justanotheradmin

Do you have an estimated wage compensation cut off for the employer contribution credit for new start-up plans? Originally $100,000.

Any thoughts on how the last week of the season will be impacted now that TE/GE has officially furloughed what appears to the the majority of their staff? Just curious what musing people have now that we are crossing the bridge.

Scenario 1: Plan has separate pre-tax catch-up and Roth catch-up contribution rates that are deducted concurrently with pre-tax and Roth contribution rates. A highly paid individual subject to the Roth catch-up requirement in 2026 has $10k in eligible comp each pay period and is contributing 5% pre-tax, 5% Roth and 5% pre-tax catch-up at the end of 2025 and does not elect to opt out of deemed Roth catch-up by zeroing out their pre-tax catch-up rate. My interpretation of the final regulations is that a pre-tax catch-up contribution should become available once the participant has contributed their catch-up limit in Roth YTD, i.e. after $8,000 Roth and Roth catch-up has been made in pay period 8. Q1a: Would the deemed 5% Roth catch-up election automatically cease to apply and revert back to a 5% pre-tax catch-up contribution rate starting pay period 9 without the participant making an affirmative election back to pre-tax or would it only revert if/when the participant makes that election? Q1b: If the participant is required to make the affirmative election back to pre-tax catch-up, is only making the pre-tax catch-up contribution rate change available after pay period 8 sufficient or do they need to be able to make the election sooner? If the plan allows, the participant would fill out an election form at the beginning of the year that says "10% pre-tax deferrals each pay period, less the following: 5% Roth deferrals per pay period, with the Roth portion capped at $8,000"

you are vastly over thinking this. First - participants don't get to say that their first $500 of deferrals (Roth or otherwise) are catch-up. Catch-up does not occur until a limit is exceed, or a reclassification occurs such as with a ADP test. they can say "If I have catch-up I want it done as Roth", or "if I exceed the regular 402(g) limit I want my deferrals to stop rather than have any catch", or "I think I will do the max deferrals, so I'm preemptively electing to do my deferrals as 50% Roth and 50% pre-tax" etc. Assuming there are no testing issues - At the end of the year - the HPI participant's deferrals are reviewed. If they are over the regular 402(g) limit, then the next question is "Does the participant have Roth deferrals that occurred during the year, such that the amount in excess of the 402(g) , is at least equal to the amount to be classified as catch-up?" Even if the person deferred Roth for the first half of the year, and pre-tax for the second half, if their Roth dollars are enough to satisfy the amount, then that's good enough. As far as an election by the participant - I would encourage plans to let their participants know - they can elect a portion Roth, and a portion pre-tax, and if the participant thinks they will go over 402(g) then they should probably try to elect enough Roth (either up front or throughout the year) so that it is going to be satisfied. If the participant election is such that "If I have catch-up contributions, I want them to be Roth" well then that's a different calculation. pre-tax would occur until the reach the regular limit and then Roth for the remainder of the year. If a participant is saying " if I am HPI and I have catch-up I want it done as Roth", and the plan would like to change the language on the deferral election form to be more specific, such that the election expires if the person is no long HPI, I suppose they could. but seems like it complicates things. "If I am a HPI and I have catch-up dollars I want them done as Roth and this election shall apply until I am no longer HPI, at which point my regular election will apply" "If I am not HPI and I have catch-up dollars my regular election will apply" "If I am HPI and do not make an election ..." the permutations seem endless... I think a simpler thing would a regular deferral election with an additional box: "If I am HPI I understand any dollars classified as catch-up will be classified as Roth deferrals unless I check the box below, in which case my deferral contributions will cease or be returned to me in the event I reach the regular non-catch-up deferral limit. This election shall remain in place until a new election form is completed" as an aside ERISApedia is having a webinar on this topic later this month. I plan on watching. I'm sure I will learn a few things and perhaps correct my understanding if i'm mistaken.

One issue I see is that Roth deferrals are withheld from pay. Is the employer planning on reporting Roth deferrals on the participant's W-2? And does the plan have a deferral election form on file for Roth from the participant? Would they plan on getting one? I often see voluntary after tax as a direct contribution from the participant, not processed as a deferral. Is that what occurred here? Is the person in question non-highly compensated? Lower paid does not always equal non-HCE. Without knowing more about the situation, I would hesitant to suggest reclassification to Roth deferrals as a solution.

were dollars withheld from pay as pre-tax deferrals? but they should have been withheld as Roth deferrals? Were they withheld as Roth deferrals , but just deposited as pre-tax? If the payroll is correct- but deposits were wrong, just as the recoredkeeper for a correction. If payroll was wrong- are you going to adjust payroll records? or are you leaving as is? If leaving as is - the participant should be offerred the option for an in-plan Roth conversion, which will convert the pre-tax deferrals into Roth deferrals, and the recordkeeper typically issues a Form 1099-R showing it as taxable to the participant.

absent the reasonable classification that CuseFan mentions, the standard ratio percentage test applies(70%). In addition to what everyone else already said about gateway and top heavy. Everyone in their own group - which is often how its written into the document - isn't a reasonable classification. at least not that I've ever heard accepted.

they can put a class exclusion in the document, and as long as testing passes with those folks as zeros in the test, its fine. same as any other class exclusion. But if the exclusion covers the majority of the NHCE, and all the HCE are in the plan, likely testing won't pass.

just minor additional thoughts - if you have made a written request for the SPD and have not received it, that is usually something the DOL, EBSA can get and forward to you. Are you/were you a highly compensated employee? If so, and you are requesting a lump sum distribution, it is possible the funding is not adequate to allow for a non-annuity distribution. If the new actuarial firm is redoing the work from scratch, back to the beginning of the plan, that can take some time, and might be drawn out based on all the things everyone has already mentioned. Did the employer have a 401(k) plan as well? Were you eligible for that plan? For very small employers, it can be more cost efficient to give large benefits as employer contributions into a 401(k) plan, rather than retroactively add everyone to a DB plan. If that is the case, or something they are considering, then likely compliance for both plans would need to be redone back to 2020. Many small business owners seem very entreprenurial to me, and if there are other businesses they have that were part of a related testing group, but weren't included in the plans correctly, the complexity of the correction might be larger than you realize.

they are still in your test. the test will pass though because the HCE group will be 0%.

the term new comparability is used in a variety of ways, but for your situation, you should pay attention to C.B. Zeller. Precision of language is important when talking about these tests and allocation methods. General test, rate group testing, ABPT, coverage, cross-testing, all refer to different things. Cross testing is specifically the idea of testing Defined Contribution benefits on a Defined Benefit basis. Or Defined Benefit accruals on a Defined Contribution basis (but that is far more rate). New comparability is a similarly used term. That's not what you are doing here, and everyone being in their own group or getting custom amounts does NOT require the use of cross testing. As mentioned above, general testing on an allocation rate (DC) basis is fine to use.

and yes there will be additional testing requirements. the EE who are eligible for deferrals, but not for SH, generally need to be tested for ADP/ACP. If there are no HCE in that testing group its usually not a problem, but is another thing to be aware of and perform each year.

Are the hours going to be counted forever? What if it takes someone three years to reach 1,000 hours, do they want the person let for the safe harbor and profit sharing at that point?

assuming this is via ach, sounds like its late then. hindsight is 20/20 the employer should have at least revised and submitted the people they could. and then only a portion would be late and in future years, they should get people added to the recordkeeper sooner, even if the deposit is going to occur at the 11th hour. no reason to wait to input employee data until the 11th hour.

you are going to need to provide more details. Late how? After the deadline in order to be deductible? Generally tied to the organization business tax return filing deadline? More than 12 months after the year end so that it creates a possible 415 issue?

some things to think about: "No HCEs would benefit from this change" seems like a broad statement, and if any of the HCEs are also the owners, a smaller contribution to the NHCE to help testing seems like they are benefiting (even if not in the plan). Would a larger contribution to NHCE get the same result for the HCE's contribution. If so, the proposed amendment is purely to reduce the amount necessary to the NHCE while maintaining the HCE's higher benefit. Its not the same as saying "No HCEs would have increased plan benefits from this change" Could the employer adopt a PS only plan for just that person now, for 2024 and then merge the two. If so, is it allowed to save that step and just do the amendment? is the NHCE vested? would they be vested in the additional contribution? This is why individual group / new comp plans should almost never have allocation conditions. Especially small plans. It can be very cost effective to give a large PS contribution to a terminated non-vested employee and help testing, which wouldn't be allowed if the plan has a last day provision. In this case, its the hours that is the hang up. If testing passes with the term person getting zero PS, that's fine. None of my musings are to suggest action one way or another.

Keep in mind that HCE does not equal HPI . The Roth as catch-up applies to highly paid individuals, not highly compensated. There will be some overlap, but not always.

Thanks Paul, I'll start there. and yes, copies of the agreements and documents have been requested. These seem to be more and more common, so I need to get more familiar with the impacts.

yes - assuming the plan document allows for it given the late timing (it might say something more reasonable like those types of elections impacting compliance testing are due 30 days before end of year so the plan admin can prepare for year end testing), and the plan administrator is able to accommodate it, why not? I'm not aware of anything in the rules that says the election has to be made available until the last moment of the year. But if the plan administrator can accommodate it and the doc allows, sure.

Does anyone have any good resources, articles, webinars, links etc on how testing is impacted when rank and file workers are handled through a PEO as their employer, but the owners are not? I've done some searches here on BenefitsLink but haven't some across anything particularly useful, but please feel free to share links to other related threads too. The PEO workers are covered by the plan offered by the PEO, the owners are not, and want the business to sponsor its own plan. I am fully aware PEO co-employment is NOT the same as Leased EE status, which is why I'm asking. I've had some sponsors argue that the NHCE are not their employees at all, which doesn't seem right to me, but I am not well versed in PEOs, and I'm sure there are varying flavors, so who knows. Think basic 401(k) plan with a safe harbor provision. Thanks folks!

Seems it might work as follows: Item3 - electing out - presumably they would complete a deferral election form for the regular 402(g) amount without catch-up ($24,500 or whatever it gets indexed to for 2026), and if the ADP test fails when performed in early 2027 necessitating refunds the amount that would be reclassified as catch-up would instead be distributed as pre-tax deferrals. item 5. - the participant would complete a new deferral election form - and if desired included the higher election amount (up to max including catch-up), and also if the ADP test fails and any portion can be reclassified as Roth Catch-up that would occur rather than being distributed.

Is the Earned Income reported on Form 1065 K-1, income for the individual for purposes of the 401(k) plan if the K-1 is issued to a P.C.? My answer is no, but I am second guessing myself and want another opinion. Scenario Plan Sponsor: LLP , Participating Employers are two P.C.s LLP has regular W-2 employees that participate in the plan. Those are not in question. The shareholders of the LLP are two Professional Corporations and are clearly listed by the P.C. names on the individual 1065 k-1. Think "Jane Garcia, a Professional Corporation". The LLP as well as the P.C.s appear to be listed as active with the Secretary of State. Line i2 says "What type of entity is this partner?" and it says S Corporation. Jane Garcia - receives a Form W-2 from her P.C. She does not receive a W-2 from the LLP. Jane is arguing that the earned income on the Form K-1, from the LLP to the P.C. counts as personal earned income to her and also as plan compensation. Since the actual shareholder is a corporation, and is listed as one both in name and entity type, my understanding is that the earned income reported on the K-1 is NOT personal tot he individual. But I am getting so much push back from "Jane" and her advisors that I am second guessing myself. I am not a CPA, so I suppose its possible that there are special rules that apply to P.C.s that I am unfamiliar with so figured it would not hurt to ask the hive mind.

I still use some of the things from Janice Wegesin and as long as its not something where the rule changed, they still hold up so well. I loved her webinars and publications, always so helpful and technical and practical for people who actually do the work!

Any thoughts on a scenario where the HPI has no regular catch-up, but when ADP testing is performed, a portion is recharacterized as catch-up if that person also happens to be HCE. If an election is made as much as 18 months prior perhaps in January, and the participant elects no -Roth catchup, it would seem to follow that the participant would received a distribution to correct the failing test. Somehow this feels wrong to me, that a participant's election would impact the corrective action on a test, but I can't think of an alternative. I think it might also create scenarios where some HCE get refunds (elected no roth) and others just have their money recharacterized (yes made a roth election, or plan's default is yes Roth). When performing testing, each HCE's election will need to be known if they happen to also be HPI and age 50 or older. I haven't given this a lot of thought, so I'm sure there are nuances I'm missing.

if you read down this thread I think some of the comments will be helpful. It will come down to how the testing is aggregated and what methods are used to pass.