Dougsbpc

Ok so the plan document indicates that when the AFTAP is done for the subsequent year and it is certified with a high enough percentage, just the prior year benefit accrual is restored. The document is a volume submitter. Is it legally possible to have a provision that indicates when the AFTAP is done for the subsequent year and it is high enough, ALL PRIOR YEAR's BENEFIT ACCRUALS ARE RESTORED? If this is possible, we would have them adopt an individual design plan if necessary. Our concern would be the potential lack of getting a 415 limit increase for those frozen years, even though the current document seems to indicate that a participant will have a 415 limit increase even if the plan is frozen as long as he/she otherwise meets the requirements to accrue a benefit (worked 1,000 hours etc.).

A small non-pbgc defined benefit plan with 12/31 year end terminates 11/30/2023. All assets are distributed by 5/31/2024. 1. Since this plan has a 12/31 plan year end, is the 2023 5500 filing date 7/31/2024 as usual? Or is it 6/30/2024 (7 months after the termination date)? 2. Or do you file 2023 by 7/31/2024 and then for the 2024 year by 12/31/2024 (7 months after all assets were distributed)? 3. Or are there some other filing due dates? Thank you!

Administer a 1 participant DB plan. Sent to us by an insurance agent. When the plan was established 10 years ago, the life insurance was exactly 100 times the projected benefit. The client still wants to keep the plan but does not want to fund as much. Dropping the benefit formula will make the insurance more than 100 times the projected benefit. What happens if the plan were audited and it was determined that the life insurance upon purchase and for 10 following years met the 100 X rule but now does not? Thanks.

I have read threads about this and it still seems unclear. We are looking at a plan that is a 1 participant DB that has existed 9 years but has never had an AFTAP. Benefit accruals are not frozen through year 5. Benefit accruals are frozen years 6,7,8 and 9. Clearly the participant does not get benefit increases for years 6-9. If she worked more than 1,000 hours each year in years 6-9 does she at least get a 415 limit increase for years of participation? I would think not. This appears to be a plan that has always been well funded. If an AFTAP is done this year (above 110%) is there any way to restore accruals (and 415 limit increases) for years 6,7,8 and 9? Thanks!

We administer a 2 participant traditional defined benefit plan. A 100% shareholder and an employee. The plan has been in place for 10 years and has a calendar year end. 3 months ago the one employee / participant quit to move across the county. She was paid her 100% vested benefit. Today the 100% shareholder called and mentioned that she wants to retire next month and terminate the plan. Question: If the plan is terminated this month and distributed to the 100% shareholder by October there may be a small amount of excess assets that can be absorbed by the 100% shareholder. Must the terminated employee who was distributed fully three months ago be entitled to any of the excess assets? Thanks!

A client has a profit sharing plan with pooled investments. Just one brokerage account and all participants share in earnings / losses of the pool on the plan anniversary date. We believe 404(a)(5) disclosures do not need to be provided to participants because they cannot direct investments. We believe it would be the same with 408(b)(2). Participants can pay administration fees from plan assets for participant loans. For example, participants who want loans need to pay us $75 for loan processing. However, we have never gotten close to collecting $1,000 annually from loan fees. However, this last year they paid our annual administration fee from the plan and it was more than $1,000. Would this mean we now need to provide 408(b)(2) disclosures to the plan sponsor this year because of the administration fees paid from the plan? Again, it is not a directed account plan. Thanks.

Thanks Peter!

A writer has a small corporation where she is the 100% shareholder. She is also a member of the writers guild. If a defined benefit plan were to be adopted by her corporation, are there adjustments that need to be made to the benefits under the defined benefit plan because she is a member of the guild and they have a defined contribution plan? Thanks.

I know a profit-sharing contribution is discretionary and is not required to be funded. Have a client with a 401(k) Profit Sharing Plan where they forgot to fund the profit-sharing contribution for the plan year ended 12/31/2022. They have funded a 10% of salary profit sharing contribution for the past 20 years every year and would like to make up the missed contribution now. Is there anything under voluntary correction or self-correction that would allow the contribution to be funded now but allocated based on 2022 data? The problem with just funding double the normal contribution now is that there were about 10 participants who terminated employment in 2022 and were entitled to a profit-sharing contribution then. They would not receive any contribution now if it had to be based on 2023-year salary. Thanks.

Understood. It would be a 2023 contribution. Again this plan sponsor badly wants to make up for missing the deposit of the profit sharing contribution for the 2022 year. In this plan a participant is entitled to a profit sharing contribution in the year they terminate employment. Suppose a participant terminated employment on December 31, 2022 and should have received a 10% of salary contribution for 2022 (the contribution the employer wants to make up to the participant). This participant would have no plan compensation in 2023 so no make up contribution could be allocated to him. Correct? Thanks.

Administer a 401(k) plan that utilizes salary deferral, SH Nonelective and Profit Sharing. Salary deferrals are self-directed and everything else is pooled. Sponsor is a corporation. Calendar Year 2022: All salary deferrals were funded by 12/31/2022. They funded employer contributions of $110,000 in 2022 and forgot to fund all remaining contributions. There were Safe Harbor allocations of $110,000 for 2022. So the $110,000 deposit in 2022 covers that. They intended to fund a profit sharing contribution of $200,000 for the 2022 year but mistakenly never funded it. They filed by March 15, 2023 and took a deduction for employer contributions of $310,000 ($110,000 SH + $200,000 PS). However, they forgot to fund the final $200,000 deposit. They will need to amend their 2022 corporation tax return and show $200,000 of additional taxable income. They want to make this up to their participants and deposit the additional $200,000 now. All 2023 year contributions have been funded properly. I believe they could fund the additional $200,000 now and have it along with the 2023 year employer contributions as deductible for 2023 (still under the 25% deductible limit). If this is the case, should the $200,000 profit sharing be allocated as of 12/31/2022 (on the 2022 report) or should it be allocated as of 12/31/2022 and combined with the 2023 profit sharing allocation (on the 2023 report)? Thanks!

It is good to know that it may be doable with an amendment. Our document seems to indicate that once a current AFTAP is signed, the prior year freeze is the only year that will be automatically lifted.

Suppose you have a 1 participant DB that started 1/1/2016. This is a plan that actually has always been more than 100% funded. There are no freeze consequences for the first 5 years of this plan if an AFTAP was not signed. So that would leave plan years ending 12/31/2016, 17, 18, 19, 20 with no freeze consequences correct? But if an AFTAP was not signed before 10/1/2020, benefit accruals would be frozen starting for plan year 1/1/2021. This particular plan will have had no signed AFTAP until 9/30/2024 and the plan will be certified at about 115%. My understanding is that when this AFTAP is certified on 9/30/2024, benefit accruals for 2024 and 2023 will be restored. Is there any way benefit accruals can be restored for the 2022 and 2021 years as well? Is voluntary correction available or does the participant just lose the 2021 and 2022 year accruals with no possible way to get it back? Thanks.

Have an on-going traditional 401(k) plan (calendar year) can it be changed to a safe harbor 401(k) plan (with SHNE contributions) effective for this 2024 calendar year or do we need to wait until 2025? Thanks.

Suppose you have a traditional 401(k) plan with about 20 participants. The plan document specifically states that salary deferral contributions in excess of 40% of Compensation are not permitted. In 2023 they had a participant with lower salary that funded salary deferrals of 70% of compensation. Since this is a violation of the plan I would think the extra 30% needs to be removed from the plan and refunded to the participant. Would the full 70% be included in the ADP test? I would think not because the plan specifically prohibits salary deferrals in excess of 40%. Does anyone agree / disagree? Thanks.

Have a real saver of an employee who has no ownership in the company sponsoring the 401(k) plan that she is a participant in. This is a valued employee so she is an HCE. She has a substantial amount in an IRA and was thinking of rolling her IRA into the 401(k) plan to avoid having to take RMDs. She is currently 69 and is looking ahead. Anything wrong with rolling over the IRA now with the idea that she will not need to take RMDs until she actually retires, which she claims will be at least 10 years? Thanks.

Thank you for all of the excellent points. In reading the plan document, it is clear on the procedures to follow if no Designation of Beneficiary is available. In such a case, the death benefits are paid in the order indicated in 1-5 above. Nothing in the plan document indicates what an invalid Designation of Beneficiary is and whether or not an invalid Designation of Beneficiary is the same as no Designation of Beneficiary. If it were considered the same as no Designation of Beneficiary, then the order in 1-5 above seems very logical. I guess this really comes down to whether this would be considered an invalid Designation of Beneficiary and if so, would the order in 1-5 above apply.

We administer a small 401(k) plan A participant died and the plan sponsor sent us a copy of the participant's most recent Designation of Beneficiary Form. It was signed a few years ago. The Designation of Beneficiary form provided room to name up to two Primary Beneficiaries and up to two Secondary Beneficiaries. The form also indicates that the participant may attach an additional form should they want to name additional beneficiaries and as long as it the form is signed and dated by the participant it will be valid. Now the Designation of Beneficiary Form is clear that the total of all primary beneficiaries share of benefits must total 100% and the total of all secondary beneficiaries must total 100%. This participant was not married and named a friend as primary beneficiary entitled to 50% of the benefits and no other primary beneficiaries entitled to the remaining 50% share (i.e. the total does not equal 100%). Same with the secondary beneficiaries as their share of benefits does not equal 100%. Question: would this be considered an Invalid Beneficiary Designation? And if so, I believe we would follow the standard hierarchy allocation of assets as described in the plan document. Thanks.

Just to clarify This plan has not been adopted yet. If it makes sense, they want to adopt by next week effective for the plan year 1/1/2023 - 12/31/2023.

A small corporation (just a business owner) started a business 5 years ago. Worked very hard all of those years and now the company is profitable enough to sponsor a defined benefit plan. In 2023 his W-2 salary was $300,000. In all previous years of the company he did not take a salary. As it turns out, 2023 was the first year that revenue exceeded expenses. He is currently age 71. According to the business owner, he has always worked more than 1,000 hours and in years 1-4 he believes he worked more than 3,000 hours per year. My question is with the 415 limit calculation. Our understanding is that for 415 purposes, his 415 limit is the lesser of the following: 1. The dollar limit: $265,000 / 12 months = $22,083.33 X 1 /10 = $2,208.33 but in this case increased to $4,866.13 because of age 76 retirement. 2. Service limit: $330,000 /12 months = $27,500.00 X 10% per year of service. $27,500 X 10% X 5 years of service = $13,750. So his first year accrued benefit will be limited to $4,866.13. My question is this: even though he did not draw salary for years 1-4, are we able to count those years in our service part of the calculation (#2 above)? Thanks!

We administer a 401(k) plan that has an in-service distribution provision. The age is 59 1/2 for salary deferrals and safe harbor contributions and 59 1/2 for profit sharing. We sent the client an amendment to eliminate the age on the profit sharing source about two months ago. The amendment indicated that the change would be effective November 15, 2023. Even though we told them to execute before November 1, 2023, they executed today. The plan has a participant who is requesting an in-service distribution. There is no reduction of benefits here nor is there any cut-back. Does it really matter that this became a retroactive amendment because they waited so long to execute? Since no other participant has ever taken an in-service distribution I would think that even though the amendment has an effective date of 11/15/2023 it really has an effective date of December 6, 2023 because it was signed today. Anyone disagree? Thanks.

A participant in a 401(k) plan ended up with lower than expected salary and consequently violated the 100% of compensation limit. This is a 415 violation and we are in the process of correcting this by forfeiting some of his employer contribution allocation from last year and refunding some of his salary deferrals. The participant is an NHCE. In applying the earnings on the corrections, we are lucky because the plan has self-directed investments that make it easy to determine the applicable earnings. Question: suppose his account has 11% losses. Can we apply those losses to the $4,000 of salary deferrals to be refunded and $3,200 of employer contributions that will be forfeited and kept in a suspense account? I would think this should be ok, especially since he is an NHCE. Does anyone else agree / disagree? Thanks!

We administer a Safe Harbor 401(k) plan sponsored by a partnership with 15 physicians and 5 nhces. The 3% safe harbor employer contribution is provided only to nhces and hce non-keys. The issue here is that every year, one of the 5 nhces become a partner (often with less than a 5% interest). The odd thing is that these partners are often considered nhces because the prior year they were an employee making $80k. This would then force the less than 5% partners to fund their own 3% safe harbor contributions as well as at least an additional 2% employer contribution to meet the minimum gateway. With this odd scenario happening, the managing partner wondered if they could have language in their partnership agreements indicating that any partner nhce will be responsible to fund their own safe harbor and other employer contributions

Have a scenario where an employee became a partner of the firm sponsoring a 401(k) plan on 1/1/2022. However, they became sick just before 1/1/2022, and left the firm 3/15/2022. During 2022 they worked 0 hours but had $86,000 of ordinary income also considered self-employment income. Would they be entitled to a 2022 SHNE contribution for 2022? As an employee, she was eligible for the plan. Apparently, the firm paid her disability payments of $86,000 between 1/1/2022 and 3/15/2022. I know there cannot be an hours requirement (like 1,000 hours etc.) to receive a SHNE contribution. Just wonder if someone working 0 hours would even be considered eligible to receive a SHNE contribution. The plan document does not seem to address this. Thanks.

Suppose you have a 401(k) plan that is sponsored by a partnership of corporations. Each corporation then adopts the plan to become a participating employer. This is often the case with a group of physicians. If each corporation only employs one physician, is that physician automatically considered a key employee because he/she owns 100% of their corporation? What if they own 100% of their corporation but their corporation only owns 4.5% of the partnership? Does that then make them a non-key participant? Thanks!