Mr Bagwell

ldr, Thanks for the explanation. I understand more now. The payroll by payroll would be an acceptable way to pay the discretionary profit sharing. It's not a check box for the AA agreement, but some employers do once a year funding, some do by payroll, and then maybe quarterly.

Yep, I'm with you on that. Kind of implies that they have been omitting employees. Yikes.

No, that won't fly. How many part-timers are you really talking about? Do you really think that part-timers are going to participate anyway? Make everyone eligible upon the July 1, 2018 date. Do the 21 and year or service after July 1, 2018 to hold out the part-timers. Keep it simple. And don't let that plan become top heavy in year one (2018)! I hope the owner doesn't want to defer much in 2018.

You understand that rate group testing will need to be done? Maybe I'm wrong about that because no HCE.... If your 2/3 and 1/3 scenario is close, they may not pass coverage.

You would be on solid ground telling the client that the terms of the plan document are not being followed. Prorata would indicate all eligible participants taking into consideration allocation requirements if there are any. And chances are it is a large plan and audited.... auditors shouldn't let that get through the process. You're going to have to have the dreaded phone call. BTW... no HCEs in the commercial plan? I believe you, just surprised. I worked with a reservation in a previous life. They had one ERISA plan and one non-ERISA plan. Pretty straight forward, but non-ERISA plan was a little more interesting.

Yes. I don't have a strong opinion on this. My sarcastic side says that if the "never happened" loan had a fee attached to it, it happened. Is this employee an HCE and a NHCE wouldn't get the same benefit if needed? And of course, there is not enough balance to secure the needed amount of new loan.....?

Was there a fee involved for the first loan?

FAB 2006-03A has the following sentence "In addition, the notification must apprise participants and beneficiaries of their right to request and obtain, free of charge, a paper version of the pension benefit statement information required under section 105."

Letters are to participants.

A good sized player in the 401k market sent this letter to my co-worker in July 2018. Actual language. "What is happening? In an effort to add extra security to the handling of your private information, your quarterly statement will be available going forward in electronic format only. Switching to electronic transmission of these statements allows us to become more digitally based and environmentally conscious with our paper usage, and provides quicker access to past statements. What does this mean to you? You will receive a notification to the email address saved in your profile whenever your new quarterly benefit statement is available online. This notification will contain a link to the login page of your account. Please note that if you were already receiving your statements online, there is no charge, and that electronic delivery does not automatically apply to any other plan information, which you have the right to receive in writing. If you are interested in receiving other plan communications electronically, please follow the instructions found in the e-documents section of your account. There, you can select all of your other paperless preferences. What actions should you take? We strongly encourage you to visit the plan's website at ...., where you can view, print, or download your current and past statements, utilize insightful reports and financial tools in addition to seeing your other important account information. To ensure the statement notification goes to the correct address, please take a moment to log into your account and view the account summary to verify that your preferred email is saved to your profile. If you have any questions or concerns, or would like a paper copy of your quarterly statements, do not hesitate to contact one of your plan's Customer Care Representatives at ..... FAB 2006-03A" Electronic format only? Anyone else doing electronic format only? I'm aware of participants being able to request electronic format only, but a full plan level change to it? It's like a negative election quarterly statement if you wanted paper. FAB 2006-03A mentions that paper statements can be requested for fee of charge. This provider is still offering paper, you just going to have to work to get it. I'm surprised, and yet, not surprised by this action. Figured we would end up there anyway. Any thoughts on this?

Thanks for the explanation Larry.

This is the part that has me asking questions... Where is this coming from? Why can't an Employer contribute 30% profit sharing? I understand they couldn't deduct more than 25% for tax purposes and you may have 415 issues, but I don't remember a 25% cap. Maybe the employer is just generous and can figure that no one is going above the 415.....

Presuming the employee is still active.... I don't see where the employee has met the Required Beginning Date to have to have an RMD so I would say no to RMD and all can go to IRA. Of course, you have looked at the plan document first. :) Just on a practical note, if this was the whole account balance and employee then terminated later in the year, the employee may then have some dollars that should have been RMD. Maybe try talking the employee into taking some cash around the theoretical RMD amount to be cautious.

The terminees would be getting the gateway for 2017. The safe harbor is an ER contribution and the gateway is looking for ER contributions.

Earl, You are still in the same boat as original post. In a Top Heavy safe harbor plan, the Top Heavy rules kick in when a profit sharing contribution is to be done. No exemption if plan wants a PS contribution.

Earl, To answer in order.... Yes, the exemption is gone. Yes, the employees will need to get TH min if SH match is less than 3% of pay. Is this a cross tested plan?

Relius Users, We recently processed a hardship for an employee. The employee wanted to use the available Roth basis as the amount for the hardship. No problem on the processing of the transaction. The slight trouble comes in with taxation. The Roth dollars have been in the plan for 5 years, but the employee is not 59 1/2, so the distribution is not Qualified, so taxes would be applicable. With that, my understanding is that there is a proration between the basis and the total value of Roth. In this instance, let's say basis is 75% of total value. So we did a manual calculation of taxes for the 1099. I really expected the transaction to give a taxable amount calculation because a "regular" cash distribution will calculate the taxes on the Roth piece if the distribution is not qualified. So I called Relius and put in an incident to see what they say. Relius says the "Hardship distribution template is set to use Contributions Only, which will not include earnings". Makes sense, but not for a Roth Hardship that isn't qualified. Am I missing something? Did we do something wrong in regards to the taxation? In regards to the Roth recovered basis. The transaction used the full amount of the basis, which I would expect, it's just weird because you don't expect taxes on the basis, but then again the distribution wasn't qualified. Let me know your questions or thoughts. Thanks

Larry had this strong opinion in a thread I posted called "Retirees, Working but not Much". Similar context. "Umm.... they are NOT retirees if they are still working! They have simply gone to a more part time status. You have already been told they have to get the SH. As to making them 1099 employees, that is a very bad recommendation and something that can get your clients in big trouble. If they are employees, they are employees. You cannot MAKE THEM 1099; they either are independent contractors or they are not. In your case, they have been employees and they still will be employees and will have to be treated as such." Thanks

Our plan document has the same language. There was much conversation with co-worker and manager that I left out of my post above. Somewhere in the past the procedure became convoluted. I was laying out the case to co-worker and manager that the active participant is really taking an In-Service withdrawal vs an RMD based on the plan doc. I wish I had this line to use during the discussion. Thanks, Larry.

Irony at its best.... as I was discussing similar situation yesterday with colleagues. The procedure as it has been explained to me by co-worker........Active 70 1/2 participants are sent the RMD material. Participants choose if they want to take an RMD. If they say yes, then they get an RMD every year going forward. I'm thinking to myself that an active participant wouldn't be taking an RMD, but an In-service Withdrawal as the plan allows. You can call what you want, but don't call it "the participant started their RMDs". Unless someone corrects me, I'll say the participant requested an In-Service distribution.

Don't forget coverage. What is the provider doing there?

Coleboy, With a 2,000 cap, I would recommend to the client to not worry about the match for part timers. Chances are the match is on a vesting schedule? What's the likely hood the part timers are going to be around long enough to be fully vested? I hate to think that the employer would try to stifle the employees from deferring. Plus, I rarely see part timers loading the wagons for 401k. I wouldn't change anything too dramatic for this.

Coleboy, If someone defers at all, they get 2,000? Or they cap the match at 2,000 if employee defers 2,000? There is usually another condition attached to the match calculation. Like, maybe, 100% match, but cap of 2,000. I wouldn't get into the "service" match arena. You would then have to BRF if there are HCEs getting match. Yuck. If a part timer wanted to defer, which helps the tests, I wouldn't discourage it. While I understand the employer's position, I would keep it simple.

Ok. I think I'm following you now. I take it the employer is trying to not pay some safe harbor dollars? And you are trying to be creative by suggesting to just remove the safe harbor piece for the HCEs with a mid-year amendment. Hmmm..... will that really save that much? And now to subject the HCEs to a potential refund if SH status is revoked. Only to come back around to a TH for the Non-Key if SH status is revoked. Seems to me that keeping the plan as is for 2018 is the better play. I don't know the answer to your question. Maybe someone else will comment about stripping only the safe harbor contribution for the HCEs will work.

I'm still in few knots here... Good analysis Mr. Bagwell. I keep going back to the IRS ASPPA Q&A (mentioned in the EOB) where the IRS said no top-heavy contribution is required for HCEs who are not key employees and who do not receive a SH contribution. Based on that Q&A, if the plan is SH plan for the entire year, but with zero contributions for the HCEs, the SH top-heavy exemption applies. The analysis seems to be that a plan can be safe harbor even if HCEs don't receive the SH contribution. ME: It's not "seems to be". The regs state you can elect to not give the HCEs safe harbor contributions. The plan document we use has the option to whom the SH contribution applies. All, NHCE, NHCEs and designated HCEs. You can be safe harbor and exclude the HCEs. This is advantageous in SHNEC, Cross tested plans when owner and children employees are involved..... It doesn't make sense to me that if the plan gives the non-key HCEs zero in contributions, no top heavy contribution is required, but if plan gives the non-key HCEs more than zero, and also gives the NHCEs a SH contribution for the whole year, then the non-key HCEs (and all NHCEs) must be given the top heavy contribution. ME: The above paragraph is where you lose me. A safe harbor plan design will let you exclude the HCEs and be compliant with safe harbor rules. What kind of contribution are you talking about when you say "but if plan gives the non-key HCEs more than zero"? Why would the non-Key HCEs be getting a contribution after the suspension? Are you talking deferrals? Nonetheless, under Revenue Ruling 2004-13, I can see an argument that the "more than zero" contribution for the HCEs was not in fact a SH contribution (due to the mid-year suspension), and thus for the year the plan's contributions do not consist solely of SH contributions. I think that unless we get guidance otherwise, that is the more cautious position to take. ME: "Solely" contributions that satisfy safe harbor rules are deferrals and safe harbors. Not safe harbor contributions only. ME: Of course the ADP/ACT test kick in for the whole year after suspension. And you lose the TH exemption, unless the KEYs don't defer or receive contributions.