C. B. Zeller

I'm willing to bet that your plan document, especially if it's a volume submitter document, excludes from participation "employees classified as independent contractors" (or similar language). This means that the plan does not cover employees who are classified (correctly or not) as independent contractors. This exclusion results from the famous Microsoft decision. I'm also willing to bet that your plan document doesn't define compensation as the amount reported on the W-2, but as the wages required to be reported on the W-2, a.k.a. information required to be reported under sections 6041, 6051 and 6052. So regardless of whether or not the employer actually provided a W-2 to the employee, if the wages should have been reported on a W-2 (because the person was an employee and not an independent contractor) then it is still plan compensation. But I think you're missing the point. The issue of employee vs independent contractor status goes well beyond implications to the plan. As ESOP Guy said, you do not just get to decide that someone is an employee or an independent contractor. See this page for starters, especially the section titled "Consequences of Treating an Employee as an Independent Contractor" : https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

Not true. There are many other threads on this topic. Advise her on the topics that you are qualified to advise her on, and advise her to consult an expert on anything else. Someone "advised" her to change how she is being paid after all.

A participant who met the plan's age and service requirements can be treated as excludable with respect to coverage and nondiscrimination testing if they: terminated with <500 hours of service, did not benefit under the plan, and did not benefit solely because they terminated with <500 hours of service. #1 clearly does not apply since they worked >500 hours, so we already know that they must be included in the test. #2 does apply since they did not receive an allocation under the plan; note that for this purpose "plan" means the disaggregated portion of the plan being tested - deferrals, match, and employer nonelective contributions each constitute a separate "plan" here. #3 also does not apply, even though they are not benefiting, you said they are part of a group which is designated to receive no employer contribution, therefore they fail to be not benefiting solely because they terminated with <500 hours, therefore they must be included in the test.

When is the change supposed to be effective? If it's starting the next plan year then go ahead. If it's supposed to be mid-year then you are out of luck. Notice 2016-16 specifically prohibits mid-year amendments that reduce the number of employees eligible to receive a safe harbor contribution.

In this PLR (no reliance, of course) the IRS found that only those participants who actually received allocations other than elective deferrals would have their compensation taken into account for determining the deduction limit.

Rev. Rul. 65-295 Where a profit-sharing plan provides that a terminating employee does not share in the employer contributions for the taxable year in which such termination occurs, the compensation paid such terminating employee in such taxable year may not be included in the total compensation paid or accrued during the taxable year for the purpose of determining the limitation on deductions provided in section 404(a)(3)(A) of the Internal Revenue Code of 1954.

We have been looking at it for a while now and just recently decided to go ahead and buy it. Our primary use case is to replace insecure email for transmitting sensitive info like SSNs and banking info. We are still in the process of getting it set up so I can't comment on sponsor engagement yet, but I can tell you that Holly at FT William has been extremely accommodating whenever we have had questions or feature suggestions.

When you are testing the plans together, what you are really doing is treating the DB plan and the employer non-elective portion of the DC plan as a single plan for testing purposes. Is the employee benefiting under that combined "single" plan? The answer is yes if they have an allocation in the DC plan or an accrual in the DB plan (or both). Are they included in the benefiting group for purposes of the coverage test? If they are benefiting, then yes, unless they are part of the plan being disaggregated for some reason, for example, an otherwise excludable employee. Can they be excluded from the nondiscrimination test? Not if they were included in the benefiting group for the coverage test.

Ouch

Thanks for the reading material - I will see if I can find something that applies.

Full distribution, meaning a total distribution of the participant's account? I assume the 5,000 and 3,000 numbers are rounded off? The distribution was in 2018? Has the participant filed their 2018 tax return yet? If so they will need to file an amended return. Report what was actually withheld. Since there will be 2 forms, I would report the full amount of the withholding on the form with the code 7 and 0 withholding on the form with code B. When the participant files (or amends) their tax return, they will get a refund of any excess amounts that were remitted to the IRS.

Plan sponsor has an ownership interest in an IRA provider. Can they force out (terminated <$5k) participants into IRAs with that provider, or would that be a PT? I remember reading about a PTE that would allow banks to force out participants in their plans into IRAs held by the bank, but my search skills are failing me at the moment and I can't find it again. If I'm remembering correctly it would seem to be relevant guidance.

Lou S. is correct. You should read the 416 regs carefully to understand the requirements and options available to satisfy top heavy minimum in a combo plan. In particular 1.416-1 M-2, M-4, M-7 and M-12 will be helpful but I recommend reading the entire reg. One advantage to the SH match vs the SH nonelective is that an employee who works fewer than 1000 hours and terminates would, with a SHNEC have to get the safe harbor and therefore the entire gateway, whereas with a SHMC they do not necessarily need to get any contribution. Whether this outweighs the need to give the match in addition to the full gateway to the eligible employees will depend on the employer demographics and turnover rate.

Looks like this has already been settled, but thought I'd chime in with some code references. 404(a) says, in more verbose form, that contributions to a plan are not deductible unless they meet the requirements of that section. 404(a)(3)(A)(i) allows the deduction for contributions paid into a profit sharing trust in the taxable year when paid (with (a)(6) providing the deemed timing rule for contributions paid by the due date of the tax return). 404(a)(3)(A)(ii) allows for the carryover of the deduction to following tax years of amounts which were contributed in excess of the 25% limit. I am aware of nothing in the code or regs that would allow the employer to arbitrarily decide to take a deduction in some future year for a contribution paid in the current year.

Barring any language to the contrary, the plan's loan policy document governs the making of new loans. So the receiving plan could accept the two loans as a rollover and then not permit the participant to take another loan until those have both been paid off. I suppose the receiving plan could limit rollover contributions to no more than 1 loan, if desired. This would probably have to be spelled out in the document though.

One of the key defining differences between a defined benefit plan and a defined contribution plan is that in a DC plan investment risk is borne by the participant, and in a DB plan the investment risk is borne by the sponsor. So yes, it is possible that the sponsor could be on the hook for larger contributions if the assets perform poorly. It's also possible that the MRC is zero despite the value of the assets. It's impossible to know without more details specific to the plan.

No. A limit on the amount of deferrals for the HCE group would have to be done by plan amendment. The limit would have to be definitely determinable and not subject to employer discretion. Being an amendment, the usual rules around amendments apply. SMM is needed, 411(d)(6) applies, etc. There are 4 and only 4 ways that deferrals can be reclassified as catch-up. Those are: Exceed the 402(g) limit Exceed the 415(c) limit Exceed a plan-imposed limit Excess contributions resulting from a failed ADP test, reclassified as catch-up rather than being distributed If you adopt an amendment to limit deferrals, then deferrals in excess of the stated limit would automatically be reclassified as catch-up. Assuming, of course, your plan document permits it, which if it a volume submitter document it almost certainly does.

1.402(g)-1(e)(2)(i) "Not later than the first April 15 (or such earlier date specified in the plan) following the close of the individual's taxable year, the individual may notify each plan under which elective deferrals were made of the amount of the excess deferrals received by the plan."

I believe so. Rev. Proc. 2019-19 5.01(2)(B) defines Operational Failure as "a Qualification Failure (other than an Employer Eligibility Failure) that arises solely from the failure to follow plan provisions."

The asset valuation method described in the paragraph you quoted is not simply the average of the FMV for the last 3 valuation dates. If you want to proceed, I suggest that you read Notice 2009-22 very carefully first. Assuming that you are using the method correctly, then yes, there would be automatic approval for the change under RP 2017-56 provided that the asset valuation method was not changed in any of the four preceding plan years and that none of the restrictions in Section 6 apply.

What if the loan was taken from a Roth source?

I would say name yes, address no. Security issues aside - what if they moved?

That's not the question though. The question is, on a loan schedule with N payments of X remaining, can a participant pre-pay the next M (<N) payments by making a single payment of M*X and then make no further payments until they resume regular payments of X after M pay periods?

For those who say this should be allowed, does this permit a back-door method of making after-tax contributions? For example, I take a 50,000 loan from the plan, amortized into monthly payments at 6.5% over the next 5 years. That is 60 payments of 978.31. The next day, I make a payment of 58,698.60, which I instruct the trustee to treat as pre-payment of the 60 installments and not a single payment of principal. Have I just made a contribution of 8,698.60 which is not subject to any limitations or testing? One year + one day later, what is my highest outstanding loan balance in the last year for purposes of taking a new loan?

15% for prohibited transactions. 10% for late ADP refunds, minimum funding deficiency, non-deductible contributions, maybe some others. The only time I think that you can deposit the excise tax to the plan instead of paying it to the IRS is if you are using PTE 2002-51.