Catch22PGM

Thank you!

I hope someone can verify that I understand this correctly. 401(k) plan has 100%-4% enhanced safe harbor match. They added a discretionary match of 100%-15% for NHCE only in 2019. Since the discretionary match exceeds 4%, ACP testing applies. If I test all of the matching contributions together the ACP test fails - a lot of NHCE still didn't participate even with the extra generous match. However, I believe 1.401(m)-2(a)(5)(iv) allows us to exclude employees who are only receiving the 100%-4% enhanced safe harbor match from the ACP testing. Since that group to be excluded includes all of the HCE, the ACP testing automatically passes. Is that correct? In other words, as long as the HCE are excluded from the discretionary match, ACP is going to be automatically satisfied regardless of the discretionary match formula being used for the NHCE.

Mike - The thinking was that the prevailing wage contribution should be treated as a QMAC since it is an offset to the Safe Harbor Match. The 10% limit is the amount of prevailing wage contribution that can be included in testing based upon the disproportionate QNEC rules under 1.401(k)-2(a)(6)(iv)(D). Maybe I'm conflating some rules and confusing myself. Are you saying the prevailing wage contributions cannot be included in the ACP testing? This is my first plan where the prevailing wage contribution is used to offset match so I can definitely be wrong on my thinking that it can be used as QMAC.

Looking for some expert opinions on a strange case (at least for me). A 401(k) plan has enhanced Safe Harbor Match (100% - 4%) that only satisfies ADP. There is a discretionary match of 25% up to 20% for a small group of NHCE so ACP testing is required (don't ask why - a previous TPA let them put it in without explaining the ACP issue). There is a large population of Service Contract Act employees who receive prevailing wage contributions in the plan. The plan document specifies that prevailing wage contributions are QNEC's that offset Safe Harbor Match. When running the ACP test, should all of the prevailing wage contributions be included for all of the SCA employees - with the 10% limit taken into account? I am having difficulty finding an answer and our software doesn't want to do it. I can usually rely on our software to do the right thing, but I think the prevailing wage contributions should be included in ACP based upon the Safe Harbor Match offset.

Husband and wife are 50/50 owners of Company A that sponsors the Company A 401(k) Plan. Husband dies in December 2019 at the age of 70.5. Wife is age 58 and is sole beneficiary. The required beginning date would have been April 1, 2020 but the 2019 RMD was not taken when CARES was enacted so no 2019 RMD has been distributed. Wife wants to rollover Husband's 401(k) account balance into her 401(k) account. Can she do this and avoid RMD's until she reaches age 72? I don't see why not but the RMD rules with a deceased participant always trip me up.

That was going to be our recommendation to the client - splitting them into separate plans based upon the contracts they are working. We didn't want to go that route if there was another way to handle the participant count but I feel better making that recommendation now. I've worked with so many clients that have Service Contract Act employees that I didn't even think to spell it out - but I'll keep that in mind. Thank you!

Client established a separate 401(a) plan just for prevailing wage contributions. They have a group of SCA employees who are the eligible participants. Out of 35 total SCA employees only 15 received contributions and have account balances. The other 20 had no excess after wages and other benefits so they received no prevailing wage contributions. Question - for the Form 5500-SF, are the 20 who did not receive contributions considered participants? The compliance and 5500 software we use says yes and I guess it makes sense - you don't have to receive a contribution to be a participant, you only need to satisfy the plan's eligibility requirements. I wanted to put this out there to see if anyone agrees or disagrees. The client is getting a large contract that will add more SCA employees and I want to be sure we don't push them into a 5500 audit for the 2021 plan year if it isn't necessary.

The drop in the market has led to reduced compensation from recordkeepers for those of us who rely upon those monthly or quarterly payments. We have also had a significant increase in the percentage of delinquent invoices. Those two factors were enough for us to feel comfortable applying for PPP to cover payroll and expecting the loan will be forgiven

Thank you both. I came to the same conclusions but having others voice their opinions sure makes me feel better about it.

Two semi-related questions and I'm hoping someone out here can help. Question #1 - a large plan fails ADP testing every year and dozens of HCEs take refunds. In 2019 there was a matching contribution made every pay period. Some of the match attributable to the refunded deferrals had to be forfeited. My question - is the amount of match that was forfeited still a deductible contribution and do we count it towards the 25% deduction limit? Question #2 - assume an employer calculates and deposits a match equal to 10% up to 100% of deferrals every pay period throughout 2019. A mistake is made by payroll and too much match was deposited for one participant in 2019 - instead of receiving $1,000 match on $10,000 of deferrals she received $1,500 match. The error is caught after the end of the year - January of 2020. The excess $500 that was deposited is transferred-out of the participant's account and into the plan's forfeiture account which was then used to pay administrative fees. Is this excess match tax-deductible for the employer in either 2019 or 2020?

Thank you BTS. In this instance Org #2 is very small - only 4 employees total. The Org President, who has been there for 10 years, is the only participant in the Org #2 457(b) Plan. While the person that left Org #1 to work for Org #2 is technically an executive in Org #2, the concern is that allowing him to be a participant in the Org #2 457(b) plan would fail to meet the top-hat exemption since 50% of the org would be participants. Org #2 does not want to allow the employee to participate by having on-going deferrals, but they do want to allow him to transfer his old 457(b) account to their 457(b) plan. The concern - will allowing him to do that transfer make him a "participant" in the eyes of the DOL? I think not especially since the plan document does not mention the term "participant" in the transfer section, but I was hoping to hear other opinions and if anyone has run into a similar situation.

An executive left 501(c)(3) Org#1 and is now an employee for 501(c)(3) Org#2. Both organizations have 457(b) plans and both allow transfers - into and out of the plans. This executive is not eligible to participate in the Org#2 457(b) plan. Can he still transfer his 457(b) account from the Org#1 plan to the Org#2 plan? The Org#2 457(b) plan document never mentions "participant" or "employee" in the transfer section. It simply states states "...the Plan Administrator may accept a transfer of assets to the Plan..." and "A transfer shall only be permitted to the extent that it is permissible in accordance with Code section 457(e)(10) and Treas. Reg. section 1.457-10(b)." I have read both and they mention "participant" but when mentioned they are referring to the transferring plan, not the receiving plan. My take is that this transfer can occur and I use the analogy of a 401(k) rollover. An employee does not have to be eligible to participate in a 401(k) plan to rollover money into the 401(k) plan so long as the receiving plan permits the rollover. The 457(b) plan document for Org#2 doesn't provide a specific restriction so I'm inclined to tell them to accept the transfer. I would appreciate other opinions whether you agree or disagree.

Thank you everyone for the input. It is comforting to know others have the same opinion even if the IRS guidance is lacking (surprise!) I think all of the points being made are spot-on and I'm stealing all of it for my response to the mutual fund company ? I hope everyone weathers this storm and stays healthy!

I have had no luck finding a clear answer so hopefully someone here can help. Straight-forward stock acquisition - Company A acquired Company B on 2/1/2020 and they each maintain their own 401(k) plans. Company A 401(k) uses the top-paid group election for the HCE definition while the Company B 401(k) does not. I know plans within a control group must have the same HCE definition, but does the 410(b)(6)(c) transition period apply to making the HCE definitions identical? These plans use compliance services from a mutual fund company. The mutual fund company is telling them they must align the HCE definition in 2020 and amend one of the two plans. I disagree and have always been very conservative when it comes to the "no significant change in the plan" part of 410(b)(6)(c). Is there something that states the HCE definition must align immediately and am I being too conservative in my hesitation to amend plans during the transition period?

Good point from you both and my terminology certainly was not spot-on. Since these are plan-to-plan transfers that answers my question - no IRS reporting required.

An executive left 501(c)(3) Org#1 and now works for 501(c)(3) Org#2. Both organizations have 457(b) plans and both allow rollovers - into and out of the plans. Org#1 uses a recordkeeper to maintain assets set-aside for their 457(b) plan. This executive requested a rollover from the Org#1 plan to the Org#2 plan. The recordkeeper cut a check to Org#1 so now Org#1 must send a check to the Org#2 plan. Is there any reporting to the IRS that Org#1 needs to do in regards to the rollover? I know we would normally tell Org#1 to prepare a W-2 but since this is being rolled-over there is no taxable event. I haven't had experience with non-governmental 457(b) rollovers and I haven't found guidance anywhere else.

We used Hiscox Insurance Company. A $1M limit with $500 deductible is around $1300 a year. Needed $1M minimum to work with a couple of recordkeepers but you can certainly go with less if you aren't being hit with those requirements.

We made the switch from Datair to ftWilliam a few years ago and are happy with the change. Both have plusses and minuses but we have found the overall speed of the ftWilliam system and the support we receive are far superior. I would recommend using the entire suite (doc/admin/5500) for simplicity if the costs aren't too far off. The compliance module pulls specs from the doc module and the 5500 module pulls data from the compliance module. The comingling makes life easier for our staff and for those of us reviewing their work.