Tom Poje

a chance possibility is the Bill in Govt will pass (I believed it has already passed the House committee), and then you could create a SHNEC retroactive (After plan year end) at 4%. so if you have a plan doomed to big failure then there may still be hope. The Bill eliminates the safe harbor notice requirement, so without going back and looking at it, it might be in there to amend to a 3% SHNEC before the end of the year as well. my brain is crammed too full of useless stuff so I don't remember now) There is no such option for a match because of course, that depends on whether someone defers.

The ERISA Outline Book has the following Chapter 8 Section V 2.i.Certain distributed amounts must be included in benefit percentage. When calculating an employee's benefit percentage, all contributions allocated (or benefits accrued) for the plan year are included, even if those amounts have been distributed to the participant. The IRS has not clearly dealt with this issue in the context of corrective distributions under IRC §401(k), §401(m), §402(g) and §415 2.i.1)Corrective distributions under §§401(k) and 401(m). Presumably, corrective distributions under §401(k) or §401(m) (i.e., excess contributions under the ADP test or excess aggregate contributions under the ACP test) should be included in calculating a participant's benefit percentage, because those amounts are included in the nondiscrimination test. Recharacterization as catch-up contributions. In some cases, all or a portion of the excess contributions under IRC §401(k)(8) that are allocable to an HCE will be recharacterized as catch-up contributions under IRC §414(v) and will not be distributed. See Treas. Reg. §1.414(v)-1(d)(2)(iii) and the discussion in Section VIII, Part A.1.f., of Chapter 11. Elective deferrals for the current plan year that are recharacterized as catch-up contributions would be excluded from the benefit percentage included in the average benefit percentage test. See 3.a.2) below.

going back to the original question: can you allocate forfeitures based on account balances yes, IF (BIG IF) the document permitted it. and as someone pointed out, if people are in their own group this is conceivable. If the doc says allocations are comp to comp then no, you simply can't do that. but to simply allocate them as a fee credit because that is "what I want to do", well, I haven't seen that language in a document some documents allow forfeitures to pay plan expenses, but again, I have never heard a suspense account used in the manner you are suggesting. rather it is used to pay the asset house or tpa or something like that. one cite on the internet has For example, if certain plan fees are billed quarterly and your plan allows forfeitures to pay plan expenses, check the forfeiture account when you receive each quarterly invoice. Some recordkeepers allow you to specify that quarterly fees will automatically be charged to the forfeiture account first with any remaining balance due charged to either the company or participant accounts. so, I'd be wary of such a practice, especially if it is not based on anything charged to a participant account (I'm assuming these are individual accounts), but rather based on what someone's total account balance was. but then, that is only my opinion and I could be way off the mark.

cuz running an allocation based on account balances is not one of the safe harbor formulas for a dc dc plan.e.g. comp to comp, equal $ to each person, etc. therefore you have perform nondiscrimination testing to determine if a violation has occurred.

soc sec is based on cpi-w and they usually post that a few days later than the cpi-u plugging in Feb value for july aug sep 2019 you get (246.218-246.352)/246.352 which is negative, so at the moment, no increase but I would expect that to change when they release the Mar value check the following website http://mrsc.org/Home/Explore-Topics/Finance/Economic-and-Population-Data/Consumer-Price-Index.aspx there is a nice excel spreadsheet available, just scroll through to the correct tab (cpi-w) I know, I'm a nut case, but I wanted to know how all these things work, so... 2016 2017 2018 2019 july 234.771 238.617 246.155 246.218 aug 234.904 239.448 246.336 246.218 sep 235.495 240.939 246.565 246.218 705.17 719.004 739.056 738.654 235.057 239.668 246.352 246.218

profit sharing. think of it this way. maybe not the best way to imagine it, but what the heck. you have 2 plans. plan 1 is safe harbor with a 1 year wait plan 2 is non safe harbor, no wait for deferrals. but since the folks are now participants they get the top heavy

in Relius there is an option to allocate forf based on account balance, so, yes at least at one time it is a legitimate basis, though I don't recall seeing it in plan language in recent times. and as I recall you then had to test for nondiscrim. whether you can still do that today I don't know, maybe with special document language. BUT BUT BUT BUT you can't simply allocate forfeitures whatever way you want. the document tells you how to allocate forfeitures. I think most documents say forfs can be used to pay plan expenses as an option, but I think that is different than re-allocating to people like you are trying to do. I thought that was done 'outside' the plan

CPI-U released today 254.202, a huge spike from last month (Feb was only 252.776 At that rate the 415 limit will be 57,000 and comp limit of 285,000 the rates used to determine the limits (Jul -Aug) have never been less than the Mar value so looking like the limits will increase even at this early date

or QNECs are made

the instructions on the form 5500 for item 5 are as follows. which category does a 0% vested terminee fall into? certainly not 2, 3 or 4. 1 is for those currently employed . I suppose you could argue they are covered by (a) if they did not have a break in service, but even (b) does not include those who have a deemed distribution Active participants (i.e., any individuals who are currently in employment covered by the plan and who are earning or retaining credited service under the plan). This includes any individuals who are eligible to elect to have the employer make payments under a Code section 401(k) qualified cash or deferred arrangement. Active participants also include any nonvested individuals who are earning or retaining credited service under the plan. This does not include (a) nonvested former employees who have incurred the break in service period specified in the plan or (b) former employees who have received a "cash-out" distribution or deemed distribution of their entire nonforfeitable accrued benefit. Retired or separated participants receiving benefits (i.e., individuals who are retired or separated from employment covered by the plan and who are receiving benefits under the plan). This does not include any individual to whom an insurance company has made an irrevocable commitment to pay all the benefits to which the individual is entitled under the plan. Other retired or separated participants entitled to future benefits (i.e., any individuals who are retired or separated from employment covered by the plan and who are entitled to begin receiving benefits under the plan in the future). This does not include any individual to whom an insurance company has made an irrevocable commitment to pay all the benefits to which the individual is entitled under the plan. Deceased individuals who had one or more beneficiaries who are receiving or are entitled to receive benefits under the plan. This does not include any individual to whom an insurance company has made an irrevocable commitment to pay all the benefits to which the beneficiaries of that individual are entitled under the plan.

I looked at the software we use (Relius) and it dies not include such people either

I didn't think 0% vested terminees were included in the count

agree if hours aren't provided, you could probably do a reasonable estimate based on min wage e.g. if I took comp / est 7.25. I think most states are at least that now. if you are no where close to 1000 hours then never a year of service. if min wage was more then the hours would be even fewer. if you have someone above 1000 then you would need to dig deeper.

ultimately it is up to you how you would handle such an employee. looking at last years test did the prior admin count the person as otherwise excludable? granted that might not prove anything, but it is a basis. If it is a large plan, it probably won't make a difference in the ADP test anyway - it is hard to swing the numbers much with the inclusion or exclusion of a body. as for the situation of elapsed time, the whole idea of 'otherwise excludable' is, if the plan had 1 year wait and maximum exclusion would the person have been excluded? and in that case, yes, if you know hours and the person never worked 1000 he would be otherwise excludable.

the IRS has the following in their Coverage and Nondiscrimination – Demo 6 The following are considered separate plans under Income Tax Regulations the 1.410(b)-7(c) disaggregation rules. The separate plans are the portion of the employer’s defined contribution plan that provides: employer nonelective contributions, elective contributions under 401(k), matching contributions under 401(m), employee after tax contributions under 401(m), and ESOP contributions. Please note that the average benefits percentage test exception above applies to these items. https://www.irs.gov/pub/irs-tege/epchd1004.pdf .............. now, what if the allocation is in the ESOP plan but is not a stock contribution, but rather simply an additional profit sharing, since all the shares have been allocated. e.g. the above reads like a single plan that could have deferral, match, nonelective and ESOP.

I think understanding women is easier than understanding much of the regs (I am somewhat clueless on either much of the time), but by now you should know any of my comments come from someone who is nuts. Agree you aren't suppose to aggregate ESOP with non esop, but it depends on what part of testing you are talking about. 1.410(b)-7(e)(2) is an example with 6 plans. Plan E is an ESOP and it is aggregated, but this is for purposes of the Avg Ben Pct test only (and I don't think you could impute disparity on that portion of the aggregated group either)

what is guaranteed is that such election forms are never back dated. they might have been sitting in a desk drawer and no one else knew about them, but the election was certainly made ahead of time wink wink nudge nudge.

thanks for the clarification. then the original response was correct, the match can be used toward top heavy but not gateway always like to make sure just in case terms were used improperly (speaking from experience)

yes, in fact the preamble to the regs anticipated the opposite, making deferrals before it is even known what the comp would be 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.

the comments I have read seem to indicate it is likely some of this will be passed (despite the in fighting between the parties) the fun part will be the part timers. how many plan sponsors out there never bother with providing if the person never had 1000 hours to enter the plan.

The regs are quite specific A partner's earned income for a year is deemed to be currently available on the last day of the partnership taxable year. As a result, a partner in a partnership (or sole proprietor) may not make a salary reduction election after the last day of the partnership or sole proprietorship taxable year after the last day of that year. [Treas. Reg. § 1.401(k)-1(a)(6)(iii)

I should have added, if it is the 3% SHNEC, then that can be used to satisfy gateway, since it is not a match.

here are some highlights from the Bill. section 102 is the one that would eliminate SHNEC notice requirement and a 4% SNHEC if adopted after plan year end. guess we will see what the Senate does..... Section 101. Expand Retirement Savings by Increasing the Auto Enrollment Safe Harbor Cap The legislation increases the cap from 10 to 15 percent of employee pay that required automatic escalation of employee deferrals go no higher than under an automatic enrollment safe harbor plan. Section 102. Simplification of Safe Harbor 401(k) Rules The legislation changes the nonelective contribution 401(k) safe harbor to provide greater flexibility, improve employee protection and facilitate plan adoption. The legislation eliminates the safe harbor notice requirement, but maintains the requirement to allow employees to make or change an election at least once per year. The bill also permits amendments to nonelective status at any time before the 30th day before the close of the plan year. Amendments after that time would be allowed if the amendment provides (1) a nonelective contribution of at least four percent of compensation (rather than at least three percent) for all eligible employees for that plan year, and (2) the plan is amended no later than the last day for distributing excess contributions for the plan year, that is, by the close of following plan year. Section 111. Allowing Long-term Part-time Workers to Participate in 401(k) Plans Under current law, employers generally may exclude part-time employees (employees who work less than 1,000 hours per year) when providing a defined contribution plan to their employees. As women are more likely than men to work part-time, these rules can be quite harmful for women in preparing for retirement. Except in the case of collectively bargained plans, the bill will require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service. In the case of employees who are eligible solely by reason of the latter new rule, the employer may elect to exclude such employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules Section 113. Increase in Age for Required Beginning Date for Mandatory Distributions Under current law, participants are generally required to begin taking distributions from their retirement plan at age 70 ½. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. However, the age 70 ½ was first applied in the retirement plan context in the early 1960s and has never been adjusted to take into account increases in life expectancy. The bill increases the required minimum distribution age from 70 ½ to 72. Section 201. Plans Adopted by Filing Due Date for Year May Be Treated as in Effect as of Close of Year The legislation permits businesses to treat qualified retirement plans adopted before the due date (including extensions) of the tax return for the taxable year to treat the plan as having been adopted as of the last day of the taxable year. The additional time to establish a plan provides flexibility for employers that are considering adopting a plan and the opportunity for employees to receive contributions for that earlier year and begin to accumulate retirement savings. Section 202. Combined Annual Reports for Group of Plan The legislation directs the IRS and DOL to effectuate the filing of a consolidated Form 5500 for similar plans. Plans eligible for consolidated filing must be defined contribution plans, with the same trustee, the same named fiduciary (or named fiduciaries) under ERISA, and the same administrator, using the same plan year, and providing the same investments or investment options to participants and beneficiaries. The change will reduce aggregate administrative costs, making it easier for small employers to sponsor a retirement plan and thus improving retirement savings. Section 203. Disclosure Regarding Lifetime Income The legislation requires benefit statements provided to defined contribution plan participants to include a lifetime income disclosure at least once during any 12-month period. The disclosure would illustrate the monthly payments the participant would receive if the total account balance were used to provide lifetime income streams, including a qualified joint and survivor annuity for the participant and the participant’s surviving spouse and a single life annuity. The Secretary of Labor is directed to develop a model disclosure. Disclosure in terms of monthly payments will provide useful information to plan participants in correlating the funds in their defined contribution plan to lifetime income. Plan fiduciaries, plan sponsors, or other persons will have no liability under ERISA solely by reason of the provision of lifetime income stream equivalents that are derived in accordance with the assumptions and guidance under the provision and that include the explanations contained in the model disclosure Section 401. Modifications to Required Minimum Distribution Rules The legislation modifies the required minimum distribution rules with respect to defined contribution plan and IRA balances upon the death of the account owner. Under the legislation, distributions to individuals other than the surviving spouse of the employee (or IRA owner), disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee (or IRA owner), or child of the employee (or IRA owner) who has not reached the age of majority are generally required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death.

Agree Sherpa, but if I follow Mike's advice I'm first on the list of someone who needs to find a different profession because I've used other pension terms incorrectly before.

clarification please. you said everyone received a safe harbor match that is equal to at least 3% of compensation. That statement almost sounds like it is a 3% safe harbor nonelective (since everyone is receiving) or else they are all deferring (which could be), but then usually it would have been indicated everyone received a 4% safe harbor match. I only say this because I have a TPA that always calls the 3% safe harbor nonelective a safe harbor match.