cheersmate
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Everything posted by cheersmate
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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.
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The 2016 Census Data is in and this is the "head count" Corp(Plan Sponsor) LLC (non-adopt Affil Er) TOTAL HCE Eligible 2 2 (same 2 ppl in Corp) ?? HCE Participating 2 0 2 NHCE Eligible 17 2 (same ppl in Corp) ?? NHCE Participating 17 0 17 410(b) (NHCE total participating / NHCE total elig) --> 17/?? (what is the denom?) Divided by (HCE total participating / HCE total elig) --> 2/?? (what is the denom?) --> NHC % / HCE % must be at least 70% for the exclusion of the LLC to pass 410(b) For a4, wouldnt the compensation be only the Corp compensation since LLC is excluded? Thank you
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Thank you, Mike. It is a Relius plan document and per it, compensation from Affiliated Employers is excluded for Plan purposes if the Affil. Er. has not specifically adopted the Plan. In this case it has not. The 2 LLC Members have earned income that will not be counted for the Plan allocations and a4 testing There are also 3 rank and file employees who have W2 from both companies, so the LLC W2 will not be counted for Plan allocations and a4 testing. Hours for elig and vesting will be counted from both entities. ... the excluded amount for 1 of the 3, ie the excluded LLC W2 amounts to more than 50% of his total combined. I am still confused on the 410b testing -- how are the 3 rank and file employees who are participating via their Corp employment counted wrt to their LLC employment? 2 HCEs in Corp eligible, participating Same 2 are not participating wrt LLC employment 10 rank and file in Corp eligible, participant. Of the 10 3 are not participating wrt LLC employment. Is 410(b) essentially 100%, but must be reasonable compensation -- is that what you saying? Thank you again.
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Does anyone have any input? Thank you
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Thank you. That is what I thought but recently read an article and it said if the plan doesn't have immediate eligibility and 100% vesting... must annualize. Thank you for clearing this up! Happy Holidays!
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The 401k SHPSP provides for pre-tax deferrals, SHM, PS and Davis Bacon contributions. All sources are 100% immediately vested, with the exception of the PS component. The Davis Bacon contributions are used to offset the employer discretionary contributions (i.e. PS), and included in the general testing,etc, In order to be able to count the DB contributions and avoid annualization rules, does the PS component needs to be 100% vested also? Thank you!
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Please confirm the compensation earned from all members of a controlled group of businesses is aggregated for purposes of allocation, coverage, ABT and General Testing. Facts: LLC (single member, taxed as S-Corp) sponsors a Safe Harbor 401k with Discret PS features. The LLC controls all plan provisions. There are several nonHCE covered by the Plan in addition to the "owner" C-Corp (owned by same person who is Member of LLC) adopted the LLC's Plan, follows the LLC's provisions as stipulated, is a "participating employer." Suppose for this question the LLC Member's elig compensation is $50,000 and his/her C-Corp is $100,000. Total earnings $150,000. Is compensation for purposes of SHM $150,000, irrespective of which source of income (LLC or Corp) it was deferred from, meaning if the 401k deferral is deferred from the LLC source, wouldnt you still determine the SHM on the aggregate of both compensation sources? In this instance, the SHM w b $6,000... Further if the Corp fails to contribute its proportionate share of the SHM, the LLC will (be forced to contribute it to satisfy the SH) and can deduct it? Is compensation for purposes of the PS allocation $150,000? Deducted by entity who contributes it, correct (Same as above)? Further if the Corp fails to contribute its proportionate share of the PS, the LLC will (be forced to do so) and can deduct it (subj to 25% limitation)? For purposes of the ABT and Rate Group testing, the aggregate compensation is used for the Accrual Rates, correct? For determination of HCE status, aggreg is used? Each entity tests based on its compensation for 25% deduction limitation? Thank you
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PS after Tax Return Filed but before Due Date
cheersmate replied to cheersmate's topic in 401(k) Plans
Thank you, Lou S. Happy Holidays!!! -
FACTS: - The Plan is a 401kPSP with 3% Safe Harbor NEC - It's the 2015 Plan Year - Employer business and 5500 returns were on extension to 9/15/2016 and 10/15/2016 respectively - Business returns were filed in June, deducting the Employer SH contribution In August, the Employer decided to contribute PS for the 2015 plan year QUESTIONS: 1. Is there any reason the PS can not count as a 2015 Annual Addition? It was deposited timely (before due date of tax return) for 415 and therefore seems it should count as a 2015 Annual Addition even though the employer failed to take the deduction for it on the 2015 employer return 2. Since the 2015 Business Returns were actually filed PRIOR to (the deadline to file and) the employer's decision to make this 2015 PS contribution, no deduction was taken on the 2015 returns -- Other than the 25% deduction limitation for 2016, is there any reason the employer can not deduct the 2015 PS on his 2016 business return (along with any other 2016 employer contributions)? The employer does not want to amend its 2015 tax return if it can be avoided. 3. If for some reason the deduction of the 2105 PS can not be taken on the 2016 return, can the 2015 PS be recharacterized as 2016 PS? Thank you
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FACTS: ABC is an S-Corp owned 100% by Mr. A ABC sponsors a Safe Harbor 401k (Cross Tested) Profit Sharing Plan: 2 HCEs are elig 10 NHCEs are elig ABC 401kPSP excludes employees of Affiliated Employers who have not adopted the Plan; Eligibility is 1 Year of Service with 1000 hours (no min age); Years of Service with Affiliated Employers are counted for plan purposes Maryland LLC is a multimember LLC taxed as a partnership 5% membership interest: Mr A 95% membership interest: Partnership Z (2 partners, both of whom are unrelated to Mr. A) At 1/1/2016 the membership interest changed when Partnership Z wanted to close down. In response to this, Mr A acquired 90% of the partnership's interest via an assignment of interest Mrs A (Mr A's wife) acquired 5% of the partnership's interest via an assignment of interest As a result of this change in LLC membership , Maryland LLC and ABC Corp are now under common control as of 1/1/2016 Mr. A hired an outside person (unrelated) to manage the day to day LLC operations as he simply does not have the time to do it. There are 5 LLC employees (all NHCEs), 3 of whom are very very part time (never 1000 hours), the other 2, John and Jane, may or may not work 1000 hours in a year for LLC however they are also employed by ABC Corp and have had at least 1000 hours credited per year with ABC Corp. These 2 employees are 2 of the 10 NHCE Participants in the ABC Plan. They both receive 2 separate W2s -- 1 for ABC Corp, 1 for LLC QUESTIONS: How do the 2 "shared" employees, John and Jane, count in the 410b test? Assuming the 3 very part time employees of LLC never have 1000 hours, they will never meet eligibility for 410b testing, BUT, the 2 shared employees, John and Jane, have >12mos, 1000 hours and are eligible for the ABC Corp plan (i.e. they are active participants), yet excluded as far as their LLC employment is concerned. So would the NHC coverage be 10/12 essentially counting them as 1 person each in the numerator but counting them as 2 people each in the denominator (1 as ABC ee, 1 as LLC ee)?? I realize it will pass either way, but next year the LLC #s may increase. Mr. A and his wife are eligible for the ABC Plan, yet assuming they have compensation from the LLC, that portion of their work/compensation is excluded from the plan. How does question #1 apply to them? Does the LLC compensation that is excluded for allocation purposes have to be tested for reasonableness, to prove the exclusion is not discriminatory? or does the LLC compensation have to be included for allocation purposes, i.e. added to their ABC Corp compensation for allocation purposes (SH, TH Min, PS)? Presuming the LLC Compensation is excludable, is 401(a)(4) testing done only with respect to ABC Corp compensation? or is the LLC compensation added in for Avg Ben, Rate Group testing purposes? Thank you!
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When are deferrals a catch-up contribution?
cheersmate replied to cheersmate's topic in 401(k) Plans
Thank you Lou S. Can you provide the code or regs used in defense of the auditor's questioning it? The election form for this participant indicates the 401k + catch up will be withheld ratably through out the year. Given this and how the payroll error would you still be comfortable recharacterizing it? Or would the employer be limited to only recognize $4,500 as catch-up (3/4 of the contribution made since contributed 9 of the 12 months)? Again thank you! -
If an age 50+ participant contributed $18,000 for the 2015 Plan Year, can the employer make a Profit Sharing contribution of $41,000 and remain in compliance with 415 limits? The participant had elected to contribute the maximum 401k + catch up limit of $24,000 for 2015 PY, however the payroll company ceased withholding Oct 2015... end result is only $18,000 deferred in 2015. Starting Jan 2016, withholding commenced again. In light of the fairly recent IRS 3 new safe harbor procedures correcting missed elective deferrals, this employer seems to meet the 3 month correction period, therefore no makeup contribution required. To make this participant whole, the employer would like to contribute $41,000 in Profit Sharing provided the $18,000 deposited can be characterized as $12,000 401k and $6,000 in catch-up by making such a contribution -- the reasoning being the "recharacterization" is necessary to comply with 2015 415 limits. Thoughts? Thank you.
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Thank you Belgarath. That is a very good point. Given the informality of the telephone call, would a formal sworn statement by the Participant (and the spouse) suffice if both indicate there is no intent of divorce or splitting of property and will therefore hold the plan harmless should either arise following a distribution of the account to the participant, accepting any consequences personally should either arise...?
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Thank you and this is exactly my concern - the way this could be interpreted. The QDRO Procedure says the Plan Administrator "may" place a hold... It is not a definitive "will" or "must" and it seems to me this is because there needs to be solid basis for such a hold and it should be done carefully. Since this matter has never occurred before for this Plan, the PA is establishing a precedent on how it interprets and handles this I would assume. Is it not reasonable to interpret the QDRO Procedure to mean that a verbal notification of this nature would require more substantial basis, for example receiving a telephone call from an attorney placing the Plan on notice, indicating a DRO is being drafted or sent or discussed by the opposing parties...? If the PA acts prematurely the concern is an unintended violation of a Participant's right to distribution and how long will this account be on hold for a Participant who absent any legal action is eligible to request distribution of his account, and who has told the PA his house is at risk? CADMT you suggested, "Before a hold is effected, I would ask (in writing) for confirmation that there is a impending division of property. It's the participant's money, not the plans. The burden should be on the plan to validate a need for withholding the participant's own money." I think this would clarify what was otherwise a telephone call that may have been made in a desperate moment perhaps infused with histrionics (that as was mentioned, could be denied...) and permit the participant to state for the record of the Plan whether or not a property settlement / divorce is in the works. Would it be best to get both the Participant and the Spouse to swear statements indicating marital bliss?
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A Plan Administrator of a 401kPSP received a phone call from a former participant who has a large balance ($100k) that he wants to take a distribution (which he is otherwise eligible to receive) so he doesn't lose his home, and, that he and his wife are splitting and she wants half of his Plan account. The Plan's QDRO Procedure 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. Suspension of Participant distributions or loans. If the Plan 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 Plan Administrator may suspend processing the Participant's distribution or loan requests pending resolution. Removing hold on the account. After placing a hold on the account, the Plan Administrator should notify the Participant of the hold on the account. In order to remove the hold, the Plan 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 settement agreement awarding the entire account to the Participant." Questions: Is such a phone call sufficient to place the Plan Administrator "on notice" of a pending domestic relations action, such that a "hold" should be placed on the Participant's account, for which he is otherwise eligible to receive a distribution? Can the Plan process (at least) a partial distribution or a hardship distribution in amount necessary for the hardship (house) up to an amount equal to no more than 50% of the account, essentially only "holding" 50% of the account pending the purported domestic relations action? If a "hold" is appropriate at this time on the Participant'saccount (full or partial), for how long should it remain on "hold" before the Plan releases it for inaction by either party? What if the Participant does not ascertain a court order but he (and his wife if necessary?) does contact the Plan Administrator and say they were arguing and the phone call made today was without merit and should be ignored? Or would something more concrete be preferred such as a sworn affidavit? Could the Plan Administrator remove the "hold" on the account? Thank you.
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Payroll Vendor erroneously stopped HCE 401k+catch-up at $18k
cheersmate replied to cheersmate's topic in 401(k) Plans
Thank you GMK. The form is specific for each - 401k and catch-up amounts. What I would like to know is if the $18,000 total amount could be recharacterized as $6,000 catch-up and the balance of $12,000 as 401k... If the employer elects to contribute $41,000 PS for this participant (assuming passes all discrim testing), then this PS plus a $12,000 401k will not exceed the $53,000 maximum annual addition limitation. BUT before the employer considers a $41,000 PS contribution, is the employer required to make a corrective or restorative contribution on behalf of this participant? While it is my understanding the restorative contribution is not counted as an annual addition for 415©, the employer may not want to be so generous as to "over correct" with such a generous PS in addition to a corrective contribution. The payroll vendor is ADP -
Facts: 401k Safe Harbor with Profit Sharing Plan (cross tested plan design) the 3% non-elective Safe Harbor is provided to NHCEs only Calendar Year Plan payroll is monthly professional staff, mostly HCEs, a few age 50+, many less than age 50 2 employees who are HCEs, elected the maximum 401k+catch-up, 1 of whom unfortunately passed away early in the year payroll vendor changed starting with April 2015 payroll all prior 401k+catch-up amounts were accounted for with change by new payroll vendor (error is not because of this). Error: HCE (age 50+) elected BOTH the maximum 401k deferral be withheld proportionately from each pay for the 2015 Plan Year ($1,500 per pay) AND the maximum catch-up be withheld proportionately from each pay for the 2015 Plan Year ($500 per pay). Total per pay withholding $2,000, representing deferral + catch-up. In addition this participant elected 100% of any bonus pay be withheld up to the maximum limits permissible. As it turned out for 2015, the only bonus pay was late December (no deferral was withheld). $2,000 deferral + catch up amount was withheld from monthly pay January through September (old payroll vendor and new payroll vendor). Starting with October's pay, the payroll vendor ceased withholding the $2,000 amount, and this continued through December 2015 (3 months). A late December bonus was paid but no deferral was withheld. Total missed deferral and catch-up: October 2015: $1500 deferral and $500 catch-up November: same December: same Total $4,500 deferral and $1500 catch-up Starting January 2016, the same withholding recommenced $1500 401k deferral + $500 catch-up (2016 limits unchanged) and are to this date continuing. Questions: 1. Given the withholding recommenced within 3 months is there a correction necessary, given the recent IRS new correction methods announced to avoid "windfall" to employee receiving full compensation and contribution? 2. If correction is necessary, is the catch-up amount included in the correction of missed deferrals, i.e. a corrective contribution is made for missed catch-up? 3. Is there any way to recharacterize the contributions totaling $18,000 (withheld as $1500 401k * 9 = $13,500, and, $500 catch-up *9 = $4500) that were made as $6,000 catch-up, $12,000 401k deferral? In this way the employer PS contribution can be maximized, assuming passes n/d testing, and the overall total maximum to this participant still achieved... in a good faith effort to make the participant's total annual additions for the year "whole." Thank you
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SH Plan and Asset Sale - how to structure
cheersmate replied to cheersmate's topic in Mergers and Acquisitions
UPDATE: the sale is about to occur. Other than the Successor Employer executing a Resolution Adopting the existing plan coincident with the buy/sell, noting the change in Employer Name and EIN within it (i.e. no amendment), should the Successor Employer sign the last page of the Plan, by adding a signature/date line for "successor employer"...? Also should the current Employer of the Plan (soon to be the predecessor employer) execute a resolution rescinding sponsorship coincident with the buy/sell? Since it is an asset sale (100%) and the buyer is adopting the plan as successor employer, the 2 employers are considered the same, no severance issues and therefore it would seem a Trustee to Trustee agreement is not necessary. If this is incorrect, please elaborate. Thank you. -
A fiscal plan (5/31PYE) with Safe Harbor Match, pre-tax 401k The employer rehired a former participant on 9/1/2015. This participant was not paid his VAB in the period between former termination date and rehire, and has numerous past service years to his credit. Based on plan terms, this participant was eligible immediately upon rehire. In the past, this participant did contribute 401k deferrals. Upon his rehire, the employer failed to provide the SH Notice and 401(k) Deferral Election Form. The Plan determines the SHM on an annual basis, therefore, the Participant could "increase" his 401k amount for the remainder of the Plan Year so as to capture the full SHM. Upon discussion of this matter, the Participant has told the employer he does wish to make 401k deferral contributions to the Plan. What is the correction necessary for the period 9./1/2015 to date? Thank you.
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The only ER allocation the NHCE and HCE in the "otherwise excludables" will receive is the 3% THM.
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For the year in question, there happens to be an HCE and a NHCE eligible 7/1 for 401k only. So the HCE deferrals were throttled... pass ADP The question is if by giving these 2 otherwise excludables a THM allocation would "trigger" gateway minimum requirements for these 2 otherwise excludables for purposes of a4, with the minimum being the amount necessary for the includables (e.g. 5%). I did not believe this to be the case but a recent article I read lead me to believe I was wrong. Would you please confirm.
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Perfect. Thank you. I can now skip going into a panic!
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The Plan is cross tested and for years has not been Top Heavy. Something I read recently suggested that by making the 3% THMin allocation for the "otherwise excludables" would "trigger" gateway minimum failure if the balance of the plan (i.e. 1 YOS...) has a 5% minimum GW requirement, i.e. suggesting the ENTIRE plan had to be tested for GW minimum purposes. The failure would be because the "otherwise excludables" can ONLY be allocated the 3% THMin, and not be increased to 5%. This is why I posed the above to clarify this.
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Thank you for all of this! If the Plan is Top Heavy for the given year, can the Plan provide a 3% TH Min allocation to the excluded group? And in doing so, not run afoul of any Gateway issues wrt to the excluded group? Thanks again.
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A 401k Safe Harbor Plan has the following provisions: - 6 mos elig for 401k deferral contributions (no min age) - 12 mos/1000 hrs (no min age) for employer SH (3%), discretionary PS (cross tested) - dual entry dates, 1/1 and 7/1 2015 Plan Year, there are 2 employees newly eligible as of 7/1: - 1 HCE (spouse of owner) - 1 NHCE Question 1 Assuming the Plan is NOT TH for the 2015 plan year, the 2 newly eligible participants will not receive SHNEC or PS but if their deferral %s pass the ADP test (testing only them), is it correct that the Plan will not fail any other testing (e.g. Gateway mins)? If this is incorrect, can the Plan be amended to correct via accelerating eligibility for SH and PS to same 6 mos requirement and not lose its Safe Harbor status for the year? Question 2 Assuming the Plan IS TH for the 2015 plan year and all other statements above apply... Assuming ADP test for 2 newly eligible passes, can the employer contribute 3% TH for these 2 newly eligible (assuming they are still employed on the last day of PY) without tripping the Gateway testing (assuming the GW minimum is at least 5%)? If this is incorrect, can the Plan be amended to correct via accelerating eligibility for SH and PS to same 6 mos requirement and not lose its Safe Harbor status for the year? Thank you for your assistance.