Sully

Thank you!

We have a calendar year 401(k) Plan with entry dates of 1/1 and 7/1. The plan excludes compensation before plan entry. A young, Non-Key HCE entered the plan on 7/1 and needs to receive the 3% top heavy minimum on pay for the full year. When performing cross-testing we are only using the employee’s pay while eligible (7/1-12/31) and it is blowing the test. Question: Could we use pay for the whole year when doing our new comparability testing? The plan document does not specify what compensation to use when cross-testing. Thank you!

Can you use the reduced compensation for the 5% gateway minimum in a DC Plan? I thought you had to use total 415 Comp. Thanks.

I have a couple of these in progress myself. One odd thing I came across is that, due to different eligibility rules, there is an employee that is eligible for the SIMPLE Plan (and contributing) but she will NOT be eligible for the 401(k) Plan. Anybody see a problem with this??

Another thought that came to mind would be to retroactively adopt a money purchase pension plan for 2022. Since that plan would be subject to the minimum funding standards of Code Section 412, any accrual for that plan would count in our top heavy ratio determination at the end of 2022. You could set a contribution formula just high enough to make the plans not top heavy for the 2023 plan year. Have not thought through how long that money purchase plan would need to be in existence and if it would be worth the extra effort and costs to maintain it.

Bill, you are correct. The $15k would be a contribution for 2022 to avoid TH in 2023. To your 2nd point, a Key employee has already made a 401(k) contribution in 2023 that will most likely exceed 3% of annual pay. Ouch!

Hello, We are trying to figure a possible way out of a top heavy issue and would appreciate any thoughts. Facts: Calendar year 401(k) Plan. Does not allow profit sharing contributions. Plan has been safe harbor (safe harbor match) for several years and the employer elected to stop the safe harbor match effective 1/1/2023. Safe Harbor Match is an annual match and is calculated and funded after the end of the year. They are getting ready to submit their 2022 required safe harbor match now. The Top Heavy ratio as of 12/31/2022 is 61% calculated on a straight cash basis, i.e. no receivable accrued. This would mean the plan is top heavy for 2023. We came up with a couple of ideas that we hope might allow the plan to not be considered top heavy for 2023. If we accrue the 2022 safe harbor contribution in our 12/31/2022 balances the top heavy ratio drops to 59%. I looked into this and came across the IRS Q&A from 2002 concerning contribution receivables. Do you think it would be permissible to include the required 2022 safe harbor match in the 12/31/2022 balances for top heavy testing? Establish a new profit sharing plan retroactive for 2022 and make a $15,000 contribution to non-key employees. If we could include that $15,000 in our 12/31/2022 balances for top heavy testing then the plan would not be top heavy for 2023. Do you think either of these to options would work? I appreciate any thoughts or comments. Thank you!

The CPA audit is showing up on the EFAST website. Looks like it took about a week to show up. Thanks for all of the great comments.

Thank you for that information! I was not in panic mode but was starting to get concerned…

Greetings, A large plan filer filed their 5500 on Monday (10/17) and the CPA audit was attached. The audit attachment is still not showing up on the EFAST website 2 days later. Any idea how long it normally takes EFAST to include the audit as part of the filing you can see on the EFAST website? The filing was done through the ftWilliam software. Thanks in advance.

If it was a ‘loan offset’ then the employee would have extra time to do a rollover of the loan offset amount. However, since you said it is a ‘deemed distribution’ it is not eligible to be rolled over.

Thank you!

What would happen if the SIMPLE termination notices did not go out on time and the employer installs a new 401(k) Plan effective at the beginning of the next year? For example, a SIMPLE plan is in place for 2018. Employer decides on 12/1/2018 that they want a 401(k) Plan effective 1/1/2019. It is too late to send out the SIMPLE termination notice for 2019, but the installation of the 401(k) on 1/1/2019 will disqualify the SIMPLE for 2019. The IRS website says to ‘stop all employer and employee contributions to the SIMPLE IRAs if the business sponsors another qualified retirement plan’. Does this effectively give you additional time to terminate the SIMPLE if you are installing a new plan?

I was curious as to what 6 digit IRS Business Activity Code non-producing TPA firms are using. I have seen both 541219 and 541990. Thanks.

I could find nothing in the regulations that requires it.

Follow up question to this discussion. Assuming a calendar year plan, if a plan uses an eligibility requirement of something less than the minimum age and service requirements under 410(a)(1) (i.e. age 21 and 1 Year of Service), would they be able to use entry dates of 2/1 and 8/1? The situation I am contemplating is one in which the eligibility requirement is 6 months of employment (with no set number of hours and no age requirement) and entry dates of 2/1 and 8/1? I tried different hire dates using this criteria and every hire date I used allowed the employee to enter the plan within the time frame required by 410(a)(1) and 410(a)(4). Can anybody confirm if this would be allowed? Thanks in advance.

Question about whether or not a plan is eligible for a VCP filing. (Takeover plan, of course). 401(k) Plan was established effective 1/1/2003. The original plan document was NEVER SIGNED and no required amendments have been done since the plan was first established. The partner that was supposed to sign the document is long gone so there is no chance of getting his signature on any documents. The plan has always had less than 20 participants. The employer handled the administration of the plan on their own. Questions: Can we do a VCP filing for this plan to bring the plan document up to date? I am concerned that since the plan document was never signed it may not even be eligible for a VCP filing. If we can file under VCP would the user fee be $750? This assumes the plan document issue is the only problem. Thanks in advance for any thoughts.

Thank you for all of the responses. Very much appreciated.

For this particular client the errors are insignificant and they are on a volume submitter document. Given this, I believe 6.05(1) of EPCRS provides an exception to the requirement that the plan be submitted for a determination letter. Note: Relius had a good article (Technical Update) on this issue back in March. Not sure if I am allowed to post a link to the article.

Sorry if I was not clear, but in this case they are using SCP, not VCP. Does that change the answer?

I have a client with a calendar year 401(k) safe harbor match plan. We recently discovered that the employer let 1 person join the plan early in 2011 and 2 in 2012. All 3 are NHCE’s. The employer would like to self-correct this under EPCRS by doing a retroactive plan amendment to bring them into the plan. Question: How far back can an amendment like this go? Can we do the amendment today and have it apply back to the 2011 plan year? Could it go back to before 2011? Thanks in advance for any input.

If you can file within the next couple of days the DFVCP fee would be $10 per day calculated from the due date (without extension). If you file on Friday (10/19) the penalty would be $880. https://www.askebsa.dol.gov/dfvcepay/calculator

If the plan assets are 'participant directed' you may be able to reduce the bond to 10% of the total value.

Mine has the exact same language. Must be a standardized prototype marriage document.

Compensation is based on the Plan Year (1/1/12 – 9/30/12 in this case). Therefore, we should use $187,500 (250,000 * 9/12). Thank you both for the clarification. I made the issue more confusing than it needed to be. Imagine that…