Tom Poje

the long winded answer from War and Peace...I mean the 2005 ASPPA Conference Q and A #32 was 32. What does it mean for an employee to be employed on the last day of a plan year, for example, in determining eligibility for a top heavy minimum contribution? EXAMPLE # 1: 7/31/2005 falls on a Sunday. If an employee's last day of work was on 7/29/2005 and the plan sponsor is closed on Saturday & Sunday, would the employee be considered to be employed on the last day of the plan year ending 7/31/2005? EXAMPLE # 2: Employee terminates employment on 2/23/2005 and is paid two weeks unused vacation pay on his last day of work. Would this employee be considered to be employed on the last day of the plan year ending 2/28/2005? EXAMPLE # 3: Following a hectic tax season, a CPA firm closes from April 16th through May 5th. An employee works on 4/15 but does not return to work when the company re-opens in May. Would this employee be considered to be employed on the last day of the plan year ending 4/30/2005? EXAMPLE # 4: 12/31/2004 was New Years Eve and many businesses were closed that day since January 1st was a Saturday. If an employee's last day of work was on 12/30/2004, would the employee be considered to be employed on the last day of the plan year ending 12/31/2004? This also affects plans which require employment on the last day of the plan year as a condition for sharing in the allocation of the employer contribution or forfeitures. I have never seen any guidance from the IRS or DOL addressing this issue even though the top heavy rules are twenty years old. Thanks!!! A. Being "employed" on the last day of the year is NOT the same as WORKING ON the last day of the year. Employment is a "relationship" with the employer. If you are on vacation and someone asks you where you work, if you are still "employed", you have an answer, even though you are not actually working during the vacation period. So, if 12/31 is a Sunday and it is a business that is only open mon-fri, unless someone has been TERMINATED from employment as of that day, they are still employed even though it is not a work day. So, your example 1: as long as the person wasn't terminated, he is still employed on 7/31 even though it's a Sunday and not a work day. Example 2: Employee is TERMINATED prior to the last day; he is not employed on the last day regardless of how much money he is being paid upon termination. He is NO LONGER EMPLOYED by the firm as of 2/23. Example 3: The question is always "is he employed" during that period, not "is he working". (BTW, seasonal employee rules were never issued, so let's not deal with "seasonal employees" here - besides, I don't think a three week shut down qualifies as "seasonal"). Let's just assume that everyone is on vacation. Are they FIRED (terminated) on 4/16? Unlikely. They are basically on a company wide vacation; they are still employees; they are supposed to come back on 5/5. Therefore, they are still employed as of 4/30. Example 4: Basically the same as opening comment about 12/31. Here, the company is closed 12/31 and last day of work was 12/30. None of that matters; what matters is "was he still employed on 12/31", and the answer is yes (UNLESS he was actually terminated on 12/30).

That would be my understanding. if his old $ were only 60% vested and he had been gone over 5 years, then that money wouldn't increase in vesting (because most likely he should have forfeited the unvested portion) but he still gets credited for al prior service. ERISA Outline Book Chapter 4, Section V, Part C indicates 2.c.Cannot apply rule of parity once any degree of vesting is earned. Note that once a participant earns any degree of vesting (e.g., 20% vested under the plan's vesting schedule), there is no break in service rule that will permanently disregard his prior service for vesting purposes. If the participant incurs a break in service, the only rule that may apply to the prior service is the "one year break" rule discussed in 1. above, under which it is possible to get the prior service re-credited. but this is just (maybe easier to understand) comment from Code Section 411(a)(5)(D) for which service not to count there is a section for Nonvested Participant, but there is no section for Vested Participant. in other words, you can exclude years for a nonvested participant but not a vested particpant

this is one of those debatable issues - well sort of. Personally, I think the regs say you test everything together to make that determination. At the 2012 ASPPA conference the IRS response was "NO" because one of the formulas would fail when tested separately. (Q and A #45) In 2013 the response was a little more vague, if the discretionary match was implemented in such a way that it could fail safe harbor (e.g. not capped). Q and A #21. But that doesn't address the issue of whether or not you look at each match separately or as a whole. Then, (I wish I had thought about it at the time) the IRS response shoots itself in the foot with the next Q and A - #22. Can you have a basic match for NHCEs only and a discretionary for HCEs only? The response was YES assuming the discretionary meets the other requirements. But how does the discretionary pass by itself if no NHCEs receive? it doesn't. So it would be impossible to have that as a plan design and still answer YES. or the rule on rate of match applies only to the overall combination of all matches. Of course we know that such responses at the Conference do not reflect an actual Treasury position.

Larry - I heard it is the other way around. no one will have to put up with my dry humor, songs and attempts at advice anymore. a big plus for most folks.

Since women obtained the right to vote the overall percentage of idiots voting has dropped, though probably not significantly. (But then only an idiot would post a comment like this!)

sometimes you simply get real lucky. I really only opened up the one file I had to simply verify that was the last year the ABA had a Q and A, and since that was a question on the first page it caught my eye, and I thought, odd, someone just asked about that on Benefits Link. if it had been on a later page I wouldn't have looked.

after tax has to have ACP testing 1.401(m)-3(j)(6) you can use the safe harbor match in ACP testing as well. 1.401(m)-2(a)(5)(iv) permits you to exclude matching contributions that do not exceed 4% of comp. general consensus is top-heavy free means nothing other than deferral or safe harbor so that is probably ruined.

It is top secret classified information, so I probably shouldn't be telling you this. Please no one else read this spoiler. but in plan specs Processing/Transaction settings/eligibility there is a box you can select to be statutory dates or plan entry dates

in addition, a plan receives it's "Get out of top-heavy requirement" card if the only contributions are deferrals and safe harbors. the general opinion is that after tax ruins this feature. in your example, a plan with a safe harbor match needs to kick in 3% to any participant active at the end of the year not deferring. And yes, even someone like me who might not be considered 'active' in regards to work on the job, as long as employed on the last day, as a participant would receive top-heavy. I know, such a broad definition of 'active', but that is the way it goes.

the example in your handy dandy the ERISA Outline Book Chapter 11 Section XIV part E.5 has: 5.a.Plan which provides additional match. If a plan provides matching contributions described in 3. or 4. above, but also makes additional matching contributions, the employer will have to determine whether all of the matching contributions combined (including the match described in 3. or 4. above) satisfy the formula requirements for the ACP safe harbor, as described in 1. above. If they do, then no ACP test is required on the matching contributions. If they don't, then the ACP test will need to be run. When running the ACP test, certain contributions may be disregarded. See the special testing rules described in 8. below. 5.a.1)Example. A 401(k)(12) safe harbor plan provides two matching contribution formulas. One formula provides a match of 100% on the first 3% deferred plus 50% on the next 2% deferred. This match is 100% vested and subject to the withdrawal restrictions described in Part C of this Section XIV. The second formula is a discretionary match, which is subject to a vesting schedule, and which is a uniform percentage of the first 5% deferred, as determined by the employer, but the match is capped at 4% of compensation. For the current plan year, the discretionary match is 30% of the first 5% deferred. Formula one qualifies the plan for the 401(k)(12) safe harbor, because it is the basic formula described in IRC §401(k)(12)(B)(i) (see 3. above). Therefore, the elective deferrals do not have to be tested under the ADP test for this plan year. To determine if the ACP safe harbor is satisfied, the combined match under both formulas must be examined under the ACP safe harbor requirements described in 1. above. The two formulas combined provide a participant with a total match of 130% on the first 3% deferred and 80% on the next 2% deferred. This satisfies the formula requirements for the ACP safe harbor. In addition, since the second formula is discretionary, it must be capped at 4% of compensation (see 1.d. above) to qualify for the ACP safe harbor, which it does. The plan satisfies the ACP safe harbor with respect to all of its matching contributions. Probably for clarification purposes could have added suppose he makes 100,000 ee receives 130% on the first 3% (130% * 3000 = 3900) 80% on next 2% (80% * 2000 = 1600) total match = 5500 which if 5.5% of total pay. but it is the discretionary match which is limited to 4% not the total match. the discretionary match was on 30% * 5000 = 1500, only 1.5% so under the 4% of comp limit. In addition the match was capped at 5% deferred, could have been as high as 6%.

one of us must be sleeping. maybe it is me, but I thought the IRS no longer participates in such events and hasn't for the last year or two.

from the ABA Q and A 2015 #2 (Ha, I wasn't even looking for this, but was looking for something else totally unrelated. not even sure why I looked at this either, but those things happen) 2. § 72(p) – Plan Loans A participant who took out a loan from a Section 401(k) plan fails to make timely payment of the loan (after the cure period). As a result, a deemed distribution occurs in April due to a loan default and later in the same calendar year in November a loan offset occurs because the defaulted participant later reached age 59½ in November which is a distribution event under the plan. At the time the participant defaulted on the loan, no exception to the Code Section 72(t) early distribution penalty was available to him. Does the plan administrator who issues Form 1099-R still indicate that the distribution was a deemed distribution (Code L in box 7 of Form 1099-R) and an early distribution (Code 1) even if there is a loan offset and the participant is over 59½ by the time the plan administrator issues the Form 1099-R? Proposed Response: Yes. Once the participant defaults on the loan, the loan is considered a deemed distribution regardless of whether a loan offset occurs later in the same calendar year. IRS Response: The Service representative agrees with the proposed response. The Service representative stated that it does not matter that the Form 1099-R has not yet been issued at the time the individual turns 59½ as the general rules would apply.

ft William document has the following Profit Sharing allocation formula. The Company's Profit Sharing Contribution shall be allocated to eligible Participants who have met the requirements of Section B and D.12 as follows (Section 4.03): a. [ ] Pro rata. In the ratio that each Participant's Compensation bears to the Compensation of all eligible Participants. b. [ ] Integrated. See D.19. c. [ ] Points. See D.20. d. [ ] Fixed Amount. In an amount equal to the total Profit Sharing Contribution divided by the number of Participants eligible to share in such contribution. e. [ ] Age Weighted. In the ratio that such Participant's points bears to the points of all eligible Participants for such Plan Year. The points awarded to each Participant shall be equal to the product of the Participant's Compensation multiplied by the factor in the Age Weighted Appendix determined using the Participant's age as of the end of the Plan Year. f. [ ] New Comparability - Defined Groups. See D.21. (in addition there is (G) each person in own group and (h) other fixed formula ................ so with their document you would have item d checked in other words you can't simply have 'discretionary' and do whatever way you want one year and another way in a different year, at least in their document, and I would assume other documents are similar.

I looked it up, the reg cited by chc93 is somewhat old, though still the basically the same and is now a different cite and slightly different verbiage it is now 1.401(a)(4)-2(b)(4)(iv) Certain Limits on allocation. The plan limits allocations otherwise provided under the allocation formula to a maximum dollar amount or maximum percentage of plan year compensation, limits the dollar amount of plan year compensation taken into account in determining the amount of allocations, or applies the restrictions or section 409(n) or the limits of section 415 don't think the govt was expecting a situation like yours in which the hce has the lower comp!

bg5150 - that would not work on Relius e.g. in this case the owner has a smaller comp so if you ran a test his e-bar would be greater than others because he receives a higher % of pay. nice try though. as indicated, since the same $ is considered to be a safe harbor why run a test anyway. I know of nobody who runs a test on a plan in which the allocation is comp to comp or an integrated plan. though the software would work if tested on an allocation basis in those situations. jpod - you still have to follow the terms of the document as to allocation purposes. The net effect of providing the same contribution to everyone is to limit comp for allocation purposes to the lowest paid person receiving a contribution

so as the note indicates, it is not really a nonelective contribution, but is considered a match a strange animal indeed, why they simply didn't provide a match in the 403b one can only guess. maybe to make life difficult. and as you noted with no HCEs it becomes a moot point as their is no testing (at least as long as no one becomes an HCE) I guess for the 5500 you would use the code to indicate the plan has a match provision!?

software we use won't even let you exit without putting in a code. aren't there taxes on the gains? this is different than a Roth. I'm not sure the taxable amount would be zero.

of course, the cite I quoted is for allocation groups, and that would be slightly different than your situation. on the other hand, if Div A was union (excluded) and Div B was nonunion I don't think you would use total comp. I'm not sure this is any different- one group excluded and another included, but I can't say 100% for sure.

well, possibly for guidance you could rely on the LRM dated 10/2017 (which is the same as the LRM dated 10/2011, so this isn't a change. it sounds like you are saying he was in div A part of the year and div B the rest of the year. LRM = required modifications see page 128 The employer will specify in written instructions to the plan administrator or trustee, by no later than the due date of the employer’s tax return for the year to which the employer’s contribution relates, the portion of such contribution to be allocated to each participant allocation group. The employer contributions allocated to each participant allocation group will be allocated among the employees in that group in the ratio that each employee’s compensation, as defined in section _____ of the plan, bears to the total compensation of all employees in the group. In the event that an eligible employee is included in more than one participant allocation group, the participant’s share of the employer contribution allocated to each such group will be based on the participant’s compensation for the part of the year the participant was in the group. lrm 2017.pdf

but without knowing exactly the language in the document... if it is truly a money purchase, it should be a non elective contribution, but then you are having it dependent on whether a deferral is made, and I didn't think you could do that, even if you don't have any HCEs. If you are a NHCE you should be able to receive a nonelective even if you don't defer. or at least I thought that was how it worked.

Lou S - at least you didn't say he did it to become 100% vested! I've said it before, if all the stories we have dealt with over the years were collected it would make a great book. not sure if it would be considered horror, comedy or what.

years ago we had a plan and the census file indicated the one guy died, so following terms of the document we gave him a contribution. then they call and ask "why?", and pointed to the portion of the document that says if you die you receive a contribution. The response was "But does it matter if he committed suicide?"

ETA is correct unless it was a ROTH deferral The instructions on the 1040 are as follows: Excess salary deferrals. The amount deferred should be shown in box 12 of your Form W-2, and the “Retirement plan” box in box 13 should be checked. If the total amount you (or your spouse if filing jointly) deferred for 2016 under all plans was more than $18,000 (excluding catch-up contributions as explained later), include the excess on line 7. This limit is (a) $12,500 if you have only SIMPLE plans, or (b) $21,000 for section 403(b) plans if you qualify for the 15-year rule in Pub. 571. Although designated Roth contributions are subject to this limit, do not include the excess attributable to such contributions on line 7. They are already included as income in box 1 of your Form W-2. Corrective distributions from a retirement plan shown on Form 1099-R of excess salary deferrals and excess contributions (plus earnings). But do not include distributions from an IRA* on line 7. Instead, report distributions from an IRA on lines 15a and 15b. *This includes a Roth, SEP, or SIMPLE IRA.

many moons ago I tried creating some power point presentations based somewhat on the ASPPA courses, primarily for in house review and training. never completed the project, but here is the chapter on some 401k basics, which was only chapter 1 of their C-2 course (which by this date is may be entirely different, though the basic material should be good) . Questions pop up through out the presentation because, well, I always figured that was the best way to learn. maybe some of the material is outdated, this one was created in 2010. Chapter 1 401k basics.ppt

you can discriminate amongst HCEs all you want, but if there are NHCEs you have to run BRF in other words, if you want to give selected HCEs less than everyone else, yes, you can do that because you will pass. but if you are also providing NHCEs less then you have a discrimination issue (their rate of match would be less than one or more HCEs)