Puffinator

I, too, am hoping to revive this topic... A definitive answer would be most welcome!

Thanks, Jakyasar. Dave, that was fun. Here is a question: When a plan has 100% TWB integration elected in their aa, can they do less than 100% in a given year? https://benefitslink.com/boards/index.php?/topic/69352-4-tier-integrated-ps-must-use-100-twb/#comment-323469

As the adoption agreement currently is written (with 100% TWB elected) can they do less than 100% TWB in a given year as long as they still allocate based on integration?

We have a debate in the office. A 401(k) plan with an Integrated (4-tier) PS allocation @ 100% TWB. (Excerpts from AA and BPD below.) Fact: The MAX SS integration is 100% TWB. Q: Can the plan choose to make less than 100% TWB (like 46% TWB) as long as the allocation is applied in the same non-discriminatory manner? Someone said it can be done & someone else said it cannot be done. My brain hurts, so I am no longer sure. Anyone else have some solid experience on this? Per AA, "...b) [X] Permitted disparity. In accordance with the permitted disparity allocation provisions of Section 3.04(B)(2), under which the following permitted disparity formula and definition of "Excess Compensation" apply: Formula (select one of (1), (2), or (3)): (1) [ ] Two-tiered. (2) [X] Four-tiered. (3) [ ] Two-tiered, except that the four-tiered formula will apply in any Plan Year for which the Plan is top-heavy. Excess Compensation. For purposes of Section 3.04(B)(2), "Excess Compensation" means Compensation in excess of the integration level provided below (select one of (4) or (5)): (4) [X] Percentage amount. 100% (not exceeding 100%) of the Taxable Wage Base in effect on the first day of the Plan Year, rounded to the next highest $ (not exceeding the Taxable Wage Base)..." Per the base plan doc... "...(2) Permitted disparity allocation formula. The Employer in its Adoption Agreement may elect a two-tiered or a four-tiered permitted disparity formula, providing allocations described in (a) or (b) below, respectively. The Employer also may elect a two-tiered permitted disparity formula which changes to four-tiered in any Plan Year in which the Plan is top-heavy. (a) Two-tiered formula. (i) Tier one. Under the first tier, the Plan Administrator will allocate the Employer Contributions for a Plan Year in the same ratio that each Participant's Compensation plus Excess Compensation (as the Employer defines that term in its Adoption Agreement) for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the Plan Year. The allocation under this first tier, as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (5.7%, 5.4%, or 4.3%) listed under Section 3.04(B)(2)(c). (ii) Tier two. Under the second tier, the Plan Administrator will allocate any remaining Employer Contributions for a Plan Year in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. (b) Four-tiered formula. (i) Tier one. Under the first tier, the Plan Administrator will allocate the Employer Contributions for a Plan Year in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Compensation. Solely for purposes of this first tier allocation, a "Participant" means, in addition to any Participant who satisfies the allocation conditions of Section 3.06 for the Plan Year, any other Participant entitled to a Top-Heavy Minimum Allocation. For purposes of both first tier and second tier allocations under this Section 3.04(B)(2)(b), Compensation and Excess Compensation refer to Compensation as determined under Section 10.06(A). (ii) Tier two. Under the second tier, the Plan Administrator will allocate the Employer Contributions for a Plan Year in the same ratio that each Participant's Excess Compensation (as the Employer defines that term in its Adoption Agreement) for the Plan Year bears to the total Excess Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Excess Compensation. (iii) Tier three. Under the third tier, the Plan Administrator will allocate the Employer Contributions for a Plan Year in the same ratio that each Participant's Compensation plus Excess Compensation for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the Plan Year. The allocation under this third tier, as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (2.7%, 2.4%, or 1.3%) listed under Section 3.04(B)(2)(c). (iv) Tier four. Under the fourth tier, the Plan Administrator will allocate any remaining Employer Contributions for a Plan Year in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. (c) Maximum disparity table. For purposes of the permitted disparity allocation formulas under For this purpose, the Taxable Wage Base is the contribution and benefit base under Section 230 of the Social Security Act in effect at the beginning of the Plan Year. The integration level is the uniform amount specified in the Employer's Adoption Agreement..."

Does anyone have 4-Tier Integrated PS Calc in Excel that walks one through the steps to calc per tier? I am super rusty and want to make sure I do it correctly.

Thanks for sharing your thoughts on it, Luke. I definitely agree with you. The Plan Sponsor, however, is genuinely concerned. For all we know, his fears are valid... Possibly the grapevine let it be known the Participant openly told other employees he is taking advantage of the opportunity to take funds (but is/has not been directly affected per guidance listing applicable circumstances). One employee tells another how to work the system and all of a sudden you have a slew of requests that may or may not be on the up and up... Regardless, I think context matters: This plan sponsor is very pro-participant and has consistently shown he bases all decisions on whether or not something helps the employees. He genuinely wanted to elect CRDs to help his employees if they needed it. If he has suspicion this participant might be false in his self-certifications, then it’s VERY there is good reason to be suspicious. We posed the question to our document provider’s legal team. Their opinion is that the plan sponsor can impose limit as long as it is non discriminatory. They also agreed that having a written procedure, much like loan procedures, is best. Our internal document specialist also wants to issue an SMM for timely delivery to participants. We suggested the plan sponsor process this 4th request for the participant (because as the scenario you described [of needing more than anticipated] also crossed our minds as logically possible) prior to plan sponsor imposing a limit on total number of CRD requests per participant (4). Seems to be a reasonable compromise for all involved.

A slightly different situation, but sort of the same issue... A Plan Sponsor has had an active employee take three CRDs thus far and just requested his fourth. The trustee suspects that the employee is abusing the self-certification aspect. Without any additional guidance specific to this (that I can find), I hesitate to get too creative. But, the plan sponsor is obviously (and understandably) concerned. Let’s say the plan hasn’t had any other participants elect more than four COVID-related distributions: Plan Sponsor could process this fourth request for the participant, but add a simple Procedure addendum to their SPD and retain a copy in his plan document files indicating, “Although the plan has elected to make COVID-related distributions under the CARES Act, the Plan Sponsor also imposes a limit of no more than four COVID-related hardship distributions by all participants in addition to limits specified in the CARES Act.” In practice, he would not be discriminatory. Your thoughts on that idea..?

This thread is from last year and just ran across it... But, I'm very interested in your spreadsheet templates. Would you mind haring these with me..? I'm on an OCD-induced mission to tweak my toolbox of stuff that I've drafted and/or Frankenstein'ed together over the years. LOL

Hypothetical planning scenario: SEP IRA, Simple IRA, and a potential 401(k) plan…? Lions, tigers, and bears… Oh, my! A financial advisor who I work with quite a bit called looking for some help. He indicated that his clients [Drs. Husband & Wife] are trying to maximize their pre-tax retirement savings due to the fact that their combined income is in excess of $1M annually. The advisor has asked for some informal input. I disclaimed this one is beyond my scope. Since he understands not to rely on hypothetical musings, he is still grateful for any input. We’re trying to jump-start our brains to think this through. As such, crowd-sourcing this could help us think outside the box. J Here are the facts, as we know them: Husband Physician – ER Paid as 1099 independent contractor (no employees) SEP IRA in place, currently registered under Husabnd’s name (Sole Prop) and maxed to IRS limit annually. Wife Physician - General Surgery Owns practice (and has employees) Receives W-2 compensation from the practice (so, I am assuming tax entity is a form of corporation or files as one.) SIMPLE IRA in place for her & her employees with a 3% elective match. LLC Financial advisor recently became aware that his clients established an LLC (no other employees, likely only the husband & wife); The clients’ tax advisor (an EA, not CPA – not that it matters, just more info) is suggesting the husband continues to fund his SEP IRA, BUT through this LLC. (FYI: Per financial advisor, Husband’s SEP is currently registered under Husband’s name as a Sole Prop.) Further, EA is suggesting Husband pays Wife a salary through the LLC so she may also fund SEP IRA contributions to herself… Again, her practice currently maintains a SIMPLE IRA for the benefit of her employees and herself with a 3% elective match. This was the EA’s suggestion - NOT currently in practice. >> The advisor is concerned about the EA’s suggestion to do this. He understands that any comp paid to Husband and/or Wife by LLC is a result of actual services performed for the LLC. The advisor is committed to making sure everything is on the up and up here. If the LLC were to sponsor a 401(k) plan (and we assume the LLC will have bona fide earnings/comp to Drs. Husband & Wife), then per this IRS FAQ about SEP plans, I believe Husband might be able to continue his SEP for self-employment income and also contribute as an employee to a 401(k). However, I believe Wife cannot contribute to her SIMPLE IRA and to a 401(k) in the same year if the two plans’ sponsors are under common control, correct? Regardless, I am sure there is a whole host of potential nondiscrimination concerns to navigate RE: shared ownership w/ the LLC and her practice. The big question: What are the optimal circumstances for his clients in order for both Husband & Wife to save the most advantageous IRS maximum permitted each year? For this hypothetical, let us assume the clients are willing to make any necessary changes to meet the optimum.

Issue 1. Ineligible participation: Plan sponsor allowed an ineligible employee to participate in the plan too early during 2017. For whatever reason, the client does not want to retro-actively amend to correct this specific person's participation. This plan processed a refund of the deferral and forfeiture of the affected employer match today, 10/9. (Yes, today. Don't get me started on that story.) Issue 2. ADP-ACP refunds: The plan is also tested; failed ADP-ACP (of course) and corrective refunds are being processed. Again, it is October. Obviously, well past 3/15. 12/31/2017-ending plan year... Both issues occurred in the same tax year and being corrected in subsequent (current) year. I am either rusty, brain-mushy, or both... But, I cannot seem to recall and need a solid favor here, my friends. Please provide a quick sanity check: Can we report both of these bad boys on one 5330... Yay? Nay? For any replies, please accept advanced thanks!

I have a small plan with basic SH Match and discretionary PS (New Comp/cross-tested). Using Corbel’s Volume Submitter doc. Adoption agreement specifies SH Match to be calculated on an annual basis. They prefund throughout the year (by depositing per pay period when they deposit deferrals). Obviously, true-up is required at year end to ensure the annual calculation is accurate... The two owners want to see a projection maxing out. The TPA who performed similar projections last year did not true-up the Owners’ SH Match before solving for max PS, rather, they amped up the PS without taking into account the SH Match true-up. I am trying to figure out why. Although the owners are HCEs, all participants must have the SH Ma calculated on an annual basis, correct? HCEs cannot just opt out of true up, can they? One might say that as long as the NHCEs receive the true up, what is the harm? I lean towards this thought, though: FOLLOW THE DOCUMENT. True up should be done for HCEs, too. But, maybe I’m missing something here..? I searched the board and found a posting from a few years ago that said a client of theirs was under IRS audit for this and was still negotiating sanctions (but no update followed that I could find). Does anyone know where I can find supporting documentation - one way or another - on this?

Scenario: TPA uses Relius Administration for their pension clients. However, they choose not to use the software past the point of inputting basic census data. Meaning, they choose not to input or import investment data (account balances, distribution/transfer activity, etc.) into Relius for their clients. Instead, they use a rudimentary Excel spreadsheet to perform Top Heavy testing and basic trust accounting for ALL their clients' plans. For audited plans, they provide the Relius SSAE SOC-1 or SOC-2 reports to independent auditors. If they are failing to utilize their pension software, they are failing to adhere to the accounting standards which the reports are essentially certifying. Correct? If auditors do not realize that plans are being manually tested in a spreadsheet (and hence, not necessarily conforming to proper controls & standards, not to mention the increased risk for HUMAN ERROR if this is the TPA's ONLY method of testing), then isn't there potential for HUGE liabilities for all involved? The TPA knows they are not using the software as intended/designed, yet continues to supply the reports as though they do. Management actually made the comment that "auditors and clients wouldn't know the difference anyway..." and "after all, we are technically performing the test... just manually." When brought to their attention, their response: "We've always done it this way. It's too much work to get the trust data into the system. We tried that one year..." Wow. Now, imagine that two of this TPA's owners/managers hold ASPPA credentials. Heck, one is even an ERPA. Could most of us manually complete a Top Heavy test in our sleep? Sure. Conversely, some admins on TPA staff don't have the foggiest notion. But, that's not the point. Regardless of staff experience to complete a test accurately (we hope), the FACT is that they are not adhering to accounting standard procedures because they are too lazy, overwhelmed, inept, or all-of-the-above to simply input the trust accounting into a software package which they pay good money to use, and then knowingly try to fly under they radar and pretend that they are following those standards. Their failure to disclose that they choose to deviate from the controls addressed in the pension software's SSAE SOC reports is deceptive and could potentially cause significant public harm. They are fully aware they are allowing clients and auditors to infer that they follow applicable procedures for the software they use to provide their services. Like I tell my kids, allowing someone to infer something that is contrary to reality is the same as lying. Plain and simple. At minimum, this is a professional ethics concern. At the very least, think of the added expense (time and money) for the clients if this must be addressed. I guarantee that if the Top Heavy tests for all these years were reviewed, you'd find errors. You'd find plans that were top heavy and not treated as such. What if that jeopardizes a plan losing their qualified status? Think of all the employers and participants who could be affected. Your thoughts??? How would you handle this?