the same year to be applicable via plan amendment if the SH is a 3% SHNEC... ASPPA had touched on this and commented they were awaiting comments from IRS as this was not clear one way or the other. (SECURE goes further to permit such an Amendment to SH post-PYE if you increase the SHNEC to 4% in lieu of 3%.) I haven't seen anything since and was hoping someone may have. With this in mind, could an employer adopt a new "regular" 401k Profit Sharing Plan theoretically at any time prior to 11/30/2023, and then Amend the Plan by 11/30/2023 to a "Safe Harbor" 401k (3% SHNEC)?

If for some reason the employer failed to adopt the Plan by 9/30, rather it is signed 10/5, making the plan be considered a "normal" 401k Plan for 2023. Then, adopt an Amendment by 11/30/2023 to make it a Safe Harbor Plan, providing a 3% SH non-elective contribution?