Tom Poje

look at it from a different point of view. let's say plan simply froze on 6/30 you still have to fund the plan through that date, but when it gets funded is a different matter. the only thing the term date 'implies' is that distributions will occur 'within a reasonable time' years ago at an ASPPA Conference the IRS indicated if they didn't take place within a 'year' then you may have issues like "You need to provide top heavy through 12/31"

one of Sherlock Holmes mysteries, so here is "Dr" Watson's explanation, "The MEP headed-league", as found on Benefits Link Q and A https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=341 Moving Out of a Multiple Employer 401(k) Plan (Posted April 13, 2017) Question 341: An employer wants to move out of the 401(k) plan operated by their current PEO and establish a 401(k) plan with more flexibility in design. The plan with the PEO (which is co-sponsored by the employer) is not a safe harbor plan. Would the new plan be a 'successor' plan? Could it be a safe harbor plan? Answer: This is one of the many situations where the pension community can fondly wish that Treas. Reg. 1.401(k)-5, entitled "Special Rules For Mergers, Acquisitions And Similar Events," said something other than "[Reserved]." After all, it's been 13 years since the Treasury issued the final 401(k) regulations. Isn't that reservation a little stale by now? We are left to do the best we can with "unspecial" rules that do not consider the peculiarities of such transactions. Let's examine this issue a piece at a time: Is the new plan a different plan than the PEO plan, or merely a continuation? It is truly a new plan. There is a new "pot of money" under a new document and a new trust, filing a separate 5500 (which should have the "first year" box checked). Was the PEO plan maintained by the employer? Yes. The employer may not have had the power to do anything under the plan other than make contributions and terminate participate, but it signed on as a sponsor, and that is enough to maintain a plan. Is the new plan a successor plan under the 401(k) plan rules? Yes. Reg. 1.401(k)-2(c)(2)(iii) defines a plan as a successor plan if "50% or more of the eligible employees for the first plan year were eligible employees under a qualified cash or deferred arrangement maintained by the employer in the prior year." That is the definition that applies for the safe harbor rules. See Reg. 1.401(k)-3(e)(2). Can the employer set up a safe harbor 401(k) plan immediately upon withdrawal? Yes, but that plan will need to have a 12-month plan year. The rule that allows a short initial plan year does not apply because the plan is a successor plan. Suppose the employer is willing to have an initial 12-month plan year, starting May 1. Can the employer convert to a calendar year plan thereafter, perhaps by having a short year from May 1, 2018 to December 31, 2018? Yes. Reg. 1.401(k)-3(e)(3) specifically allows the plan to retain safe harbor status in this situation, although both the prior year, ending April 30, 2018, and the following year, beginning January 1, 2019, would need to be safe harbor. Would the employer be able to carry over the deferral elections from the prior plan as an automatic enrollment device? It would not qualify as an ACA under ERISA or a EACA or a QACA under the Code because the deferrals would not be "uniform." Otherwise, I cannot see anything that would prevent it, assuming the plan document is sufficiently flexible to permit it. Would the employer be able to give the safe harbor notice now, less than thirty days before a May 1 effective date? Yes. Because this is a new plan, the notice is "deemed reasonable" if given any time before the May 1 entry date. Reg. 1.401(k)-3(d)(ii). The fact that this is a successor plan does not affect this rule. Chapter 22 of my book, Who's the Employer, defines plans. Chapter 18 discusses multiple employer plans. For information about the upcoming 7th edition

the factor released for April was 244.524 the average needed to increase most of the limits is 244.5 so unless the consumer price index drops over the summer there will be increases in the comp limit and 415 limits I suppose the crew in Washington could rewrite the regs to prevent this as well.

just received the following: Dear ftwilliam.com Customer: We are pleased to announce the release of the new pre-approved volume submitter 403(b) documents.

The title of this post, best summed up ... In 1897 when a journalist was sent to inquire after Twain's health, thinking he was near death; in fact it was his cousin who was very ill. Though (contrary to popular belief) no obituary was published, Twain recounted the event in the New York Journal of 2 June 1897, including his famous words "The report of my death was an exaggeration" (which is usually misquoted, e.g. as "The rumors of my death have been greatly exaggerated", or "Reports of my death are greatly exaggerated").[

It is in the preamble to the final 401k regs (page 12 of the copy I have) One commentator asked for clarification of the interaction between these timing rules and the rule under the regulations that treats a self-employed individual’s earned income as being currently available on the last day of the individual’s taxable year and whether this last day rule precludes a partner from making elective contributions during the year through a reduction in the partner’s draw. The restriction on the timing of contributions is not intended to prevent a partner from deferring amounts that are paid to the partner throughout the year on account of services performed by the partner during the year, and the final regulations have been modified to clarify this point. However, self-employed individuals who take advantage of this opportunity to defer amounts during the year must make sure that the amount contributed during the year will not exceed the limits (such as the limits of section 415) that will apply to the individual, based on the individual’s actual earned income for the relevant period.

here is how I learned http://www.addletters.com/pictures/bart-simpson-generator/5908406.htm#.WRMOpzbruJA

you can't pick and choose the only area with some leeway (possibly) is entry date for years the IRS tried to argue you should use the plan's entry date as a guideline but they concluded you could use maximum exclusion and ignore plan's entry dates OE memorandum.pdf

Austin let me bill him for the spreadsheet:

I did ask Sal about the wording and he responded I asked him about it and at first he said no typo, so I tried again and this time: "Oh I think I see where the typo is now. I thought you were referring to the reference to the 2019 plan year at the end of the example It's the reference in the middle of the paragraph. I will post an errata item at my website and correct for next year's edition." ........................................................................................................... I thought of another example that really makes no sense. (Please, no comments about the rest of the regs making no sense, at least there is some reason for them) Fred, a non owner only made 90,000 in 2018. so now I get to treat these after tax amounts in the ACP and benefit the HCEs because the NHCE average goes up, with contributions there were attributable to an HCE when made, but now are treated as an NHCE because, well, that is the "penalty" imposed on an HCE for deferring too much in such cases.

many many many many moons ago Derrin Watson had this response in his Q and A column Controlled Groups in Marriages Continued (Posted February 26, 1999) Question 9: Your article in Q&A 1 about attribution from both husband and wife to their minor child comes as something of a shock. Could you please elaborate? Can parent-child attribution really cause businesses owned as separate property by the mother and father to be a controlled group? Answer: Surprisingly, the answer is yes. Although it is counter-intuitive, using the strict language of the Code parent-child attribution can cause businesses owned separately by the parents to become a controlled group. Consider the following examples: 1. Childless Separate Property. John and Mary are a married couple living in New York. Each owns 100% of the stock of a medical corporation as his or her separate property. Neither has anything to do with the other's business, and each corporation makes all its income from the practice of medicine. They have no children. The marital exception to attribution (IRC 1563(e)(5)) applies. There is no aggregation between the businesses and they are not part of a controlled group. 2. The Blessed Event. Same facts as the previous example, except John and Mary have been blessed with a baby. The child is deemed to own 100% of John's corporation and 100% of Mary's corporation. Hence the two corporations are a brother-sister controlled group. This is not double family attribution. The stock of each corporation is attributed only once, from the parent to the child. 3. Divorce Follows. The facts in the prior example cause John and Mary so much difficulty that they get divorced. It does not solve their problem. Their businesses will still be aggregated until their youngest child is 21. 4. Nonmarital Union. Same facts as the prior example, except John and Mary were never married. Their child was the result of a night of passion after studying for exams while they were medical students. They went their separate ways after medical school, and their only contact now is child support checks. Since marital status does not affect attribution between parents and children, the two corporations will be part of a controlled group until the child reaches age 21. Practitioners have noted that the foregoing, while logically valid, seems senseless and contrary to the intent to create a separate property spousal exemption. Unfortunately, the courts have held that where the statutory language is clear, legislative intent is irrelevant. The language is astonishingly clear in this case. The conclusions stated above are inescapable. The only reason this has not created more controlled groups is that the IRS has not aggressively pursued this issue. It is important to remember that the controlled group rules are intended to be clear, bright line tests. There are few "facts and circumstances" elements to them. That means that there is a clear road for practitioners to follow. The price of clarity is that sometimes the road goes places you do not expect, and there are no convenient ways off the path. If there is to be a solution for this problem, it will probably have to come from Congress. Some practitioners have taken heart in the fact that the IRS has not yet pursued this issue. The operative word in the foregoing sentence is "yet." Nobody wants their client to be the test case, especially if they have not informed the client of the potential risk involved.

buckaroo - I think your point about the fact if the person quit in 2018 shows the ludicrousness of using the amounts in 2019. It simply can't be done, unless you had an additional provision that said "You use what ever % it amounted to in the prior year". but then you have the issue of someone who didn't quit. how do you get around treating 'everyone the same'? so, if anything, I would say, the language in the regs is poorly written (or not intended to mean what it may say, and certainly no one has interpreted it that way up to this point in time that I am aware of) as it makes no sense if it requires to use such amounts in the following year.

yes and no it makes sense I could make an IRA contribution early in 2019 but have it apply for 2018 tax purposes. I am surprised the same rule doesn't apply that works with excess deferrals, that if you get things taken care of by 3/15 they are taxed in 2018 (in the example cited above) They are saying they sort of work like excess contributions, since taxed in 2019 they are included in 2019 testing because they never leave the plan

could be, that would be different from what I learned years ago. (and this is also something not found in previous editions of the book at least before 2013, so not sure when this was 'noticed') if you copied and pasted, there must be a typo, because it says "after the close of the 2019 plan year" and it must mean 2018 plan year.

if you recharacterize, the deferrals are treated as after tax, so you get a 1099r and you pay taxes - in your example - 2016, the year they "took place"(as ETA indicated). otherwise, by your logic, such contributions would be ignored entirely in 2016, but then show up in 2017 in testing! by the way, let's say your plan has a last day rule or hours requirement for match. normally, people who fail such requirements would not be included in ACP testing, but once you add after tax, since those people could have made after tax at any time during the year, they are included in ACP testing, which of course puts more 0s on the test, making harder to pass ACP testing. plus you have move an amount from ADP test to ACP from HCEs, making it harder to pass ACP testing, so you might not be accomplishing anything with such a strategy.

I'll try sending a file direct to you.

hr for me - while a waiver of participation is possible if the document permits, it has to be done when someone is first eligible, so once in a plan you can't 'stop' and suddenly elect out. otherwise it is no longer a 'waiver' but becomes a deferral election which is something different. so the only other option is a plan amendment excluding him from participation going forward. lets see...if I understand the rules correctly, since he cant get a full deduction he must be single, making more than 62000 married making more than 99000 or married filing separately making more than 10000 - I guess this is the only situation that even comes close to making sense and he must have already been working somewhere else (without a plan) for he was putting away 6500/year

another example can be found in the LRM (Language Requirement Modifications) p.128 In the case of self-employed individuals (i.e., sole proprietorships or partnerships), the requirements of §1.401(k)-1(a)(6) continue to apply, and the allocation method, including the determination of participant allocation groups, should not be such that a cash or deferred election is created for a self-employed individual as a result of application of the allocation method. the LRM can be found at (it is the 6th one on the list dated 10-2011 so is fairly recent) https://www.irs.gov/retirement-plans/listing-of-required-modifications-lrms

unfortunately that means the one item that would have been nice is probably shelved until then. for participant count only include those with balances. that would have eliminated some large plan audits

I have never seen a document that would permit this "Is this permissible to not contribution the Zero percent vested participants' portion of the non-elective contribution who were in the nondiscrimination test with allocation?" your document says the contribution will be based, for example, comp to comp, not comp to comp excluding your nonvested portion. and no exceptions made for terminated participants. sorry. so you get the odd scenario, the person receives a contribution and turns around and forfeits. I'm sure the document also says if the terminee returns his balance will be restored using forfeitures, but if the $ were never put in the first place, then he never put forfeitures in the plan in the first place. in addition, for example, you gave him $1000 contribution to pass testing, then turn around and say I'm not going to put it in the plan because he is 0 vested, but I am still using it to pass testing.

I wouldn't want him handling things for me if that is what he believes! the logic is flawed, but that has been proven before. I would agree loans are not usually a good idea, but to say they are double taxed is another thing.

if you can pass different testing you can exclude groups but with a DB plan you have the additional minimum participation test. if there are any HCEs in the DB plan this might be difficult

Lest I forget to post: 22 years on April 20 I can never say it enough, I am very appreciative to those who have shared (including those who merely asked questions) for in either case it has helped me learn more, either by providing answers I didn't know or rousing my curiosity to research a question that was posed. my apologies to Dave over the years for all the bad dry humor that he wasn't able to stop me from posting. Having met him once, in regards to the Links I can say "Good Job, Walt, good job!" keep up the good work! my apologies to others if I unintentionally provided misinformation or in any way offended or stepped on someone's toes along the way.

I wonder if they are getting confused between vesting and eligibility. This does show up from time to time in a plan requiring 2 years of service for eligibility. You calculate 1 year based on date of hire to date of hire and then switch to plan year. so someone hired 10/1/2015 who worked 1000 hours form 10/1/2015 - 9/30/2016 and 1000 hours in 2016 would receive credit for 2 years of service and enter 1/1/2017 even though they only worked 14 months.

yes, there is a type of "HCE violation" that might exist. I will try my best to explain it in simple terms. for better or worse, there is a regulation that says the HCEs can not defer (on the average) a greater % than the NHCEs. so, for example if the NHCEs defer on the average 2% or more the HCEs are permitted (on the average) to defer and additional 2% on top of that. so if you have 20 NHCEs and on the average they deferred 3.0% the HCEs could defer 5%. (If you had 2 HCEs and on deferred 10% and the other 0% that would be an average of 5% and would be ok. any thing above that % would be considered an excess, and therefore be returned. but the amount of return is based on who defer the most $ rather than the greatest %, just to complicate things. since you indicated few of the NHCEs defer, it sounds like that is what is going on, but your note says 'ineligible ROTH deferrals' is somewhat confusing to me, as that almost sounds like ROTH deferrals are not permitted (hence ineligible) rather than due to a test failure, but maybe that is simply the verbiage they are using to describe a test failure. If there is a value under 'return of gap period interest' I would be extremely surprised. I guess a document could still require that, but that is something the regulations no longer require. hope that helps for starters