cheersmate

The sponsor is not my client but his TPA said blanketly "there is no partial plan termination" so it is not clear to me the sponsor has even been made aware of the potential issue... Z is my new client as she is establishing a new plan and in the course of our discussion I made the inquiry wrt her previous employer's plan.

Fuduciary Guidance Counsel, I have requested clarification on whether ABC was selling the location irrespective of who ultimately would purchase it and if Z would have been unemployed by ABC as a result. I find this to be particularly thorny. I don't believe the partial plan termination guidance is intended for this type of scenario ... but does it apply nonetheless? Also, would your answer be different (or more definitive) if the sale also involved another staff member, let's call her X -- a receptionist - who would be left unemployed if the new owner of the location does not hire her? And if so, wouldn't this then trigget Z to also be 100% vested as a result of the event in totality? Thank you.

Employer ABC sponsors a 401k plan. There are 3 participants. ABC sells practice location #1 of 2 to an employee Z (Non-HCE). The new owner Z does not continue the ABC Plan as a result of buying the practice location #1. Is this a partial plan termination and should Z's account in ABC 401k be 100% vested?

Regarding NRA exclusion, a plan can only exclude statutorily under 410b if the NRA also claims exemption from US tax as per a tax treaty between the US and the person's home nation. Derrin Watson addresses this here: https://benefitslink.com/cgi-bin/qa.cgi?n=103&db=qa_who_is_employer I am not questioning this, as it is clear 2016 forward this person is not excludable. It is her service in 2015 -- is this service excludable and therefore not recognized for eligibility purposes (i.e. 12 mos / 1000 hrs)? In 2015 this person did not have a green card and may not have satisfied the substantial presence test either... This person said she never filed a 2015 US Tax Return bc all paperwork was handled by the internship -- even though the employer/plan sponsor issued a W2, was this person some special classification that permits the employer to not recognize her service in 2015 for plan purposes? They are not trying to exclude her now, they believe she is eligible in 2017 Plan Year (in process) based on her service in 2016 -- I however believe she is eligible in 2016, recognizing her 2015 service, and therefore believe a correction is in order.

Got it, Kevin C and thank you!

Thank you, shERPA. I tend to agree. It is my understanding the client issued a W2... This young lady was a J-1 "student intern" in 2015... the client believes this matters. During this time she was NOT subject to Soc Sec. and she did not have to file a tax return as far as she knows. Everything was handled by the internship program for the 2015 tax year. Absent receiving temp green card in 2016, she would have been forced to return to her home nation. This young lady applied for asylum and was granted temp residency and received a temporary "green card" in 2016 (still reapplies annually to continue it).As it was explained to me she "became" a Non Resident Alien in 2016, and it was then that she started being subject to Soc Sec. Was she a NRA in 2015? if not, what was she before she "became" a NRA in 2016? Does this matter? Or is it even correct? As I have said, the client believes this matters and wants service recognized 2016 fwd. If anyone has a citation that speaks directly to this as it relates to retirement plans, it would be appreciated (e.g. ASPPA outline). Sorry for beating this dead horse :( Thank you everyone!

Thank you duckthing. The matter is not whether she is an eligible employee, it is whether she was an employee at all in 2015 while she was this foreign J-1 student intern (not subject to Soc Sec withholding; I am not sure if the other taxes withheld were returned to her as she herself is unsure how 2015 tax returns were prepared by her internship). The plan does not exclude interns but even if it did, you have to count service of an employee, so that in the event an otherwise excluded employee should become an Eligible Employee, plan entry can be determined.

So I have read the thread and all is eerily similar... If I exclude this participant in a4 testing, the ABT is low 60%... If I include this participant using her full year comp, ABT improves and if back into "eligible comp" such that the GW and THM are same amount, the plan almost passes ABT providing only the GW min to NHCEs. So including in some fashion helps. So would it be reasonable, like you did, to simply exclude her from a4 altogether as if ineligible (albeit provide the THMin...)?

Hello Kevin - I have not read through the link you provided yet, but in excluding the person from the a4 testing you mean it was as if they weren't eligible at all, not that you counted them as a zero EBAR, correct? Also, even though you did that, you still provide the 3% THMin correct? Thank you so much!

Hello Kevin - I understand and agree re document, crediting service as you stated. The client is arguing that prior to this person commencing work in her "permanent position" she was paid through a strict internship program (based on cultural/prof experiences to be taken back home afterwards), therefore "not really an employee." The employer did issue a W-2 for this intern for 2015 tax year, however they do not believe she was an "employee" per se, there were NO Soc Sec taxes withheld, zero Soc Sec Wages reported. According to this intern, she did not file a tax return for 2015 (period while she was J-1 intern), the internship program took care of it, she never saw it. In the midst of her internship, the intern filed for political asylum. When she was awarded a temp residency for this (has to refile annually) is when the client offered her a "permanent job" withholding all standard taxes incl Soc Sec tax. (this was Jan or Feb 2016) They have excluded her as an Non Resident Alien, however, the employee has said she filed 2016 and 2017 as Resident Alien (btw, never claiming tax exemption under a treaty w home nation... the additional requirement for excluding NRAs anyhow). I am trying to correct the error. I believe her elig should be determined from her Internship start date (in 2015), they believe it should be from her permanent job start date (2016). Obviously the latter makes her elig in 2017, while the former requires correction back to 2016. Based on this, do you agree she was in fact an employee in 2015 even though working thru a strict internship program, thus requiring service credit from start date in 2015 (albeit internship...)?

Plan excludes pre-participation compensation, comp is paid (as opposed to accrued) Plan is Top Heavy Contributions testing on cross tested basis w imputed disparity Elig 12 mos/1000 hrs (no min age), dual entry dates (1/1 and 7/1) Employee DOH 3/2016, works 1000+hrs in initial 12 mos of svc projected Entry Date 7/2017 HOWEVER Terminates 6/15/2017, therefore never enters the plan Same employee is Rehired 12/20/2017, 1st paycheck following rehire is 1/12/2018 According to the Plan, this employee enters the Plan as of Rehire Date 12/20/2017. 2017 Total Comp is $7,000 (paid Jan 1 - 6/15/2017) 2017 Elig Comp is $0 (but for THM, which is full year) PS is determined on $0 elig comp, GW is determined on $0 (Question ... is GW satisfied because 5% GW * $0 = $0?). TH is determined on $7,000 -- $210 THMin Question How is her EBAR calculated? Is her EBAR based on $210 contrib (due to THMin) and $7000 comp, even though her otherwise eligible pay is $0? Thank you

Thank you imchipbrown. I appreciate your suggestion. May be I did not pose my question well enough. What I need to know is whether the employer must count service from the hire date while working as a J-1 Visa temporary student intern (5/2015), or, must the employer count service from the hire date when she had received a temporary political asylum card and offered permanent employment (2/2016) for purposes of determining eligibility? Assuming 1 Y of S waiting period, she is eligible either 7/1/2016 (assuming J-1 start date) or 7/1/2017 (assuming perm hire date). If anyone can help it would be appreciated. Thank you.

I believe it is $0.35 per $100 for participant loans... and the 70 cents per $100 applies to transfer of property like a mortgage. See For DR 228. http://floridarevenue.com/Forms_library/current/dr228.pdf

Are student trainees (18mos visas) and interns (12 mos visas) working in the US under a J-1 Visa (who are subject to Fed and State taxes but generally exempt from Medicare, Social Security and FUTA taxes; limited as to the work they can perform) considered "employees" for purposes of service credits and eligibility in a retirement plan? As I understand it, the J-1 Visa opportunities are temporary and are permitted with the understanding the training will then be taken back and applied in their home nation, intended to be a cultural experience. Client hired a J-1 Visa Student Intern/Trainee in May 2015. While "interning/training" with the Client, she applied for political asylum and was given a Employment Authorization Card late 2015/early 2016. She was then hired by the Client effective 2/6/2016. Each year she renews the Employment Authorization Card, continues working for the Client. QUESTION, is her Date of Hire for Eligibility determination (and service crediting purposes for Vesting) May 2015 (date started interning/training under J-1 Visa) or Feb 2016 (bc now has Employment Authorization Card the Client was able to offer and she accepted Position as an employee)? For what it is worth, 2016 and 2017 tax returns were filed as Resident Alien; 2015 was filed by her scholarship program and she does not know the basis of the filing. Thank you!

Hello Mike - In light of the 2017 Prop Treas Reg published 1/18/2017... am hoping you will consider the following and reply? The volume submitter doc used for the SH 401(k) PSP has the following provisions: TRANSFER OF ASSETS FROM TERMINATED EMPLOYER DEFINED BENEFIT PENSION PLAN (a) Transferred DB Assets. The Employer may transfer an amount to this Plan from the Employer's terminated defined benefit plan in accordance with Code §4980(d)(2)(B). The amounts transferred into this Plan shall be held in a "transferred assets suspension account." Amounts released from the "transferred assets suspension account" pursuant to the provisions of this Section shall be allocated in the same manner and to the same Participants that Employer Nonelective Contributions are allocated, as described in Section 4.3. If the Plan does not provide for Nonelective Contributions, then the amounts released from the "transferred assets suspension account" pursuant to the provisions of this Section shall be allocated to each Participant eligible to share in allocations in the same ratio as such Participant's Compensation bears to the total Compensation of all Participants eligible to share in allocations. The Employer will determine, in its discretion, the amount to be released from the "transferred suspension account." However, the minimum amount that shall be released from the "transferred assets suspension account" for any Plan Year is the percentage of the account based on the following table: Years Since Transfer Percentage of Suspense Account 0 14.2857% 1 16.6667% 2 20.0000% 3 25.0000% 4 33.3333% 5 50.0000% 6 100.0000% (b) Earnings. The amount in the "transferred suspension account" shall be credited with earnings and losses as of each Valuation Date in accordance with Section 4.3, except that Participants may not direct the investment of amounts in the "transferred suspension account." Amounts released from the account prior to the last day of a Plan Year shall not share in such earnings or losses. (c) Annual additions. Notwithstanding anything in the Plan to the contrary, amounts in the "transferred suspension account" shall not be treated as "annual additions" pursuant to Section 4.4 until such amounts are released and allocated to Participants. (d) Plan termination. If upon the termination of the Plan any amount credited to the "transferred suspension account" remains unallocated, then such amount shall be allocated as provided above to the Accounts of Participants as of such date of Plan termination, but limited as to each Participant to avoid allocating exceeding the limitations of Code §415 as set forth in Section 4.4. Any amount that cannot be allocated to a Participant under the preceding sentence shall be reallocated to remaining Participants, but only to the extent that no Participant receives an amount that exceeds the limitations of Code §415 as set forth in Section 4.4. The reallocation process will continue until all amounts in the "transferred suspension account" have been reallocated. If all Participants have received the maximum "annual addition" permitted pursuant to Section 4.4, then any remaining amounts shall revert to the Employer. Section 4.3 references is 4.3 ALLOCATION OF CONTRIBUTIONS, FORFEITURES AND EARNINGS QUESTIONs: Based on this provision and the 2017 Proposed Treasury Reg (1/18/2017) changing/requiring that amounts be fully vested when allocated: 1 - do you believe the surplus assets can be transferred directly from a terminated DB to the employer's SH 401(k) PSP as the "QRP"? Or is a new "PSP only" plan necessary to receive the surplus? 2 - can be placed into a suspense account and utilized over time (current year and beyond if not all allocated this year, provided all surplus are utilized within 7 year) for purposes of both the SHNEC and Profit Sharing? Thank you

mphs77 thank you for your reply. Just to confirm I understand your reply, the Self Employment Tax calc requires K-1 Box 14 SEI be reduced by K-1 Box 12 for General Partners? Likewise, the net Plan Compensation would also be Box 14 reduced by Box 12 reduced by the 1/2 SET offset? Thank you again.

401(k) Plan sponsored by LLC taxed as partnership. When computing (1) the 1/2 Self Employment Tax offset and (2) the resulting "plan compensation" for allocation purposes, are Box 14 code A Self Employment Earnings first reduced by the Box 12 Section 179 Deductions before computing the Self Employment Tax? I do not see this reduction (adjustment to Box 14 SEI) on Schedule SE (Form 1040) in the computation of the self employment tax. Thank you

Hello - Does anyone care to weigh in on any of my questions? I apologize for the length of my post... Cheers.

Thank you, Belgarath. As you can imagine, the employer does not want to "miss" the correct date... Seems to me this one is fairly clear and it should be 1/1/2018, not 7/1/2017 because his hire date is 1/3 (not 1/2), therefore the "inclusive" days consideration is not one. Cheers!

In 2017, Jan 1 was a Sunday, company therefore makes the "new years holiday" Monday Jan 2. New hire starts Jan 3. Please requires 6 mos for eligibility, entry dates 1/1 and 7/1... Given this scenario is this new hire eligible 7/1/2017? If employer has never had a situation like this in the past, could the employer choose to use the above logic and say he is elig 7/1, and from here forward apply same logic?

Plan Sponsor's Deferral and Loan Payments for 7 payroll periods were deposited late. Payroll periods start in March and end in May. This occurred when the Plan Sponsor changed HR management and went unnoticed until the plan's investment platform sent an alert regarding a late loan repayment issue. All 7 payroll periods were deposited immediately when this was realized, all were within 75 or fewer days of when they should have been deposited but for the oversight. The Recovery Date is June 13. Amounts involve about $5,800 in total deferral deposits (aggregate all payroll periods) and $100 in loan repayments (aggregate). This is a self directed plan and 20 participants are affected. This oversight was addressed immediately and steps/protocols were established to prevent this from happening in the future. This is a Prohibited Transaction but not an operational defect as the plan does not specify a deposit date for deferrals. Questions: Lost Earnings: it is my understanding the Employer may determine Lost Interest (from date deposits should have been made (usually 1 day after payroll date) to actual Recovery Date) based on the greater of the (i) DOL Calculator or (ii) the Plan's actual "Investment Experience" had the deposits been timely made*. *To determine the "Investment Experience" it is my understanding the Employer may use the highest performing investment offered within the Plan, for each of the affected payroll periods in lieu of determining each participant's Investment Experience for each of the periods, if doing it individually is more costly than the benefit itself. The measurement period is the date the deposit should have been made, i.e. the Loss Date, to the Recovery Date (date actually deposited). IS THIS CORRECT? Interest on Lost Earnings: are determined from the Recovery Date to the Final Payment Date (the date the Lost Earnings are actually deposited along with interest on the Lost Earnings). DOL Calculator determines this easily using the DOL rates. HOW WOULD YOU DETERMINE THE INTEREST ON THE PLAN'S "INVESTMENT EXPERIENCE" LOST EARNINGS (referring to the greater of (i) DOL or (ii) Plan in #1 above)? Select a reasonable interest rate, e.g. Prime +1%? I read a post that suggested If the Employer were to determine the "Lost Earnings" and the "Interest on Lost Earnings" correctly (as above) and opted not to submit VFCP, it should be acceptable (no action nec) if ever audited since the Employer made the correction using the greater of the DOL or Plan Experience determination. IS THIS CORRECT? If submitting VFCP the Employer can use the DOL Calculator and ignore the plan's Investment Experience - correct? Restoration of Profits: is this an amount equal to a reasonable rate of interest (e.g. prime + 1%?) accumulated on each PT (i.e. each payroll period), measured from the Loss Date to the Recovery Date? If this cumulative amount is greater than the Lost Earnings determined as described above, then this amount should be remitted to the Plan in lieu of the Lost Earnings as determined above (and the Interest to the Final Correction Date is likewise adjusted)? Form 5330: essentially the Employer must pay a 15% excise tax for 4975 PT, and it is equal to 15% of the Lost Earnings amount (or Restoration of Profits amount if greater)? If the 15% Excise Tax is less than $100, the Employer may opt to deposit it into the Plan and allocate it to the affected participants (as per plan provisions)? Notice Affected Participants: is not necessary if the 5330 excise tax is deposited into the Plan and allocated to the affected participants in lieu of submitting Form 5330 and paying the tax? Are there any further corrective steps necessary? Should the VFCP submission be completed in spite of the small amount involved? Again, I thought I read a post indicating not to submit if the cost to prepare the submission exceeds the correction necessary. But of course the Employer must be certain all is calculated correctly and the correction is the greater of the DOL calc amount or the plan experience... Thank you.

Thank you everyone. I really appreciate the insight and suggestions.

Okay ... not to belabor the point, since it would be the ex- who brings the QDRO with respect to a participant's account, it seems the Plan is best protected by having a statement from the wife saying she will not bring a QDRO wrt to the husband's account, and vice-a-versa. Are you saying this is not necessary? The property settlement agreement would not suffice in this case because remember, the Divorce Agreement is not yet signed by both parties. Thank you again!

Thank you Peter Gulia PC. The plan's QDRO procedure specifically states: Procedure prior to receipt of order: The Plan will apply the following procedure prior to the Plan's receipt of a domestic relations order. 1. Suspension of Participant distributions or loans. If the Administrator is on notice (verbal or written) regarding a pending domestic relations action (e.g., a divorce) and has a reasonable belief the Participant's account may become subject to a QDRO, the Administrator may suspend processing the Participant's distribution or loan requests pending resolution. 2. Removing hold on the account. After placing a hold on the account, the Administrator should notify the Participant of the hold on the account. In order to remove the hold, the Administrator should request the Participant to provide written confirmation that a court will not issue a QDRO with respect to the account; such as a property settlement agreement awarding the entire account to the Participant.

Profit Sharing Plan has 2 participants who are husband and wife, soon to be ex-husband and ex-wife. Both have agreed not to request a DRO with respect to the other's PS account balance. This is stated in the Divorce Agreement (not yet signed by both parties). The husband has terminated service with the plan sponsor and has requested distribution of his AcctBal. In order for the plan sponsor to proceed with the husband's distribution, the plan needs assurance a DRO will never be presented to the Plan. Would statements from each of the 2 participants, each irrevocably waiving the right to bring forward a DRO with respect to their soon to be former ex-spouse be sufficient, and if so, should it be a notarized statement or is a witness sufficient? Also, if the Divorce Agreement were signed would it be sufficient on its own (thus no individual waiver statements needed)? Thank you.