C. B. Zeller

I've never come across this situation in person, but I what I would probably do would be to just tell the participant that the maximum they can put into the plan between their 401(k) and voluntary contributions is $58,000, and if they go over that, they are going to have problems. Let them figure out how many pay periods are left in the year and how much they can contribute out of each paycheck and to what source.

I don't think you can disaggregate otherwise excludable employees on any basis other than the maximum age and service conditions of 410(a). Your disaggregated plans for deferrals will be those with less than 1 year of service (ADP test required), and those with more than 1 year of service (safe harbor). For match your disaggregated plans will be those with more than 3 months but less than 1 year of service (ACP test required), and those with more than 1 year of service (safe harbor).

Prior discussion on the topic:

If you give the employee the choice to receive the amount in cash, or have it contributed to the plan, that's a CODA.

Besides adoption, it's also possible that an employee might be pregnant and not show it. Not everyone carries a pregnancy the same way. Your female employee might also be married to a woman who is the one who gave birth. If you've got two employees, one male and one female, and they both come in and request a QBAD with identical self-certifications in hand, and you approve the man's request (because you have no reason to deny it) but deny the woman's request (or demand additional substantiation), merely because you think she hasn't looked pregnant at any time in the last year, then I think you have a sex discrimination issue. I know we usually think that everyone knows everyone else's business in a small office environment, and sometimes that is the case, but not always. Unless the employee wants to add the newborn or adopted child to their employer-sponsored benefits, there's no reason they would even need to inform HR. Finally there is the epistemological question of what it means to have "actual knowledge."

Notice 2020-68, Q&A D-12

Probably can't do #2 either, except with respect to any contributions that were actually for the 2020 plan year. The rule under 404(a)(6) is that the contributions can be deducted in the prior year if there were made "on behalf of" the prior year and before the tax filing deadline for that year. Most likely need to deduct them all in 2021. If it exceeds the deduction limit for 2021, might need to carry forward the excess and deduct it in 2022.

What's the harm in answering line 4? Why wouldn't you do it?

There is no question in my mind that there is a termination of employment that would cause an RMD to apply. But even if that weren't the case, you can't have it both ways. Either it is the same employer, in which case there is no RMD but successor rules apply, or it is not the same employer in which case there is an RMD and no successor issue.

Is the claim here that a plan is not subject to the vesting standards of ERISA as long as all contributions under the plan are 100% vested? Isn't that a little like saying that I'm not subject to laws against murder because I've never killed anyone?

From what you described, I take it this was an asset sale? If it was a stock sale, then the new employer would have issues maintaining their existing 401(k) plan after the termination of the old employer's plan due to the successor plan rule. Since it's an asset sale, the employee had a termination of employment with the old employer, and consequently must take and RMD from the old employer's plan for the 2021 calendar year. If she rolls over the rest of her balance into the new employer's plan, she will not need another RMD until she terminates employment with the new employer.

Interesting. I looked it up as you suggested and sure enough the rules are found in IRC 441(f). I do feel like I'm on another planet even reading this as this definition of a plan year is totally alien to me. I wonder if the language in a preapproved document might limit a sponsor's ability to do this. If the plan document says "12 consecutive months" I don't know that you get to interpret that as 52 or 53 weeks just because you want to. You might need an IDP to use that definition in a plan.

I think you have a short plan year 12/25/2020-12/31/2020, and then a plan year 1/1/2021-12/31/2021. Check your plan document's definition of plan year, it probably says it is the 12 consecutive month period ending on the last day of the plan year (and if it doesn't, does it have a determination letter?). You can't have a plan year that is longer than 12 months, so you have to add a short plan year to make up the difference. My suggestion would be to amend the plan out of this insane definition of plan year and onto a normal 12/31 plan year ASAP.

Any benefit, right or feature that is available only to NHCEs is automatically nondiscriminatory. Besides the ACP test (which would only be helped by the additional contributions for NHCEs) I can't think of any other issues.

I agree. You are on the right track with "disproportional amount of NHCEs;" more specifically, you have to pass the effective availability test with respect to the 3% match. Essentially the group of employees to whom the 3% match is available has to satisfy the 410(b) ratio percentage test.

Yes, you can recharacterize deferrals as catch-up due to an excess of the 415 limit. Check the plan document, hopefully it says that even with the pro rata allocation, you can limit contributions to the participant's 415 limit. Assuming that it does, then you should be fine. If not, allocate as much as you can under the current formula and do the rest with an -11(g) amendment. Either way I would recommend changing the formula to individual groups going forward.

Availability of loans is a benefit, right or feature subject to nondiscriminatory availability. If participants are not aware of the loan provisions in the plan, then it can not be effectively available to them. ERISA sec 102 only says that a SPD "shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." While it doesn't specifically say that a loan program has to be included, I would think a "sufficiently comprehensive" document should include it. Have you asked Relius about the difference in their 401(k) and 403(b) documents? What did they say?

402(f) notice is required to be provided for any eligible rollover distribution. RMD is not an eligible rollover distribution; therefore, no notice. The content of the notice describes how you can roll over your distribution and continue to defer taxation on it. With an RMD you do not have the option to roll it over, so providing the notice would actually be misleading to the participant.

I agree.

They have to purchase an annuity for this participant. I am not aware of anything they could do to force the participant to take a lump sum. If the participant was never an HCE, could they offer this person a subsidized lump sum? That might encourage them to take the lump sum distribution if it is significantly larger than the present value of the annuity. This company has sponsored a number of industry events - they might be able to help you. I have not personally used their services. https://www.dietrichannuity.com/

If they had terminated employment prior to their statutory entry date, they would be part of the otherwise excludable group. Once they satisfy statutory eligibility they become part of the "regular" testing group. It comes down to the method you are using to test coverage. Since you would normally be testing coverage using the annual method, you test on the last day of the year and include all employees who were not excludable during the year. This person in question met the plan's minimum age and service conditions, so therefore they are treated as non-excludable in the coverage test. When disaggregating otherwise excludable employees, you disaggregate employees who met the minimum age and service conditions under the plan, but not the maximum age and service conditions of 410(a). Since this person had satisfied the maximum age and service conditions of 410(a) during the year, they cannot be part of the disaggregated plan. ADP testing follows coverage testing, so the people you disaggregated as otherwise excludables for coverage are your otherwise excludables for ADP.

If she turned 70½ in 2019, then her required beginning date was 4/1/2020. RMDs due 4/1/2020 and 12/31/2020 were waived by the CARES Act, so her next (first) RMD is due 12/31/2021.

The first question you're going to have to find out, then, is whether you can get the recordkeeper to issue a corrected 2020 1099-R. It may be difficult or impossible depending on their systems. If the participant was a qualified individual, and the default occurred after the effective date of the CARES Act, then you could probably say that the final payment was deferred for 1 year. It would have to be increased with interest, of course. Notice 2020-50 said that the scheduled repayments had to begin in January 2021, but since there were no scheduled payments in 2021 I think you can make an argument that she would get a full year suspension from the original final payment date. If she was not a qualified individual, and she is past the 5-year limit from the original loan date, then she is out of luck. However if she is still within the 5-year period, then the plan may be able to correct the defaulted loan under SCP by having her repay the amount with interest.

Coverage test is always needed. It might automatically pass if there are no nonexcludable HCEs (or NHCEs, for that matter) but that is a different story. Assuming semi-annual entry dates: Senior manager A and regular slob B are both hired on 8/1/2020. A makes $30k/month, so $150k in 2020. B makes less. A is HCE for 2021 and B is not. A's entry date is 7/1/2021 and B's is 1/1/2022. If they were the only employees then the plan has a coverage failure for 2021 since the HCE is a participant but the NHCE is not. Contrived example aside, you have to test using the 6 month eligibility for everyone every year, even if you don't actually hire any senior managers that particular year. The otherwise excludable rule is available, and it may help you pass testing, or it may not.

It's allowable as long as it passes the coverage test. You have to test coverage using the most permissive age and service conditions, so any employees who are not senior managers, who have completed 6 months of service, would have to be treated as non-excludable in the test.