Tom Poje

my understanding is the plan is still 'not top heavy' the Code indicates A top-heavy plan does not include a plan for any year that it consists solely of a cash or deferred arrangement which meets the "safe-harbor" requirements under IRC 401(k)(12) for minimum contributions for participants and makes matching contributions that meet IRC 401(m)(11). See IRC 416(g)(4)(H). now, if the plan included otherwise excludables who did not get safe harbor, then the plan is top heavy because a portion of the plan does not meet safe harbor. but I don't think there is a similar rule if HCEs are excluded from safe harbor. basically, 1. safe harbor is required for all eligible NHCEs 2. HCEs can thus be excluded 3. since your plan met the safe harbor contributions and no other contributions were made it meets the top heavy exemption.

I don't think 415 is an issue. this is a corrective contribution, putting the plan in a position it should have been had the error not occurred. e.g. let's suppose one of the person had a bonus in 2017 and quit in 2017 so had no comp in 2018. if you provide the make up contribution in 2018, since he has no comp in 2018 you would have 415 problems if worried about 2018. the closest language I can find under EPCRS is under the one-to-one correction method for ADP failure. "and is treated as an annual addition under § 415 for the year of the failure for the employee for whom it is allocated"

my understanding, even if you gave everyone the same %, simply because they are individual groups you are out of luck. sort of like cross testing - before you can cross test you have to pass the gateway minimum. in this case before looking at what was allocated you have to answer the question is anyone in their own group? if yes, you have an unreasonable classification, because you have the effect of someone by 'name'. so it doesn't matter if everyone gets the same % because you haven't passed square 1. one such write up on the 'withdrawn' proposed regs had Many employers that use rate group testing place each employee into a separate allocation group. This allows an employer the most flexibility when allocating contributions and satisfying either the ratio percentage test or average benefits test for each rate group. Employers that use individual allocation groups would, if the proposed regulations become final, no longer be able to satisfy rate group testing using the average benefits test as the groups will not satisfy the reasonable classification requirement. Their plans would need to either be amended so that the allocation groups satisfy the reasonable classification requirement or have each rate group satisfy the ratio percentage test, which could require significantly higher employer contributions than are needed under the current regulations. In addition, the average benefits test, currently an entirely numerical test, would include a "facts and circumstances" component. Without being reviewed by the IRS, employers will not know if their classifications of employees are considered reasonable.

at the moment the reasonable classification only applies to coverage testing. the IRS had talked about applying it to nondiscrim testing as well but they didn't follow up on that (yet).

in addition, if the plan is top heavy then at the minimum it's 3% of total comp

your opening comment said you would out commissions in the numerator yet if commissions are excluded that should be the one spot you don't put them in, only in the denominator.

on the other hand, some contributions like safe harbor and QNECs must be made within 12 months of plan year end. 1.401(k)-3(h)(1), 1.401(k)-2(a)(6)(I)

back in July 2016, part of the proposed form 5500 changes the following was included: (and how I even tripped across some of this stuff is beyond me, because I know I didn't read the whole thing - 777 pages! but then most folks know I'm out of my mind anyway, attached if you are having problems sleeping - either at night or at work) p.62 of the pdf Defined contribution pension plans would determine whether they have to file as a large plan and whether they have to attach an IQPA report based on the number of participants with account balances as of the beginning of the plan year, as reported on the face of the Form 5500 or Form 5500-SF. ...... oh, by the way, E-Fast 2 began 1/1/2010 and the contract runs for a decade, so changes are supposed to be in store for that as well. p.2 of the pdf These revisions, which are being proposed in conjunction with a recompete of the ERISA Filing and Acceptance System (EFAST2) contract, if adopted, generally would apply for plan years beginning on or after January 1, 2019. EFAST2 is expected to begin processing the Plan Year 2019 Form 5500 Annual Return/Report beginning January 1, 2020. ............ so I guess maybe with the plan year 2019 filings the changes will take place. proposed_5500.pdf

I don't see any mention of exactly what the match formula is, or if the match is made on a per payroll basis or if the plan has a limit on the match. but just because someone hits the comp limit during the year(I assume the original note meant 270,000 and not 170,000) doesn't mean deferrals stop, etc preamble to the final 415 regulations states that: As noted above, the final regulations provide that a plan cannot take into account compensation in excess of the section 401(a)(17) limit. In addition, the final regulations provide that elective deferrals can only be made from compensation as defined in section 415(c)(3). However, in applying these two rules, a plan is not required to determine a participant's compensation on the basis of the earliest payments of compensation during a year. [Emphasis added.] Issue 2012-1 (Mar. 20, 2012) of the IRS Employee Plan News offers the same advice: “We're Glad You Asked #2” We have a 401(k) plan and some employees’ compensation will exceed the annual compensation limit this year. Should we stop their salary deferrals when their compensation reaches the annual compensation limit? How do we calculate the employee’s matching contribution? Unless your plan terms provide otherwise, the salary (elective) deferral limit is applied uniformly to the compensation that the employee receives throughout the year. [https://www.irs.gov/pub/irs-tege/epn_2012_1.pdf]

The only other thing I would add is there is no requirement a plan even offer loans. it is purely an option. it is after all, supposed to be for retirement, and not, in many cases, "I want to buy this 'toy' now and I am willing to forego my retirement $ because I have plenty of time to save later"

Jennifer - the plans I work with have a separate loan policy, so this information might not be in the 'document'. you should be able to request a copy of that policy. for example (your plan of course might be different) the opening paragraph of the loan policy is This document contains important information about the procedures for obtaining a loan from the Plan. The following rules shall apply to the loan program: Procedure for Applying for a Loan If you are an active Participant in the A & B Marketing, Inc. 401(k) Plan, you may apply for a loan from the Plan. You must complete a Loan Application Form and submit the completed form and supporting materials to the Plan Administrator. Loan application forms may be obtained from the Plan Administrator. All loan applications will be reviewed on a uniform and nondiscriminatory basis and your loan will be approved if the Plan Administrator determines you have the ability to repay the loan, the loan is adequately secured and the loan meets the other requirements set out below. ......... so if there is a paragraph that says 'hardship requirement' ..... In all the years I have worked I have never seen such a requirement, but that doesn't mean it couldn't exist, but as Kevin's cite above notes such a policy might be problematic.

I'd start by tossing out the term 'seasonal employees' (and just because someone works 12 months does not mean they have worked 1000 hours, so they might not be eligible but basically, once someone works 1000 hours in a 12 month period they will need to be included in the plan (aside from requiring 2 years @ 1000 hours.) but your document should say. the document could permit anyone to enter with no eligibility, in that case you would want to test 'otherwise excludables' separately. (that is, you can test separately those folks who wouldn't be in the plan if the plan required a 1 year/1000 hours for eligibility. if the HCE is an owner then you also have an issue with top heavy if there are at least 'a hundred' seasonal workers that have worked 1000 hours then you could very well have a 'large' plan if they are indeed eligible. but the first question is exactly what does the document say for eligibility?

other who may have actually handled an event like this will probably chime in, but this will probably require more info. here is a brief summary of thoughts usually there is a grace period on loans, so I'm a bit surprised if the loan was defaulted if a payment was only 2 months late. regardless, the normal consequences, is if you were 1099d, then you should have included that amount as a distribution on your taxes in 2017. in addition, chances are there is a 10% penalty for early distribution. the fact that you continued to make payments after receiving a 1099r means those payments are now considered after tax, so then when you get a distribution you don't pay taxes a second time (except you pay taxes on the interest) under EPCRS this can probably be corrected through the VCP program (2) Special rules for loans. (a) In general. The correction methods set forth in section 6.07(2)(b) and (c) and section 6.07(3) are available for plan loans that do not comply with one or more requirements of § 72(p)(2) and are corrected through VCP or Audit CAP. The correction methods described in section 6.07(2)(b) and (c) and section 6.07(3) are not available if the maximum period for repayment of the loan pursuant to § 72(p)(2)(B) has expired. The IRS reserves the right to limit the use of the correction methods listed in section 6.07(2)(b) and (c) and section 6.07(3) to situations that it considers appropriate; for example, where the loan failure is caused by employer action. A deemed distribution corrected under section 6.07(2)(b) or (c) or under section 6.07(3) is not required to be reported on Form 1099-R and repayments made by correction under sections 6.07(2) and 6.07(3) do not result in the affected participant having additional basis in the plan for purposes of determining the tax treatment of subsequent distributions from the plan to the affected participant. The relief from reporting the participant’s loan as a deemed distribution on Form 1099-R, as described in the preceding sentence, applies only if the Plan Sponsor specifically requests such relief and provides an explanation supporting the request. welcome to the board, and good luck!

ignoring for the moment your issue of 'maybe these folks are not inelligible' (or rather once you have decided how to handle the folks in question) then your document might provide some guidelines. an example from the FT William document (some documents have language that 'self-corrects' in case of failure (known as fail safe language) so you don't have to put in a corrective amendment. for example item b could have been check, in which case you bring in just enough people to pass. item would bring in everyone. if this was your plan language, since item 'a' was checked you would bring in people by a corrective amendment, and generally that would be just enough. but such amendments must have substance. 4. Coverage Failures for Matching Contributions Method to fix Matching Contribution Code section 410(b)(1)(B) ratio percentage coverage failures (Section 4.02(d)): a. [ X ] Do not automatically fix b. [ ] Add just enough Participants to meet the coverage requirements c. [ ] Add all non-excludable Participants along with the following language to specify who gets brought in (2) If the Adoption Agreement specifies that just enough Participants shall be entitled to share in such contributions for such year, then the following additional Participants shall be eligible to share in such contributions: (A) The list of Participants eligible to share in the Company's Matching Contributions for such Plan Year shall be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the minimum coverage requirements under Code section 410(b)(1)(B). The specific Participants who shall become eligible to share in the Company's Matching Contribution for such Plan Year pursuant to this Paragraph (A) shall be those Participants who remain in the Company's employ on the last day of such Plan Year and who have completed the greatest amount of service during the Plan Year. (B) If, after the application of Paragraph (A) above, the minimum coverage requirements of Code section 410(b)(1)(B) are still not satisfied, then the list of Participants eligible to share in the Company's Matching Contribution for such Plan Year shall be further expanded to include the minimum number of Participants who do not remain in the Company's employ on the last day of the Plan Year as are necessary to satisfy such requirements. The specific Participants who shall become eligible to share in the Company's contribution for such Plan Year pursuant to this Paragraph (B) shall be those Participants who had completed the greatest amount of service during the Plan Year before terminating their employment with the Employer.

Bob- last sentence of 1.401(a)(9)-5 Q-5(c) ...in subsequent calendar years, the applicable distribution period is reduced by 1 for each calendar year that has elapsed after the calendar year immediately following the calendar year following the employee's death so if the factor was 8.4 in 2010 then in 2011 the factor is now 7.4..... as somewhat noted above, at some point you have the following balance = 15,000 factor = 1.4 so min distr = 10,714 following year balance = 4286 if you divide by .4 you get 10,715 as a min distrib, but the balance is only 4286, so that is all the person can get and now the balance is 0 ........... I suspect in most cases folks don't bother with this and simply cash out well before this happens. after all, this is only the minimum required that has to be taken

in other words, it's possible that a3% top heavy as a QNEC might help pass adp testing and take the plan out of being top heavy

found it at the 2004 asppa conference #29 29. Assume a deferral only 401(k) plan is top heavy and fails ADP testing. Suppose the only HCE (compensation of $200k) originally defers $10,000 (i.e., 5% of pay) but is required to be refunded $5,000 to pass ADP (i.e., “adjusted” deferral/benefit rate = 2.5%). Is the top heavy minimum contribution equal to 2.5% or 3.0%? A: 3% (of course any comments at the ASPPA conference might not reflect an actual Treasury position)

back so long ago I don't remember (2002 ASPPA Conference Q and A #3 the following was asked and answered, indirectly in line with your question: p 3. Are corrective distributions (ADP/ACP) considered in-service distributions and added back for 5 years for purposes of determining top-heavy status? Yes. I vaguely recall a similar response years later at another Conference that might have been more direct to the point. Arguably it is somewhat implied in the 415 Regs because those corrected amounts are treated as an annual addition so, yes, it appears technically that is what is suppose to happen. top heavy needed, or at least that was what I was taught

As noted, it can't be an 'irrevocable' waiver. I think one of the reasons for this is, for example, you have a profit sharing only plan. for someone to make an irrevocable election is not considered a 'deferral' election whether to participate or not. I guess you could create an excluded class and amend the document as such, something like "fools that want to be excluded entirely" - well of course you have to have a better description than that. the difference between someone being excluded from the plan is they don't show on the ADP test with a 0. but they still get counted as included and not benefitting for coverage.

I can't tell from your description what is really taking place. former contract ees but now W-2. so are they somehow still not eligible for the DB? in which case coverage and minimum participation are DB issues (but you don't handle that) if they are the only ones eligible in the 401k, then coverage may be an issue if there are HCEs in the group.

as noted, it is a bit late to do anything at this point in the game. if you quit and were going to take a distribution rather than rollover any remaining balance then, for all practicality, it is a moot point whether you would have paid off the loan or not.

when the all time hit leader was on trial for gambling, and the judge walked into the room, out of respect, like everyone else Pete Rose

here is an article on the opposite, terminating from a MEP https://www.employeefiduciary.com/blog/you-want-to-terminate-your-multiple-employer-401k-plan-good-luck-with-that

This was in the news today: Two prominent NFL owners have a stake in a bookmaker as the first season with expanded legal sports betting in the U.S. gets ready to kick off. New England Patriots owner Robert Kraft and Dallas Cowboys owner Jerry Jones have retained their investments in DraftKings, sources confirmed to ESPN, even as the company has shifted some of its focus from daily fantasy to traditional sports betting. Kraft's and Jones' stakes in DraftKings are said to be small: less than 5 percent, according to sources. In a court disclosure, 21st Century Fox was the only company listed as owning 10 percent or more of DraftKings. A Cowboys spokesman said Jones' investment in DraftKings is through sports hospitality company Legends, not the team. Jones and the Steinbrenners, owners of the New York Yankees, have been described as "principal owners" of Legends. The Patriots declined comment See, it's ok because

not sure why nothing is populating, but I will send you a modified version of your report that appears to match my results