Dougsbpc

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!

Suppose you have a Safe Harbor 401(k) Plan sponsored by a partnership with 12 partners and 6 employees. The plan has a December 31 year end. The plan provides a 3% Safe Harbor Non elective contribution to only non-key employees. Suppose a non-key employee becomes a 5.5% partner in December (i.e. they are only key for one month of the plan year). Would they be required to receive a 3% Safe Harbor contribution for that plan year? Thanks!

Administer a small defined benefit pension plan that is sponsored by a corporation. The first plan year was from 10/1/2022 - 9/30/2023. The first plan year valuation was done on end of year basis. Their CPA changed the corporation year to December 31, 2023 from September 30, 2023. It makes sense to keep the September 30 plan year. However, we would need to change to a beginning of year. Is there automatic approval when switching from end of year to beginning of year? Thanks.

Administer a DB Plan for a small law firm with 5 participants. Non-PBGC. Plan terminated 9/15/2022 and all benefits were paid by 10/15/2022. There remains about $5,000 which they will use to pay our fees for the termination and administration. The 100% shareholder took a $70,000 haircut to his benefits when distributions were paid. The 100% shareholder now wants to fund $65,000 from the company for 2022 only to himself in the terminated defined benefit plan and then take a distribution of the $65,000. This to make up for the haircut he took. Does anyone think there would be a problem with this? Thanks.

I wonder then. Since the employer funded contribution is not deductible (income tax is paid on the contribution) I would think that distributions to participants would be either tax free or only subject to income tax on earnings. Would this be the case?

Thank you Peter - very helpful Perhaps I am wrong but it then looks like an employer of domestic workers could have a SEP or SIMPLE 401(k) for the domestic workers but employer funded contributions are not deductible to the employer but are also not considered non deductible (for the extra § 4972(a) tax on them). So, for example, suppose an individual who happens to employ 5 domestic workers maintains a SEP for them. Suppose further that a 10% contribution was funded every year (approx. $25,000). The individual is not able to get a $25,000 deduction on his/her personal tax return correct? However, for purposes of section 4972(a) the $25,000 is not considered non-deductible and therefore not subject to penalties. Is this correct? Thanks again.

We have administered a profit sharing plan sponsored by a corporation for more than 20 years. The 100% shareholder owns a large home on many acres of land. The place is so special the upkeep (including horses) requires 5 full time employees. He wants to offer and cover these 5 employees in a profit sharing plan similar to the company (that he is the 100% shareholder of) plan. He made it clear that this needs to be a separate plan. Question: It seems like a plan can only be sponsored by an entity with earned income (sole proprietorship, partnership, LLC, LLP, corporation). In this case he is just an individual paying household employees. I don't believe an individual can sponsor a qualified plan. Does anyone agree? Disagree? if so why? Thanks.

We administer a small 401(k) plan with about 10 participants. The 100% owner of the company sponsoring the 401(k) plan died. In this particular plan, they had self directed accounts for salary deferrals and a pooled account for all employer contribution and rollover sources. The 100% owner never contributed salary deferrals and his account balance The 100% owner did roll over a large portion of his overall benefits from a defined benefit plan that terminated about 5 years ago. About 60% of the pooled account is comprised of private investments (trust deeds, partnerships etc.). I am a little worried about the timing requirements of death benefits being paid to his spouse as his primary beneficiary. We think it may take some time to unwind some of these private investments. The plan document does not seem to address when death benefits need to commence. The 100% owner just turned age 72 this year. In general, we have always heard of death benefits being paid by the end of the year of the participant's death. Is there specific timing on when benefits must be paid? Thanks.

Has anyone had trouble looking up a 5500-EZ filing? We filed electronically and received an acknowledgement number for a 2020 filing. It is easy to find 5500 and 5500-SF filings on the DOL website but we get nothing when looking for the electronically filed EZs.

The secure act 2.0 allows plans to fund matching and nonelective contributions as Roth. 1. I believe the participant must be 100% vested to do this correct? 2. What about safe harbor matching and nonelective contributions. Can they be funded as Roth? Thanks!

As many of you run into, we sometimes have on-going plans with former employee participants that cannot be located. I believe the rule is as follows: 1. For on-going plans - after a diligent search, the plan can distribute a former employee's vested benefit to a default IRA Custodian, but only if it is $5,000 or less. 2. For Terminated plans - (non pbgc plans) after a diligent search, the plan can distribute a participant's benefit to a default IRA custodian no matter how large the participant's benefit is. Anyone disagree with this? Thanks.

Apologies The SEP is not a non-model SEP it is a 5305 model SEP.

We may or may not take over the administration of this small defined benefit pension plan. I know this is somewhat common but do not know the solution. What happens when a company adopts and funds a non-model SEP on December 1, 2022 for the 2022 year and adopts a qualified Defined Benefit Pension Plan on January 15, 2023 effective for the 2022 year? Does this work like if a SIMPLE IRA were adopted in the same year as a qualified plan. I think in that case there is an exclusive plan rule where the SIMPLE would be invalidated and distributed under VCP. A non-model SEP and qualified plan cannot be maintained at the same time. Is the SEP or the qualified pension plan invalidated? Thanks.

We administer a 401(k) Plan with a safe harbor match. Turns out the employer allowed an employee who was not eligible, to make salary deferral contributions. Generally, this can be self corrected by having the plan execute a corrective amendment that would allow the ineligible participant to have funded salary deferral contributions. Since the plan does have a safe harbor match, must a safe harbor match be provided to this ineligible employee? Thanks.