duckthing

I would tell the accountant to look up the phrase "sham termination". (If he's a sole prop the idea of firing himself doesn't make any sense to begin with.) Is there a reason the sponsor can't just amend the plan to allow himself to take a hardship?

Generally I'd say yes, but I think you'd want to take a look at deposit timing as well. You say participant "accounts" so I'm assuming there are some NHCEs involved -- if that's a bad assumption, feel free to disregard the rest of this post! I'd be concerned about a situation where the owner funded $3,200 of his SH contribution for the year during the year and the NHCEs don't get theirs until March or later of the following year. At any rate I would definitely not go as far as calling it a 402(g) excess and insisting the plan distribute it to him. Worst case, move it along with any earnings to a suspense account and then use it to help fund everyone's SH contributions.

And you will want to check what your plan document says about employees who move from an excluded class to a non-excluded class.

3515 is his MIDDLE name...

Yes, assuming nobody has met the allocation requirements to receive it yet. If the match allocation requirements include "employment on the last day of the Plan Year", you're good because nobody has yet met that requirement. If the allocation requirements are just "completion of X Hours of Service" then it's too late to make the change back to 1/1 if you've got anyone who's already worked X hours -- you'd only be able to change it prospectively.

Assuming I have no specific knowledge that she did not actually perform any services for the sponsor, I don't see any reason to lose sleep over including her in testing.

Before you go too far, I would double-check the fail-safe language for coverage in the plan document. I believe some documents specify that the fail-safe only kicks in if you fail coverage, without further specifying what tests you may run to show that coverage passes.

Requesting exemption from withholding doesn't mean you're exempt from having taxable income. What's in boxes 3 and 5?

I'm with Austin on Peter's scenario: I'd say the TPA is to blame. If they want to try to shift some blame downhill to their doc software for not properly validating input, I guess they can give it a shot. I don't think a general warning covers them in any sense here from a "who's to blame" point of view. The TPA should have and should follow documented procedures (senior level review of all plan documents for possible compliance issues) to ensure things like that are caught. If nobody even looked at what the employee entered before it went to the sponsor, that's a big problem. As a sponsor I'd be very wary of a "general warning" like that in a provider's service agreement... if I'm not paying you to provide me with a compliant document, why am I paying you to draft the document at all? I could just as well Google "401(k) adoption agreement" and fill in the blanks randomly by myself for free. My answer doesn't change if the recordkeeper is also the document provider, whether they're doing documents for 10 plans or 100,000. If your QA processes don't scale with the volume of work you're doing, that's not the customers' problem. (I believe there probably IS a significant gap between what the document says and what the plan administrator thinks it says, on a lot of the plans of the kind you're talking about, Peter... but of course that's a separate issue!)

I don't know if there's a definitive answer on that. But EOB (Chapter 8, Section V, Part C) says: It seems like including them would be erring on the side of caution here.

And just to answer this: no, unless there's an HCE in the OEE "plan", which is uncommon but possible. The minimum gateway requirement is determined separately for the OEE plan vs the non-excludable plan, so they can have two different requirements -- and if your OEE plan has no HCEs, that requirement is 0%.

Depends what you mean by "the ABT test, for the component plan passes". If you mean that the ABPT for the relevant (OEE vs. non-excludable) 'plan' passes and every 401(a)(4) rate group in both component plans passes at midpoint, then yes, you're all set.

Well, there are really two ABT results: one for OEEs and one for non-excludables. Your component plans can each pass nondiscrimination testing at midpoint provided the ABT for the appropriate "plan" (OEE "plan" vs. non-excludable "plan") passes. Since you don't need to satisfy reasonable classification for nondiscrimination testing, it's not an issue here. What you can't do -- and I think this is what you're getting at -- is run a separate ABT for each component plan.

Just to make sure I'm clear, because I'm not familiar with this kind of document setup: it sounds like you're saying that the eligibility rules in the documents you're talking about are set up to exclude anybody who isn't an owner or an owner's spouse. If that's the case... what's the advantage to doing it that way? Aren't you just trading an improper exclusion failure for a coverage failure if the new employee is an NHCE? At least with a 'generic' document you don't also have to worry about retroactively amending to remove that exclusion.

Are we assuming that the determination that those 1099 folks were not employees was made correctly? If they were truly independent contractors, their service was as self-employed individuals rather than as employees of the plan sponsor. If they were actually employees but were paid on 1099s, well, there's a different problem to solve.

I've generally got 50-60 which is typical at our shop and which keeps me at a reasonably healthy stress level most of the time. I also do some compliance research and help out with conversions, quotes for new business, etc. so that's factored in when caseload is assigned. I'd have to agree that 120 sounds pretty ridiculous! At the risk of stating the obvious, I think a huge factor is how well organized and responsive your clients are. I've got clients who run their own preliminary ADP tests during the year, fill in all their own distribution forms (and do a great job), never deposit employee deferrals late, return accurate and complete census data within a week of when I request it, make employer contributions when they say they will, etc... give me a dozen more like that any time!

Thanks for the follow-up. Did they happen to say what violation occurred that they believe needed correcting under EPCRS?

Good point -- in my mind the FTW language treats it exactly as the OP suggested: "we're allocating X% to everyone, and it might happen that not everyone gets all of it due to the 415 limit." There's not really an "excess" to be allocated to anybody, since the document just says their allocation is lowered. (And since the document limits the allocation amount before it's actually allocated, there's no 415 or other failure to correct.) The language you provided definitely leaves less room for other interpretations.

Hope I'm not contributing to this thread wandering even further afield... but I think the applicable language from the FTW doc is in 5.05(a) of the BPD. Under 5.05(a)(1), for participants covered by a single plan: "...If the Employer contribution that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed such maximum permissible amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the maximum permissible amount."

If you're not sure which you're looking at, the K-1 for a partnership will be identified as Form 1065 and for an S-corp will be Form 1120S. (Edit: the K-1 will be identified as an attachment to one of those forms. Not trying to suggest that the entire form is the K-1. Just to be clear)

I think Kevin's answer stands. Does the plan say interns are not considered to be eligible employees? She resided here and had U.S.-source income from the sponsor; I think the sponsor will have an uphill battle convincing anybody that she was correctly classified as a non-resident alien (in the "excludable for 410(b) purposes" sense) for that period. The fact that the IRS considers her a non-resident alien under a J-1 visa for personal income tax filing purposes doesn't affect the plan.

I have a few clients that do this too. I think it's just that they're looking at it from the point of view of their own (employer) books, not the plan. As far as they're concerned, the money is being "distributed" by the employer to the participants' accounts. Hey, at least we know they understand that the plan assets are separate from the employer assets!

It's not required, so it's not an RMD. Calculating the amount of this in-service distribution using the RMD calculation procedure doesn't make it an RMD -- it's just an in-service distribution that would happen to satisfy the RMD requirement if one were actually required.

Just curious: was the incorrect interest rate lower or higher than what the plan's loan procedures called for? Was the participant an NHCE?

I work for a small firm with coworkers who are helpful and who have a lot of experience and knowledge (living the dream!) but it never hurts to get outside opinions as well. This site is always my first stop when I don't have an answer handy or when I'm 95% sure I know the answer but want to confirm before I say something dumb to a client or advisor -- I may not find the exact answer I need here either, but there's always at least a nudge in the right direction, a citation to hunt down, etc. I also typically browse threads here even when I'm not looking for anything specific, just to see what people are asking and what the responses are. I can't tell you how many times I've been reading something here just out of curiosity, only to have a client call with a question about that exact topic a week later.