MarZDoates

Plan sponsor has not made their safe harbor non-elective contribution deposit for the 2017 Plan Year. It is my understanding that they have until 12/31/18 to make the deposit and keep the safe harbor status for 2017. Is that correct? (I’m not sure if they deducted it on their 2017 tax return, but it would not have been deductible since it was not made by their 2017 tax filing deadline.) Question 1: Is it deductible for 2018? Question 2: Do we have to apply lost earnings?

Non Safe Harbor 401(k) plan covers union and non-union employees. Match is discretionary. Is the plan sponsor permitted to make a match for the non-union employees only, so long as they pass ACP testing? Or would the correct approach be to sponsor two plans. One for the union yes and one for the non-union

Isn't it correct that as long as the document is adopted by 10/1/2018, the plan can be a safe harbor 401(k) for 2018? Does this mean that the investment company has to have all of the participant accounts set up by October 1? What happens if the enrollments aren't done / deferrals don't start until mid-October?

Plan sponsor wants to amend its current non-safe harbor 401(k) plan to change from quarterly entry dates to semi annual. Can this be done for 2018? Or would it need to be done effective 1/1/19? It doesn't "feel" right to me that it would be permitted this late in the year. I would think that if they have employees that have met the age/service to enter 10/1/18, they wouldn't be able to make them wait until 1/1/19. Thanks!

If plan excludes bonuses from the definition of compensation for matching allocations, isn't it correct that ADP and ACP testing can still be done using total gross comp?

Thanks.

Can a Money Purchase plan be merged into an ERISA 403(b) Plan. Both plans are sponsored by same employer

Thanks to all for this great feedback. I will analyze and then go from there.

Participant must be employed on last day of plan year, or work 500 hours in year of termination to receive a match. In 2017, one participant received a match, but term'd with 300 hours. Is a retroactive corrective amendment to eliminate the allocation conditions for 2017 an appropriate correction? The match is calculated and deposited each pay period, I'm thinking we should eliminate the allocation conditions altogether. Plan has no HCEs. Comments please? Thank you!!

I don't know why I didn't think of that to begin with. Seems I do things the hard way first. So as long as we can pass coverage by excluding "former owners" as a class, we should be okay.

I need help thinking this through: Safe harbor 401(k) plan: 3% non-elective contribution to all eligible participants. One of the 5% owners will be selling her interest in the company. She’s over 70 and will still be working and receiving commissions paid as W2 comp. Once her ownership is sold, the plan sponsor/remaining owners do not want to give her any more contributions. One way to do this is to change from NEC to s/h match (prospectively) and hope she doesn’t defer. (This is going to “hurt” the NHCEs. Very few of them are deferring. They will perceive that a benefit is being taken away from them.) If we determine that the former owner will continue to be an HCE based on compensation, here is what I’m thinking: Amend the document to exclude HCEs from receiving the SHNEC. Change PS formula to new comparability – each in own class. Give all of the HCEs (except for the one former owner) a 3% profit sharing. Plan passes ratio % portion of the general test based on allocation rates. (It fails miserably under benefits basis….most of the non HCEs are older than the HCEs). Theoretically everyone except the former owner is receiving the same contribution as before. However, if the former owner fails to be an HCE in the future, this theory won’t work since all NHCEs must receive the SH contribution. Does this sound correct and reasonable?

We have a plan that has Roth deferrals and participant loan options. 2014 was the first year of Roth Contributions for Participant. In 2016, Participant took a $1500 loan from the Roth source, (before meeting “qualified” status). The record keeper allocated the loan payout between the Roth basis and earnings pro-rata (reducing Roth basis). example: $1100 Roth basis; $400 earnings. The participant terminated nine months later, in 2017. The loan balance was paid down to $450. The record keeper did not increase Roth basis for any portion of the repayments, so the distribution will tax the original loan amount including all principal that had been paid off. By taking the loan, the participant will be taxed on the entire amount of the loan, including the amount attributable to Roth, regardless of loan repayments. Is it correct that there is Roth basis adjustment (decrease) for the loan withdrawal but no Roth adjustment (increase) for any portion of the loan repayments?

Thank you for the responses.

Company B became a wholly owned subsidiary of Company A due to an acquisition effective 4/1/16. Company B did not maintain a plan. Company B will adopt Company A’s plan; however, they want to implement coverage transitional rule. This means that the plan does not have to cover Company B’s employees until 7/1/17 correct? Plan does not count years of service for eligibility with Company B prior to the acquisition date. The plan has 6/30 fiscal year end: Eligibility for deferrals age: 21/1 yos: 7/1 and 1/1 entry dates. Eligibility for profit sharing: 21/1 yos: One entry date: 7/1 (Retroactive to first day of plan year preceding date ee meets eligibility). If Company B adopts the plan effective 7/1/17, when will their employees be eligible to enter? One would think 7/1/17 for the deferrals, but what about the profit sharing? The retroactive entry date is skewing my thinking. By what date must the participation agreement be adopted? Thank you.

Thank you for the thorough explanation and citations!! (And yuck.)

A plan sponsor lost a "large contract" in September, 2016, which has caused the dismissal of a significant portion of their workforce. Let's say that more than 20% of the workforce terminated October 1, 2016. We know that a partial plan termination has occurred. We know we have to fully vest those affected. Question: Who is considered "affected"? This is what we found in one research resource: "...all employees who experienced severance from employment during the applicable period should be made fully vested, including those whose terminations were voluntary. The applicable period is the plan year." Does this mean that if a participant terminated voluntarily in March, 2016 that was NOT fully vested needs to be made 100% vested? This participant took a distribution prior to knowing of the partial termination. The non-vested portion was forfeited (and subsequently used to reduce 2017 contribution). Do we need to restore the forfeitures? Thanks in advance for any input!

Is anyone aware of the corrections method for failing to provide forms 1099-R for 2014? Income tax WAS remitted, but Form 945 was not filed either. Thanks.

Lou, I think you are right about the life policy not being held after NRA (from what I read). This was a yucky takeover with lots of issues. Thank you for the link.

Participant has a life insurance policy as an asset in her 401(k) account. (Plan is the owner.) It is my understanding that the ownership of this policy can be changed from the plan to the participant/individual. The participant would be taxed on the cash surrender value. Is this correct? If this is correct, can the cash surrender value be “counted” as part of her RMD due for the year? Example: Participant’s RMD for 2016 is $10,000. Cash surrender value of life insurance policy is $2,000. The plan would issue a distribution check in the amount $8,000 to the participant. Is this permitted? Thank you.

Safe Harbor 401(k) Plan using 3% QNEC. Currently the only contribution sources are employee deferral (pre tax AND Roth) and Safe Harbor. (The plan document does permit discretionary profit sharing contributions, but thus far there have been no profit sharing contributions.) Problem: There were partners that “deferred” and received safe harbor contributions on their “distributions” (as noted in Box 19 of K1) during the year. However, their SE earnings for 2015 were actually 0. This created excess annual additions for 2015. It is my understanding that in order to correct excess annual additions: First the employee deferrals (adjusted for earnings) must be distributed to the participants. Then employer contribution (adjusted for earnings) must be forfeited and placed in an unallocated suspense account and used to reduce future employer contributions. No employer contributions may be made until the “suspense” account is used up. First question: Does this mean that until the suspense account is used up, the employer may not make safe contribution to any participant? (non partner/staff) Second question: Since we are not permitted to use forfeitures to reduce safe harbor contributions, what do we do with the amount in the suspense account? Since the contributions were fully vested when originally deposited are they technically considered a forfeiture? Can we still use them to “fund” future safe harbor contributions? Or, should the plan sponsor declare a profit sharing contribution for 2016 and then use the suspense account to reduce the p/s contribution? Thank you.

Employers C and K are a controlled group. Employer C sponsors a safe harbor 401(k) Plan. Employer K is NOT an adopting employer. Until 7/1/16, Employer K had no employees. 7 employees/participants will cease to work for Employer C, but become employed by Employer K. Employer K DOES NOT maintain a plan. Does it create a distribute event for the employees/participants "transferring" to Employer K? (The plan will pass coverage excluding the employees of Employer K)

Perfect! Thank you much!!!!

Plan uses 415 Compensation (Simplified) as definition of plan compensation. Usually this is the same as Federal Taxable wages plus pre-tax deferrals (401(k) and café plan), right? What about a minister's housing allowance that is not included on his W2 for Federal withholding purposes (Box 1), but is included for FICA and Medicare wages (Boxes 3 and 5)? Should this be included or excluded to determine allocation comp? Thank you

Thank you.

Profit sharing plan: Discretionary as to amount. Formula is currently integrated. Allocation conditions are standard (eligible to receive allocation if employed on the last day of the plan year or if terminated, worked more than 500 hours during the year). We are restating for PPA and want to amend the formula to cross tested (each in own class). Can we make the restatement effect January 1, 2015 (to be adoped before 12/31/15) so that the 2015 contribution will be allocated using cross tested formula? Is this a protected benefit issue? Or must we wait to make the effective date January 1, 2016 (and adopted before that date)? Thank you.