Lucky32

Thank you for your response, Paul. The ADP test passes because a good number of HCEs have catch-up contributions.

It sure sounds like the HCE HPI would have an advantage being the only participant with an SDA.

Although an employer makes matching contributions during the plan year pursuant to the plan document's formula, they only contribute half of the prescribed amount to the HCEs because the plan usually fails the ACP test and it's how the employer attempts to prevent refunds of the HCEs' match. The ACP test, though, still usually fails, even with such small allocations to the HCEs. Historically, they have corrected the failed test by making refunds just based on the small HCE matches. However, the new TPA is suggesting that the correction method must be based on the HCEs receiving enough additional matching allocations to satisfy the plan's formula before calculating the appropriate refunds. I know it's always a good idea to follow the provisions of the doc, but because this seems somewhat counterintuitive and perhaps may yield different results, I just wanted to double check that what the TPA is saying is the correct way to handle the failed test. What do you all think?

See what I mean? Just kidding, Peter - that's good stuff - thank you.

I can't tell you how many times I've had people (including some investment reps who peddle the things!) say "It's not a 401k plan, it's a solo-K". And then there's the people who refer to PS or 401k plans as pension plans.

If CODA provisions are added at this time to a large profit sharing plan that was originally effective in 2021, does it have to be an EACA or is it exempt from this requirement because the plan was initially effective prior to 2022? Thanks in advance for any assistance.

Yes, I think the ASPPA Q&A is about as close as anything that can be found in writing about our situation, so it looks like we'll have to tread lightly due to the differing details. Thank you Austin and all other respondents for the finer points of this discussion.

Hopefully you have a copy of the promissory note/loan agreement, which should spell out the terms of a default. The IRS would then be owed a 1099 for the year in which the default occurred. As it was the participant who took the loan, I would expect their estate would be liable for the resulting tax liability for the year in which the loan defaulted, rather than it being an issue for the beneficiary. Plan docs don't usually go into a lot of detail about how to handle such a situation, but the doc should still be reviewed just in case.

Anyone?

The reason for considering the amendment is not to minimize the contribution or maximize the owner's share, but it's because the testing passes only if a recent hire, who is very inexperienced and low paid, gets a disproportionately large allocation - much more than what their long-term core employees would receive. Understandably, this does not sit well with the owners, as it's a fairness issue (yes, I know, regs can be anything but) and potentially a huge PR problem if the participants find out. The amendment would allow a part-timer to get a PS alloc who wouldn't have gotten any PS alloc otherwise, while the full-timer mentioned in my original post would then get a more modest alloc. It looks like it comes down to how we interpret 401(b)(3)A re 'benefits accrued'. The test, like most tests, can pass via several different ways by allocating unreasonable amounts to various participants - which scenario would be considered 'accrued'? At least there's still time for such an amendment to be made (business filing deadline is 10/15), but I can't say I'm clear on whether it would meet that portion of the reg. One participant gets an increased alloc for 2024, as will all future participants w/<1,000 hrs. One participant would get a more modest alloc, but is this is enough to cause 401(B)(3)A to shoot down the validity of the amendment? If one can say a benefit isn't formally accrued until the Er indicates how the contribution is to be allocated in writing, I would be tempted to say the amendment can be legally done. Does anyone agree?

A small top-heavy calendar-year profit sharing plan has a 1,000 hour requirement for allocations. It has a new comp allocation method, with each participant as their own rate group. There's an NHCE participant who went from full-time in 2023 to <500 hours in 2024 and worked through the end of the year, so she will get the TH min and I believe also the gateway contribution (as the HCEs are getting hefty allocations), but does not qualify for a PS allocation. The new comp testing would work out a lot better if she did get a PS allocation - is it permissible to retroactively amend the plan for 2024 now to eliminate the hours requirement so that she can get a 2024 PS allocation? No HCEs would benefit from this change.

I always considered a promissory note to be a document that clearly spells out a participant's legal obligation to the plan when borrowing, the parameters of the loan (interest rate, repayment frequency, duration, etc.), and the consequences of what happens when repayments aren't done in a timely manner (as well as how and when a default occurs). So it would seem to be a necessity IMO.

Thanks guys, really appreciate the help.

I was reading an article in today's newsletter about the topic and came across something that I wanted to double check. In not so many words, it said that if a 401(k) plan offers a life annuity distribution option, a married participant must obtain spousal consent for that type of payout. Is this everyone's understanding? If this is the case, I imagine amending the plan to remove this option would be a BRF violation.

Just to be clear regarding the Sched C income that the deduction would be limited to - we're referring to the income resulting from that circular calculation (i.e., after the net Sched C income is reduced by the contribution and the 50% SE tax), and not the actual net Sched C income reported on the Sched C, right?