C. B. Zeller

In cases where one or a few employees were missed on an otherwise normal payroll, I use the date that the other contributions were deposited. If the entire payroll contribution is late, I do the following: Put together a list of check dates and the dates that the corresponding contributions were deposited (this is usually as simple as downloading a transaction history report and making a pivot table) Calculate the number of days between each check date and deposit date Delete any non-compliant deposits Determine the mode of the above data set Loss date = check date + number determined above

318(a)(5)(E) states that it only applies to "this subsection," i.e. 318(a). Now 414(m) does include 318(a) by reference for purposes of determining ownership, but 318(a)(5)(E) explicitly does not apply for purposes of determining constructive ownership of the S-corp, which would be the key element in determining whether the A-org is a shareholder (or partner) in the FSO. I think you're safe to consider the S-corp a corporation. I don't know if Derrin Watson is still answering questions here, but I would be curious to see if he agrees: https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer

As ETA mentioned, the rule that a corporations other than a professional service corporation can not be a FSO only applies to A-org groups. An S-corporation is a corporation - just because it elects to be taxed as a pass-through entity does not make it not a corporation. I think sec. 1361 is pretty clear: (a) S corporation defined (1) In general For purposes of this title, the term "S corporation" means, with respect to any taxable year, a small business corporation for which an election under section 1362(a) is in effect for such year. (2) C corporation For purposes of this title, the term "C corporation" means, with respect to any taxable year, a corporation which is not an S corporation for such year.

This sounds like a pretty clear case of an operational failure - a participant was allowed to contribute before satisfying the plan's eligibility criteria. As long as it's corrected before the end of the second plan year following the plan year in which the failure occurred (i.e., before the end of 2019) then I don't see any reason why SCP wouldn't be allowed. I agree with Lou, you should adjust the contributions for earnings and return them to the participant with code E.

Based on what you said I think the answer is that the Company B plan would have to include the Company A employees in its testing, but treat them as if they terminated on 6/28, since as of that date they were no longer employed by the company sponsoring the plan or any member of its controlled group.

I think you need to clarify the situation a little. A plan can not be part of a controlled group. An employer can be part of a controlled group, and an employer can sponsor a plan. Tell me if this describes the situation, and if so maybe it makes the answer to your question a little clearer: Company A and Company B are a controlled group. Company A sponsors a plan. Company B adopts the Company A plan in writing. As of 6/28, 100% of the ownership of Company B is sold to Mr. X, an individual who is unrelated to the owners of Company A. As of that date, A and B are no longer a controlled group. On the same date, Company B revokes its participation in the Company A plan and adopts a new plan. The accounts belonging to the employees of Company B are transferred out of the Company A plan and into the Company B plan.

Yes. A safe harbor plan is considered not top heavy only if it consists solely of deferrals and safe harbor contributions (see 416(g)(4)(H)). Once you start adding in other contributions you are subject to the regular top heavy rules. One option would be to add a second plan just for the PW contributions. As long as no key employees are eligible in the PW plan, the two plans would not have to be aggregated for top heavy.

Here is the full text of the Senate bill: https://www.congress.gov/bill/115th-congress/senate-bill/3221/text I could see the proposed section 401(k)(14)(B)(i) being appealing to a certain type of employer. It says you have a QACA that satisfies the nondiscrimination requirements with no employer contributions required, as long as you limit deferrals to 40% of the 402(g) limit, and you still have to comply with the auto-enrollment and auto-escalation and notice requirements. (ii) and (iii) under the same paragraph seem less interesting; they offer lower safe harbor contribution requirements in exchange for lower 402(g) limits. I suspect that most employers who would be interested in reducing their safe harbor liability at the expense of contribution limits would want to bring it down to 0 or not at all - I could be mistaken though. I would be worried about communication in these plans. If there's one limit that your average participant is likely to be aware of, it's the 402(g) limit. It could be a tough conversation when they get an email from their tax advisor, or see on the internet that "You can contribute up to $19,000 to your 401(k) in 2019" but it turns out, sorry, in your plan you are actually limited to $7,600. Re-auto enrolling anyone contributing less than 3% every 3 years is probably a good idea. If they want my opinion I would change it to say "no less often than every 3 years" to give the employer more flexibility.

There is an exception in 1.401(a)(26)-1(b)(3) for underfunded frozen DB plans. If your plan meets the requirements of that section then it would be exempt from 401(a)(26) for the year. Otherwise, see 1.401(a)(26)-2(b).

This article on ASPPA's website (Redoing a Schedule SB on a Takeover When You Identify Issues) claims that "The IRS has indicated that it is not necessary to amend a Schedule SB when the changes have no impact on minimum funding" but does not provide a source.

Putting aside the fact that it is the plan administrator, not the trustee, is required to sign, what would you do if the former administrator resigned and moved to Tahiti? Chase them down and make them sign a form? Or what if they were hit by a bus? It's the administrator at the time the form is signed.

No. A key employee is a key employee regardless of whether they are eligible.

Regarding definition of comp for safe harbor nonelective purposes: 1.401(k)-3(b)(2) Safe harbor compensation defined. For purposes of this section, safe harbor compensation means compensation as defined in §1.401(k)-6 (which incorporates the definition of compensation in §1.414(s)-1); provided, however, that the rule in the last sentence of §1.414(s)-1(d)(2)(iii) (which generally permits a definition of compensation to exclude all compensation in excess of a specified dollar amount) does not apply in determining the safe harbor compensation of NHCEs. Thus, for example, the plan may limit the period used to determine safe harbor compensation to the eligible employee's period of participation.

You said "related" participating employers so I am going on the assumption that this is a controlled group or an affiliated service group. If they are still working for the member of the CG/ASG, they are under age 59-1/2, and there is no hardship, then no distributable event has occurred. All members of a CG/ASG are treated as a single employer for purposes of 416, so they are included in the top heavy test. They would be included in the coverage test as nonexcludable, not benefiting. This all changes if this were a MEP, i.e. if a CG or ASG does not exist. In that case top heavy and coverage are tested separately. However it would still not be a distributable event. It may be possible to spin off a new plan and terminate that plan, which would then be a distributable event.

I won't paste them here, but the relevant reg sections are 1.401(m)-2(a)(6)(ii) which says that you can include elective contributions in the ACP test so long as a) the plan is subject to the ADP test, and b) the plan would satisfy the ADP test including the shifted contributions; and 1.401(k)-2(a)(5)(iv) which says that elective contributions used to satisfy the ACP test are not included in the ADP test, except to the extent necessary to demonstrate satisfaction of the requirement in the (m) reg that the ADP test is satisfied when including those contributions. The way I'm reading this is that the ADP test including the shifted contributions must pass because the (m) reg says it must pass. The ADP test not including the shifted deferrals must pass because simply every 401(k) plan (exceptions notwithstanding) must pass the ADP test. Therefore all of the usual correction methods that apply to the ADP test, including recharacterization as catch-up, are available for the test performed not including the shifted deferrals. BG, to address your point, let's say you had a genuine scenario where the ADP test passed with some excess, but the ACP test fails. After shifting enough deferrals to the ACP test to make it pass, the ADP test results in some excess contributions which are eligible for recharacterization as catch-up. Would you say that you can not shift the deferrals in this case? Here is a quote from the DC-2 Study Guide, 7th ed., which suggests that recharacterization as catch-up is a valid outcome of an ADP test performed after shifting deferrals: It is possible that excess contributions under the ADP test might be recharacterized as catch-up contributions, if any of the HCEs who are catch-up eligible participants have not used up the full catch-up limit for the year involved. The plan may not apply the recharacterization rule first, and then determine how it wants to shift elective deferrals to produce different testing results. All testing must be completed, including the shifting of elective deferrals if desired, before determining whether there are any remaining excess contributions that would be distributable but are eligible for recharacterization as catch-up contributions. This paragraph cites the preamble to the final 414(v) regs as a reference, and says see 68 F.R. 40511.

The other thread on creative ways to handle a top heavy plan reminded me of something I thought up a while back but never went forward with because I felt it was too aggressive. However I can not find any reason why it would be actually disallowed. I'm hoping someone here can poke a hole in this scheme and teach me something. This is a 401(k) plan with a single 100% owner who is the only HCE and the only key and is over 50 years old. The only contributions for the plan year are deferrals, although discretionary matching and nonelective contributions are permitted in the document. The plan passes the ADP test for the current year. The plan is top-heavy for the current year. The HCE's deferral contributions are equal to $6,000. Can we do the following: Shift 100% of the NHCEs' deferrals to the ACP test. The ACP test passes because there are no HCEs included in the test. Recharacterize the HCE's $6,000 deferral as catch-up as it now exceeds the limit of the ADP test, when testing on only the un-shifted deferrals. Since all of the NHCE deferrals were shifted, the ADR for the NHCE in this test is 0% and therefore the ADP limit for the HCE is 0%. There is no top heavy minimum for the current year, since the key did not have any contributions other than catch-up contributions, and catch-up contributions for the current year are not taken into account for purposes of section 416. My thinking is that this falls apart on step 1, that you can not shift deferrals into the ACP test just for fun, that there has to be an actual failure of the ACP test first. Is that actually written somewhere, or just accepted practice?

One more possible trick, if the keys are over age 50, is to amend the plan to impose a limit on elective deferrals for key employees equal to $0. Then they can defer up to $6,000 and it would be reclassified as catch-up due to exceeding a plan-imposed limit, and catch-up contributions are not included when determining the minimum allocation rate for the keys. If you want to play it safe, instead of a $0 limit you can do a $1 limit. Since you have to be eligible to defer in order to be eligible for catch-up, and you could make the argument that someone with a $0 limit is not eligible to defer, this avoids that possible interpretation. However there will be a (small) top heavy minimum required for the non-keys. I also do not know off the top of my head if there are any complications with amending a plan mid-year to add a limit. If the keys have not deferred anything to date then my feeling is it wouldn't be a problem. But I might be forgetting something.

Don't forget about the deduction limit, if you're giving large contributions to people with lower comp it can sneak up on you.

1.416 T-10, as Kevin pointed out, raises an interesting scenario. Consider an employee who is eligible for a 401(k) plan and a separate profit sharing plan which are part of the same required aggregation group. The reg states that "In the case of non-key employees who do not participate in more than one plan, each plan must separately provide the applicable minimum contribution or benefit with respect to each such employee." If you take "participate" to mean "contribute" then would an employee who does not contribute have to receive the top heavy minimum in both plans? Anecdotal, but as always a reminder to check your plan document: I have a document which defines Required Aggregation Group as "each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the "determination date" or any of the four preceding Plan Years (regardless of whether the plan has terminated), and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410." In this case I think it's clear that the use of the term "participant" means that anyone eligible in the past 4 years would be included, regardless of how you interpret the word "participates" in the regs.

You didn't say why he is unable to benefit in the CB plan, but I'm assuming the younger HCE was hired in the second half of 2016, since he would have had to have 2016 income >$120k in order to be HCE for 2017, and with 1 year of service plus Jan 1/July 1 entry dates he wouldn't be eligible for the CB plan until 2018. If this is the case, then for 2017 you can disaggregate him as otherwise excludable. Assuming he is the only employee who is otherwise excludable, then you have separate coverage and nondiscrimination tests covering just him, and you can do pretty much whatever you want. If this is not the case, for example the CB plan just excludes non-owner HCEs as a class, then you could try to restructure the aggregated test into component plans. Have one component with the partners and the younger NHCEs, and test on accrual rates. Have another component with the younger HCE and the older NHCE and test on allocation rates. This should let you get the younger HCE an amount on the DC side equal to at least the minimum gateway rate for the NHCEs, plus a little bit based on their equivalent accruals in the CB plan.

It wasn't my intention to take the discussion off the rails. My point was just that another paragraph of 416 clearly uses the term "participant" to include "person who is eligible regardless of whether they choose to defer" so it seems like a stretch to claim that the same term could mean something else in the same section of code.

416(c)(2)(A) states that every "participant" who is a non-key employee must receive a minimum contribution. I think the consensus (although I don't have a cite handy) is that in a 401(k) plan, non-key employees who satisfied the plan's minimum age and service requirements as of the end of the plan year, e.g. the 410 definition of participant, are entitled to the top heavy minimum as long as they are still employed at the end of the year, regardless of whether they contributed any elective deferrals. It seems reasonable to assume that the same definition of "participant" applies in 416(g) as in 416(c).

Mike is correct of course, but I will just add that the required aggregation group consists of all plans in which a key employee participated during the determination year or the previous four plan years - see 1.416-1 T-6. So if you exclude the key employees from the 401(k) starting in 2019, the first year that it would not have to be included in the top heavy aggregation group would be 2024.

Compliance with top heavy rules is a qualification requirement. It should be corrected under EPCRS.

"Middle click" - i.e., push in the scroll wheel - is a shortcut for open in new tab. I agree this is the best way to browse multiple threads without losing your place in the search results.