Tom Poje

just in case there are some newbies out there who missed this awful joke. I made the rest of the bunch suffer through it, so you might as well. Besides, it has been a number of years since I posted this. .............................................................................................. The original Titanic -- the largest ship of its type at the time -- sank 100 years ago when it struck an iceberg on the night of April 15, 1912, on its maiden voyage from Southampton to New York. More than 1,500 people perished in the disaster, which captured the popular imagination. The ship had been vaunted as "unsinkable." Most people don't know that back in 1912, Hellmann's mayonnaise was manufactured in England. In fact, the Titanic was carrying 12,000 jars of the condiment scheduled for delivery in Vera Cruz, Mexico. This was to be the next port of call for the great ship after its stop in New York. This would have been the largest single shipment of mayonnaise ever delivered to Mexico. But as we know, the great ship did not make it to New York. The ship hit an iceberg and sank, and the cargo was forever lost. The people of Mexico, who were crazy about mayonnaise, and were eagerly awaiting its delivery, were disconsolate at the loss. Their anguish was so great, that they declared a National Day of Mourning, which they still observe to this day. The National Day of Mourning occurs each year on May 5th, the day the shipment was to arrive in Vera Cruz, and is known, of course, as Sinko de Mayo.

now now, just because the I in IRS stands for illogic (at least at times in regards to pensions)doesn't mean you can't use it....

just for the record, or at least as best as I can logically figure it out other errors, e.g. correct failed ADP test or missed deferrals, etc. do not involve taxes (at least not directly) so you are permitted to self correct. a loan failure involves taxes that are due since the loan is in default. that is why the requirement is through VCP rather than merely self correcting.

other issue with a design like this if you give out quarterly statements, do the statements indicate 'oh, by the way, you might not receive , current year allocation and somehow or other we will calculate earnings associated with that as well and reduce your balance'

I would agree that would probably be the best solution, simply move the money. and as I recall, it's the excess plus gap period income on any excess deferral (Roth or otherwise). same idea, participant should not get the 'free' earnings on Roth. I have never seen the amount of excess deferrals as being large, but agree it seems unfair to double tax, but the regs have been that way as far back as my wee brain will go.

this is like deja vu from one day ago see the post 402g failure Roth correction after April 15

That is my understanding of the rules, and the ERISA Outline Book would agree as well. as an added thought, lets suppose you weren't discussing RMD. Lets just say the person quit. what would you use for the payout balance? I doubt you would credit earnings, nor that the document would even allow it. you simply use the balance as of the last val date and adjust for any contributions/distributions that might have been made. the only exception I can think of would be if the stock market collapsed and you would do an interim valuation to protect the balances of all participants.

to tell you the truth, in all the years I have done plans I never once have had a plan with excess roth deferrals ( either in single plan or across multiple plans) but your question raised my curiosity, since I haven't come across it before - it took a little research to put the pieces together and come to the logical conclusion of why things are done this way, so I give a bit of thanks to you.

what 'should' happen - see page 20 (this is from the proposed regs, but this did not change in the final regs) Designated Roth Contributions as Excess Deferrals Even though designated Roth contributions are not excluded from income when contributed, they are treated as elective deferrals for purposes of section 402(g). Thus, to the extent total elective deferrals for the year exceed the section 402(g) limit for the year, the excess amount can be distributed by April 15th of the year following the year of the excess without adverse tax consequences. However, if such excess deferrals are not distributed by April 15th of the year following the year of the excess, these proposed regulations would provide that any distribution attributable to an excess deferral that is a designated Roth contribution is includible in gross income (with no exclusion from income for amounts attributable to basis under section 72) and is not eligible for rollover. These regulations would provide that if there are any excess deferrals that are designated Roth contributions that are not corrected prior to April 15th of the year following the excess, the first amounts distributed from the designated Roth account are treated as distributions of excess deferrals and earnings until the full amount of the those excess deferrals (and attributable earnings) are distributed. ............... in other words the excess 'needs' to be segregated (or tracked or something) from the Roth account in one of the plans. and since earnings are involved you would want it separate, I'm sure. since it was Roth, the person already paid taxes in 2017, and eventually when taking a distribution pays taxes again. otherwise, someone could defer 24,,000 into Roth into each plan. oh I have excess but I already paid taxes in 2017. now the excess continues to collect earnings, and if not removed from the Roth account then when the person retires he gets all that tax free. a great scam, works real well in a safe harbor plan in which there is no ADP testing! the problem, if it is in 2 plans separate plans, run by 2 different TPAs, how would anyone know? except for ethics on the part of the individual.... 402A_Proposed_Regulations_Roth.pdf

https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-elective-deferrals-exceeded-code-402g-limits-for-the-calendar-year-and-excesses-were-not-distributed Timely withdrawal of excess contributions by April 15 Excess deferrals withdrawn by April 15 of the year following the year of deferral are taxable in the calendar year deferred. Earnings are taxable in the year they're distributed. There is no 10% early distribution tax, no 20% withholding and no spousal consent requirement on amounts timely distributed. Consequences of a late distribution Under IRC Section 401(a)(30), if the excess deferrals aren't withdrawn by April 15, each affected plan of the employer is subject to disqualification and would need to go through EPCRS. Under EPCRS, these excess deferrals are still subject to double taxation; that is, they're taxed both in the year contributed to and in the year distributed from the plan. For any distributions, attributable to elective deferrals designated as Roth Contributions, all distributions will be reported as taxable in the year distributed. Designated Roth contributions will have already been included in income in the year of deferral. These late distributions could also be subject to the 10% early distribution tax, 20% withholding and spousal consent requirements. ..................... now, lets suppose instead the person was a participant in two different plans - unrelated companies, and they deferred 15,000 to each plan. 30,00 in total is in excess for the individual. however, neither plan is in violation for accepting too much so there is no distributable event.

e.g. lets say you were going to allocate 10,000 2 participants, owner at 180,000 , NHCE at 50000 you amend, owner is now at 250,000 at NHCE is still at 50000 so you have increased the HCE contribution and cut back the NHCE, assuming that they have already attained the necessary conditions (hours, etc) to receive a contribution

though it is obvious what he meant to say, ERISAAPPLE missed one word every eligible NHCE (because of course, you can exclude HCEs) 1.401(k)-3(b)

you could simply convert the money purchase into a profit sharing (401k is a type of profit sharing) one such discussion from the IRS is here (discusses whether or not accounts become 100% vested) of course you retain the annuity option attached to the mp balances. convert mp to ps.pdf

I don't think so, my understanding is by 'discretionary' it refers to the amount that can be contributed, not that each person is in their own 'rate group' so each person can receive a different amount at the discretion of the employer (much even trying to do BRF testing if you could). but I've been wrong before.... one document language would allow some variance based on location, but I've never seen language that treats, as I said, each person in their own separate group. A. Matching formula. a. [ ] Employer matching contribution as follows (select 1. or 2.): 1. [ ] Discretionary. The Employer may make matching contributions equal to a discretionary percentage, to be determined by the Employer, of the Participant's Elective Deferrals. a. [ ] Discretionary based on business units or location. The Employer may determine a separate discretionary matching contribution for Participants working in different business units or locations.

the answer is yes, but that depends on your document the FT William document has up to 4 choices available. if there were HCEs you would have BRF to test. 9. Years of Service a. The Matching contribution will be made according to the schedule below: i. Years of service % of Matched Employee Contributions ii. Years of service % of Matched Employee Contributions iii. Years of service % of Matched Employee Contributions iv. Years of service % of Matched Employee Contributions b. [ ] Only Matched Employee Contributions that are not in excess of % of the Participant's Compensation shall be matched. c. In determining years of service in this D.9, the following service shall be used: i. [ ] Years of Eligibility Service ii. [ ] Years of Vesting Service d. Enter the number of Hours of Service necessary to earn a year of service described in D.9a: NOTE: D.9 is only applicable if D.6e is selected. NOTE: The first tier of Matching Contributions in D.9a.i shall be available no later than the period described in 410(a)(1).

with a DC plan, to get to get to the magical land of cross testing, you have to pass through the gateway. if you are testing on an allocation basis you are not trying to reach cross testing land so you have no gateway to pass through. (And just because you are taking a lunch break at that place with a clown, the golden arch is not the same as a gateway)

how about 'maybe' my understanding if you test otherwise excludables separately, this group could be tested on an allocation basis and therefore not need the gateway

if he has no comp, where does the $6000 come from? sched C income gets split between comp, fica and contributions and if it is 0 there is nothing to split.

my understanding you have 2 plans you have 1 avg ben pct test. now look at plan 1 (either testy on accrual or allocation basis) if it passes the ratio % test, then you won't need the avg ben pct test. if it fails ratio pct test then use the avg ben test. now do the same with plan 2. (either test on accrual or allocation basis)

and if the employee had 998 hours and needed just a couple more so he could get vested, well, too bad, doesn't matter if you were willing to work one more day and could, your last day was it... oh that was the old days of 10 year cliff vesting when they used to do things like that to prevent people from collecting I bet the DOL would be interested in such practices, thank heavens they don't arise that often.

in other words, you are left with: I would have quit Dec 31, but the place isn't open (nor is it open Dec 30). so my last day is Dec 29. Oh, too bad, that is not the 'last day of the calendar year' so you are screwed and get no contribution. you should have told us you quit Dec 31, we couldn't schedule you that day but then at least you would have still been an employee on the last day and been eligible for a contribution.

I think the comment applies to plans that were an EZ but no longer are an EZ (e.g. now more than 1 participant) ............ the IRS comments (to me at least) imply they see the EZ and 1 participant SF as being the same thing: Beginning January 1, 2012, Form 5500-SF information for “one-participant plans” will not be available to the public on DOL’s website. One-participant plans cover only a business owner and his or her spouse, or cover only one or more partners or partners and their spouses in a business partnership. Annual returns of one-participant plans can be filed by: electronically using Form 5500-SF with the Department of Labor’s EFAST2 system, if certain conditions are met completing and mailing a paper Form 5500-EZ to IRS. https://www.irs.gov/retirement-plans/file-your-one-participant-plans-electronically-using-form-5500-sf-they-are-now-excluded-from-online-search-database the instructions for the EZ (again at least to me imply the same thing) Therefore, every one-participant plan required to file an annual return must file paper Form 5500-EZ with the IRS or electronically file Form 5500-SF using the EFAST2 Filing System in place of filing Form 5500-EZ.

of course, if it was an owner that quit, then wink, wink, nudge, nudge, it will turn out the individual is eligible.....

I had a 5 year 'prison' term and then escaped