rr_sphr

https://retirementlc.com/sham-termination-of-employment-and-distributions/ Might depend on the circumstances of the termination and rehire....

Agree that there are very simple solutions for payroll issues and that there is no such thing as a "1099 employee".....ESOP guy is 100% correct!

another reason why i am not fond of my TPA......I 1000% trust Mercer! I can't even get my TPA to give any thought or training to their own employees!

I don't have a link, but when I asked this of our TPA, I was told the sources were still an employer choice but including earnings was not. We only allow hardship and loans from employee deferrals. I did just find it here: https://www.mercer.com/our-thinking/law-and-policy-group/irs-finalizes-hardship-distribution-rules.html from Mercer (who I strongly trust!) Expanded Sources of Hardship Distributions (QNECs and QMACs) Hardship distributions can now be made from elective contributions, qualified nonelective contributions (QNECs), qualified matching contributions (QMACs) and earnings on these amounts. The preamble confirms that this includes QNECs and QMACs in safe harbor plans — both traditional safe harbor plans and qualified automatic contribution arrangements (QACAs). A plan may limit the types of contributions available for hardship distributions — plans that don’t already offer distributions from all these sources needn’t be amended to do so.

back in the dinosaur days (before there was prior year ability if I remember correctly), we did estimated comp/deferrals and ran a nondiscrimination test several times each year for some clients to minimize refunds or max deferrals for HCEs. And yes, we used some information from the prior year to help with those estimates. I agree with failing by the smallest amounts possible. And we did this for clients with 1000s of employees.....

Interesting rabbit hole!!! I know what they are, but generally FSAs aren't allowed to be pay insurance premiums..see: https://www.healthcare.gov/have-job-based-coverage/flexible-spending-accounts/. "You can spend FSA funds to pay deductibles and copayments, but not for insurance premiums." The argument seems to be these aren't insurance premiums but rather contributions to a charity that then pays out for medical needs of its members. That said, are they really even medical expenses if not premiums? Since there is no guarantee that claims will be paid and they aren't for a specific medical service/equipment or drugs, I'm thinking no the premium would not be eligible under FSA. IF there is a copay or deductible for medical care later, then those would be eligible.... But my rabbit hole couldn't come up with a definitive answer directly.

I'm curious as to when the deferral election will be made and if it can be revoked between now and the year the deferral starts. Now or just before the plan year starts? Wonder if that would make a difference in your question. If they are electing at the end of 2024, I have to agree with you that it wouldn't seem 2025 has a significant risk....

thanks!!!

Interesting(I'm a plan sponsor, not a TPA or recordkeeper) ....I went back and looked at our last hardship only to find NO withholding was taken - either 20% or 10%. Then I looked at the hardship distribution form and it doesn't mention anything about tax consequences at all, nor does it allow the participant to request that any money be withheld. Nor did the participant fill out any form to NOT withhold. Is this something I should be concerned about if our plan is not withholding anything on hardships without any direction from the participant? My usual google prowess is giving me blanks for searching any type of mandatory withholding on hardships or what default should be. Some places I am reading 20% and others it just says "income tax will be owed" type statements. Just an aside, my link I found above uses the words "taxable distribution" not "rollover eligible distribution".....Totally agree it's 20% on the eligible rollover ones, but have yet to find a definitive on the hardship that isn't eligible for rollover. It's just concerning me that my TPA/recordkeeper now hasn't withheld anything if 10% is the default.

are you asking about withholding or the 10% early withdrawal penalty tax? I am not finding anything that allows an "out" of the 20% mandatory federal wh tax? https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-general-distribution-rules Would you mind posting where you are finding anything that lets an employee opt out of the 20% automatic withholding? I've not seen it or heard of it on hardships unless it's part of the new law changes at 1/1/20

Assuming the OP also needs either FMLA protected time or ADA reasonable accommodation, both of these are also going to require medical documentation of those needs to HR. In the end, hopefully OP can get a medical bill that doesn't state the issue, but generally medical bills do have the rehab/outpatient name on them. I do know in our small employer setup, I as HR have to be the one to review hardships, but can't imagine holding this against you any more than any other issue that is a hardship. I've seen plenty over the years! I don't really see a way around providing documentation of the need.

gotcha....thanks!!! I so appreciate y'alls help. It makes sense they way you have explained it. And good to know moving forward!

We are a not-for-profit that is the plan sponsor of a 401k plan that has a 6 month elapsed time eligibility period . A temp employee has had the following service : worked 3/11/19-5/31/19 or 2.67 months, break in service was 2.56 months, and then worked 8/19/19-9/6/19 or .59 months. (no 1 year break in service) The next break in service will be around 1-1.5 months if she is rehired in the next week or so. If service is 6 months from original hire since her breaks were so small, she is pretty much immediately eligible. If not, she would need to earn 2.75 more months of time to be eligible. It makes a difference for costs for funding/grants/etc. I hate counting pennies, but we must! And honestly I'd like to get it right going in rather than a correction at year end! Our plan document has a section that states "Rehired Eligible Employee who had not satisfied eligibility : If any Eligible Employee who had not satisfied the Plan's eligibility requirements is rehired after severance from employment, then such Eligible Employee shall become a Participant in the Plan in accordance with the eligibility requirements set forth in the AA and the Plan. However, in applying any shift in an eligibility computation period, the Eligible Employee is not treated as a new hire unless prior service is disregarded in accordance with" (rule of parity, 5 one year breaks or one year old out rule)." My TPA contact is out of the office through Monday. And their backup told me they couldn't give me an answer and were unwilling to look it up or research it for me (yes, another reason to find a new TPA!) Anyone want to offer their advice/opinion?

false...we have Colonial and only the interested employees set up an appointment and some of the choices fall under our 125 plan.

nothing in the OP suggested they were going to deplete their 401k account, just that they were using some of it for a hardship. I did this year's ago (first house..now on 4th LOL) to get part of a down payment. In the end, I agree that it's not always the best idea to pull retirement funds but some can depend on age, financial situation, etc. That 10% penalty did stink though (but we were in a much lower tax bracket back then...if I pulled out money now, even without the 10% penalty, my taxes would be at least 10% more than they were then)!

already there with you...we all have these kinds of days!

Argh...this is their HR professional? She should know better and the fact that she doesn't is an issue too!

agree that it depends on whether the sponsor has chosen to amend their plan. We also do not plan to allow it.

does that 1 year late push them beyond the 5 year boundary? I've had discussions with my TPA about best loan practices and that is to shorten the max length so that leaves and other periods give some timing grace. I don't have a cite for it though. Does your plan allow for re-financing or more than one loan (where you pay off one with the new one)? If it's been a year, the employee should have noticed no loan repayments coming from their check and yes, either HR or payroll should have done some reconciling throughout the year to catch this MUCH sooner (we review loan repayments every payroll period and then quarterly payroll deductions against the recordkeeping system) -- but I say this as a benefits AND payroll person who is now an HR manager.

Please stop back in every once in a while and let us know how retirement is going! You will be missed (even though I am mostly just a lurker, I've learned a whole lot from you and others)!

do those missed months cause the original amortization schedule to go over the 5 year boundary (or the longer purchase of a primary residence/mortgage boundary)? Does the employee have the ability to double up payments to make up for the lost ones? There are some solutions here, but it's going to depend on how long and how much....

Going to brainstorm a bit.... how are they paying them? Through a PTO plan or just regular wages? This is one of the downsides of the new trendy "unlimited PTO" and interaction with FMLA (https://www.hrdive.com/news/the-perks-and-pitfalls-of-unlimited-pto/549085/). I am not an attorney, but I could see it argued that it is retaliation for taking continuous FMLA and could see employees trying to work the system where they work 1 day a week to not be on continuous but still get full pay and full FMLA protected leave, just as one example. But I am not a fan of the unlimited PTO due to interaction with other laws (FMLA, ADA, etc) As they say "fences make good neighbors" and to me a PTO boundary makes for a good employee/employer relationship. Another possible bad interaction could be with someone on medical intermittent (say migraines) vs a pregnancy. PDA requires that you treat the pregnancy like other medical conditions. If you are giving virtually unlimited (480 hours per year) intermittent time and paying up to 480 hours a year, just not in a solid continuous block, is that really consistent and nondiscriminatory? How long does intermittent have to go to become continuous? Can o' worms Also I could see this being related to ADA also if a reasonable accommodation was intermittent timeoff vs a block.

I am not sure what you mean by "owed back". In the end the STD 3rd party provider should be sending payroll/the employer the taxable wages (since the premiums were withheld pretax) and the employer/payroll should be paying FICA on those amounts. To make this NOT required, the STD premiums would need to be deducted after-taxes such that the benefit is not-taxable when used. Here's just one process from one insurance company: http://per.lacity.org/Bens/Taxation%204450_2.pdf

we got slapped on the hand by the IRS during audit from 2015's plan year (audit done in 2019) -- luckily we did use most up by 2018 but the IRS was "unhappy" that they were held so long and that they should have been used or reallocated much sooner.

agree with the others that all plans i've ever seen or worked on use pay date, not earned dates. And I'm old enough to have worked on both balance forward and dailies!