justanotheradmin

Scenario A I'm imagining a scenario where a one participant plan (HCE only) spends $200 on a plan amendment to add EACA and gets a $500 credit for 3 years. Or scenario B, where a two person plan sponsor (one HCE, one NHCE) spends $200 on a plan amendment to add EACA (and no other costs) and gets a $500 credit for 3 years. Because the EACA credit isn't tied to "Qualified startup costs" wouldn't Scenario A still qualify for the EACA credit? A separate question: is the EACA credit limited to actual costs? I don't do business taxes so I don't know how the General Business Credit under section 38 works. I'm guess it probably is? As long as business costs over all are over $500 it might still apply? Or would plan specific EACA costs have to be $500 each year to get the full credit? Either way, that really isn't my question. I'm hoping for clarification on my one participant EACA credit question.

thanks Bill! Does that same definition of qualified startup cost apply to the EACA credit? Sec 45T does mention the "eligible employer" as defined in 408(p)(2)(C)(i). but it doesn't seem to reference the definition of Qualfied startup cost from 45E, probably because the EACA credit isn't dependent on actual costs (unlike the startup credit, which do require actual costs).

Thanks Larry. it was in the automatic enrollment tax credit section. I believe she was on slide 43 when she mentioned it. Could be I mis-heard or mis-understood. I understand in order to be eligible for that credit the employer has to be eligible to sponsor a SIMPLE. And if I understood correctly, she mentions that one of the criteria to sponsor a SIMPLE is they have to have a NHCE. Maybe I misunderstood and she just meant to say in order to be eligible for that particular credit the employer has to have a NHCE (which would narrow the group of employers). I don't think the criteria is they have to be eligible to sponsor a SIMPLE AND have at least NHCE. Maybe it's related to the fact that to be eligible it has to be an EACA (not just an ACA)? I don't see why an HCE only plan couldn't have an EACA? Maybe there is some rule that says in order to be an EACA the employer has to have at least one NHCE? Do you know of one? Anyone else? I've not hear of one, but most the plans I deal with either have no auto-enroll, or they have a full QACA. The reason I ask is because we've already had several inquires about HCE only (usually one participant ) plans wondering if they can amend to add an EACA to get the tax credit. I don't see why not unless there is something I'm missing about the rules. What do folks think?

By any chance are you using a pre-approved plan document? In ours the default for prevailing wage excludes HCE. You may have to check the basic plan document (if your plan has one) for this provision. For our document - we have to specifically mark a section to allow HCE to receive PW. If the plan document excludes the HCE from PW and they received one - you have a different kind of error. I would remove the PW from their account as an impermissable allocation. I apologize I don't have the citation - but there is some limit to how much of the PW can used as ADP QNEC - I believe it's 10%? If my recollection is accurate, you'd still have 14% subject to general testing, which sounds like would still fail, even if the HCE isn't an excluded class from PW. For plans with PW we try to make sure their discretionary employer contribution allocation method is everyone in their own group, then anyone who needs to receive extra to pass the testing can. If the HCE received 24% PW, and is allowed to receive it, I'd say you need to allocate enough profit sharing to the other folks to pass testing.

I will say it's what you make of it. How the projects are set-up, the reminders, the e-mails, etc are all customized by the TPA. If you don't have someone in your firm who is willing to be the person to manage all the templates or settings in PensionPro it might not be very helpful. For teeny tiny shops I would say it might be hard to use. If a TPA is large enough that keeping track of everyone's progress, project management, and CRM is important, then it's worth looking at.

I was watching the ERISApedia webinar on the SECURE Act questions - and Ilene mentioned that in order to sponsor a SIMPLE IRA, an employer must cover / have a NHCE. Does anyone have a cite for this? I have never heard that particular rule, but I don't work with SIMPLE IRAs, so I'm sure there is lots I don't know. I thought a sole proprietor with no employees could sponsor a SIMPLE IRA, but maybe I'm mistaken.

I agree and that's what I told the advsor asking. He didn't care for my answer, but its a tiny plan and it's not something worth my time. He disagreed. I suppose sometimes the truth stings.

I would point out that I have heard mixed opinions about the ACP safe harbor applying or not applying. Like many people I have been listening to many of the industry webinars on the SECURE act, and while I think many of the presenters agree with this, some seem to think the ACP safe harbor would still apply. So moral is to wait and see what the guidance says?

yup. I would NOT want to be that employer.

I'm going to preface this by saying I know almost nothing about Puerto Rico rules. So if someone has a primer resource that they think has the answer - please let me know. Question existing U.S. mainland plan, owner only. I am unsure of entity type, I suspect it is an LLC. I do not know which state. I will try to find out the details. The owner / business is moving to Puerto Rico and wants to keep their existing plan. Are there changes? Is this something that is going to be so complicated I should refer them to a different company? What things should they (I?) be aware of? I've tried some basic googling, but all of you are very quick and smart so I figured I would ask here.

This is one of the hazards of having a plan that allows for loans. It happens. Not much the employer can do about it. If the participant is eligible for an in service withdrawal a loan offset occurs in conjunction with the deemed distribution. If the participant is not eligible for a withdrawal the loan is deemed distributed - but tracked on the plan's accounting. Fairly standard stuff. I suppose you could make loan payments a condition of employment. Tell the employee if they rescind their payment authorization they are fired - but that seems harsh. If this participant had more non-loan assets in his account I'm guessing you wouldn't hesitate. He could take an in-service withdrawal - and use the proceeds to pay off the loan balance. He would be taxed on the in-service withdrawal. By discontinuing the payments and defaulting on the loan, the same is occurring, just without the whole tax withholding bit.

Me too - I wonder if it has something to do with garnishment? Maybe employees in California have different rights to reject different types of withholding? But that's just a guess. I don't know much about California. Then yes - by discontinuing the payments he is in effect electing an in-service withdrawal of the outstanding loan balance. In conjunction with a deemed distribution (which is the tax event) this is known as a loan offset. It's also reasonably common. What law circumvention are you concerned about?

We don't have enough information to answer your questions. When you say non-taxable, what do you mean? Roth Deferrals? Roth Conversion? After-tax? Something else? How old are you? How old were you when you stopped working for your former employer? When did you first start having non-taxable money in your account? Specifically what calendar year? Was the money contributed by you - such as a Roth deferral? or a conversion of employer money? For your new employer plan - if the non-taxable money was rolled over - would this be the first contribution of non-taxable money into your account at that plan? Or are you already making some sort of (likely Roth) contribution?

Is the employee eligible for an in-service withdrawal? If yes - then yes, go ahead and let the participant default. The plan will deem it distributed and offset the remaining balance as an in-service withdrawal. Happens all the time. Has nothing to do with being in California. In effect he is electing an in-service withdrawal of his loan balance.

That's a complicated question. If the person is self-employed and receives self-employment income from the business the answer might be no. Usually the only the trade or business involved can count self-employment income. If they receive W-2 based compensation the answer might be yes. I'd also suggest reading your basic plan document. There was an ERISApedia webcase on Compensation recently that if I recall covered this question. You may be able to look through the slides for an answer, or you can listen to it, I believe it's available on demand.

I would not do it. Though I know there are some out there that would. The amendment for the waiver date makes them eligible for 2019. A retroactive corrective amendment to bring someone into the plan is allowed - if it otherwise satisfies non-discrimination (this does not, it only brings in HCE), and it is used to correct a defect. Was any money already deposited in 2019? If not - there is no defect to correct. If this conversation was a year from now - and we were talking about making them eligible for the 2020 plan year, I might have a different answer because the SECURE act allows adoption of a plan after year end. The analysis would be different. But we aren't. Your question pertains to 2019.

Why do you think owner's portion would be after-tax? What kind of entity is it? A sole proprietor? The inability to deduct the contribution (and the associated excise tax) is on the employer, not the individual employee. If I'm an employee and my employer exceeded the deductible limit in contributions - it doesn't change the tax status of the employer contributions made to my individual account, they would still be pre-tax. Maybe there is some special rule for self-employed individuals, but if there is I'm not aware of it. But admittedly, employers contributing too much isn't an issue I've had lately.

I'm sure someone else will chime in with a more detailed answer - My short answer - Why not? If it is a related employer group (control group, affiliated service group, etc) usually all service counts, even while part of an excluded class. When an employee changes status from an excluded class to a covered class, all of that prior service still counts, it doesn't go away. Also - what does your document say? If you use a document that has a basic plan document, I would read any portions on related employers, changes in employee class, etc. I'm guessing the plan excludes the foreign subsidiaries entirely either by business entity, or as non-resident aliens with no U.S. source income - but I would double check that too. I have had plans that thought they didn't cover their offices elsewhere - but in actually reading the document, turns out those employees were eligible and covered by the plan. Poor drafting can have a huge impact. If all of the entities involved are large and there are any QSLOBs then there are probably special rules. Even if that service is excluded - usually plan documents can be amended to credit service from other entities if needed.

What kind of audit are you concerned about? an IQPA audit? IRS audit? DOL audit? Unless I'm misremembering, if you are subject to circular 230 the chance of audit shouldn't really be a consideration when giving advice. and if they are going to the long form due to participant count - typically they are subject to an IQPA audit anyhow - so I'm not sure I understand the concern? Can you elaborate?

This may be moot if your proposed plan has a long service requirement for eligibility, but likely your employee wouldn't be considered highly compensated until their second (or possibly third) year of employment because of how the HCE look-back rules work. I would also talk to someone about possible related employer group rules. I my experience it is unusual (though certainly not impossible) to have a 1 person physician practice (or two in your case) with absolutely no other related employers or employees. If there are other people you work with ( billing, medical staff etc) even if they are leased, temporary, or paid on 1099, please have someone well versed in control group / affiliated service group/ management groups etc review your particular circumstances to make sure there are other groups of people that have to be included in any retirement plan testing. You might not have to give them any benefits under the plan, but the actuary might need to include their data in the annual testing.

Thank you David and pensiongeek - that's the confirmation I needed!

I apologize, I'm sure this question has been asked and answered - so if someone could point me to the correct thread, I'm happy to read up on it. I also wasn't sure if this question was better suited for the distribution message board or this on. I don't deal with PBGC covered plans often - so my apologies in advance if I am using the wrong terminology or asking the wrong type of question. PBGC covered plan - terminated and closed. There were a about a dozen participants whose benefit was sent to the PBGC per the lost participant rules. We are now preparing 1099-Rs for the plan. The participants who elected something ( lump sum cash, rollover, etc) I have no problem preparing the 1099-Rs. But I don't know how to report those whose benefit was transferred to the PBGC. Do they get 1099-Rs? I'm thinking yes - but I've been wrong before If they get a 1099-R what code goes on the form? I'm sure there is a publication or guide that deals with this - I'm just not sure where to look. I called the PBGC for an answer and was told I would get a call back - but I haven't heard yet so thought I would ask all you smart folks here.

Is it by any chance a 3% Safe harbor nonelective? If so - I would review the new SH rules in the SECURE Act. If it is a Safe Harbor match - well, then, i'll let other folks give their thoughts on that.

I'm not sure what your question is - Is she concerned employees will claim that they were never offered the ability to make deferrals? Sounds like the plan does not have automatic enrollment - She gives them the enrollment forms or instructions - then she process payroll as normal unless they turn in a deferral form. Some ERs make a note of when then provided the forms (and how, paper, e-mail etc) so that they can document that there was no missed opportunity to defer. But if the participant doesn't turn in a form - there is no deferral. She doesn't need a form saying ZERO to proceed with ZERO deferral. Getting a ZERO election form returned is of course best practice - but it's not required.

I usually start by reading the plan document ( including the basic plan document). Ours specifies which limits are pro-rated and which are not for short plan years. It also differs if the short plan year is the initial year of the plan's existence or not. Maybe your document also includes those details.