Catch22PGM

In our documents we can elect in the adoption Agreement whether or not to apply the fail-safe. I'm with you here, I much prefer an -11(g) amendment and that is how we prepare the documents for our clients. In this case the plan is using the document of another vendor and there is no such election in the AA.

I felt stupid asking the question and I'll blame it on testing fatigue. The fail-safe just wasn't as clear to me as I wanted it to be but I have to believe the intent of the language was to only include NHCE. The ABT wasn't going to work in this case. I didn't put the details in the initial post but this is a control group with two plans - one safe harbor match and the other discretionary (much smaller) match. The discretionary match plan wasn't passing the RPT or ABT. Using the fail-safe for RPT was their only hope.

A 401(k) plan has 1000 hour and last day requirement to receive match - fails the 401(m) ratio % test for 2020. In regards to correcting Coverage, the plan document states: "The Employer Contribution will also be allocated to individual Participants in the order specified until the Plan satisfies the minimum coverage requirements. A Participant, and all similarly situated participants, will be included only if necessary to satisfy those requirements." It then goes on to say you start with participants that worked the most hours that were still employed on the last day of the year, then work your way down to terminated participants with the most hours... We need to bring in several NHCE that terminated prior to 12/31/2020 to pass the ratio % test for 401(m). We have two HCE that are not benefiting under 401(m) because they terminated employment before 12/31/2020 who worked more hours than any of the NHCE we are bringing into the match. Does the "only if necessary to satisfy those requirements" allow us to ignore those two HCE's? I sure hope so because we can't pass if we have to include those two HCE.

Sounds like you have a s-corp so you (they) are stuck with W-2 income only. Shareholder distributions from a s-corp are not compensation for plan purposes.

I really appreciate everyone's input. No matter how long we do this there will always be something new to learn.

BG5150 - I think you are correct and I misread the information I had. This is an excerpt from a presentation by Wolters Kluwer on the topic that supports what you stated: "Mandatory (fixed) matching contributions may not be made on deferrals in excess of 6% of compensation."

BG5150 - I didn't realize the "Fixed Match" tier could go that high. I thought the 6% of compensation was the maximum the match could equal - not the maximum that could be matched. Thank you for that input.

Thank you Alex but do you have anything supporting that position? Everything that I have read simply states the formula for the first "Safe Harbor" stack has to meet the basic safe harbor or an enhanced safe harbor. Using 100% up to 6% in the first stack still satisfies the enhanced safe harbor. The discretionary matching must be limited to 4% to satisfy the ACP safe harbor but based on my reading (which admittedly could be wrong) 100% up to 6% in the "Safe Harbor" stack and the "Fixed Match" stack could both be 100% up to 6%.

I have a prospect who is interested in a triple stack match. Owner, spouse, and adult child with two additional employees where neither wants to participate - which is insane in this scenario, but I digress. Company is a S Corporation so the owner and family members keep their W-2 wages well below the 401(a)(17) limit - they are around $125k each. I think I have this correct but I really hope someone is more comfortable with this than I am. I believe they can each get a match equal to 16% of their $125k W-2: Stack 1 - enhanced safe harbor match 100% up to 6% Stack 2 - discretionary match 100% up to 4% (I know this can be structured differently but no need in this scenario) Stack 3 - fixed match 100% up to 6% Everything I've read on other posts and in literature only refers to the standard safe harbor match formula and assumes the owners have the maximum 401(a)(17) comp. I hope those of you with more experience with the triple stack match can help me out here. Does this stacked formula, giving participants a 16% match if they contribute 6% of pay, still safe harbor?

I really don't know the particular religion, but if I recall it has something to do with having interest bearing accounts. Regardless, each NHCE signed an irrevocable waiver. My solution going forward, although no good for 2020 and 2021, is to use a safe harbor match with no profit sharing contribution provisions. They will have to bring some NHCE in to pass coverage for 401(k) and 401(m) but since they signed waivers, couldn't they be treated as electing to defer 0%? Therefore the NHCE that do not want a 401(k) account do not get one and the owners still get to make contributions and receive a match.

I have an interesting situation that I don't know how to fix so I'm hoping someone out here has come across something. A new 401(k) plan was adopted 1/1/2020 - not safe harbor with discretionary match and profit sharing. Volume submitter plan document allows for irrevocable waivers and the plan sponsor wanted it because many employees wanted no part of the plan due to religious beliefs. We received the irrevocable waivers in December of 2019. We have now received the 2020 census data - every NHCE signed an irrevocable waiver and the only eligible plan participants are the owners. There were 7 NHCE who exceeded the statutory eligibility requirements so they are showing up as eligible, not benefiting, for 410(b). These employees want no contributions from the employer for religious beliefs which is why they signed irrevocable waivers in the first place. Any ideas out there about how this should be handled?

A lot of great input here from a wide variety of experiences. I worked more than 20 years for an independent, family-owned TPA firm. My (now) business partner and I ran all of the operations of that firm for many years as the owners were not retirement plan administrators (long story). This included managing staff, establishing procedures, reviewing/auditing all work, etc. In addition to those managerial tasks we each were directly responsible for the administration of 120-150 plans each. We had three support staff and two were fired by the owners about 2 years before we left the firm. No reason for the firings of two long-term and dedicated staff members other than to cut costs. We left and founded our firm with a business model formed around that experience. We have a firm stance that no administrator will handle more than 65 plans. Like many who have posted here the actual number isn't completely relevant. We ensure there is an even distribution based upon plan size, design complexity, and revenue. We won't be the most profitable TPA out there and we are fine with that. Our intent is to maintain a good work-life balance for ourselves and our employees. Every person has a different breaking point and different financial needs. The advice I share, which is something that was shared with me many years ago - be happy. Money is necessary and we all do what we must, but life is too short to stay in a situation that makes you stressed and unhappy. There are a lot of good TPA firms out there that treat their employees with respect. Your resume should be strong enough to give you plenty of options so go out there and find a firm where you can be happy. Best of luck.

Short background - I had a mentor (CPC, QPA... the whole alphabet soup of designations) many moons ago who didn't like to have the plan effective date be earlier than the date the documents were signed. In a plan where it was important to use the full year of compensation and the full year of contribution limits in the initial short plan year, she would set the limitation year and compensation computation period to calendar year. I have held onto that method of dealing with this situation but maybe it is time for this old dog to change. We use ftWilliam for 401(k) and cash balance plan documents. I have asked them specifically if this method was acceptable and they said it was. The specific sections of the 401(k) adoption agreement (cash balance AA is set-up the same) read as follows: Compensation is determined over the period specified below ending with or within the Plan Year: i. [ ] Plan Year ii. [ X ] calendar year iii. [ ] Plan Sponsor Fiscal Year iv. [ ] Limitation Year v. [ ] Other twelve-month period beginning on: (enter month and day) Plan Year a. [ ] Plan Year means each 12-consecutive month period ending on 12/31 (e.g. December 31) b. [ X ] The Plan has a short Plan Year. The short Plan Year begins 10/01/2020 and ends 12/31/2020 Limitation Year means: a. [ ] Plan Year b. [ X ] calendar year c. [ ] tax year of the Plan Sponsor d. [ ] other: If my mentor was wrong - and by extension I am wrong - I am happy to change my ways. I haven't had anyone tell me I'm wrong about this. My actuary hasn't even said I'm wrong - just that they won't do it this way but they won't provide any concrete evidence as to why. I appreciate any opinions one way or the other.

Defined contribution guy here hoping for some clarity from a cash balance expert or two. A small business owner with 5 employees has decided to start a 401(k)/cash balance combo in 2020. The 401(k) is safe harbor and he got it in just under the deadline - the plan effective date was 10/1/2020, however the limitation year and the compensation computation period are both set to calendar year so we can include full 2020 compensation and limits. We have proposed to do the exact same with the cash balance plan - 10/1/2020 plan effective date with the limitation year and compensation computation period set to calendar year. It is my understanding that the plan years must be identical for the plans to be aggregated for testing so we would have to use 10/1/2020 for the cash balance plan effective date. The actuary I am working with is telling me the benefits would have to be reduced by about 75% of what was originally projected for 2020 because of the short plan year. The cash balance plan document is from the same provider as my 401(k) document and the language regarding the limitation year and the compensation computation period are consistent in both. I trust the opinion of my actuary but I am having a hard time accepting this. Does 401(a)(17) force a cash balance plan to prorate compensation in a short initial plan year even if the plan document permits us to use the full calendar year compensation? I don't see that it does (although I could be wrong) so is there something else that forces proration of compensation or contribution limits?

If my memory serves, you can use "calendar year" for the limitation year and compensation computation period. You can then use the 3/1/2020 effective date (or whatever date you'd like) and still have no need to prorate limits or compensation.

Good point about the nondiscrimination - I'll have to take a closer look at that. Thanks for chiming in.

Everything that I have read only states it must be EACA (or QACA). Since EACA is not required to cover all employees, and I don't see anything that adds that restriction for the tax credit, I can't find any reason the tax credit would be restricted: SEC. 105. SMALL EMPLOYER AUTOMATIC ENROLLMENT CREDIT. (a) In General.—Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section: “SEC. 45T. AUTO-ENROLLMENT OPTION FOR RETIREMENT SAVINGS OPTIONS PROVIDED BY SMALL EMPLOYERS. (b) Credit Period.—For purposes of subsection (a)— (1) IN GENERAL.—The credit period with respect to any eligible employer is the 3-taxable-year period beginning with the first taxable year for which the employer includes an eligible automatic contribution arrangement (as defined in section 414(w)(3)) in a qualified employer plan (as defined in section 4972(d)) sponsored by the employer. I want to piggy-back onto your question so hopefully someone will chime-in. Is the Auto Enrollment Tax Credit available to a plan sponsor who has ACA in 2020 but amends to EACA or QACA for 2021?

Company A acquired Company B and each have 401(k) plans. Plans will be merging 12/31/2020. Company A 401(k) Plan (surviving plan) has immediate vesting for all sources. Company B 401(k) Plan (merging plan) has a 6-year graded vesting schedule for match and profit sharing. 1. Can the surviving plan continue the 6-year graded vesting schedule for all of the merging match and profit sharing money (active and terminated participants)? I think this is yes but value opinions. 2. Can the surviving plan continue the 6-year graded vesting schedule for the merging terminated participant accounts while providing 100% immediate vesting for merging active participant accounts? I'm not sure on this one. 3. Can the surviving plan provide immediate 100% vesting for all of the merging match and profit sharing money (active and terminated participants)? I'm not sure why they would, but need to cover all options.

Thank you everyone. Luke Bailey - you hit it on the head and I missed that in the Treas. Reg. The 401(k) plan document did not specifically exclude deferred comp from plan compensation so the executive can defer into the 401(k) plan from the 457(b) distribution.

Non-profit has a 457(b) plan and 401(k) plan. They want to terminate the 457(b) plan and have the assets distributed to the participants (2 executives). One of the executives would like to contribute pre-tax salary deferrals to the 401(k) plan from the 457(b) distribution. The definition of compensation in the 401(k) plan is W-2 plus pre-tax deferrals. The executive is arguing that the 457(b) distribution is reported as W-2 wages and I can't find anything that says it can't be done - it just feels wrong. Does anyone out there have something that either supports or opposes the executive's position?

Thank you both for the insight. I recommended they file under VCP for the retroactive amendment. It's good to hear they have a shot with that approach.

Four different 401(k) plans for a control group. The plan sponsors have always calculated and deposited their safe harbor match every pay period - since 2012. When the documents were restated for PPA their TPA (not me) did not check the box in the adoption agreements to indicate the safe harbor match was calculated and deposited every pay period - instead they are shown as being calculated and deposited at the end of year. I do not have copies of the SPD or Safe Harbor Notices but I would assume they state the same. There has never been a true-up of the safe harbor match in any of the plans. Their TPA had a new account manager take over all four plans for the 2019 plan year and the plan sponsors have been told that they need to go back to 2017 and provide true-up Safe Harbor Match - this is for a few hundred participants each year so we are talking about $100k or more total. Per the TPA's instruction two of the four plan sponsors sent letters to the affected participants notifying them that they will be receiving an additional Safe Harbor Match due to the error. I don't know why they only went back to 2017 instead of when the document errors were created (2014-2016), but those were the instructions given. My initial thought was to retroactively amend the plan documents to conform to its operations, but I could see 411(d)(6) issues. I believe the IRS has accepted retroactive amendments in similar situations. Has anyone had a similar experience that could share how the error was corrected?

Thank you both - I definitely missed the 416 part of 1.402(g)-1(e)(1)(ii).

If anyone has an opinion and/or something they have found from the powers-that-be, please share. This has stumped several colleagues but I'm sure it can't be a totally unique situation. ABC Company has a deferral-only 401(k) plan (no match or non-elective provisions) with one key employee Fred, who is the CFO and earns $250k per year. The ABC Company 401(k) Plan is top heavy. Fred is also employed by XYZ Company - completely unrelated to ABC Company - and participates in the XYZ Company 401(k) plan. In 2019 Fred had a $10,000 excess deferral - he contributed the IRS maximum in the XYZ Company 401(k) plan and $10,000 into the ABC Company 401(k) Plan. If the entire $10,000 that Fred contributed to the ABC Company 401(k) Plan is refunded as an excess deferral, is the ABC Company still required to make a top-heavy minimum contribution to non-key employees? My initial reaction is no, because an excess deferral is not an annual addition, but I can't find anything that would support this. I have colleagues that feel ABC Company is required to make a 3% top-heavy minimum contribution since Fred contributed 4% of his compensation to the plan even though the entire 4% is being refunded as an excess deferral. Again - they haven't provided anything to support their position either.

I think C.B. Zeller's question is the pertinent question - how is it a plan-related expense? I'm sure countless participants have outside advisors/financial planners but the work they are doing and fees they are charging have no direct relation to the qualified plan sponsored by the participant's employer. I have never seen an arrangement like this and I would advise the Plan Administrator against allowing it - but that is just a humble TPA's take.