Mr Bagwell

I think I'd stay away from changing the true up status for a safe harbor plan mid-year. Just my opinion. I don't like taking away money in a true up situation. And I would hate to see the HCE get more match at true up and see an NHCE get match reduced because of a mid-year change. I understand someone wanting to maximize their safe harbor match..... but that falls into a communication with the employee/er and plan design for me.

The employee is still going to get the full safe harbor match regardless if Basic SH Match or Enhanced. You need to figure out if employee had put in a deferral percentage or not and go from there.

Here's the reg. (Emphasis mine) (d)(i) If the employee was not provided the opportunity to elect and make elective deferrals (other than designated Roth contributions) to a safe harbor § 401(k) plan that uses a rate of matching contributions to satisfy the safe harbor requirements of § 401(k)(12), then the missed deferral is deemed equal to the greater of 3% of compensation or the maximum deferral percentage for which the employer provides a matching contribution rate that is at least as favorable as 100% of the elective deferral made by the employee. If the employee was not provided the opportunity to elect and make elective deferrals (other than Roth contributions) to a safe harbor § 401(k) plan that uses nonelective contributions to satisfy the safe harbor requirements of § 401(k)(12), then the missed deferral is deemed equal to 3% of compensation. In either event, this estimate of the missed deferral replaces the estimate based on the ADP test in a traditional § 401(k) plan. The required QNEC on behalf of the excluded employee is equal to (i) 50% of the missed deferral, plus (ii) either (A) an amount equal to the contribution that would have been required as a matching contribution based on the missed deferral in the case of a safe harbor § 401(k) plan that uses a rate of matching contributions to satisfy the safe harbor requirements of § 401(k)(12) or (B) the nonelective contribution that would have been made on behalf of the employee in the case of a safe harbor § 401(k) plan that uses nonelective contributions to satisfy the safe harbor requirements of § 401(k)(12). The QNEC required to replace the employee’s missed deferral opportunity and the corresponding matching or nonelective contribution is adjusted for Earnings to the date the corrective QNEC is made on behalf of the employee. I would say yes to the 3%, however, if the employee wanted to defer 10% and put in paperwork or online percentage timely, I'd think they are on the hook for 5%, plus......

Interesting stuff.... honestly never been into the weeds like this about refunds. :) I have not worked for an actual "TPA". I have been more of a full bundled approach provider employee.

Wouldn't calculating the ADP test imply a fiduciary responsibility? So if I calculate the ADP test and the employer signs off on the refunds, I have no fiduciary responsibility?

Just my thoughts..... I would not like to see my client miss the corrective distribution deadline if we have the ability to get it done timely. I know my plans that are most likely to fail and hammer those in the first wave of testing. Because I've got my eye on those, if they fail I usually give the client the heads up they fail and let them know when we will be issuing refunds. We do not look for a formal approval. I would guess that there are providers that send the refund checks asap with no approval of any kind. I have seen electronic signatures that say the census is correct as given so it is processed right away and refund checks would be issued right away. Our census package indicates that if we don't receive the census by x-date, we cannot guarantee the refund deadline. With that said, if I can still get the test ran and refunds completed, I try to do so. Ok... what's the goal here? Client satisfaction? Supposed risk mitigation? I have a example that kind of fits the scenario of worst case. Multiple issues involved, but applies anyway. We had a plan come to us in middle 2015. Testing was completed in Feb 2015 by previous TPA and refunds needed to be issued. The TPA sent out required distribution paperwork to employer for signature. Plenty of time to have processed before deadline. We take over plan and process the next year's census for 2016 testing. 2016 testing fails and refunds are needed. I send an email letting them know refunds are needed. They send back email asking about the 2015 refunds. I process 2016 refunds. 2015 distribution paperwork was never signed and processed. Guess who got to fix via one to one correction method the 2015 refunds? You guessed it. It wasn't cheap to the employer. I said all this, to say that good people with a good process will mitigate a lot of risk.

You would "send back the money" based on what? The preliminary adp test? Nah, I wouldn't go down that road. My recommendation would be to have the employee stop their deferrals for 2017 and see where the chips fall. Is the employee over 50? Maybe most of the 4k can be recharacterized at testing time. Hopefully, after 2 years worth of data, you can come up with a deferral strategy that will be close to passing. A refund after getting max deferral is not the worst thing in my opinion. I just don't want to see a 4,000 refund....

Bev, If the employee terminated prior to their eligibility date, the employee would not become a Participant in the Plan. No Participant, no deferrals.

I will bypass the fair comment for now..... What seems embarrassingly clear is a lack of communication with the employer to structure a plan design to accomplish his wishes: keep his money in the plan. There are multiple safe harbor designs that would accomplish this.

I read Kevin and Belgarath to be agreeing and saying the same thing in different words. I read Kevin to be saying that since they are already eligible to participate, you can't exclude them from deferring for fear of losing safe harbor status because of their employment agreement. I think it's understood that you can exclude class(es) of employee(s) and still have a safe harbor plan. You just have to pass coverage.

Thanks for the clarification ETA!

Husband owns 100% of his company, wife owns 100% of her LLC. Why does control group come into play because of stock attribution? The Monday fog hit me too. I can see a control group if the husband and wife had minor children. Otherwise, I see that the wife's LLC should be needing a participating employer agreement. The lone employee would have to receive a profit sharing due to coverage issues, if owner gives a profit sharing. I assume lone employee is NHCE. The wife could get cut out of profit sharing and still pass coverage if they wanted to save a couple of dollars.....lol. What am I missing on control group question?

Apparently, they are part of a 125 plan. I did not know that specifically. Just knew they were pretax.... Thanks everyone!

Thanks for the help! I'm just talking out loud to try to cement this in the brain.... The AA agreement for the particular employer show that W-2 Wages (plus Elective Deferrals) was chosen as definition of compensation. The "(plus Elective Deferrals)" was not added by me, it is literally stated that way in the AA agreement. This is the definition of Elective Deferrals per the Master Plan Document. Elective Deferrals. Elective Deferrals means a Participant's Pre-Tax Deferrals, Roth Deferrals, Automatic Deferrals and, as the context requires, Catch-Up Deferrals under the Plan, and which the Employer contributes to the Plan at the Participant's election (or automatically) in lieu of cash compensation. As to other plans, as may be relevant to the Plan, Elective Deferrals means amounts excludible from the Employee's gross income under Code §§125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b), 408(p) or 457(b), and includes amounts included in the Employee's gross income under Code §402A, and contributed by the Employer, at the Employee's election, to a cafeteria plan, a qualified transportation fringe benefit plan, a 401(k) plan, a SARSEP, a tax-sheltered annuity, a SIMPLE plan or a Code §457(b) plan. My emphasis in bold. Based on the above, I have laid out a clear understanding that an employee's net taxable compensation must be "grossed up" by the pre-tax deferrals and section 125 deferrals to the Plan. Am I able to conclude the pre-tax health insurance deductions are Elective Deferrals and add them back to net taxable compensation also? Or are pre-tax insurance deductions just reducing compensation?

I've been digging. We are utilizing the Relius documents. Can anyone site me the reference to include the 125 deferrals? Maybe the pointing in the right direction will clear up the pre-tax health insurance also? Thanks!

I hope to have an "easy answers" question, but I don't know.... Plan compensation is defined as W-2. Exclude fringe benefits. Auditors are picking apart the profit sharing calculation. In the employers words "When the Profit Sharing was calculated, the Wage base included pretax deductions, Flex Spending and Health Insurance. They(auditor)believe this is incorrect and those deductions should not be included for calculating the Profit Sharing". With w-2 compensation per the document, I would expect the wage base plus pretax deductions, Flex spending to be included. I have a question whether Health insurance deductions are included in compensation. 1. I always thought Flex or Section 125 deductions were to be added to W-2 compensation. Correct? 2. Are Health Insurance deductions added to W-2 compensation? Thanks

That begs the question. What if the participant does nothing? I suppose he would have to be caught......

That was the conclusion I was coming to when reading the EOB.... Thanks

I am swirling in a little confusing. We have a employee that is in two unrelated plans that we administer. Because we administrate both plans, I can see that he deferred 24,000 in Plan A, and 350.00 in Plan B. My original thought was to distribute the 350.00 as a 402g error and be done with it. (We did email the employee and let him know the error) But, being the deferrals are in two unrelated plans, am I needing direction from the employee? What's the deal with the March 1 deadline in the plan document? What if I never knew the 350.00 deferred to Plan B? I'd move forward like normal.... Do I cut a check for 350 plus earnings, issue 1099-R for 2017 and be done with this? What are your thoughts?

Yes, I agree with your 1 and 2 calculations. Match would be 3,600 in your scenario. In regards to the ABT.... I don't know to be honest, but I think the answer is that you use the participating compensation. I will defer to the smart ones around here.

JJ, I'll point you in the right direction on a couple of these. 1. The plan document is your best friend here. Did the plan get written to make everyone eligible at 5/1/2016 or did all employees have to meet eligibility requirements? What about full year comp or participating comp? Let's suppose they had to meet eligibility requirements and participating comp. Deferral comp would be $80,000, May to December. True up deferral contribution? I'm leaving that alone for now except to say the employee needs to have a deferral election in place rather than no deferrals and then two months deferrals..... then no December. 2. You didn't tell us the entry dates. Monthly entry? Let's suppose monthly entry. Match entry date would be 7/1/2016. $60,000 compensation. He didn't defer greater than 6% so the match is going to be $2,000. Nothing to true up. 3. Class exclusion. Don't have enough information.... Make sure you know the plan limitation year for 415 test. It may or may not be an issue. BTW... 100% match of 6%. Why isn't this plan a safe harbor match with same entry date requirements for simplicity? No ADP or ACP tests...... you aren't worrying about who is excluded.... and who want's to try to figure out compensation amounts for deferral and then for match.....

I'd bet the new partners are going to be HCE right away because of ownership percentage? I don't think I'd want to change the eligibility requirements to allow in the potential HCE's and not the non's..... I'd convince them to let 2017 ride without them and start fresh on 1/1/2018.

The excess does not go back to the employer. The money plus earnings is placed in an unallocated account. We use the money in the unallocated account to offset new safe harbor match contributions. It's not difficult to offset, but often is a nuisance to stay on top of until used up. This is a match by payroll. If once a year match, it will stay there until time to offset the yearly contribution.

Indeed you do, Tom. Thanks.

Anyone have a few minutes for me? Maybe a phone call?