C. B. Zeller

"Plan administrator" means the ERISA 3(16) plan administrator. That entails a lot more than just signing the 5500. If you want to know more, is just so happens that Ilene Ferenczy is doing a free webcast in less than a couple of hours from now on this very topic. You can register at http://www.erisapedia.com/webcasts

Not exactly. Deferrals can only be reclassified as catch-up when a limit is exceeded. And there are only 4 limits that can be exceeded to cause a deferral to be reclassified as catch-up. Those limits are: 402(g) limit 415 limit a plan-imposed limit the maximum allowed under the ADP test (meaning, excess contributions that would otherwise be refunded due to a failure of the ADP test can be reclassified as catch-up instead of being distributed) So what I am saying is that if there are other contributions that would cause the participant to exceed the 415 limit, then some of their deferrals can be reclassified as catch-up. I'll jump in on your questions for BG too, hope he doesn't mind: 1. Yes 2. Maybe, but not without discussing it with the client first. If the plan does not have a last day requirement to receive an allocation of profit sharing, you can not generally change the allocation formula during the current year. In other words, if you are changing the formula, it can't be effective earlier than the first day of the next plan year. 3. No comment here, except to say that we should avoid discussing specific firms or fee structures on this board.

Like I said, it's not entirely clear. If the employer wants to take the safest option, they will limit their contribution on the PS plan to 6% of comp. I think either position is reasonably defensible. SFlannery-Nova didn't go into detail on the circumstances that caused the plan to cease to be covered, but I am going to assume that it's something like the last non-owner participant terminated employment and was paid out during the current year. As a result, the plan is now a substantial owner plan and is exempt from coverage. In that case, I would probably say that if the terminated non-owner participant is still getting a contribution in the PS plan, then you are on a lot safer ground than if the owner is trying to take that whole 25% deduction for themselves.

Yes. Really the right way to think of it is that you take the participant's total annual additions, and compare it against their 415 limit to see if they pass the test. In this case her annual additions are $19,500 + $7,500 = $27,000. Her 415 limit is the lesser of 100% of comp or $58,000, which is $30,000. $27,000 is less than $30,000, so the 415 test is satisfied. Another thing that can happen is, let's say that she only deferred $10,000, and the employer decided to give her a $25,000 profit sharing allocation (ignoring the deductible limit for now). Since $10,000 is less than the 402(g) limit, none of it has been reclassified as catch-up at this point. $10,000 + $25,000 is $35,000, which is more than her 415 limit. One of the ways of correcting a 415 excess is to reclassify the excess as catch-up, if the participant is eligible. So in this situation, $5,000 of her deferrals would be reclassified as catch-up and she would still get the full $25,000 employer contribution. Yes. Even if the plan does not need to be tested, such as your case that covers no non-HCEs, this is still the preferred way to design the plan, as it gives you the most flexibility in allocating contributions. A common misconception is that you are required to cross-test with this plan design - you are not. You can still do a pro rata allocation, which would satisfy nondiscrimination testing on an allocations basis.

I think the missing piece is that if the ratio percentage test is not satisfied on an employer-wide basis, then you test the nondiscriminatory classification test on an employer-wide basis without regard to the average benefits percentage test - see 1.414(r)-8(b)(2). Without the average benefits percentage test, the nondsicriminatory classification test is just the ratio percentage test with a lower - in some cases, much lower - bar to pass.

The wife has to get at least some of PS contribution, otherwise her comp wouldn't be included in the calculation of the deductible limit. Catch-up contributions are not included in applying the 415 limit. So the wife can defer $26,000, then get a PS contribution of up to $30,000 - $19,500 = $10,500.

I believe the section you are looking for is 1.415(c)-1(b)(6)(B), which says that in order for a contribution to count as an annual addition, it has to be made "no later than 30 days after the end of the period described in section 404(a)(6) applicable to the taxable year with or within which the particular limitation year ends." Assuming that limitation year = plan year = calendar year, then 2020 limitation year ends on 12/31/2020, which is within B's 7/1/2020-6/30/2021 tax year, and the 404(a)(6) period for that tax year would end on 9/15/2021, extensions notwithstanding. You may also find 1.404(a)-14(c) relevant, which talks about how to determine the deductible limit when the tax year is different than the plan year.

The nondiscriminatory classification test is not the entire coverage test. Please refer to section 5.03 of the book that you linked. I have never heard of it referred to as a gateway test, but then I don't do much work with QSLOBs. Usually "gateway" means the minimum allocation gateway for cross-testing DC plans on an accrual basis for 401(a)(4). As an aside, I am surprised that ASPPA is ok with posting their entire study manual on a public website. They usually charge a lot of money for that book.

No. From the premium filing instructions:

Generally you can't waive participation in a DB plan - it is not an elective contribution. If you mean the irrevocable waiver of participation, that has to be done before the employee becomes eligible for any plan offered by the employer, and must apply to every plan ever sponsored by the employer. If they are already eligible for the 401(k) plan then it is too late. That's even if the plan allows irrevocable waivers, which plans are not required to offer.

I'm not aware of any clear guidance on this issues, but I would be reasonably comfortable taking the position that if the plan was covered by PBGC at any point during the year, then they are still exempt from 404(a)(7). After all, you are still required to pay the full premium even if coverage ceases mid-year.

DOB of 1/6/1951 means that 2023 is his first distribution calendar year and his required beginning date is 4/1/2024. If he takes a distribution during 2021 or 2022, it would not be subject to any RMD requirements, since neither 2021 or 2022 are a distribution calendar year. Of course, if he rolls it over to an IRA, he will have to start RMDs from the IRA by 4/1/2024. As an aside, you should be aware that whether someone is a 5% owner for RMD purposes is determined solely with respect to the year they turn 72 (formerly 70½, although the regs have not been updated yet). Meaning that if he sold the business in 2022 and he was not a 5% owner during 2023, he would not be subject to RMDs from the plan until he actually retired. RMDs have to start from an IRA regardless of whether you are retired or not.

If they put in a new PS plan, they can keep the TH exemption for the existing plan as long as it continues to consist solely of deferrals + SH match. Then then can exclude this particular individual from both the CB and PS plans, and they won't need to give them a TH minimum. If that's too much trouble, they could exclude the individual from the existing DC plan going forward; they would probably still need to give them a 3% TH minimum for 2021 (assuming they are excluded from the CB plan), but after that, nothing.

I don't see anything that says the other benefit has to be disclosed in the SPD, or even that the employee has to be aware of the other benefit at the time the election is made for it to be a contingent benefit. But I'll grant that is certainly the spirit of the rule, so taking that into account, consider that once word gets back to the current employees that the employer is paying out incentives to former employees with small balances, you could reasonably see somebody who's thinking of leaving in the near future decide to start contributing now, so that they can get that extra cash in a few years. The regulation does say that the distribution of the participant's account balance is not a contingent benefit. But we are talking about a cash payment in addition to the participant's account balance. You could argue that since the cash payment is conditioned upon the distribution, and the regulation specifically says that a distribution of the participant's account balance is not a benefit conditioned on the election to defer, that this clause in the regulation "breaks the chain" and causes the cash payment not to be conditioned upon the election to defer. That is not an unreasonable argument, but the word "indirectly" in the regulation is pretty broad. I could see this going either way.

CuseFan, thanks for pointing out that the document issue was stated in the title. It's easy to miss that when reading the question. Given that, I agree that what's been done is most likely correct per the plan document, and the plan document controls. The sponsor can eliminate the auto-enrollment provision prospectively, and change the eligibility requirements going forward, but that's about it. If the recordkeeper admits to screwing up, then you could maybe try to get them to pay for a VCP submission to ask the IRS to allow the correction I mentioned in my earlier comment. They should come prepared with some pretty strong evidence that the provisions they intended to adopt and what was communicated to participants was not what was in the document. They should also be prepared to explain why they didn't read what was in the plan document that they signed. I wouldn't give this a good chance of success, but they might get lucky.

You can self-correct this. I would first, immediately stop the contributions at the payroll provider. Then, have the mistaken 401(k) contributions distributed to the employees. Use code E for the 1099-R. This will get the correct tax treatment, since (assuming the contributions were withheld pre-tax) they would have already been taxed for FICA, but not for income tax. The code E will get it included in income tax for the current year. They will get taxed on any gains, but I think that is inevitable. Hopefully they didn't have any losses. The mistaken employer contributions will probably have to stay in the plan. Move them out of the participant accounts and into a suspense account. Use the suspense account to fund other employer contributions until it is depleted.

A participant who is not a 5% owner, who was born on or before December 31, 1949, and who terminated employment during 2021, would have a required beginning date of April 1, 2022.

I'm not sure I agree, especially if the account consists solely of 401(k) contributions. The reg refers to other benefits conditioned directly or indirectly on the election to defer. For example, you couldn't offer an incentive where the employer will give a $1000 cash bonus to any employee whose 401(k) balance is greater than $50,000 at the end of the year. Even though the cash incentive is contingent upon the account balance, not the election to defer, the only way you can get an account balance is if you made an election to defer. Therefore the incentive is indirectly contingent upon the election to defer, and prohibited under the rule. Same thing, I think, in this case. You are eligible for the incentive if you elect a distribution during a particular time frame. The only way you could elect a distribution is if you have an account balance, and the only way you could have an account balance is if you previously made an election to defer.

PT is a potential issue, as mentioned. If this is the owner who is trying to do this, and there are other participants in the plan, it could be a non-discrimination issue if the investment is not available to non-HCEs. If the investment is going to generate UBTI, there are tax issues to consider. Bottom line: get an attorney.

If the participant was born on or before 12/31/1949, and they terminated employment in 2021, then 2021 is their first distribution calendar year and they must take an RMD before they can roll over their account balance in 2021. "Before" can really mean "simultaneously;" basically you just have to make sure that the RMD is distributed if you are paying out the entire account.

If you're referring to the 402(f) special tax notice, I would direct you to the model 402(f) notice contained in Notice 2020-62. Regarding loan offsets, it provides the following: You might also be interested in sections II.B and III of Notice 2018-74, which discusses the changes that were made to the model notice with respect to QPLOs.

It could certainly be done by having two separate plans - a 401(k), that provides the TH minimum and has a vesting schedule, and a separate PS plan that has 2-year eligibility and 100% immediate vesting. Whether it could be done in one plan depends on what the document says. For example, the FT William doc that we use says that the top heavy vesting schedule will only apply to the extent it is more favorable than the plan's regular vesting schedule. That language would seem to preclude doing this in a single plan.

Mike is correct, see 1.410(b)-7(d)(5). However, you still need to determine how many participants in plan A are are non-excludable under plan B and vice-versa, since they will be included in the denominators of your coverage tests. If both plans cover any key employees, be careful with your top heavy determination dates.

If she stopped loan payments, then the loan is in default and a deemed distribution has already occurred, or will as soon as the cure period expires. Technically, even after default, the loan obligation still exists. Repayments would create after-tax basis in the plan. Terminating the plan creates a distributable event and then a loan offset occurs, which is a real (as opposed to a deemed) distribution.

If the account balances are made up, either partly or entirely, of 401(k) deferrals, is offering additional cash a violation of the contingent benefit rule? 1.401(k)-1(e)(6)