cheersmate

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)?

The participants made an election and the ER missed a few of them, not all.

Facts: Bonuses being paid today. Employer failed to withhold pretax deferrals from some (not all) participants' bonus paychecks being distributed today. The Plan affords participants to make a special election wrt bonus pay. If no election is made, zero is withheld. Upon reviewing the "bonus payroll" process, the employer realized the error but the funds were already "in process" to the participant's banks and could not be reversed/corrected in time. Questions: Since the error was caught the same day, is the correction to issue a Notice to those affected along with a deferral election form, giving them the opportunity to withhold what would have been withheld from their respective bonus (or some other amount at their discretion) via the up-coming final regular paycheck of the year? I believe all will receive sufficient final paychecks to adequately cover this missed deferral. If not, does this change the correction? Thank you

Hello Kevin - this is exactly what I first attempted to do, however, no records.

Meaning if they were working or anticipated to work at least 20 hr/wk, they could also be made elig? That wb helpful as it would bring in the younger staff who would help w crosstested PS component. Do the above as exception to otherwise stated 12mos/1000 hrs dual entry correct? Thank you

New company estblished Feb 2018, wants to establish SH401k effective Jan 2019. Asset purchase of previous employer, no prev employer plan. Wants eligibility to be 12 mos/1000 hours, dual entry dates. There are numerous parttime staff. There are 2 or 3 who work at least 1000 hrs / year, will refer to them as fulltime. In order to make owner and other 1 or 2 fulltime employees eligible as of 1/1/2019, need to create a nondiscriminatory waiver for eligibility that won't cause parttimers to also be eligible. Can a plan provide an open elig provision as of 1/1/2019 that is for employees who are credited with at least 1000 hours in the previous year irrespective of 12 months requirement? In other words even though they may have less than 12 mos of service, if they had at least 1000 hrs credited, they are eligible 1/1/2019. My concern is whether the 1000 requirement in less than 12 mos could be deemed discriminatory. Thank you

Bill Presson and Jpod, this seems like a reasonable common sense approach, given the amounts involved. Thank you everyone for all your insights and replies. Always appreciated.

The amounts involved are very small per employee...some as small as $10. No one had elected 401k deferrals from their bonus pay. The total involved is less than $700. None of these amounts were remitted to the Plan. To me here is the dilemma: 1. Correct 2017 payroll somehow - FL residents, so Fed returns only. I was hoping someone may have experienced this in the past and knew of a fairly simple correction that didnt involve going back to 2017 W2s and returns, under some prescribed reasonableness approach. ** OR ** 2. Remit amounts over to the Plan now, albeit (i) late and (ii) in conflict w the Plan's terms because the amounts were NOT elected deferrals. So in essence the employer would remit them over to the Plan along interest adjs because late deposit, and then, refund them along with interest because they should never have been withheld from payroll in the 1st place. This seems to me to be the easiest thing when compared to amending 2017 W2s and tax returns. BUT in doing so is this making the error worse? I hope this helps to explain it further, as I do appreciate the help and insight.

They deferrals were NOT elected to be withheld from payroll. This occurred in Dec 2017. So they were withheld but so far not remitted over to the Plan.

Yes it was

How do you correct the following error? 401k Plan permits special elections for "irregular pay" and absent making an affirmative election, nothing should be withheld. Dec 2017 a small amount of deferrals were withheld from "Christmas" bonuses for some but not all employees. These deferrals however were never remitted over to the Plan as the employer never realized they were in fact withheld. This was just found with year end reconciliations and 5500 prep (off calendar fiscal/plan year). How best is this corrected? If remitted over to the plan they violate plan operation because they were not elected, should not have been withheld from payroll. Since withheld on a pretax basis, no income taxes were withheld on these amounts nor were the amounts reported as taxable income however social security taxes were withheld and amounts reported. Given all of this, is it best to remit them over to the plan along with corrective earnings and then do an amendment for those specifically affected for the specific paydate? Adjust via payroll somehow? Thank you!

Facts: A Safe Harbor 401k PSP currently permits all participants including terminated participants with vested account balances to take participant loans, with repayment via cashiers check (actives via payroll withholding). In the course of permitting such loans, they have come to realize the difficulties in collecting payments and the resources used to follow-up, and, as a result want to modify the Plan's loan provision to permit loans only to Active Partipants and Parties in Interest going forward. Question: Will an Amendment eliminating loan availability to terminated participants violate a BRF provision? Are they a protected BRF? Any existing loans will continue repayment as per there current terms. And as I said above, loans will continue to be available to Actives and PII. Or must the Amendment include a provision stating vested account balances as of the Amendment date must be protected and available for loan purposes even if termination occurs at some later date? Thank you.

Thank you everyone who has contributed on this thread. It is as I believe it to be - convoluted and thorny at best.

Thank you Belgarath!

It is ppt directed. The deferrals total $33k, the $3k for 12/31 payroll was deposited in 2019 (but bc they only deducted what was actually contributed IN 2018 on the 2018 return. I have thought about doing just that with the deduction taken.. issue is we have (1) late PS deposit, which is "at risk" on audit (the issue at hand) and (2) creating new issue of late 401k deposits, ie another red flag, not to mention the contributions deposited are in s/d source accounts already...

Thank you Bird. I read one thread of similar fact pattern (ded taken, ppt stmts issued, no deposit made, term ppts) and it was suggested that they use an 11 (g) Amendment but it isnt clear to me how that would "correct" the late deposit and annual additions matter. Regarding "crossing fingers"... would you require the plan sponsor sign a hold harmless statement and if so do you have a sample or suggestions? Thank you again.

** CORRECTION ** the employer had intended to contribute $49k employer contribution (SH+PS) for the year but reported $41k because it is "cash basis" and this was the amount actually deposited into the plan during 2018 (note, this $41k included 401k plus SH deposits)

The Employer is an S Corp tax filer, calendar year, cash-basis. The Plan covers the owner and 2 staff members, 1 of whom terminated in 2018. The other staff member terminated end of Q1 2019. There is no last day reqd for any contributions. Employer contributions: 3% SHNEC plus discretionary PS. Plan is cross-tested. We have just been notified that the business return was filed on time and was not extended. This is the 1st plan year and the company prepared their own returns. [... today, they did hire an accounting firm...] 1120 reported $41k in retirement contributions the employer had intended to contribute $49k employer contribution (SH+PS) for the year but reported $41k because it is "cash basis" and this was the amount actually deposited into the plan during 2018 (note, this $11k included 401k plus SH deposits) Of the $41k contribution reported, only $11k was contributed by the due date of the tax return (3/15/2019). The balance remains due, therefore is outside the 30 day Annual Additions window for 2018 Limitation Year. The $11k deposited was SH but there is about $1k SH contribution remaining due for the year. Q1: Does EPCRS provide a correction such that the employer can deposit the $30k balance ($1k SH + $29K PS) at this time and in doing so avoid amending the 2018 tax return? Or can it be deposited under EPCRS however they must amend 2018 to reduce the deduction to $11k, and deduct the $30k on the 2019 tax return, along with any 2019 plan year contributions, of course subject to 404 limits? Q2: Also, wouldn't depositing it now for 2018 PY count towards the 2019 Annual Additions LY for each participant who shares in the allocation of it because outside the 30 day window? If so, one participant terminated in 2018 therefore 2019 Annual Addition limit is zero for him - is there any correction available for this? The other staff member terminated at end Q1 2019... may be okay with 2019 Annual Addition limit. Will this ultimately make it impossible for the employer to contribute any PS for 2018 because of this Annual Addition issue, limiting the employer to only the SH for 2018? Q3: If the Employer decides to leave the 2018 Return as filed, make the deposit now and the plan is later audited and the $41k deduction is reduced to the $11k, how are the contributions over and above the $11k allocated for 2018 corrected (i.e. the $30k)? Both of the staff members are now terminated and 0% Vested in the PS portion. Assuming they elect distributions, the non-vested PS portion will forfeit ... Thank you in advance if you are still reading this and can provide assistance.

You have to LOVE Derrin Watson -- so concise. and Q&A 205, what a great sense of humor in responding! Thank you for these - extremely helpful!

Thank you everyone.

Thank you for this link... I did search before posting this, but by invalid SSN and nothing came up. I do appreciate all the help!

A plan sponsor has been notified by Social Security that 2 of its employees have invalid SSNs. These 2 employees have worked for the plan sponsor for several years, W2s have been issued, and both are Plan Participants. This recent notification has come as a surprise to the plan sponsor, given until now there has never been a notice of any kind. The plan sponsor asked each employee if the SSN being used was provided in error and if either has another SSN (either due to typo or ascertaining a valid SSN) - to which both said the SSN the plan sponsor has on record is correct and that they have filed tax returns... the plan sponsor is still trying to get to the bottom of this. Qs: If either or both are in fact illegal aliens using invalid SSNs (stolen or otherwise), are they entitled to their plan accounts? If so, what taxpayer ID number would the plan need to report on 1099R when distributed, or would the Plan use the one on record currently even though it is known to be invalid? If not, is it a forfeiture or is there some other action necessary? Thank you for any insight anyone can share on this matter.

Both points you state are exactly my thoughts. But I believe the employer can only exclude it from 2018 plan comp purposes IF it qualifies as a "fringe benefit". The refund is not because of a test failure, however - it was on account of the fact that BCBS did not expend at least 80% of the premiums paid for actual health care costs... under affordable care act, when this occurs in a year, the insurer must refund a certain amount of premiums paid back to the employer (to be reallocated to each employee covered, taxable income). Based on this, does your answer still stand? I am wondering if this has happened in the past and it went unnoticed, undisclosed to me. It came up this year due to conflicts in weekly payroll accumulations for the year v. W2 figures.

Let me clarify the "refund" In 2017 Employees paid their share of Healthcare Ins premiums via 125 plan (pretax withholding). For Plan purposes in 2017; for Plan purposes the Gross Compensation was not reduced bc 125, 401k type of pretax withholding amounts are included in Plan Comp In 2018 BCBS refunded $X to the employer (because utilization was less than 80%, Affordable HC rules), and $X is then allocated to those employees who paid 2017 premiums. It is taxable income and was reported on W2. It is this "refund" I am questioning. Should it be recognized for 2018 Plan Comp (see above for plan details). It seems to me it included -- my hesitation is whether it is a "fringe" and if so, then by plan definition it is excluded... thank you

When an employer's group medical plan does not utilize at least 80% of the premiums for healthcare in a given year, the insurance company must provide a "refund" to the employer. This "refund" is then allocated to those employees who paid insurance premiums, and it is reported as taxable income on W2. Question: Is this "refund" received by the employee included in plan compensation the year the refund is received? The particular plan uses 415 Comp excluding reimbursements or other expense allowances, fringe benefits (cash or non-cash), moving expenses, deferred compensation (other than deferrals specified in k. above) and welfare benefits. thank you