ldr

Thank you both for your responses.

Lou please bear with me because I am caught in the middle of ferrying requests back and forth. The way it was just explained to me, the person posing the question is asking if box 14a on the K-1 is the answer to the question of what can be used as compensation for plan purposes, without any regard to whether the income is passive or not? In other words, if the CPA has prepared the K-1, can the box 14a number be used for plan purposes, period, without worrying any further about the composition of what went into the box 14a number?

Good afternoon to all, I have been asked to post the following question, and I do not have any further details concerning the reason for the question. "Is the definition of plan compensation for a partner (in a partnership) anything other than box 14a on the K-1 if the income comes from real estate income? " Thank you in advance for any information you can share in this regard.

Never mind - they are having a power outage as it turns out. No biggie. Thanks anyway.

Good morning, Is anyone else having any trouble getting in touch with Datair? We do not seem to be able to raise them via any normal means - email, phone, etc. and we were wondering if anyone else is having trouble. Thank you!

So the outcome was that the employer decided to probably do a make-up contribution anyway, even though they were legally not at fault, on the presumption that in the past, most likely, payroll had automatically resumed the deferrals of employees who sat out for 6 months due to a hardship distribution. It's not a done deal yet but that is the direction they are leaning at this time. I will post the final outcome so those following the story are not left wondering how it turned out!

Peter, this was gold. On the form we find the following: "Suspension of elective deferrals to all employer plans is required for a minimum of 6 months under the safe-harbor option. At the end of this period, a new Salary Reduction Agreement needs to be submitted in order to re-start your elective deferrals." Of course the participant can say she didn't read it, didn't see it, didn't understand it.....and the employer might even agree to a make-up contribution just to keep the peace. But regardless of all that, Peter, this was great advice. Thank you!

That's brilliant, Peter! I will see what I can find out.

Hi to Bri and Peter, The basic plan document underlying the Adoption Agreement says that the employer may stop the deferrals after a hardship distribution in order to satisfy the requirements of law (blah blah blah) but does not mention anything at all about resuming the deferrals after the break. The Adoption Agreement does not even refer to the requirement to sit out for 6 months at all and neither does the SPD. The participant would have no way of knowing that a 6 month break would be imposed, were it not for the fact that she has had 3 previous hardship withdrawals over the years and 3 previous times where she had to stop deferrals for 6 months. My inclination is to recommend that the employer does the make-up contribution, which as I understand it, would be 50% of the deferrals she would have made if they had resumed on time, plus the accompanying match, plus the missed earnings. My reasoning is this: 1) An axiom I learned many years ago was "if you must err, err in favor of the participant"; 2) She has worked there since 2003 and is still there (!); 3) She knows or at least strongly suspects an error has been made and restitution is due; 4) the payroll department is notoriously inept and has made a myriad of other mistakes that we are trying to get corrected; 5) this is a plan that is subject to audit and the current auditor quit. Not just quit this plan, but quit auditing 401(k) plans altogether, over the experience he had this year with this plan. Next year's new auditor will probably put this plan under a microscope. 6) It seems to me that it could be argued that her deferral election form which was in place at the time of the suspension remains valid until revoked. It could be argued that the suspension was something imposed by the employer and therefore the employer is responsible for following her directions on her form as soon as the suspension period is over. I wish I could find chapter and verse in the book of some guru or on ERISApedia or in the plan document itself, but in the absence of all that, I think I will just go with the logic I just stated. Thanks for your input!

Good morning to all, A participant in one of our plans received a hardship distribution in March of 2019 from her 401(k) account. At that time, she was required to "sit out" from making subsequent deferrals for 6 months. The question is, whose responsibility was it to resume her deferrals? Is the burden on the participant to notify HR that she would like to start back up, or is the burden on the HR department to contact the participant and ask her if she would like to resume deferrals? Or even possibly, was HR supposed to automatically resume her deferrals after 6 months based on prior instructions from the participant given prior to the hardship distribution? In any event, she has not made deferrals since that hardship distribution, a little over 2 years ago, and is now complaining to the new financial director that her deferrals should never have been stopped because "she never signed a waiver asking not to participate". We are trying to help figure out whether any back deferrals, match, and interest are due to her from the date 6 months after the hardship withdrawal was made through today. I have researched this various places and cannot find this particular question addressed. Thank you, ldr

Thank you for all of the replies. It's very helpful and we will take all this into consideration in talking with the client.

Good afternoon to all, We are setting up a new plan for a controlled group of 5 companies that will probably have 2,000 participants when it's all done. By design, HCEs and Keys are excluded from participating. There will never be a test failure such as ADP, ACP, 410(b), Top Heavy. That's not the issue. The issue is that the owner (one man owns all of it) wants to pick and choose select groups or individuals to whom he will give a discretionary match and/or a discretionary profit sharing contribution according to his pleasure. His idea is that since there are no applicable tests to fail, why not? We feel uneasy about this but can't find anything to hang our hat on. Is this really permissible? Thanks for your thoughts on this.

Thank you Carol! I suspected as much but did not have anything to hang my hat on.

Good afternoon, If a private non-profit entity sponsors an ERISA 403(b) plan with an employer match, and then discontinues the match, can the plan be reclassified as a Non-ERISA 403(b) plan and stop filing Form 5500-SF? Would the plan need to be amended and restated into a Non-ERISA document? Would the mere presence of old account balances derived from employer matching in previous years make the plan continue to be covered by ERISA? Thanks as always for your help.

Question withdrawn. I was given incorrect information by the person who asked the question. In fact, a refund was processed for 2019 and one is in progress for 2020 as well.

Hi to All, We have a plan drawn up by a local ERISA attorney that is a tribal non-ERISA 401(k) plan. One of the participants routinely exceeds the 402(g) limit by about $1,300 each year. We bring it to the attention of the plan administrator and ask them politely to please monitor this carefully and stop doing it, but we are ignored. If this was a regular corporate 401(k) plan of any of our other clients covered by ERISA, we would get in touch immediately upon the discovery of the error and let them know that the excess plus earnings has to be removed. We haven't done that so far with this client because they are a tribal entity, the plan isn't covered by ERISA, and we don't know to what extent they have to follow the rules. Does anyone else have any experience with this or insight as to how to handle it? Thank you as always.

@C. B. Zellerthank you. You are right. The document does indeed give permission to bump up a 3% TH person to 5% or whatever it takes to pass the Gateway.

Good afternoon to all, Is it acceptable to amend a plan for the prior plan year (PYE 12/31/2020) in the next year (now) to remove a year-end service requirement in order to pass Gateway and therefore provide a profit sharing contribution to an NHCE that wouldn't otherwise be eligible for that allocation? Seems to me the employees would benefit (more) if permitted. Or, is this only allowed to fix a failed coverage test? Thank you in advance for your thoughts on this.

@TPApril that's an interesting question that had not come up for me so far. It will be interesting to see what the others think.

Then again - not to beat a dead horse and we are not going to allow this prospect to do this if he becomes a client - but just for my own satisfaction: What exactly does the so-called "Microsoft proof" language in a basic plan document do for a client? The Datair VS document has 3 paragraphs under the definition of Employee that I know came straight out of the results of that case. However, in real life, what do they mean for the client? What concerns me most is their final paragraph: "This Plan is to be construed to exclude all individuals who are not considered Employees for purposes of the Employer's payroll system, and the Plan Administrator is authorized to do so, despite the fact that its decision may result in the inadvertent loss of the Plan's tax qualification requiring an amendment of the Plan's eligibility provisions." (emphasis is mine). So I read this to say that the Employer (who will wear all the hats) can legally exclude this lady because she is not an Employee for purposes of his payroll system, and that he is authorized to exclude her, but if a court disagrees with him, he can ultimately lose the tax qualified status of his plan and be force to amend the Plan's eligibility provisions to include her? So he may have saved pennies on whatever a contribution for her would have cost, but he will ultimately pay out thousands in lost tax deductions, penalties and interest, and have to cover her anyway, prospectively? If I am reading this paragraph correctly, then there is no way in the world anybody should even think about trying such an arrangement. Thoughts?

'Nuff said. You two are the experts and we defer to you. Thanks very much!

I know, Mike. I get it. I wouldn't recommend that a client do this - the whole idea began, I believe, with an investment advisor who called someone else here proposing this course of action and I got sent to investigate where the limits lie.

Hi Lou, Yes, it was his intention to run a true short plan year with the prorated 415 limit. He can still have the full $26,000 in deferrals plus whatever profit sharing can be allocated on whatever is left of the year. Say if the employee was terminated as a W-2 employee on May 1, the doctor would start this plan up on June 1, and would have a short plan year from 06/01/2021 to 12/31/2021 and would pro-rate whatever has to be pro-rated. We assume that the IC is, in reality, still an employee just being paid under a different arrangement, but we don't really know for a fact. What would pass muster under audit? Does she have to work for and collect 1099 wages from x number of other "clients" or spend x number of hours working for other enterprises? Does she have to be able to set her own hours? I have never been too clear on what really defines a true independent contractor. Does having "Microsoft proof" language in the basic plan document help any? Thanks again.

Good afternoon to all, A prospect, a doctor, has one employee who is currently paid W-2 wages. He wants to terminate her as a W-2 employee and then engage her as a 1099-R independent contractor. After all that is done, the next month he wants to start up an owner-only type of 401(k) plan that covers only himself and his wife, who he will bring onto the payroll. Do you see issues with this? We feel like it's a very aggressive posture to take but not necessarily an illegal one. Your advice is always appreciated.

What happened to McKay Hochman? I have used their documents in the past, and attended their excellent seminars, and I saw something recently that said they are no longer in the document business. What happened while I wasn't looking?