Vlad401k

Let's say a participant is 75. He's not an owner so he didn't have to start taking RMDs at any point in time. Then, let's say he gets terminated in the middle of 2017. The first RMD is now due to be paid by April 1, 2018. What happens if the participant decides to rollover the entire balance to another plan or IRA? Can he do that or would he have to take the first RMD before rolling anything over into another plan? Thanks.

I have a question about bottom up QNECs. Let's say the employer wants to give a 5% QNEC to his employees because of the failed ADP test. Does the employer have to give the first contribution to the lowest paid employee and then give it to 2nd lowest paid employee, etc. until the test is passed, OR is the employer permitted to give the QNEC to anyone? Every example I've seen has the employer giving the QNEC to the lowest paid employee first, but I was wondering if that's a requirement. Thanks.

That's what I figured. Just wanted confirmation. Thanks.

Thank you. That was very helpful. What about SEP? Can it be merged into a 401k plan or does it have to be terminated too? Thanks.

What happens to the existing loans when a plan changes loan provisions? Let's consider these scenarios: 1) There were 2 loans allowed in the past, but now the plan is amended to allow only 1 loan. Can participants who had 2 loans outstanding prior to the amendment still maintain both loans? 2) What if a participant with 2 loans wants to refinance them? Can he do that even though the plan only allows for 1 loan now? 3) What if the participant had loans outstanding and the plan was amended to not allow any loans. What happens to the existing loans? Can the participants still refinance? Thanks in advance.

Can SIMPLE IRA be merged into a 401(k) mid-year. I know the SIMPLE IRA cannot be terminated mid-year, but can it be merged mid-year into a 401(k) plan. If not, would it be required to wait until the end of the year, then terminate the SIMPLE IRA and rollover the assets into the 401(k) plan. Thanks in advance.

Thank you, Tom. That was very helpful.

I'm trying to figure out how DATAIR generates the Permitted Disparity Factor (for DB portion). Is there a table that is referenced? I thought it was based purely on Retirement Age, but it looks like the participant's age also has an effect. Depending on these two variables, I get a value between 0.32% and 1.1%. The calculation seems strange to me as it increases up to 1.1% if the retirement age is 70, but then drops down to 0.75% if the retirement age is 71 or later. Does anyone know if these calculations are correct? I read somewhere that the max rate should be 0.75%, which is why I'm questioning the accuracy. If so, could you please provide the table that's being referenced? Thanks.

Let's say the participant elected to defer a bonus payment, but the company did not deduct the deferral or match attributable to that. I have a couple questions: 1) Does the missed deferral get categorized as QNEC or "Deferral"? Would it be attributable to the year in which the missed deferral should have taken place for Form 5500 purposes (accrual basis)? 2) Does the missed match get categorized as QNEC or "Match"? Thanks in advance.

I have a general question about Bottom Up QNECs. Does the employer have to give the QNEC to the lowest paid employees first or can the employer pick and choose the employees that receive the QNEC? Thanks,

Hi, So, does that mean that the date by which the distributions have to be made in DB plans stays as April 1st of every year? Thanks.

Hi, I don't usually work with Defined Benefit plans. Could someone please confirm if the RMD dates are different for DB plans than for DC plans? Is the RBD April 1st of the year following the year in which the first RMD is required and then it switches to December 31st of each year after that? Thank you.

Let's say the participant is terminated and has a loan outstanding of $10,000. The company then does the loan offset and the participant receives a 1099-R with code "1" or "7" for $10,000. Can the participant then rollover these $10,000 within 60 days to another 401k or IRA as if that amount was a direct distribution?

Thanks, Kevin C. That was very helpful. I have another question about successor plans. What about loans? Let's say the loan is made from the deferral source and then the employer creates a successor plan. What happens with the loan? My thinking is that it must be transferred to the successor plan because it's technically from deferral source. What are your thoughts? What if the successor plan does not want to allow loans?

Hi, I recently read a provision that stated that for prototype plans, the number of allocation rates for NHCEs is limited to at most 25, but could be even less depending on the number of participants. Do you know if this provision still applies, or if it no longer applies after PPA or because of some Revenue Procedure? Could someone please clarify if this provision still applies to Prototype plans? Thank you.

Hey, I had a question regarding successor plans. Let's say a company terminates a plan and immediately starts a new successor plan. What would happen to the sources (deferrals, Safe Harbor, match, etc.)? I believe the deferrals and Safe Harbor sources would have to be directly transferred and still be treated as those same sources in the receiving plan (subject to the distribution rules applicable for deferrals). However, what about the discretionary match and profit sharing? Would those be transferred as the same sources or would they be treated as a rollover? Would a 1099-R have to be issued for the discretionary sources, but not for the deferrals and Safe Harbor contributions? The thinking is that when there is a successor plan, the discretionary sources can be distributed, so just wanted to know how they should be treated if transferred to the successor plan. Any help would be appreciated.

Thanks. Would the lost earnings have to be calculated at all? I can see it being argued two ways: 1) The match was still funded within the company's tax filing deadline, so there the contribution was not late. 2) The document states that the contributions are done on pay period by pay period basis and therefore the contribution was late. What would you say is the best way to handle this situation?

We have a participant who didn't receive a matching contribution for three contributions at the end of last year, whereas he should have. The document states that the payments of matching contributions should be made on pay-period basis. What is the best way to correct this situation? Of course, the company will fund the matching contribution, but what's the best way to go about lost earnings? Should the 15% penalty be calculated on lost earnings? What about Form 5330? Thanks in advance.

We have one participant in one of our plans who lives in Puerto Rico. He is a U.S. citizen. How should his direct distribution be taxed. 1) Will the mandatory federal tax withholding still be 20%? 2) Will there be any mandatory "state" taxes upon distribution? If so, what would they be? I tried to look up this information online, but there are very few sources. Has anyone had experience with this?

I have a couple of questions regarding the filing of Form 5500 for one participant plans that I have not been able to find the answer to. 1) If a plan had more than one participant (besides the owner's spouse), in the prior years, what happens when the plan turns into a one participant plan in future years? For this example, let's assume that the plan assets are under the $250,000 Form 5500-EZ limit. Does the plan still have to file the Form 5500-EZ? 2) Assume the same scenario as Question 1, but the plan assets are over $250,000. Let's say the at the beginning of 2015, there were more than 1 participant, but at the end of 2015, there is only 1 participant. Can the plan file Form 5500-EQ for 2015 or do they have to wait until 2016 (when the beginning year participants number will be 1)? Thank you.

Mike, What if the plans are not required to be aggregated? Each plan can pass coverage on their own. Does that still apply?

Lou, Thanks for your response. In regards to the 7.5% gateway, the DB and DC plans will be tested separately (each can pass coverage on their own). And you are right 7.5%. I mistyped. It's supposed to be given in the DC plan. So basically, the 3% minimum does not apply for DB/DC combo, correct?

We have a DC plan that has about 80 employees, 6 of which are HCEs, of which 5 are key. Two of the key employees are owners and they are trying to receive the maximum possible contribution. The idea is to create a DB/DC plan combo that will allow the two owners to receive large contributions on the DB side. Since only 40% of all eligible employees are required to benefit on the DB side, the DB plan will only be benefiting the two owners and 30 NHCEs. So, the DB plan will include only the 2 owners and the 30 NHCEs. The plan is not top heavy for 2016, but will become top heavy in 2017. For 2016, we're planning to do the following: 1) Give a 7.5% gateway to the 30 NHCEs in the DB plan. 2) Give the maximum possible contribution to the two owners in both the DC and DB plan. For 2017, we're planning to do the same. However, I'm wondering how the top heavy status will affect the plan and I have these questions: 1) Will the non-keys have to receive a 3% contribution or a 5% contribution. I've read that when there is a DB/DC combo, a 5% contribution (or a 2% EBAR) has to be made for non-keys. Is that correct? 2) Since all non-keys (and not just those benefiting in the DB plan) will have to receive the top heavy minimum, what will be the effect on the gateway contribution? Will the non-keys who are not benefiting in the DB plan have to be bumped up to 7.5%, since they are now benefiting? So basically, will all the non-keys have to receive 7.5% in 2017 or just the 30 that are in the DB plan (and the rest receive the top heavy minimum)? Thanks for your help in advance.

Thanks Tom, that is very helpful. As a side note, do you know if plans have to be consistent from year to year in regards to the tables that are referenced? In DATAIR, we can choose the 1984 mortality table, but there are also others including the 1983 and 1971 tables. If there is no mention of this in the plan documents, can a plan change the tables used from one year to the next? Thanks again.

Thanks Tom. Do you know where I can find the full UP 1984 Mortality table?