justanotheradmin

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.

how a person is paid does not determine their status as an employee of an organization. PEOs, Leasing companies, Temp agencies, even office sharing arrangements all frequently result in a person receiving pay and a W-2 from an entity that is not their employer. who is determined to be an employee is determined based on who has control of the employee (there is a list of factors somewhere the IRS uses as a guideline) but no where on the list is how the person paid or from what entity. However, as a stand-in, and for simplicity's sake, usually the payroll of an entity is taken to represent all of the entity's employees. While that is usually true it doesn't sounds like it is true here. Though with the nanny on payroll, I would wonder if there would be some sort of presumption they are an employee of the S-corp. What do you mean by the control group comment? Control group status would likely exist regardless of how the nanny is paid. If the same person that employs the nanny as a household employee is the 100% owner of the S-Corp, I don't see how there wouldn't be a control group. Household employees (including nannies) are a common control group issue. Years ago I had a client that included their nanny, housekeeper, driver, and helicopter pilot (yes, they had a personal helicopter pilot to carry them around the city) on their business' employee benefit programs for this very reason.

The pre-approved plan document we use has language in the basic plan document that mirrors the regs and revenue procedures for the Top Heavy exemption. So if you are not comfortable pointing back to the IRS, and would prefer to point to your document, look there. Maybe it has similar language.

I'm guessing the refunds were to people other than the person with the $6,000 eligible for catch-up? Otherwise if if failed in January, and that person was the one allocated the refund, it would have been reclassified as catch-up at that point and not actually distributed. I would say yes, to try to get the refunds back, unless those participants are otherwise eligible for distributions and want to keep the money.

You should look up prevailing wage, and Davis Bacon 401(k) plans, which I believe are part of SCA. There are service providers out there that specialize in plans with those provisions and have some good articles and resources. Or you can search here on benefits link, as there are quite a few threads about those contribution types. Yes, they are usually 100% immediately vested. I have seen two plans with prevailing wage provisions audited in the last few years (by the state) and the 100% immediate vesting was something they paid very close attention to since neither plan sponsor wanted to do it.

S-corp shareholder premiums are usually taxable, and reported as income on the W-2. What does the W-2 say? Are the premiums included? https://www.irs.gov/pub/irs-drop/n-08-01.pdf "The premium payments are included in wages for income tax withholding purposes on the shareholder-employee's Form W-2, Wage and Tax Statement, but are not wages subject to Social Security and Medicare taxes if the requirements for exclusion under section 3121(a)(2)(B) are satisfied." Unless the plan document excludes fringe benefits (which shareholder premiums usually are), they would be included as plan compensation.

Thank you C.B. Zeller and CuseFan! Good to know it's possible, (though not as simple as I'd like), and as I suspected the actuary is correct. I don't have a copy of the Cash Balance Answer Book, but one of our actuaries might, so I will definitely look into it. And yes CuseFan, I've thought about splitting the participants up and doing component testing as you suggest. Now that I know more about testing a DB plan on a contribution basis, I'll have our actuaries give it a whirl!

Well, the ones I've seen the contributions vary quite a bit and the explanation I've been given is that the sponsor has a a mix of private (non-prevailing wage, non-davis bacon) jobs, and davis bacon projects. They would only give Davis bacon contributions for the work projects that mandate it. So if an employee is seasonal, or project based, and happens to work on a lot of private jobs for the employer, they would have very little davis bacon contributions. Compared to an employee who gets assigned to more jobs subject to prevailing wage. The second employee would have higher plan contributions.

Wouldn't the Davis Bacon contributions trigger Top Heavy minimums anyways? Even if there was no planned profit sharing? Maybe your document is drafted differently, but for ours, the TH waiver on safe harbor plans only stays intact in very narrow circumstances (such as SH + allocated forfeiture). Other types of employer contributions, including Davis Bacon would cause plans on our document to lose their TH waiver, and a TH minimum would be due (which the davis bacon would count towards). But maybe I've been doing it wrong? I don't see many Davis Bacon plans.

What are the pit falls of cross-testing a cash balance plan on a contribution / allocation rate basis? Is this not allowed? Fact Pattern - bear with me Small law firm has two partners, two employees (NHCE). There is an existing 401(k) plan with a 3% Safe Harbor non-elective (will be amended to NHCE only for 2020). The earned income for the partners fluctuates a lot due to when they receive settlements from cases. In years where they have a lot, it would be super helpful to be able to make large contributions to the plans. I was thinking a contribution credit formula that increased the higher the compensation. Something like 100% of compensation in excess of $100,000, or $5,000, whichever is greater. They are not opposed to doing large contributions for their NHCE. If they can be done into the 401(k) as SH and PS, that would be ideal, then they aren't committing to large contribution credits to the NHCE in the CB plan. Because of the ages of the partners and the NHCE, regular combined testing doesn't work well. Its okay, but one of the partners is on the younger side, and the main NHCE is older than both partners by 10+ years. The NHCE would get 2.5% contribution credit in the CB. I apologize, I am not an actuary and don't do a lot of work on DB plans. But I do plenty of rate group testing, 401(a)(4) etc in the DC world. So if I am testing the combined benefits can't I just take the (Safe Harbor + Profit Sharing + Cash Balance contribution credit) / Compensation = Rate Then do my regular HCE NHCE rate group testing? One of our actuaries is thinking we would need to convert the contribution credit to the NRA annuity benefit, then convert back to present value, then use that amount combined with the SH and PS for testing. I understand his argument, but would prefer my simpler method if possible. The actuary is proposing just giving the NHCE a flat % of pay in the CB and avoiding this type of combined testing. But it would be much more flexible if we could customize the NHCE benefit each year since the partner's compensation changes can be quite extreme. It will be easier to do this after year end with a discretionary profit sharing contribution to the NHCE, than trying to amend the CB plan prospectively to adjust an NHCE benefit. Some things I've already thought about - but feel free to chime in: 415: The younger partner's CB benefit is limit because of his age 404: There should be plenty of $ available to give as profit sharing and safe harbor to the NHCE and still stay within the 6% deduction limit I apologize if I am off my rocker - I was just thinking if I can cross-test a 401(k) plan on a benefits basis, why can't I cross test the other way, a DB plan on an allocation basis?

Correct. Though participants must be given 30 days notice, and receive safe harbor contributions through that period.

I would be more concerned about why he is receiving 1099 comp from the S-corp. That seems like a red flag. What services would be provided on a contractor basis but not an employee basis? Often I see 1099s issued as comp to avoid payroll taxes. Ultimately it's an issue for the company and their CPA, but I would still question it and ask for clarification. But that's just me.

What does the document say? The basic plan document we use actually says that ALL income of the employer counts , including from entities that have no adopted the plan, as long as the participant has some compensation from an adopting employer during the year. If he is the 100% owner of the S-corp, and also a sole proprietor, there would be a control group issue to consider, and then the Employer would likely be both entities, and it's possible the self employment comp would count. In our doc - there is a spot in the adoption agreement that the sponsor has to mark if they want to specifically EXCLUDE from the plan comp, compensation from non-adopting related employers. Might be worth it to read all the fine details of your basic plan document. This is different than when an employee changes from a non-participating entity to a participating entity (or the reverse), or an excluded class to a non-excluded class (or the reverse), as well as different than when an employee only works for a non-participating entity. Those circumstances are addressed slightly differently in our document.

Small company with a 401(k)/PS plan as well as a pension plan. Pension plan is written as an offset so that 100% of the NHCE benefit is provided as PS in the defined contribution plan. The two owners (husband and wife) have their benefit in the DB. Would this plan be PBGC covered? It does not meet the small service professional exemption. Would the answer be different if it wasn't written as an offset, but as a stand alone plan that is tested with the profit sharing plan? Assuming 401(a)(26) passes of course.

Separate from draws, her year end earned income will need to be positive in order to have deferrals. I have seen partners defer from draws all year long only to discover after year end that there is no earned income from which to defer. Just something to keep in mind.

I should clarify - if the match was forfeited and kept in the plan - no 1099-R is issued for that money. The money that was correctly distributed (match and deferrals - did ACP fail too?) gets a 1099-R showing no 10% penalty. The money that was incorrectly distributed (Match and deferrals? ) gets a 1099-R, sounds like with code 1. If only the ADP test failed I would expect to see deferrals refunded and attributable match forfeited. But it sounds like match was distributed - maybe that's part of the incorrect distribution? - so yes, if that's the case it gets taxed.

"So if the participant doesn't repay, then ER is not required to either (even though the participant isn't 59 1/2 yet)? I would think this would apply to both the ER matching contribution as well as the salary deferrals? But appears that Form 1099-R should be issued so that the overpayment portion is subject to 10% early withdrawal penalty?" - Yes, that's my understanding. "Will there be any repercussions or other issues (possible fiduciary issues) if the HCE/participant, who is the CEO, refuses to return the money? I'm going to hope he wants to return the money, but if he is unable to (for whatever reason), I'm just trying to anticipate their questions." - Is he a fiduciary? If so, then yes. He may argue that his rights as an individual outweigh his responsibility as a fiduciary.But his responsibility as a fiduciary are to the plan and ALL of the participants. If a fiduciary knows of an error they are supposed to try to fix it. If he insists on not returning the money (and he is a fiduciary) then I would suggest he talk to someone about self-dealing, hopefully decent ERISA counsel. "If the HCE/participant returns the money, that specific forfeited ER match contribution has already been utilized for other ER match contributions during the year. However, I would think that 'other' ER matching forfeitures could be utilized to restore his balance, and if there are none, then the employer would need to contribute it to the plan?" - Yes that sounds correct based on EPCRS "If the HCE/participant returns the money, is he required to repay earnings from the time of the distribution to the time of the repayment? How are these earnings calculated?" - The revenue procedure gives several reasonable ways to calculate earnings. I believe they are in Appendix A or B. Typically I would start by looking at actual earnings of two things 1.What the money earned while it wasn't in the plan. 2. What the money would have earned while in the plan. The actual earnings rate has some flexibility as long as it is reasonable, EPCRS allows use of the highest returning fund in the plan, the plan RoR as a whole, etc. I've seen each participant's actual rate of return calculated, etc. The actual mechanics of a RoR return calculation will vary based on how you weight contributions / distributions, calculate time involved etc. Perhaps most importantly - how are they going to prevent this from happening again? Will you be performing the ADP for 2018 instead of them?

I've seen this several times in the past few years. While the cause of the error is the test, the actual error is overpayment of a distribution, which is addressed in EPCRS. The participant should return the money (adjusted for earnings), and the 1099-R can be adjusted (if not issued yet) or amended to reflect the portion that was correctly refunded to the HCE. If the participant refuses to return the money - and they would have been eligible for an inservice withdrawal ( typically over age 59 1/2) then basically the HCE has taken an in-service withdrawal of the extra $. If the participant refuses to return the extra $ -well there are other threads on here about what to do when distributions are too much and how to try to recoup or next steps. Presumably the forfeited match is still available, if not, the sponsor should make a deposit to the plan to cover the match that needs to be restored to the HCE's account. I've seen all of this done as self-correction (which is a decent option if fixed all within the same year - minimizes tax impact). I've also seen this done as a VCP, which is good too. Since the plan would have an annual IQPA I would also suggest checking with the auditor if they are the kind that are sticklers about things being done exactly their own way. Good luck.

While I agree that the answer to the original question is No, I disagree that employer contributions can never be "Roth-ized" Plenty of 401(k) plans allow for Roth deferrals, and under the Roth conversion rules (not the old Roth rollover rules), those plans could allow participants to convert existing balances to Roth. This can include employer money. If done as a Roth conversion, the money retains the characteristics and restrictions of the source money. So while I don't care for it, we do occasionally see a participant with Roth Profit Sharing, or Roth Match, etc. But perhaps the distinction is those occur at the individual participant's request, the plan has not made a carte blanche change to a source for all participants. I rarely see Roth conversion requests, so perhaps the rules have changed, but that's how I remember them working with the rules came out for Roth conversions.

I'm assuming the company has been around and participants would have compensation from 1/1/18 - 12/31/2018 to consider if possible. The basic plan document we use addresses the limits and short year issue. It also makes clear that the adoption agreement has a spot where compensation can be clarified. In ours it is titled "Period for Determining Compensation". If a sponsor wants to use 12 months of full compensation (subject to the limits, pro-rated as necessary) the document would say something like "the 12-month period ending on 12/31 which ending during the Plan Year" So even if the plan has a short plan year, the full 12 months of compensation is used. Hopefully your document has similarly clarifying language.