Rose

We have a client that maintains 2 plans with us, one of which uses safe harbor match and the other that does not use a safe harbor contribution. They became a control group 2 years ago and we have relied on the transition rule to avoid coverage but that is expiring. What happens if the plans will not pass coverage to be able to be tested alone and technically need to be tested together? I know you are not able to aggregate plans for testing when one is safe harbor and one is not. At this point, they do not want to change the plan design of either plan so we are trying to figure out how to fix this if coverage fails.

We have a client that is an LLC taxed as a partnership that also issues a Form W-2 to the partners. This year the partner's have large losses on the K-1 box 14a. We would normally add the W-2 income and the K-1 income together for plan compensation (after the appropriate SE tax calculation when K-1 is positive) but someone in our office thought they remembered reading that the negative K-1 income could be disregarded and only the W-2 income used. Does that sound familiar? I do not remember reading anything about that so wanted to see if anyone else was familiar with it. The negative K-1 amounts are slightly less than the W-2 income so the partners will have a small amount of income for the year.

We have a client that is an LLC filing as a partnership but the K-1s are completed differently than I have seen before. There is nothing reported in Box 14 even though the net income for the company for the year was over $1 million. Both partners received guaranteed income for the year of $120,000. One partner is a limited partner and the other a general partner. We asked the CPA why there was nothing in Box 14 and he indicated that per the IRS rules, if a reasonable guaranteed payment for services is paid to each member, the earnings of the LLC reported in Box 1 of the K-1 would not be subject to SE tax. They believe that the $120,000 is a reasonable amount and each member did pay SE taxes on that amount. Since guaranteed payments are not normally considered in the self-employment compensation calculation and there is nothing in Box 4, it seems that their plan compensation would be zero. They did defer and wanted to put in a profit sharing contribution for themselves but I think the deferrals will have to be returned. Does this sound correct? Has anyone had this situation?

A plan failed the ADP test for the 2020 plan year and a refund was properly issued to the HCE by 12/31/2021. When preparing the 2021 testing, the client discovered some of the compensation reported for 2020 was incorrect. The 2020 ADP test was re-run with the correct compensation and the HCE is now due an additional $184.00. Since we are past the 12 month correction period, will the refund fall under EPCRS and a one-to-one correction required?

We have a smaller plan where the owners (only HCEs in the plan) decided not to put in the regular match for themselves but did fund for all of the NHCEs. Per the plan document, everyone is eligible for the match and the formula is discretionary each year. Since the plan document does not specifically exclude the HCEs from the match, aren't they required to receive it even though they are HCEs?

We have a plan that was established 1/1/2020. It allows prevailing wage and profit sharing contributions as of 1/1 but the effective date of the deferral provision is 4/1/2020. Should the compensation used for the ADP test be for the time period the deferral was effective, so 4/1 - 12/31/2020? We normally use prevailing wage as a QNEC in the ADP test so it seemed like we would need to use full year compensation if we used the QNEC.

We have a plan with a plan year of 4/1/2019 - 3/31/2020. One HCE exceeded the 402(g) limit for 2019 and we processed a refund for him (he is not catchup eligible yet). In a calendar year plan, the excess for the HCE would be included in the ADP test since it is the year of deferral. What happens with the off-calendar year plans? Do you just ignore the excess for ADP testing since the testing is for the plan year ending in 2020 and not the year of deferral (2019)?

We have a plan that has a discretionary match formula in the document. This year they did something unusual that I have not seen before and I am trying to figure out if I really need to do a BRF test for it. The annual match is based on the average weekly deferral contribution of the participant. Average deferrals of between $1 - $100, annual match is $200; between $101 - $100, annual match is $350; between $200 - $299, annual match is $550; over $300, annual match is $800. The plan does pass the ACP test but the only employees with the $800 match are the HCEs. It isn't a lot of money and looking at the percentages of compensation it benefits the NHCEs more but having only the HCEs with the $800 may not look right. Are the results of the ACP test enough to just move on and not look any further at the way the match was done?