NW529
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We have a catch-up eligible employee who is participating in two "plans" adopted by unrelated employers. The employers are part of the same MEP, but tested separately. If the participant is due an ADP test refund in both plans, can we use up to $6,500 catch up to offset in each plan? I believe the regs allow catch up offset exceeding $6,500 across unrelated employers in SEPs, but we are wondering if the same rules apply to an MEP.
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One-to-One Correction with QNEC allocation of more than 5%
NW529 replied to NW529's topic in 401(k) Plans
Thanks for the reference, @Bri! Mainly, I am wondering if it is permissible to allocate more than 5% to some NHCEs and 0% to the former employees? Based on 19-19, the only allocation restriction is that eligible employees (excluding former employees) receive a uniform allocation, which they do. My initial thought is that this allocation is allowed, but additional feedback is appreciated! -
We have a failed 2015 ADP test that was not corrected timely. We are now correcting under ECPRS using the one-to-one correction method. Our intention is to allocate the QNEC to employees who were NHCEs in the year of the failure and are also NHCEs in year of the correction. If allocated this way, three NHCEs would receive a QNEC allocation of greater than 5%, while three would not receive a QNEC at all (they are no longer employed). Is this allocation permissible using the one-to-one correction? Any insight is appreciated! Thanks
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A plan is effective for the first time on 8/1/2020. When determining Key status for Officers and greater than 1% owners for the initial plan year, what compensation is used? 1/1/2020 - 12/31/2020, or 8/1/2020 - 12/31/2020?
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A plan is effective for the first time 1/1/2020 and is not Safe Harbor. The owner is over 50 and contributes $4,000. There are no other employees contributing and her ADP refund will be recharacterized as catch-up. For the 12/31/2020 Top Heavy test, is her balance excluded from the ratio because it is characterized as catch-up? Is the plan considered Not Top Heavy at 0% for 12/31/2020 (2020 and 2021 plan years)? Any guidance is appreciated! Thanks!
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@BG5150 Thank you! We're also looking for some guidance on correcting a 415 failure for a prorated short year. The plan is terminating mid-December 2020. They have 100% of 90% match, but are not matching catch-up. They also made a 2020 Profit Share. Several employees have an excess 415. They are catch up eligible and contributed the catch-up. When following the correction steps, is the catch-up classified as "unmatched deferrals" and refunded first to cover the excess? Or, is the catch-up excluded and the regular deferrals are refunded and corresponding match forfeited?
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A participant is catch-up eligible and 415 compensation is $16,500. The participant deferred $8,750 and received a match of $8,750. Does the 415 test pass because $1,000 is re-characterized as catch-up?
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We have a client who would like to allocate a Top Heavy contribution to both Key and Non-Key employees. The language in the document regarding Top Heavy allocations is as follows: Each Non-Key Employee who is a Participant, or was eligible to be a participant in the plan year, and is employed by the Employer on the last day of the Plan Year will receive a top-heavy minimum allocation for that Plan Year, irrespective of whether he or she satisfies the Hours of Service condition under the Employer's Adoption Agreement... Based on this language, is it permissible to allocate to Key employees? Any feedback is appreciated! Thank you
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A client is an adopting employer in an MEP. The employer is Top Heavy for 2020 and the keys are contributing. The employer is stating that they will be selling a business unit this year and terminating non-key and possibly key employees. How does this impact the 2020 Top Heavy minimum? Are those employees simply deemed as terminated prior to the end of the year and not allocated the Top Heavy minimum? Or, would the minimum be calculated on compensation until the sale for those employees? Any feedback is appreciated. Thank you.
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Hi @C. B. Zeller, would it make a difference if it was 2 plans tested together? Even if it was 2 plans tested together, they are still considered "one employer" and you would still be reducing the number of employees eligible to receive the Safe Harbor contributions.
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One plan covering both entities
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A controlled group is made up of two entities and one of the entities would like to revoke Safe Harbor mid year. All the HCEs are in the entity that is revoking Safe Harbor. How would the 2020 Coverage Test be performed for the 401(m) portion? Are all the NHCEs considered as benefitting due to the Safe Harbor for the partial year? Any feedback is appreciated!
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We have a company that is owned by several trusts at 20% ownership each. Each individual is the primary beneficiary of their respective trust, so they are considered 20% owners of the company. However, are the children of the beneficiary of the trust also attributed 20% ownership of the company? This scenario has come up due to key employee determination for Top Heavy. My initial instinct says yes, but I would appreciate any feedback and/or reg citations. Thank you!
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An employer is Top Heavy in it's initial plan year. If the plan makes a discretionary match to NHCEs, is this employer contribution included in the Top heavy ratio for the first year? Or does it have to specifically be a non-elective contribution as specified in the plan document? Any feedback would be greatly appreciated. Thank you.
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@Belgarath - Yes, the contributions in question are elective deferrals. @Tom Poje - The plan is not Top Heavy for 2019, so I think we are okay. Thank you both for your help!