Vlad401k

Let's say husband and wife own 50% each of Company A. They also have some ownership in other companies, which could form a potential Brother-Sister Controlled Group. Would you consider them both as 100% owners when determining the if the controlled group relationship exists for a Brother-Sister Controlled Group, because of attribution, or would they just be considered 50% owners? Thanks.

Let's say an owner who is over 50 deferred $25,000 in 2017. So, the $1,000 is excess deferral and will be refunded by April 15 of 2018. Would the excess $1,000 be counted in the 415 limit? So, if the owner wanted to max out with a Profit Sharing contribution, would he be able to put in $36,000 or $35,000 in 2017? Thanks.

What would you say would be permissible use of the funds the company takes back? Can they use it to pay invoices or fund future contributions?

Let's say the company has a discretionary match provision chosen in the plan document. The company chooses to fund the matching contributions pay-date by pay-date. Let's say at the end of the year, the company decides that it actually does not want to fund the discretionary match. Can the company take away the matching contribution from the people who were funded?

Agreed! But, if some NHCEs are excluded arbitrarily, then you basically have to pass Ratio Percentage portion of the Coverage test if you want to do Cross Testing, correct? The reason being is that the Nondiscriminatory Classification clearly states the following: "An enumeration of employees by name or other specific criteria having the same effect as an enumeration by name is not considered a reasonable classification." So, you can't even do Average Benefit Percentage Test because the Nondiscriminatory Classification is not passed.

Let's say a plan designates each person into a separate group for Profit Sharing contribution purposes. For instance, let's say the owner maxes out and gives smaller contributions to some NHCEs and 0% to others. Let's say the General Test passes. Now, let's take a look at the Coverage Test. 1) Ratio Percentage: Let's say the plan fails Ratio Percentage portion of the Coverage Test. 2) ABT: My understanding is that the plan cannot rely on ABT in this case (even if it passes in terms of the percentages) because the nondiscriminatory classification portion (the first part of ABT) is not passed because the allocation of Profit Sharing contributions is not nondiscriminatory. Would you agree? Would you say that if the plan designates each employee into his/her own group for Profit Sharing allocation purposes, the plan must pass the Coverage on Ratio Percentage and can't rely on ABT (even though the mid-point can still be used for General test if both Ratio Percentage and ABT test are passed)?

Mike, So would you agree that there is no need to run the General test if everyone gets the same dollar amount, even if the plan document states that every employee can get a separate allocation for Profit Sharing? Let's say the plan has 2 participants, as per the original question. The NHCE has a higher compensation than the HCE (who owns 100% of the company). If they both get the same contribution, the General Test (tested on dollar amounts) would pass, even though if you tested General Test on percentages, it wouldn't pass. Would you agree that there is no need to run the General Test if the software provider does not have an option to run the test based on dollar amounts? Thanks.

The software that we're using, DATAIR, does not seem to have the option to test on dollar amounts. So, if the plan document states that each employee is in their own group (for Profit Sharing allocation purposes), and we give the same dollar amount to everyone, would you say it's fair to not run the General Test at all, because it's considered Design-Based Safe Harbor to allocate the same dollar amount to everyone? Thanks.

It seems like the answer is not entirely clear then. Does anyone know if the IRS ever issued any guidance on whether same dollar formula as a safe harbor means that the plan document has to specify it?

ESOP Guy, Let's say it's a check for regular pay. It's not for severance or vacation pay. duckthing, The plan document has an option to include or exclude the compensation paid in the first few weeks of the following limitation year. My understanding is that if the final paycheck (for example, for work done in 2017) is made during the first few weeks of the following year (let's say 2018 is when the check is paid), then it can either be included in 2017 pay or excluded. My understanding is that it cannot count for 2018 (unless it's for vacation pay). Would you agree?

Let's say a participant terminates in December of 2017. However, he has a final paycheck payable in the first few weeks of 2018 for services performed in 2017. The plan document states that the compensation paid during the first few weeks of the next plan year is excluded. So, would that final paycheck be excluded from both 2017 and 2018 compensation for testing purposes? If so, what if the participant deferred something from that paycheck. Would that deferral be excluded for testing purposes as well?

Just wanted to confirm if that's the case. I haven't seen a source yet where they specify that the formula must be stated in the plan document. Is anyone aware of any regs that can confirm either way?

The allocation states that everybody can receive a different contribution and it does allow us to do the same dollar amount contribution to everybody. So I think if we do the same dollar amount contribution to everybody that the Safe Harbor condition is satisfied and no General Test is needed. Would you agree?

Let's say a plan has 2 participants. Participant A is an HCE because of ownership - he owns 100% of the company and his salary is $50,000. Participant B is an NHCE and earns $100,000. From what I understand, the company can make the same dollar Profit Sharing amount contribution to everybody. Let's say that contribution is $5,000 each. So that's 10% to HCE and 5% to NHCE. The software says that the General Test is failed! What would you do in this case. Is it fine to not include the General Test at all in the reports as the same dollar amount to everybody is a Safe Harbor definition? Thanks.

Let's say there are 2 companies, both owned by the same Employer. Company A has employees who are NHCEs and the Employer is the 100% owner. Company B is owned 100% by the same Employer and there are no other employees at Company B. Would this be a Controlled Group and would it have to be aggregated for testing purposes? What about the coverage test for Company B? Wouldn't the test show that 100% of HCEs are benefiting and 0% of NHCEs (since the denominator includes the whole NHCE population of the controlled group) and therefore the two plans will have to be aggregated for testing? Thanks.

Just wanted to provide some clarification about this particular situation, if it changes anything. The participant in question is actually working at both of the Divisions (the included and the excluded divisions) at the same time. Would you agree that we have to run the Compensation Ratio test to determine if the exclusions are discriminatory? Thanks,

The comp is full year, not from entry date.

Let's say an employee works at 2 different division within a company. At Division A, he earns $10,000 for the year. At Division B, he earns $20,000 for the year. Let's say he already met the eligibility/entry date requirements. The plan document excludes Division A from the Plan. Let's say the company does a 3% Safe Harbor Profit Sharing and a 2% Profit Sharing. What compensation would be counted for these contribution percentages? Would the whole $30,000 compensation be counted or just the $20,000 from Division B? Let's say the plan document does not clarify this particular situation. Thanks.

So, let's say a participant made $100,000 income in 2017. Let's say he deferred $25,000 and he's over 50. So, $1,000 should be distributed back as excess. 1) How would that be reported on the 2017 tax return if he distributes the funds in 2017? Would $75,000 taxable income and $25,000 deferred be originally reported? How would the $1,000 excess distribution affect both of these numbers? The taxable income would go up to $76,000, but how would the deferral amount go down to $24,000. Would it be a manual entry? 2) How would that be reported on the 2017 tax return if he distributes the funds in 2018? Would $75,000 taxable income and $25,000 deferred be originally reported? What if the $1,000 excess distribution is made by April 15. How would that affect the tax return for 2017?

Let's say a plan allows for In-Plan Roth conversion. A participant has only Pre-Tax Deferrals in his account, but he's not yet 59 1/2. I have 2 questions: 1) Since Deferrals always have a 59 1/2 age restriction for In-Service Distribution, would he be able to convert his account to Roth? 2) If so, what if he decides to withhold a certain amount, let's say 10% on that distribution? Would that be permitted? Seems like it shouldn't be as the amount going to the Roth Conversion would be less than the original amount (the other 10% being the taxes paid). Thanks,

Ok, so the software would allow a deferral of over $24,000? What if the distribution is only made next year and code P is used? Shouldn't the deferral be decreased to $24,000 in 2017 in this case, because it's taxable in the previous year (2017) and the 1099-R is only issued in 2018 with code P indicating that the distribution was already taxed? Thanks.

Let's say there is a catch-up eligible participant who defers $25,000 instead of the allowed $24,000 for 2017. Let's say he then takes a distribution for excess deferral during 2017. Let's say the distribution is for $1,050 ($50 being the earnings). How would that be reported on 1099-R? Would $1,050 be the taxable amount on 1099-R? In this case, wouldn't the participant end up paying taxes on the amount of excess twice? Once when it's distributed (on the 1099-R) and also when he files the taxes and the tax software doesn't let him deduct more than $24,000 limit. Or would a software allow a deduction of more than $24,000 in this case (since there is a corresponding distribution for the excess)? Thanks,

It's been less than 60 days, but that rule wouldn't apply because the participant chose direct rollover (or transfer), so no taxes were withheld on the original distribution. I would think that he's no longer a participant at all and the option to put the funds back into the plan should not be permitted. Would you agree?

Let's say a participant is terminated earlier in the year. He elects a rollover distribution, but later (after the check is issued), decides to put the funds back in the original 401k account. Is that permitted? I would think that it wouldn't be because he's no longer an employee of the original 401k plan. Would you agree? Thanks,

Let's say the plan allows for loans to be rolled over, but does not allow new loans to be taken. A participant rolls over the loan from the previous employer (let's say that employer has weekly pay frequency, so 52 loan payments were made a year). The new plan has bi-monthly pay frequency (24 pay periods). Since the new plan does not allow for loans, should the amortization schedule stay the same as it was with the previous employer or can it be changed to a bi-weekly schedule? Also, if the amortization schedule is changed, there might be a slight discrepancy (by a few days) when the loan is paid off. Is that allowed? Thank you.