Dougsbpc

So for example, if a notice were provided today, the employer would still need to provide the safe harbor contribution on just over 11 months of compensation correct?

Have a Dr. Client with 5 eligible participants and a calendar year safe harbor 401(k) plan. They have maintained the plan for about 8 years. They make a Safe Harbor NEC. Question: could they terminate the plan now (before year end) and not make the Safe Harbor 3% contribution? In this case, no salary deferrals or other allocations were made to any HCE or Key employee this year. I would think there will not be an ADP test problem or a top heavy minimum problem. Thanks.

There is a social club that wants a 401(k) plan for its employees. Since it is a non-profit corporation it appears there would be no key employees participating in the plan. In addition, it turns out there would be no highly compensated employees participating either. I would think there would be no non-discrimination testing since there would only be non-key and nonhighly compensated employees. They have about 20 eligible employees but may want to more heavily benefit two employees who have worked there for many years. They will probably want to have salary deferrals and a good match for all eligibles. In addition, maybe they could provide an additional profit sharing allocation just to the long term employees. Have I missed something? We have worked so extensively with plans that need to be general tested that I wonder if I am missing anything. Thanks

Thanks for all the replies. Yes that is exactly right. In this case, the document allows key HCEs not to receive the safe harbor match. It also appears the document allows for a discretionary match where we can just provide the discretionary match to the key HCEs who are not getting a safe harbor match. If/when a discretionary match is provided, it would not exceed what would have otherwise been a safe harbor match. Bottom line - the employer would just like to have the flexibility for owners/key employees to not receive a match during a bad economic year (if that ever even happens for them).

We know it is easy to have a safe harbor 401(k) plan with SHNEC only to non-keys. Then in a good year a 3% NEC can be given just to the keys resulting in all participants getting a 3% contribution. Does a safe harbor match work the same way? In other words can just non-keys get a safe harbor match and then in a good year keys only get a discretionary match? Our document seems to allow this. Thanks.

have a client that initially wanted to adopt a profit sharing plan effective 1/1/15 for the entire year of 2015. They now want to adopt the plan as a 401(k) with a safe harbor match. They will also make a 10% profit sharing contribution for 2015. I believe as long as the plan is adopted by October 1, we can provide the safe harbor notice on that day as well as salary deferral elections etc. Question: clearly when we calculate the profit sharing contribution we can use full year salary. When we calculate the safe harbor match for 2015 can we also use full year compensation or are we limited to only the compensation between 10/1/15 and 12/31/15? Thanks a million.

We had an almost identical scenario as Hojo states. The PBGC ruled that the spouse was not a substantial owner. In our initial response, we brought up the community property issue. Next we received a letter from the PBGC indicating a fine of $21,000 for failure to file 6 years of back premium filings. The PBGC indicated that we need to complete the filings and pay the premiums and penalties first. Then in the event their ruling is in agreement, a refund would be forthcoming. Their ruling was received, we filed the 6 years and are still working with them regarding the $21,000.

We just started a 401(k) plan for a small employer. They did have a DB plan that recently terminated. The 100% owner rolled over her benefits to the 401(k) plan including a Life Insurance policy. Would the 401(k) plan need to provide Life Insurance policies simply because the business owner rolled over her benefits that included a Life Insurance policy? Thanks.

Mike The separate plan is good idea. The 3% would not be a problem. I think we can aggregate for 410b. BG5150 - why would a 100% bond be required if one plan covers only the owner and has all the private investments and the other plan covers only the employees?

Have a 1 participant plan with $6 M of private investments. For the first time the one employee will be eligible for the plan. However, it is a profit sharing plan and no contributions are intended. We are thinking about changing it to a 401(k) plan. Suppose the 1 eligible employee never makes salary deferrals and never receives a profit sharing contribution. Would the small plan audit be required if the employee never has an account balance? An audit would probably run $4k to $5k. We are thinking the bond premium would also be about $4k to $5k.

Small defined benefit plan covering a business owner and 3 employees. The business owner has a higher benefit than employees in the DB and the employees get a 15% of salary contribution in the DC plan. We don't have any other plans with life insurance but this one does have a policy on the business owner. The employees will need to have comparable policies (for example if the business owner has a policy of 50 times monthly benefit, employees need the same). The problem is the employees have smaller benefits in the DB. I think the employees will then need comparable coverage in the DC plan. The insurance agent is telling me his home office legal department claims that employees can waive insurance in the DC plan. I know this is probably the case for a DC plan by itself but don't think it is possible in this case. Any thoughts? Thanks.

Have a small 401(k) plan sponsored by an accounting firm. They were bought by another firm and decided to terminate the plan. We explained that we would obtain benefit elections then prepare an instruction letter for distribution all at one time after all elections were received and verified as properly executed. One of the two partners of the firm (and also a plan trustee) received her benefit elections, signed them and then immediately called the brokerage firm to transfer her benefits to an IRA. This plan has self-directed brokerage accounts. Is it a problem that the key employee and HCE was paid her benefits weeks before any other employees received their distribution? Thanks.

Thanks for the replies. In re-reading the actual amendment, it is made clear that the amendment is only applicable for the 2014 year. I don't believe this would relate to the short service memo. In this case, the plan had passed 401(a)4 for many years. It just happened that recent personnel changes caused it to fail. I could see short service being a problem if the plan was designed to always fail or if there was a pattern of bringing in only short service employees year after year.

Sorry, this was originally posted to the wrong category. A calendar year 6 participant cross tested 401(k) plan fails 401(a)4. The plan has a 1 year eligibility requirement. To make the plan pass, an ineligible employee was brought in, given a contribution and made 100% vested through a corrective amendment. Once he is made eligible through the corrective amendment, is he then eligible for all other plan purposes or does he need to wait until when he would have entered? Normally he would not enter until 1/1/16. Thanks

A calendar year 6 participant cross tested 401(k) plan fails 401(a)4. The plan has a 1 year eligibility requirement. To make the plan pass, an ineligible employee was brought in, given a contribution and made 100% vested through a corrective amendment. Once he is made eligible through the corrective amendment, is he then eligible for all other plan purposes or does he need to wait until when he would have entered? Normally he would not enter until 1/1/16. Thanks.

A few months ago we took over a traditional DB plan that had been in place about 11 years. The plan will terminate by year end. The plan sponsor sold most of the business and let go 4 of 5 employees in July 2014. All of those employees were long term and were paid substantial benefits from the plan back in December. Now it is just the business owner and one of the lower paid employees as participants. The owner has PVAB of $1,500,000, the employee about $10,000. The plan has assets of about $1,700,000 and they are planning on funding $300,000. Apparently, this was all planned out with the accountant a while ago. The owner has about $700,000 of room until he hits his 415 limit. This seems like a potential discrimination issue to me but maybe not. I believe they could allocate excess to remaining participants at plan termination up to the 415 limit. Also, I think it is acceptable to run a 401(a)4 test on the allocation using a current year basis rather than accrued-to-date. If the test can be done on a current year basis, I cannot see how the 4 that were terminated and paid out just a little over 4 months ago would factor into this. Does anyone disagree? Thanks.

A one participant DB terminates. The one participant has been taking RMDs for 5 years, every year on December 15. If all assets are distributed by May 15, 2015, is he required to take an RMD for 2015 even though he would not have made it to December 15 (the annual annuity date)? Thanks.

Thanks Lou That makes perfect sense.

Plan only allows for one outstanding participant loan at a time. It does allow for loans to be refinanced / renegotiated. One of the drawbacks of not allowing concurrent loans is that any participant who refinances can have a shorter repayment period than 5 years. For example, if a participant has been paying 2 years on an existing loan. The new refinanced loan would then be restricted to a 3 year repayment period. What if the participant's first loan was for a home which the document indicates can have a 20 year repayment period? Suppose that even though he could have had a 20 year repayment period, he only chose 10 years. Now if he refinances, what is the new loan repayment period restriction? Or is there a restriction? Thanks

A plan participant is 82 years old and recently retired. She has been very sharp as the office controller for many years. She elected to take her entire $500k distribution as a lump sum. We followed up with a phone call to ask her if she had really thought this through. She replied that she did and wanted to take the lump sum rather than doing a direct rollover. She seemed to be of sound mind when speaking with her. So we processed the distribution as a lump sum just like the benefit elections indicated. Today (30 days after the actual distribution took place) her financial advisor called and mentioned that she is not well and should have rolled over the entire amount. She has another 30 days to roll over the entire amount (including the taxes withheld) to keep it all tax deferred. However, it appears she does not have the liquid assets to do this. She does have non-liquid assets (Real Estate etc). I don't think there is any way around coming up with the withheld taxes in the remaining 30 days. Any ideas? Thanks.

Have a husband and wife only 401(k) plan that allows for Rollovers, Roth deferrals, after-tax contributions and Roth conversions. The wife has $100K in a traditional IRA. $50k is pre-tax and $50k is after-tax. Can she roll over $100k from the IRA to the 401(k) plan and then convert just the $50k of the after-tax account to Roth? Thanks.

Have a 15 participant 401(k) plan that is top heavy. The plan sponsor has always wanted all employees to be eligible for the plan upon being hired. However, they recently hired an employee who will be a very highly paid HCE. This employee will have no company ownership. The employee is currently eligible for the plan. Can they exclude this employee from participation prospectively? There will be no problems passing 401(a)(4) and 410(b). Thanks.

Have a few DB plans that would like to increase benefits for most participants. If possible, they would like to execute the amendment before March 15, 2015 but have it effective as of 1/1/2014. Can this still be done? Thanks.

We do not administer any plans with life insurance. However, we may be getting a single participant DB plan with $1M of whole life. If the participant's projected benefit is $14,500 the $1M should be well within the incidental limit of 100 times the monthly benefit. However, in reading the document it appears both the PV of the QPSA and the insurance proceeds together cannot exceed $14,500 x 100 = $1,450,000. The document indicates that rollover assets can be used to purchase life insurance with no incidental limit. If this participant rolled over $500k from an IRA to the DB plan, would it count toward his limit? For example, would the limit now be $1,450,000 + $500,000 = $1,950,000. Thanks.

Client has had a July 31 C-corporation and a July 31 401(k) year end for many years. They switched to an S-corporation with a December 31 year as of December 31, 2013. We just heard about this for the first time now. We are trying to determine what to do now that the plan year runs 8/1/13 - 7/31/14 but the tax year is now 1/1/14 - 12/31/14. We are thinking about the following sequence: 1. Base the profit sharing contribution and allocation on salary from 8/1/13-7/31/14 and take the deduction on the 1/1/14-12/31/14 S-corp tax return as long as it does not exceed 25% of eligible plan salary for the period 1/1/14-12/31/14. 2. Next Amend the plan to have a December year end. This would then create a short year from 8/1/14 - 12/31/14. They would again make a profit sharing contribution for the short year and deduct it on the 1/1/14-12/31/14 S-corp tax return as long as both the contribution in #1 above and the contribution for the short year do not exceed 25% of eligible plan salary for the tax year 1/1/14-12/31/14. Does anyone agree or disagree with this? Thanks