Mr Bagwell

Gilmore, I am going to take a stab at this.... From a practical sense, I think the two tiered hypothetical is dumb. Generally, the employer is trying to get participants to defer to help pass testing. This doesn't help. It gives the appearance of the employer trying to be cheap and getting one over on the rank and file. I'd be doing my best to put this hypo down in a hurry. And if this was all good to go.... calculating the match on the 5th and 6th%..... ugh, no thanks. From a plan perspective, it could be an effective availability issue. What if the NHCEs don't defer over 4%? What if the HCEs all defer to 6%? Seems like a BRF issue kicks in. And the BRF could change every year. Tell the employer to do a .25 match on the first 4%. Keep it reasonable and simple. The above tier is not reasonable or simple. My two cents.

Rather, Doesn't really matter if Current of Prior. Prior allows you to approximate a little closer because you know the target goal. With current, I guestimate 2020 based on the numbers from 2019. You have to look at the NHCE ADP % and analyze where the HCE are going to need to be for Average deferral %. So if NHCE is at 4%, you know a target range for HCE is 6%. The real analysis is if/how many HCEs are catch up eligible. Ideally, I have the catch-up eligible defer the most (maybe leave some catch up room for potential "refunds") because the refunds go to the participants that put in the most. So even if the ADP test fails, maybe the excess goes to catch up and no refunds are needed. As a practice, I don't tell the HCEs to defer 6% and hold steady (the above example) because that might leave potential deferrals out. I would rather have a refund happen than to tell them a hard cap and then an HCE could have deferred thousands more. My sales tactic is to fail by small amounts. Of course, we all have plans where the HCEs load the wagons and let the chips fall where they may......

The technical term is Modified Endowment Contract. I have forgotten most of the life insurance testing knowledge, so bear with me. It has something to do with the tax free status of the policy becoming non-tax free. If I remember correctly.

Austin, I worked as a RIA for a bit and we had a couple of guys in the office peddling this to a few clients. The boss man was none too happy when he found out. I don't think life insurance companies are real keen on it too. Without going into a lot of details, this can be legit. If I remember right, the concept was to take a loan against the cash value and pay back the loan, over and over. There are pitfalls too.... like borrowing too much and not having the ability to pay it back..... The biggest pitfall is dumping too much into the life insurance policy and causing it to MEC out and that is bad. Just my two cents.

No exemption for HCE's from the 3% SH. PS is an integrated formula. I get the impression the employer contact is not opposed to getting money back from the estate. We will see. Thanks Bird and Larry!

It's an attorney group... lol.

I just had them check the Partnership Agreement. No luck on any verbiage about the 401k plan. They said the agreement was very old and just had amendments added to it. The partnership payments were completed earlier in the year. Yes, would have been nice if they held back some funds for the allocations I have been asked multiple times if we can just exclude the ex-Partner from the PS. I've thought about this, but don't know if I want to go there yet.

I need some direction and thoughts..... A Partner passed away in May 2019 and, evidently, ceased to be a Partner per the partnership agreement. Fast forward to year end and previous Partner is owed the 3% SH and Profit Sharing per the plan document. Who pays the 3% SH and PS for 2019? The other partners? The previous partner's estate? I lean to the other partners, but I just don't know. Where do I go from here? What do I ask? Thanks

Not necessarily a default answer. I made the assumption that the Wells Fargo plan and Bofa plan are way high asset plans and expenses to participants are lower than most. If I managed my IRA, I would expect to pay "lower-ish" expenses. But the money I have with a RIA to manage my assets, I will gladly pay her the commission. (No, it's not high dollar IRA) And the 401k plan I'm in right now the employer pays the plan expenses. We have no 12b1's or SSF's mutual funds, so I will be hard pressed to move the money if that day comes. Probably will come down to fund choices. You never really know how the expenses will shake out unless you dig in. Good and fair question, tho.

In my mind it comes down to expenses the participant (you) pays, and then fund line up choices. I'd guess that the fund line ups are similar. So dig in and figure it out. With the amount you have in your account, you may want to find a financial advisor you trust to help. If the financial advisor recommends to stay or move to Bofa, he/she is probably a keeper because they are looking out for your best interests. If they just want you to go to IRA with no plausible explanation, move on. Even if a friend.

Congrats!

You are correct that an active non 5% owner would not have to have an RMD on the pension plan. However, rolling the funds to an IRA would require the RMD.

Yes, they can exclude the junior executives from the match provided they pass coverage. (You indicated that this was not an issue) Being that the match is not available to all NHCE eligible employees, the match is subject to the ACP test. Having allocation conditions like last day and 1000 hours would also require the ACP test.

Hunter, I'll jump in on this to try to get the conversation started for you. There are some other threads in 401k Topics on this type of situation, so dig in and research what you can. I don't like entry defined as payroll period. It becomes messy. I prefer to say the employee becomes eligible 10/1 and each paycheck after 10/1 would have deferrals withheld. I think of this topic with this logic. When does the employee become a participant and when do they get paid. I don't normally chase the pay periods, because the pay periods get me to the questions you are asking. I want the w-2 as my best friend, so whatever is on the w-2 for deferrals is the total I want to use for the testing. Otherwise, I may be removing a payroll from the beginning of the year and adding a payroll at the end of the year. (or vice versa) I find this to be inefficient. How is the plan handling newly eligible and timing now? I think you would want to stay consistent. But to answer your direct question as you stated it. First date of entry payroll period was 10/27. The first date of check for this payroll period was 11/15. I would have payroll start withholding for the 11/15 paycheck. Others may have a different opinion and that's cool. I would just try to stay consistent in the process.

Walter, What is the "problem"? A possible top heavy contribution to newly eligibles after 1/1/2020? The solve is to convince them to leave the Plan alone for 2020 and discuss next year. If they are diehard to amend the plan. So be it, let them know a top heavy is required and ADP testing is needed. You're not in a horrible spot. You just have some explaining to do.

I would say yes to being Top Heavy in 2020 because it's the same plan. So with a dual eligibility situation coming into play, the eligible (for deferrals) employees would need a top heavy contribution if they are not eligible for the safe harbor match. AND, you get to test the plan for ADP as well for those that are not eligible for the safe harbor match. It's not normally an issue that an employee would become HCE immediately upon hire, but it can happen. Ex: owner with greater than 5% ownership hires wife and she maxes out deferrals in first year. I'm not a fan of dual eligibility for safe harbor plans, but to each his own.

Lou, You're awesome. I knew I was forgetting something!! Thanks

Cross Tested Plan, 3% SH non, Top Heavy, Semi Entry at 4/1 and 10/1 I have an employee with a legitimate participating compensation of 163.01. Participant was eligible 4/1 and terminated 4/5. Employee is entitled to 3% safe harbor and then a 2% profit sharing for the year. So the Gateway 414(s) compensation would show 163.01 with a 401a allocation of 8.15. So I need to check to make sure the employee is receiving at least 3% compensation on full year comp for top heavy status. Employee need 516.80 additional funds to receive top heavy minimum. Full year comp was 17,498.33. So here is the rub and the question. The benefit percentage of the employee in question would be like 300% plus based on the 524.95 401(a) total and compensation of 163.01. Would you leave it this way? Or do something different? On this plan, there are generally 2 to 3 employees that come in mid year and need a top heavy minimum. Where everyone else would show a benefit percentage of 5%, the 2 or 3 might show as 5.8%. Gateway then passes, and then I go to the next steps of making sure the other test pass. I just haven't seen a legit participating comp scenario skew the percentage this wildly. Thanks

All things "normal" except processing times. Good luck with the call to Relius. They are backed up too. But you better try.

Currently on it right now. Slower than molasses. Did you get the new log in procedure a few weeks ago?

Is this a 3% safe harbor plan? I could see a scenario that would pass cross testing...even with all the terminated employees. Edit: Doh, I need glasses....

If potential large filer under 403b, would they be a potential large filer under the 401k? You can't force the 403b money into the 401k, the employees would have to individually initiate the rollover. Would you be losing a huge advantage of no ADP testing? I've seen some 403b's to be a lot of low pay no deferring type of plan.

Yes, that is my position.

Yes, that should answer it. Thanks

Austin, you have me lost.... I've only seen a loan investment as a balance to be paid. Or to say another way, the loan investment is not held as a mutual fund or other investment vehicle. So if Participant A had a balance of 20,000 (all sources) and wanted to take a loan of 10,000. All of it was in Fund A. (10,000 in deferral, and 10,000 in match) The loan was prorated across all sources, to be paid back to said sources. Fund A would have 10,000 sold to cash for the loan check. Source wise, I see Fund A as 5,000 in deferral, Fund A as 5,000 in match, and 10,000 in loans. (20,000 total balance) If Participant A wanted to rebalance his investments to 2 new funds, the account would show 5,000 in Fund B, 5,000 in Fund C, and 10,000 in loan investment. Still 20,000 balance. Source wise, it would show Deferrals as 2,500 in Fund B and 2,500 in Fund C. It would show match as 2,500 in Fund B and 2,500 in Fund C, and 10,000 in loan investment. Still 20,000 balance. I don't or wouldn't see any reason to move anything around. Does your recordkeeping system show the loan as invested in actual Funds? In my scenario above, the participant would be able to rebalance and transfer at will. Daily plan, of course.