CuseFan

Meaningful benefit is facts and circumstances but apparently most actuaries and other providers (because of stubborn IRS agents?) are applying the 0.5% accrual rate as gospel. It would be nice to have formal guidance of some sort but all we have is that Schultz memo to argue for or against. If a 21-year-old gets 1.5% of pay credit and 4% interest and that creates an accrual rate of 0.5% or more, is that meaningful to that employee? (Show me any 21-year-old who think any retirement contribution for them is meaningful!) But a $10,000 credit for a somewhat older doctor making over maximum pay comes in under 0.5% accrual - not meaningful? Short his/her next account statement by $10,000 and you'll see how meaningful that is! Facts and circumstances are so subjective, having that 0.5% threshold (agree with it or not) provides some B&W to an otherwise gray area. We find the ASC calculations match our spreadsheets (when both are properly coded), so have confidence there. FYI, you don't need to provide the 0.5%+ accrual rate for everyone, only enough to satisfy your 40% or 50 threshold for 401(a)(26).

The transition period doesn't change plan provisions. Many (most? all?) pre-approved plans exclude from the definition of eligible employee those associated with a transaction until expiration of the transition period or, if earlier, an amendment to include them. Does the plan have such language and if so, does it give you ability to wait until 1/1/2024 to amend w/o potentially including someone you shouldn't (Canadian resident citizen)?

Check the plan document (always) for any guidance. Looking at a pre-approved document hour of service definition, those hours for back pay are attributable to the computation period to which they relate - so the prior year(s) in question. Does that mean that the compensation attributable thereto should also be considered for the prior year(s)? I don't know for sure, but that might be a logical conclusion and then require those makeup contributions and earnings for anyone who would have been eligible for the SHNE for the respective year(s). If compensation does not have to follow the hours back to earlier year(s) then you could treat it as current compensation for those employed. For former employees, could you then apply the post-severance compensation rules and plan provisions, which would likely exclude for all but the recently terminated? I don't see why not. I don't know the answer, just providing two possible ways of looking at this from my perspective - heads or tails. There might be some labor law concerns here as well and if they had legal representation for their DOL job audit, they might want to take that engagement one step further to get a legal opinion on this. As is often said in this forum, particularly with complex issues, free advice is very often worth what you paid for it.

No and no. It's similar, I think, to an employee repaying a distribution overpayment from a prior tax year. IRS position is that the amount received (or made available) is taxable (compensation in this case) for such year and that anything that happens in a subsequent year does not change that. The person also received $X in taxable compensation from the employer before terminating which I think is not affected by cutting a personal check back to the employer. The person may be able to get some sort of personal miscellaneous tax deduction for the repayment (subject to those rules) but that isn't your concern, it's a matter for this person and his/her accountant.

Gateway is 7.5% and includes profit sharing at applicable percent and the equivalent normal allocation rate (or NHCE average thereof) of the cash balance (which is usually significantly less than the CB credit %). The SHM does not count toward gateway but does count toward your 6% DC employer limit if you want to avoid the combined plan deduction limits as people have noted. Therefore, to enable large CB deduction skewed toward owner(s), you often must limit the owner(s) profit sharing to leave enough room for NHCE gateway. Usually a combo design is much better with a SHNE in the DC as it counts for testing and gateway, but that is a prospective conversation to have with the client.

Agree with Bri

Exactly, any limitations are service provider imposed, not regulatory.

Check the document, but that prior service is going to count and I don't think you can delay a re-hire's participation on entry dates, usually it's immediate. Even if you are able to exclude until after a YOS using rule of parity, participation (other than deferrals) is retroactive so you're in the same boat. Two years eligibility doesn't help either. If they never had a plan until now, maybe it's different, but I don't think so.

If it's a corporate trustee where investments are directed by the participants (i.e., a typical 401(k) plan) then there should be no issues.

Agree, I definitely would not do that. You are stretching to the maximum 15% MVAR range, how is that not significantly higher? Also, in all the past sessions I remember attending, the presenter said you never an HCE at the top of the group, or certainly not at the top of the top group.

I believe that is correct, but check the plan language.

Great questions. The regulations use the words "in existence". If you adopt a plan now that is not effective until 4/1, is it in existence now? I wouldn't think so but who knows? If you adopt after 4/1 but have effective 1/1 (for PS anyway), is it in existence at 1/1? Maybe yes, maybe no, but it's treated as there for tax and other purposes. Other constructs often refer to the later of the adoption date or effective date but I don't know if I'd hang my hat on that. The safest bet is making it all effective 4/1. I'd spell out the options, lack of regulation clarity and the associated risks and benefits of each option and then let the client decide.

I found this an interesting issue and so I googled and found a nice summary here: https://www.paychex.com/articles/payroll-taxes/what-is-on-demand-pay There are other provider summaries as well. This seems to indicate constructive receipt doctrine, but that tax withholding still happens when the regular pay check is issued. Say my bi-weekly pay is $2,000 and $500 is typically withheld each payroll period for taxes and benefits (medical, 401k, etc.), and I get a full $1,000 advance mid-cycle, then my regular check will net $500 (and maybe less any fees if those get charged to the employee). I'm not sure how else that would work unless they treated the $1,000 advance as a paycheck and then applied withholdings - but that makes it complicated for employee who is targeting a specific amount and must calculate withholdings to gross up the requested amount. I think this only becomes a TPA issue if an advance is paid before year-end on a paycheck issued and otherwise taxable in the following year. I would hope plan/benefit design would prohibit that potential nightmare.

How is that person statutorily excludable? That only applies if the person terminated with 500 or fewer hours and did not benefit by reason of such. You don't need to increase CB accrual, you do need to include in testing and you do need to provide gateway. You can credit the average NHCE ENAR toward this person's gateway. If TH is provided under DCP and requires year-end employment, I don't think this person needs TH, but gateway requirement makes that a moot point.

It's easier for canned software to present all pieces of an if, then, else scenario rather than deliver select results based on logic and relevance.

Correct, to aggregate for coverage and nondiscrimination the plans must have the same plan year.

I think employment contract language has no bearing on the qualified plan (e.g., when such contracts try to provide immediate entry into a plan that has eligibility requirements). The real question is whether or not this is an employee election which can be modified or if pursuant to the contract it is irrevocable. If it is the latter, then I do not think it is a salary deferral, which opens up other potential issues. If the compensation is being properly subjected to FICA et al and then deferred to the plan pursuant to the employee's election and ongoing discretion, no issue. Has a separate salary deferral election been executed for this or are they relying on the contract for such?

If all rate groups pass ratio percentage test (=>70%) then average benefits test in not needed. If any rate group is under 70% then you need average benefits and deferrals (and match, if applicable) enter the equation. Don't forget to look at restructuring.

It might be a card issue, that it can't be used for certain things or certain vendors, especially if a corporate card. I had trouble like that in the past doing my ERPA renewal but then successfully processed my payment with a different card.

If you are a member of an organization with a code of conduct (e.g., ASPPA) and/or subject to Circular 230, I would consult those resources concerning professional and legal obligations.

To address this issue, yes.

I'm not commenting on QDRO related issues, but this is not an issue for cash balance plans in general, nor for any other defined benefit plan with a lump sum option. It is an issue for pension plans that amend for a limited time lump sum window during which a participant must decide between a lump sum or annuity.

A document should never allow a participant to elect a distribution based on a prior valuation date, that's just asking for this trouble.

As noted - two separate issues: (1) NRA definition in plan document which has specific statutory requirements and (2) funding assumptions which must be reasonable. For (1) - anything before age 62 must prove/satisfy typical industry standards, not expectations at the company level. If law firm partners typically retire at 62 or later, then 55 doesn't work even if the partners are 40 and said they don't plan on working past 55. Which, if that is the case, then 55 as the assumed retirement age for funding valuation is certainly reasonable. I think you have troubling issue with the former here but not the latter.

We had clients execute an internal Plan Administrator memorandum (and give us a copy) with the applicable effective date if they had intended to provide Coronavirus Related Distributions (CRDs) when such were available and would think similar methodology would work for this.