cheersmate

Thank you. I agree, too, hence my asking in this forum. Thank you everyone for your input.

Agreed...it is the way it is reflected on the election form generated by a national document vendor.

For 2020, a Participant elected $1,625.00 401k plus 541.66 catch-up withheld per pay. December 29, 2020, Participant completed another election form electing $19,500 annual 401k plus $6,500 annual catch-up withheld (proportionately from each pay). The employer provides 24 payrolls per year, therefore the 2021 per pay withholding should change to $812.50 + $270.83 respectively. Unfortunately, it was not changed and for both of January 2021's payrolls the previous election stood. Both of January 2021's 401k deferrals have been remitted over to the plan (same day as pay dates) making this not only a payroll issue but a plan correction issue. How best is this corrected? Should the employee be provided a special paycheck equal to the over contributions with taxes withheld (recognizing FICA will be overpaid)? And then to correct the Plan, should the contributions to the Participant's account be removed and placed in a forfeiture account? The employer realized the error and spoke with the Participant who is okay with what happened, does not want a correction, and simply wants to skip 401k deferrals for the month of Feb and restart again in March (plan does permit this frequency for changes) - is this acceptable? Thank you.

Everyone who was in the terminated DB and continues to be a participant will share in its allocation Thank you shERPA Thank you everyone! Very much appreciated.

Forfeitures do not offset 404 deduction limit - I am hoping same logic applies with respect to the DB Surplus release amount.

Question: In a Defined Contribution Plan, can the transferred Defined Benefit surplus assets being released for 2020 Plan Year (received into it on account of prior DB termination), be allocated in addition to the employer's contribution equal to the 25% of eligible pay or must the 25% deduction limitation be reduced by the amount of DB surplus being allocated? Example: DB Surplus Suspense Account must release at least $35,000 for 2020 Total Eligible Payroll $500,000 therefore 25% Deduction Limitation is $125,000. There are multiple participants. It is understood the maximum any one participant may receive in annual additions is $57,000 (+ catch-up if any). Can the Employer contribute and deduct the full $125,000? This would mean a total of $160,000 ($35,000 DB surplus released plus $125,000 employer contribution) will be allocated for 2020. OR, must the employer's contribution and deduction be reduced to $90,000 (the $125,000 deduction limit reduced by the $35,000 DB surplus to be released and allocated this year)? Thank you.

I am very sorry, you are right and it was certainly not my intention. Yes, the gateway is being satisfied prior to restructuring, 5% minimum covered by 3% Safe Harbor Non-Elective Contribution + 2% Profit Sharing

Having a brain freeze... 4 participant plan - 2 HCEs (father, son) and 2 NHCEs (1 young, 1 older) Plan provides 401k, 3%SHNEC and discretionary PS by rate group (ea ppt is in own) The Gateway is 5% QUESTION: I would like to restructure for (a)4 testing: 1 HCE (father) and 1NHCE (younger) based on cross-testing and 1 HCE (son) and 1 NHCE (older) based on allocation rate testing. Each will pass coverage at 100%. Provided the C/T group passes (and it does) and the the Allocation Rate based group passes (proposed same % for HCE as NHCE), the Plan passes, correct? Am I forgetting anything? Thank you.

I agree, and believe this to be the issue for the term ppt. Based on all of the above, is it correct to say a Terminated Participant is permitted to request a CRD and be sure the Amendment is modified if necessary to permit it?

Mikes seems to me to be saying CARES Act provides distributions that would otherwise be precluded. In this case the term ppt can elect to receive a termination distribution... however would like it to be a CRD and I imagine it is to avoid tax withholding at the point of distribution.

Mike, the terminated participant is eligible to receive a distribution. Are you saying the CRD is not an option because of this? Exactly what I was thinking both in terms of the Amendment and the "work-around" with an IRA. I would imagine the Amendment will not preclude them if CARES Act does not, at least not the snap on at the sponsor level. I thought in one of the many, many webcasts on CARES, I thought someone addressed this -- CRD and term ppts -- however I can not put my finger on it. I am fairly certain the term ppt wants the CRD to avoid tax withholding at the point of distribution.

A Terminated Participant would like to request a CRD in lieu of the Terminated Participant Distribution, I suppose to waive tax withholding. The Plan permits CRDs. Are Terminated Participants who terminated prior to 2020 permitted to request a CRD? Thank you

To clarify, this not an amendment situation wrt to allocations. All ppts are in their own RG. Having said that, my concern is whether the Plan sh be amended to provide some level of vesting given the illustrated PS allocations especially since some of the ppts are 0% vested and the plan does have a 'short service' waiting period to enter the plan, which in application permits PT employees to enter. There are no last day, no min hrs requirements for allocation purposes. Given these f+c should the plan be amended to provide some level of vesting starting at zero Years of Vesting Service, say 10% or 20%, or even switch vesting service to an elapsed time crediting basis, to avoid being interpreted as abusive in practice as per the "IRS comments memo" referenced earlier in this thread?

Hello Larry - As a matter of follow up to your comment "vesting is not an issue at that point" - when is vesting an issue? Allow me to illustrate my concern with a similarly situated plan for the 2019 plan year who is trying to finalize figures now- SHM401kPSP where 2019 is Plan Year #2 for this case, so at most, ppts are 20% vested. In addition to the ADP SHM, the Employer has elected to contribute an ACP SHM - the 1 HCE and 2 NHCEs benefit 7 ppts: 1 HCE, 6 NHCEs (2 of whom terminated in 2019, 1 is vested 20%, 1 is not vested). Plan Sponsor is considering depositing 9% PS for the owner, who is relatively young Staff is mixed PT and FT, elig is 2 mos wait/no min age To pass RG testing 3% to the NHCEs is sufficient however not passing ABT, so to pass the RG at 70%, the PS allocation rates have been increased via "cherry picking" per person to amounts needed for 3 of the 6 NHCE ppts. NHCEs 1, 2, 3 are at 3% PS; NHCE 4 is 6% PS and NHCEs 5, 6 are at 5.1% PS Question is related to this and the vesting issue... 1 of the 3 who are increased over the 3%PS was terminated in 2019 w zero vesting (PT never converted to FT prior to terminating) and another of the 3 increased has since terminated in 2020 due to COVID - was FT - but zero vested at term... is this a problem w the above "cherry picking" PS allocation rates? And if it is problematic (1) would the vesting issue be negated if the employer increases all 6 NHCEs to the highest allocation rate provided to any 1 of the 6 HCEs, i.e. 6%? and/or (2) could the employer adopt a Plan Amendment to provide 10% vesting to all participants w vesting service = 0 <2Years (to elim this now and in future as well)?

Thank you. I thought so but because it was a Hardship taken, not a CARES Act distribution, I wanted to be certain.

A Participant in a 401k Plan received a Hardship Distribution in 2020. He is now a "Qualified Individual" under the expanded definition under CARES Act (the spouse of...). He intends to make the election to pay the taxes over the next 3 years as permitted as a Qualified Individual under CARES, exemption from 10% penalty. QUESTION: is he permitted to return the distribution the Plan or an IRA if he is able to do so within 3 Years of the distribution date? Thank you

Spiritrider - to bring this full circle and to make sure the finer nuance of my inquiry is covered in your comments, the Participant is active in Plan A (unrelated plan sponsor). The Participant has partnered with his wife to buy an office (not certain if it stands alone or condo). The intention of that purchase was to rent the location to his wife's dental practice. All of this happened prior to Covid. Covid hit, the wife's practice is practically at a standstill, consequently she has not moved her practice to take occupancy of the newly purchased office space. Since the Participant is part owner of this office space that he now is not collecting rents on... do you think he could qualify? I believe you do not but just to be sure I am following you, please confirm. Again, thank you everyone.

I have none also... and have warned this particular employer about the flood gates. He has his concerns. If the plan doesn't adopt CRDs, on what basis can the participant who is actively employed request a distribution? Thank you again Larry.

Thank you for the quick reply! Have you heard anything suggesting when the IRS will address this formally or even informally? Again, thank you so much!

Larry - Has there been any announcements or comments by the IRS yet? Are you advising clients to accept certifications made on the spouse being terminated qualification? I suddenly having this come up time and time again. I have the following similar situation but the Participant would prefer to "know" he is a Qualified Individual... Participant's spouse has her own dental practice. Due to Covid, her dental practice is extremely limited. The Participant and the spouse purchased another dental office space and were about to lease it to the spouse's dental practice when Covid hit. Now, the practice is not moving into the new space. By owning the new space with his spouse, which is now not income producing, would the Participant be a Qualified Individual but virtue of the "adverse financial consequences due to a closing or reduction in hours of a business that you own or operate due to Covid" qualification? Thank you so much. Stay safe and be well.

Thank you all - it is very much appreciated as always!

It is my understanding the reticence is based on fear of "stirring up an otherwise quiet pot" that could lead to reprisal. Possibly related to California Family Rights Act and/or A's apparent claims of disability (not related to work injury and not at time of no-show, rather sometime thereafter) even though all claims to date have been declined. A has not at anytime reached back to the employer - it is like A just quietly walked away. The employer paid all wages due. There was never an exchange of unpleasantry. In the course of preparing for their upcoming July 1 newly eligible employees, this matter has come to the surface, and to my knowledge.

I seems to me this is firat an employment law matter, and depending on whether or not still an employee predicates elig issue. The emplyer wants to do what is correct. What I was hoping is someone may know specifically whether these circumstances ("no show" and now for several months) triggers termination as per some section of CA employment law or regulation. The Plan document addresses the Period of Severance begins 12 mos following 1st day absent from work (if not retired, quit, discharged otherwise). As for COBRA it is a small employer (<20 ees). I am not certain health insurance status.

FACTS: CA employer sponsor Safe Harbor 401k plan Eligibility waiting period is 1 Year of Service (12 mos, 1000 hrs) Plan Entry Dates: 1/1 and 7/1 coincident with/following waiting period Employee "A" is hired 3/15/2019 on full-time basis. Projected Entry Date is 7/1/2020 On approximately 1/15/2020 "A" apparently moves and does not show up for work, without any notice to CA employer/plan sponsor. Sometime thereafter the CA employer learns "A" claims to have become disabled since moving and has filed for state (and/or Federal) Disability; "A's" request is denied apparently due to failure to satisfy Disability requirements. "A" did work > 1000 hours from Date of Hire (3/15/2019) to the last day "A" reported for work (approx 1/15/2020). To date, "A" has not been in contact with the CA employer/plan sponsor. The CA employer does not want to send a termination notice in as it fears "A" may try to sue, claiming terminated due to disability. The CA employer/plan sponsor wants to know if "A" must be provided with enrollment materials at this time (based on 7/1/2020 entry date). They would prefer not to reach out if it is not necessary. The Plan provides: 1.63 "Period of Severance" means a continuous period of time during which an Employee is not employed by the Employer. Such period begins on the date the Employee retires, quits or is discharged, or if earlier, the twelve (12) month anniversary of the date on which the Employee was otherwise first absent from service. QUESTIONS: At what point is "A" no longer an employee of the employer? If "A" is still an employee, albeit an "inactive" employee, when is the employer obligated to provide Enrollment Materials? If "A" is still an employee, albeit an "inactive" employee, what determines termination/severance from employment? Does CA employment law provide a standard for this situation, or, any federal guidelines? It seems worst case scenario is "A" continues to be an employee, and, since "A" has 1000+ hrs and more than 12 mos have elapsed since DOH, "A" is eligible with an entry date of 7/1 - or is it the date "A" returns to service if later? Failure of employer to provide Enrollment Materials at this time (or later if eligibility entry date is later date) can be corrected... but if "A" earns zero the correction will result in $0 contributions due. Any help and/or insight is appreciated. Thank you.

Mike - If you can refresh by reading the above.. Assuming it passes a4... could the 2 owners receive 6% PS and in addition to the NHCEs receiving zero PS could the remaining non-owner HCEs receive zero PS (i.e. they receive only the 3%SH)?