justanotheradmin

If the amounts were reported as deferrals on their W-2, distribute to the participant as a corrective distribution. If the amounts were not reported as deferrals on their W-2, then move it to suspense and deal with as you would any other deposit error.

I would get a copy of the W-2 or payroll reports for W-2 compensation. The profits / losses from the corporation have NO bearing on earned income. The earned income would be the payroll compensation. Does the plan document have a w-2 definition of compensation? If the individual had allowable earned income as a self-employed individual I would have expected a K-1 Schedule 1065, NOT 1120S. Corporation or taxed as a corporation --> Owners earned income is usually W-2, the same basis as any other employee.

I agree with jpod. This is far from the worst plan ever. One that I worked on was similar, but easily worse. Take your fact pattern, add in a surprise PBGC covered DB plan, plan document restatement errors and provisions that were designed only for the owners (never mind the business entities with all the employees!) There are lots more examples, I'm sure others could share their war stories too, small plans that end up with hundreds of thousands of dollars of QNECs, VCP filings, withdrawals that occur at whim, "loans" that aren't really loans, surprise real estate investments etc.

1. how long were the employees unaware? I'm not aware of an excise associated with the missed opportunity to defer (MOD). At least I haven't seen one in Rev Proc 2018-52 (or the predecessors). So no Form 5330 would be needed. 2. Read Rev Proc 2018-52. Appendix A .02. They need to deposit it. 3. File the Form 5330. Some practitioners have been known to file a single Form 5330 with an attachment of all the details for all of the years. It is up to you if you want to do that or not. I think Janice Wegisein mentioned in one of her webinars that she has had a decent response to that method over the years.

I agree with jpod. I think deferrals should be deposited as soon as reasonable after income is known for the year. Sometimes income isn't known until substantially later after year end. We have run into situations where deposits occur during the year, or shortly after year end, but later on the CPA determines the earned income is negative. This means those deferral deposits never should have occurred, and now there is excess money in the trust that has to be dealt with.

It is done in lieu of refunds. If the calculations support HCE A receiving an ADP refund of $4,000, but they have not used up their full catch-up limit for the year, the $4,000 is reclasssified as catch-up instead of being distributed to HCE A. What should NOT be done is reclassifying catch to all the HCEs at the beginning of the test. just because HCE B only deferred $5,000 and is over age 50, and 100% of their deferral would fit within the catch-up limit does NOT mean it should proactively be classified as catch-up to give them an ADP of 0% to help the test at the beginning. The reclassification to catch-up only only occurs in lieu of refunds. The ADP test is performed AFTER catch-ups are reclassified due to the 402(g) limit. So the scenario only applies to people who are age 50 or older and deferred less than the 402(g) limit + mac catch-up. Hope that helps.

Is there a QSLOB? at it's most basic, the ratio percentage testing on an individual basis might pass, allowing other testing to be done individually. But you should look at benefits, rights, and features carefully. Are you looking for the mechanics? Assuming all are benefiting- super duper simplified. 300 + 3 = 303 HCE 1000 + 180 = 1180 NHCE GroupA 300/303 = 99%, 1000/1180 = 84.7%, 84.7% / 99% = 85.6% Ratio is over 70% Company4 3/303 = 1%, 180/1180 = 15.2%, 15.2%/ 1% = 1540% Ratio is over 70%

I'm not a fan of rearranging compensation to try to game the system. I would suggest a defined benefit plan and a 401(k) plan covering all entities including the husband and wife as sole proprietors. The wife's employees would need to receive enough benefit to make it worthwhile, which may be a lot if they are older than the husband and wife. There are lots of ways to slice and dice it with combined testing, combined plans, offset, cash balance, etc. Those particulars will come down to their personal preference and what they are willing to commit to, and what you are willing to work on. Edit to clarify: I would NOT do the SEPs and SIMPLE with the above arrangement. I would discontinue those if going with the 401(k) / DB arrangement.

1. What is the plan document's definition of compensation? 2. Are there any exclusions to the definition of compensation in the document? Fringe benefit exclusions? Shareholder insurance exclusions? I will tell you that most of our plans use a W-2 based definition of compensation, without any exclusions that would affect shareholder insurance premiums. So those plans include it in calculations.

I agree with Tom. To get a sense of whether or not the match is more efficient at maximizing the HCE contribution than the PS you should look at what portion of the Total Safe Harbor match is going to the HCE. If the HCE's are receiving 75% of match dollars, but only 60% of the PS dollars, then they might want to consider doing a Discretionary Match + SH Match + PS to get to the maximum. That's assuming of course the plan document allows for a discretionary match and safe harbor match at once. Ours usually do, so sometimes our clients like to do their 4% SH Match, + 4% disc Match, + the 3% / 9% PS. If they think the match will continue to be favorable to the HCE for future years, they could try to increase their SH match formula up to 6%.

Agreed.

As for the no NHCE group % to use for the QNEC, I have asked informally at conferences both the IRS and other practitioners what to use, and what I usually see is a safe harbor style percentage as a stand in. Something like 4% or 6%, which would result in a 2% or 3% QNEC if going the 50% route. I have never received a firm answer, but those rates seemed reasonable to me, depending on the circumstances.

No. Read appendix A of Rev Proc 2018-52 It has language in several places similar to "For purposes of this section .05(2), in order to determine whether the plan passed the ADP or ACP test, the plan may rely on a test performed with respect to those eligible employees who were provided with the opportunity to make elective deferrals or after-tax employee contributions and receive an allocation of employer matching contributions, in accordance with the terms of the plan, and may disregard the employees who were improperly excluded. " So if the NHCE were exlcuded for whole year, the ADP test is done with only the HCEs. It would pass.

Curious: Did the employees of the wife's company have a distributable event? I didn't think partial plan term (or stopping participation in a plan) in and of itself is a basis for distribution? Particularly if it was a stock / equity sale (instead of an asset sale) those employees wouldn't have a job termination event.

This is older, but I still find it helpful, and the language easier to understand with some of the examples for deduction issues. https://www.irs.gov/pub/irs-tege/epche903.pdf

To clarify - the money wouldn't be removed from the plan. It doesn't go back to the employer. If there was too much in the trust as of 12/31/2018 (assuming calendar year plan) we would allocate it as an additional employer contribution, and then have the sponsor move the money from the participant accounts to the correct participant accounts. You allocate it until 415 limits are reached. This is older, but may be helpful: See page 27 Suspense Accounts https://www.irs.gov/pub/irs-tege/epche903.pdf

If the document says No. Then the answer is No. Just because something is possible, doesn't mean the specific plan in question allows it. Plenty of things can be accommodated by vendors, or by the tax rules, etc. doesn't mean the plan permits it.

You can probably merge them all you want, and maybe have good reasons to do so (related businesses, payroll, management etc). but if they are not part of single employer, each entity would need to have the compliance testing performed separately, as if they were truly stand alone. and I'm not sure what the existing MEP document / agreement says. It would be a pain if you have to get each of the 20 employers to agree to the plan change. You may have other efficiencies gained by keeping it a multiple employer plan, such as investment or recordkeeping pricing, audit cost, plan documents costs, etc. But it won't be treated as a single employer plan. Single Plan /= single employer plan Good luck.

I think some clarification on the facts would be helpful. Is this correct: Tier 1: Your Company Tier 2: Acquired Co. wholly owned subsidiary, or to be absorbed into Your Co. Acquired Co. - Lead Sponsor of a MEP Tier 3: 20 other companies that participate in the MEP Who owns those 20 companies? If they aren't a related employer group (control group, affiliated service group etc) merging them into a single employer plan doesn't change anything. If you have unrelated employers participate in a single plan, its a MEP. Even if it isn't marketed as a MEP, it's still a MEP. A single ER plan only exists if all of the business entities are a single employer (such as a control group).

lol! :-)

thank you austin3515.

Kevin C. is correct. It's a classic late deposit. Deferral money doesn't lose it's status as deferral money simply because the employer holds onto it longer than they should. The fact that the late deposit crossed the end of the plan year doesn't change this. If the payroll person goes on vacation, or family leave or whatever, situations like this arise. Unfortunately this happens all the time.

Once a plan is safe harbor, it needs to comply with the rules. Running the ADP as an alternative to the ADP test isn't an option. If it were, more plans (especially small ones) would roll the dice if they knew they could just do ADP testing as a fall back. The plan needs to fix its compensation issue, not run the ADP test.

Is the stipend compensation included in plan compensation? 401(k) plan - employees are paid regular hourly wages, plus a stipend for meals, lodging, etc. when traveling. The sponsor specializes in providing services to other areas so the stipend makes up a large portion of the company payroll. I believe these are also sometimes called per diem payments. (not to be confused with per diem employees). The plan document defines plan compensation as W-2 Wages without any exclusions (so fringe benefit is not marked as being specifically excluded). "Wages within the meaning of Code §3401(a) and all other payments of compensation to an Employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statements under Code §6041(d), 6051(a)(3), and 6052, determined without regard to any rules under Code §301(a) that limit the remuneration included in wages based on the nature of location of the employment or the services performed." It's clear that the stipend in NOT a reimbursement, as it is based on the government rates, and not actual expenses. It's also clear that the stipend is not taxable income and doesn't appear on the W-2. But plenty of things don't appear on the W-2 (FSA elections for example) but are still included as comp. I don't have familiarity with this type of compensation. Thoughts? Other Benefit link threads that have covered this?

This whole little thread is hilarious. :-) This line is my favorite.