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Just curious, is the advisor's name either McFly or Brown?

I copied the attached worksheet from somewhere a long time ago - please note, it may not be 100% correct and should not be relied upon without additional verification. When I enter the numbers from the IRS' example, I get new loan available of $22,000, the same as they did. When I make the vested balance more than $100,000, I get an additional loan available for $23,000. Loan worksheet.xls

From what I researched, there is disagreement on this subject, some say yes, some say no. The "no's" state this person is not an eligible employee, is someone with zero compensation eligible to defer? The "yes'" refer to Treas. Reg. 1.401(k)-2(a)(3)(i) - "If no elective contributions, qualified nonelective contributions, or qualified matching contributions are taken into account under this section with respect to an eligible employee for the year, the ADR of the employee is zero."

Derrin Watson's e-source book, "Who's the Employer" has a chapter on Attribution from Trusts and Estates. If you can access that publication. I apologize to the other authors who may also have something on this topic. I don't mean to selectively promote, this is what I am familiar with.

Yes, that is how I understand it. If you plan does not allow Roth contributions, Catch-up contributions, that need to be Roth, would not be allowed. So would you eliminate catch-up contributions for those only earning over $145,000 (as indexed) or just eliminate them for everyone all together? We have a number of HCE spouses earning $30,000 and deferring $27,000, so eliminating catch-up for everyone would hurt them.

It was never said. I was ranting on potential consequences. I apologize for jumping the gun and stirring the pot.

I still have some in-house recordkept, balance forward, plans and I still take the occasional individual account brokerage plan. I am no longer going to take any plans in-house. Trying to create distribution notices and forms. Having to track, create, and send annual notices for automatic enrollment participants who are not automatically enrolled. Now creating 1099R forms for employees who did not know that they were making catch-up contributions but had to have deferrals reclassified as catch-up due to a failed ADP test and somehow change sources from pre-tax to Roth - it is all too much to do without programmers to constantly evolve a recordkeeping system and a legal team to create notices and forms. I see some good things, but the devil is in the details as they say.

I believe it will slow plan sales for smaller employers. Automatic enrollment is not a popular option in the plans that we currently sell. A little off topic, but existing plan sponsors will also have stressful administrative changes coming. Almost all plans without Roth will need to be amended to allow Roth contributions. Do you think payroll providers will be on top of switching from pre-tax contributions to Roth contributions once an employee earning more than $140,000 reaches the deferral limit? And how about recordkeepers, will they need to convert pre-tax 401(k) contributions to Roth contributions if they need to get reclassified as catch-up contributions due to a failed test, for employees earning more than $140,000? The March 15th deadline is stressful enough as it is, let alone adding additional nuances for corrections that make sense in theory put are going to be difficult in actual administration.

I just met with the owner of a corporation who is taking her compensation to zero beginning in 2023. She cannot afford to pay herself a salary. She will still go to work each day and hopefully turn her company around. If her company survives, and she goes the entire year without compensation, I would count her as an active employee, working more than 1,000 hours, with zero wages. Her plan is a deferral only plan and there are no other HCEs, so it doesn't matter if she is in or out for testing, but I think this is an example where the plan can count a person without compensation.

From the IRS' website. https://www.irs.gov/retirement-plans/fixing-common-plan-mistakes-failure-to-provide-a-safe-harbor-401k-plan-notice#:~:text=Safe harbor notices should be,beginning of each plan year

You might not need to file a 5500EZ for either plan if the combined assets are less than $250,000.

As a side issue, don't forget to educate the employer on the upcoming Long Term Part Time rules. Whether they keep eligibility at 1 year or 6 months with 1,000 hours, LTPT will be eligible to defer.

Yes is it an Employer mistake. My thoughts on the remedy are not the correct route to take. However, in my opinion, we over complicate this industry so much trying to correct for such a minor error (minor in my opinion, I do not know the dollar amount involved or if the employee is steadfast in wanting Roth money for this short period). If the employee is okay with the easier, incorrect, solution then document it and put procedures in place so it doesn't happen again.

Have the employer talk to the employee. Explain what happened and offer two options. 1) amend W-2, tax returns, owe taxes... 2) have the recordkeeper move the contribution plus earnings from Roth to Pre tax, ask the employee to live with the small amount in the 401k bucket, start processing the Roth contributions correctly, give them a $100 gift card to their favorite restaurant, call it a day.

Your fact set mentions the employee deferred the max, no catch-up. Is the employee catch-up eligible?

I have a company who has never funded their ESOP with cash (non leveraged, S Corporation, all company shares are held in the ESOP, 9 active employees, 8 terminated employees). When employees are entitled to distributions, they fund the trust account with the distribution amount(s) and payout the employee. I allocate the amount(s) contributed during the year as contributions to eligible employees who then repurchase the terminated shares. The employer now has a problem as the distributions are becoming much greater than 25% of compensation of the eligible employees. Their accountant told me that the company is not deducting any of the "distribution contributions" on their corporate return. I have to allocate the contributions based on compensation and I believe that they have nondeductable contributions and need to pay an excise tax of 10% on the amount greater than 25% of eligible wages. CPA disagrees. Has anyone ever come across this situation? Thank you.

I have the same situation and thankfully the employer deposits cash into the terminated participant's account to purchase, and then retire, the stock, every time without delay. The employer pays for an outside valuation of the stock annually, so the price changes once per year.

If plan forfeitures are reallocated to other participants, per the document, doesn't making her 100% vested adversely affect the remaining employees? i.e. if the forfeiture has occurred, per the plan document, should they be entitled to a forfeiture allocation?

Agree, outsource it.

Also, I'm not a lawyer, but is it a factor if the state is a community property state, so the primary residence is technically hers? Sometimes if the spouse has debt in their name, a better interest rate can be obtained through the lender if only one spouse applies, and they meet all of the income requirements by themselves.

Plan counsel may be referring to the Cycle 3 restatement as an amendment. Was the plan restated onto a Cycle 3 document?

EPCRS allows the participant to re-amortize the loan over the balance of the five year period. There is no need to report this as a deemed distribution. [EPCRS §6.07(3)(d)]

EPCRS allows the participant in the plan to re-amortize the loan over the balance of the five year period. There is no need to report this as a deemed distribution. [EPCRS §6.07(3)(d)]

Our document provider, under the Plan Compensation definition, allows the plan Sponsor this exclusion, "Amounts received after termination of employment are excluded." There is also a "Few weeks rule" that can be elected in the adoption agreement which would count the 2021 pay and deferrals, if any, in the 2020 limitation year, as long as done on a consistent basis with respect to all similarly situated employees. Possibly their plan document might address the situation.

I agree with the comments, but sometimes HCEs are generally confused, especially if they bounce from HCE to NHCE. We have plans with sales people who earn high commissions one year and none the following year. One year they earn enough to become an HCE, based on prior years wages. They keep contributing their 15% and in the HCE year they get a large refund the following year, when they fall out of HCE status. Granted, "it is what it is", and you cannot show the testing calculations to affected individuals, but in rare cases I could understand an employee asking.