Tom Poje

They seem to think this Bill has a chance to pass the Senate as well. A couple of the provisions are: One of the differences between the House and Senate bills is when participants will be required to begin taking distributions from their retirement plans. The House bill increases the required minimum distribution age to 72 from 70 ½, while the Senate bill makes no change. (I think I liked last year's Bill better which would have ignored min distr if total balance was less than 50,000. the last time they disagreed we ended up with top paid group election because one group wanted HCEs based on anyone with comp > XXX while the other group simply wanted top 10% highly paid or something like that as I recall so they compromised) Businesses with long-term, part-time workers must also allow them to become eligible for retirement benefits. (It would be interesting to see how it is determined who is 'long term part time and who is short term part time.)

if plan is top heavy, then the total contribution would be 3% of total comp. I have seen situations where first half comp was more than 2nd half comp, not often, but just in case...

if the owners did not get the match, then instead of 9.27 to max out they would now need 13.27 ps, so the ps for the NHCEs increases to 4.43 so as far as cost goes, it depends on how many NHCEs are deferring

but if the Family Act Bill passes then the following would apply (assuming it is kept) (b) Nonelective contributions.—Section 401(k)(12) of such Code is amended by redesignating subparagraph (F) as subparagraph (G), and by inserting after subparagraph (E) the following new subparagraph: “(F) TIMING OF PLAN AMENDMENT FOR EMPLOYER MAKING NONELECTIVE CONTRIBUTIONS.— “(i) IN GENERAL.—Except as provided in clause (ii), a plan may be amended after the beginning of a plan year to provide that the requirements of subparagraph (C) shall apply to the arrangement for the plan year, but only if the amendment is adopted— “(I) at any time before the 30th day before the close of the plan year, or “(II) at any time before the last day under paragraph (8)(A) for distributing excess contributions for the plan year. “(ii) EXCEPTION WHERE PLAN PROVIDED FOR MATCHING CONTRIBUTIONS.—Clause (i) shall not apply to any plan year if the plan provided at any time during the plan year that the requirements of subparagraph (B) or paragraph (13)(D)(i)(I) applied to the plan year. “(iii) 4-PERCENT CONTRIBUTION REQUIREMENT.—Clause (i)(II) shall not apply to an arrangement unless the amount of the contributions described in subparagraph (C) which the employer is required to make under the arrangement for the plan year with respect to any employee is an amount equal to at least 4 percent of the employee's compensation.”. ......... so this permits plans to wave a magic wand and become safe harbor after the fact as long as the 3% is increased to 4%. I assume that means just for the prior year and then you can go back to 3%. so if they do pass the Bill this year then it looks like a way to get out of things!

plus undoubtedly it would be top heavy, so at the minimum 3% would needed.

the self correction was never intended to give guidelines on how to handle every situation and none is provided if there is no NHCE avg. but there should have been, and if the avg is 0% then you either refund all or treat some of the deferrals as catch up for the HCEs. you can't say "no NHCEs, so plan passes adp test" - otherwise you get a reward for excluding people and I'm going to exclude all NHCEs every year but then that leads you have a more serious issue if I understand the posting. I have 2 eligible NHCEs that were excluded. you fail coverage. and you have to provide a QNEC and it has to have some value to it. you didn't say what the HCE avg was - given the fact the proposed regs (Family Savings Act) says you can make a 4% SHNEC (instead of 3%) after the end of the year might be a reasonable solution.

just to clarify, the only excess that needs to be removed by April 15th is if there were deferrals over the deferral limit (18,500 for 2018, not including possible catch ups) There is no 3% safe harbor 'match', I assume you mean 3% safe harbor nonelective (but you are not alone in using that term)

that dusty copy of the ERISA Outline Book sitting on the shelf in your office had the following comment in Chapter 2, Section III Part F 2.e. but you probably didn't realize it was hidden in there. 2.e.Business transaction between prior employer and current employer is necessary element of the principles illustrated above. For the above service crediting rules to be applicable, there must be some business transaction between the prior employer and the current employer that results in a change in employer, such as a stock or asset sale, or a merger of companies, as described in 2.c. above. 2.e.1)May a plan credit service with a former employer in other circumstances? Suppose a newly-hired employee has not been employed as a result of a business transaction, such as an acquisition of corporate assets. May a plan nonetheless provide that service with that employee's prior employer is counted for eligibility purposes? There is no guidance on this issue. It would seem that if an employer wanted to design its plan to give employees credit for their service with their prior employers, it could do so. In such a case, the plan is being more liberal in crediting service to the employee than it has to be. However, this type of service grant must not result in prohibited discrimination in favor of highly compensated employees, which might be an issue particularly where the plan provides for the crediting of prior service for certain individuals and not others. See Treas. Reg. §1.401(a)(4)-11(d) and the discussion in Chapter 9 (Section XI, Part E) for more details. 2.e.2)Example - prior service granted for service with a particular prior employer. A medical practice (Professional Corporation A) provides for a one-year eligibility rule. On May 1, the practice hires Candace, a physician. Candace worked several years with Professional Corporation B, a company that is not related to A under the controlled group rules of IRC §414(b) and (c) nor under the affiliated service group rules of IRC §414(m). There has been no business transaction involving A and B that involve the acquisition of ownership or assets resulting in the transfer of employees. To lure Candace, A amends its plan to provide that service with Corporation B is counted toward satisfying eligibility under A's plan. This amendment will accelerate Candace's entry date into the plan to her May 1 commencement date with A. The rules in IRC §414(a), as set forth in 2.a. and 2.b. above, are not expressly applicable here. This amendment is likely to be considered discriminatory because it only benefits a highly compensated employee, and is not related to a business transaction between A and B. However, if along with Candace, Corporation A hires some of the nonhighly compensated employees of Corporation B, there may be a better argument that the amendment results in a nondiscriminatory crediting of prior service.

according to the research I did many moons ago for an ASPPA Talk in 2010 1999 ASPPA Q and A 46. A participant took a 401k hardship distribution pursuant to the hardship safe harbor rules, but was allowed to continue making 401k deferral contributions in violation of the 12-month suspension rule. What are the possible methods of correcting this error under APRSC? Start a full 12-month suspension when the error is discovered? Distribute impermissible deferrals and earnings? Return deferrals and suspend for balance of original 12-month period? IRS response; Starting a new 12-month period doesn't meet the rules. Deferrals (and match, if applicable) should be forfeited and the balance of the 12-month suspension should be applied. Of course, the employee should be made whole outside of the plan (i.e., no distribution from the plan to the employee). ......................... someone posted the following comment on Benefits Link as well We have submitted a VCP to the IRS on this very issue. Initially, we proposed to take out the contributions that should not have been made plus earnings and this was approved. In attempting to implement this, however, we found that most of the affected participants did not have sufficient amounts in the money types in question (because of subsequent loans and/or withdrawals) to make this an unworkable solution. We went back to the IRS and they proposed a prospective suspension. The problem was that a number of years had elapsed between the time the amounts were improperly contributed, the first compliance statement was issued and then the second VCP request was submitted and resolved and a final compliance statement issued, that the participants who were impacted complained that the prospective suspension would be coming when they earned a much higher rate of pay. The bottom line is, if you are consider the refund method, take a look to see if there would be sufficient money in the participants' accounts to effect the refund. If not, then use the prospective suspension. 8/10/2007 Benefits Link posting (Note: wouldn’t try it other than under VCP) of course, since I gave the presentation those might be useless, and certainly the first was back in the days the regs required a 12 month suspension so you'd have to change the logic to 6 months. . and I see the talk included a Lockhorns cartoon from 8/11/2010 and the Dinette Set 3/20/2010

the following, from a document if (ii) is checked then you need the 1000 hours in a 12 month period. if not completed, as indicated above you now have to complete 1000 from 1/1/2018 - 12/31/2018 and enter the date following. (based on the next section of the document). if it is solely 1000 hours then you would have checked (iv) that indicates the requirement is met once the hours requirement is met. you still have a 12 month period to avoid someone having 600 hours in 12 months but keeping the clock running, waiting for that 1000th hour to be completed. 10. Service Requirement for Elective Deferrals a. Minimum service requirement for Elective Deferrals/Voluntary Contributions: i. [ ] None ii. [ ] Completion of one Year of Eligibility Service - Hours of Service necessary for a Year of Eligibility Service: 1000 (not to exceed 1,000) iii. [ ] Completion of one Year of Eligibility Service - elapsed time iv. [ ] Completion of Hours of Service (not to exceed 1,000) within a twelve month period. The service requirement shall be deemed met at the time the specified number of Hours of Service are completed v. [ ] Completion of months of service - elapsed time (not to exceed 12) vi. [ ] Completion of Hours of Service (not to exceed 1,000) in a month period (not to exceed 12 - hours of service failsafe applies) vii. [ ] Completion of consecutive months of continuous service (not to exceed 12 - hours of service failsafe applies) viii. [ ] Other: (hours of service failsafe applies if elapsed time is not specified

here was the whole post 　 12. §401(a)(9) – Required Minimum Distributions Treas. Reg. 1.401(a)(9)-2, A-2(a) provides that except in the case of a 5%-owner, the "required beginning date" is April 1 of the calendar year following the later of the calendar year in which the employee attains age 70-1/2 or the calendar year in which the employee retires from employment with the employer maintaining the plan. Assume that the employee is age 73, is not a 5%-ower, and "retires" on December 31, 2003, as the term "retires" (and related term "retirement") is commonly used by the employer and under the terms of the employer’s qualified§401(k) plan. However, in fact what this means is that December 31, 2003, is the employee’s last day at work, and the last day for which he is paid or entitled to payment. January 1, 2004 is the first day he is not employed by his employer. When is the employee’s required beginning date? Proposed Response: For the purpose of Treas. Reg. 1.401(a)(9)-2, A-2(a) "the calendar year in which the employee retires from employment with the employer maintaining the plan" is 2004, not 2003, and therefore his required beginning date is April 1, 2005. Moreover, the employee’s first distribution calendar year (Treas. Reg. 1.401(a)(9)-5, A-1(b)) is calendar year 2004. IRS response: The IRS disagrees with the proposed answer. When an employee retires is a facts and circumstances determination, but generally an individual’s last day of work is when the employee retires. Other facts, such as the employee returning to work on a sporadic basis after the official date of retirement, could change the answer. But under the facts presented in this question, the last day of service, December 31, is the date of retirement.

someone had asked what if the person quits 12/31, therefore the first day he doesn't work is actually January 1 so min distribution isn't until the following year. the IRS disagreed

At the 2003 American Bar Association Q and A 12 the IRS response was (emphasis mine): When an employee retires is a facts and circumstances determination, but generally an individual’s last day of work is when the employee retires. Other facts, such as the employee returning to work on a sporadic basis after the official date of retirement, could change the answer.

how much a balance are you talking about? If the folks in Washington ever pass the Family Savings Act Bill then no min distrib if balance is less than 50,000

my understanding is (I could be wrong): no you can't refund what hasn't been made. probably for a couple of reasons what if you have an HCE and this is the first year they deferred. you have nothing you could refund what if (best laid plans of mice and men) the company decides not to make the discretionary match of course that doesn't solve the pain in the rear 10% penalty except for either making the match earlier than normal or another option available under some documents is to limit the match to some of the HCEs. (This was from a FT William document, the issue was discussed a while ago, I mention this because the language used is not the greatest because in this case by 'excess contributions' they mean either deferrals or match.) (i) Correction Methods. The Plan may, pursuant to applicable Treasury Regulations, do any of the following to avoid or correct excess contributions and/or excess aggregate contributions: (1) provide for the use of any of the correction methods described herein; (2) limit contributions in a manner designed to prevent excess contributions from being made; or (3) use a combination of these methods.

but that is what the IRS said you can do. what I suppose is missed is that the contribution is 100% vested, even if but for part of the year. normally top heavy is subject to a vesting schedule, so the person is, in some ways, coming out ahead, along with all other NHCEs who have less than 6 years at this point in time because they all received a 100% vested contribution.

my understand is no, if you only have one plan, any NHCE eligible to defer is suppose to be able to get the safe harbor, so I guess if you exclude them entirely then you could do it. otherwise, for example this group could consist of nothing but HCEs deferring the max and a handful of NHCEs yet still get a free ride of ADP testing. If you have a separate plan for them then of course they could be non safe harbor, but you can't aggregate for coverage testing

The IRS issue is putting people into the plan to help testing, all the examples are NHCEs who basically never vest or receive a small contribution to sway the test. In this case it is an HCE, but the same effect because as noted, it helps testing to have an HCE at 0. If she never ever worked 1000 hours I would have a problem. The IRS comments from a few years ago were Although these designs may allow the plan to satisfy the vesting or numeric general tests for nondiscrimination and the associated regulations, they don’t satisfy Treas. Reg. Section 1.401(a)(4)-1(c)(2), which requires that the provisions of Sections 1.401(a)(4)-1 through 1.401(a)(4)-13 be reasonably interpreted to prevent discrimination in favor of HCEs. but you indicated she did actually work 1000 hours at one time. that seems to be in your favor. (because I hate running ADP tests with NHCEs who got into the plan at one time and don't work 1000 hours now but they still show as 0 on the ADP test - the IRS can't have it both ways forcing you to include such people but ignoring HCEs who fall into the same category. On the other hand, if the 10 hours on the phone is 'discussing the weather', 'the latest Oscar winners' or something similar I would question the practice - how you 'prove' that, well...

if you test all NHCEs together, then they have to receive , at the minimum 1/3 the rate of the HCE or 1.33333% if you test otherwise excludables separately then they could be tested on an allocation basis and no gateway. I guess for that matter if you test on accrual basis they would need 1/3 the rate of the HCEs, and since there are no HCEs in the otherwise excludable no gateway, I never tried that to see what the software we use does....

any NHCE who is able to defer must receive the safe harbor, though most plans provide safe harbor to HCEs as well.

here is a link that describes the process https://bizfluent.com/how-7791518-file-1099-deceased-person.html my initial response was that if it was a really really bad person you might send it here. And before you say it would have to be a cold day in hell before you would try that, well, 16 degrees is plenty cold for me.

1.414(a)(12) definitions plan year compensation ......414(s) so as long as the compensation used in testing satisfies 414(s) you are ok. so you can always use total comp even if your comp for allocation purposes is different. Lets suppose you exclude bonuses. if the only people who received bonuses were NHCEs, then testing on an allocation basis using total comp might not pass because the nhces have received a smaller % based on total comp (though if you impute disparity it might still pass)

agree

if the profit sharing contribution is the same % for all employees you don't have to cross test (even if one group gets zippo - that's no different than having terminees receive zippo) and if you don't cross test, there is no gateway