#toomanyrules

If this is an asset sale, I wouldn't generally advise the Buyer to acquire the Plan. In my experience, the Buyer in an asset sale isn't interested in acquiring the Seller's plan (or portion of the Seller's Plan) anyway because the Buyer would assume all liabilities of the Plan (even liabilities incurred prior to the sale). I think the simplest solution is to amend the Buyer's Plan to allow the newly acquired employees to either become eligible as of a certain date (for example, a a date shortly after the sale date), or at the very least permit rollovers prior to participation. You could also choose to credit service with the Seller's Plan, after which crediting, many of the acquired employees may then satisfy the Buyer's eligibility requirements. And no, I do not believe the Seller's plan loses it's Safe Harbor status due to the asset sale, as a spin-off would be in connection with a merger or acquisition. However, if you were to decide to spin-off the Seller's assets and merge the plans, merging a Safe Harbor Plan (or a portion thereof) into a non-Safe Harbor Plan mid-year is questionable. There isn't any formal guidance on such mid-year mergers. If you merged the plans mid-year, conservatively, I would say at a minimum the portion of the plan spun-off loses its Safe Harbor status for 2024.

Thanks Austin and EBE. The test reads as follows. I'd appreciate any thoughts you have on when the participant vests and is therefore taxed. Given how the document is written, I am thinking legal counsel may be needed to decipher the document... Nonelective Contributions: Your interest in your Non-elective Contribution Account will vest based on your years of vesting service (defined below) in accordance with the following schedule: 0% vested until Normal Retirement Age. Special Forfeiture Rules: Notwithstanding the forgoing, you will forfeit 100% even if such portion of your account was fully vested upon the occurrence of the following events: Termination of employment prior to January 1, 2026.

Thanks, Carol. Basically when the SRF lapses, a participant becomes 100% vested, regardless of what any vesting schedule in the plan states. Similar to how a participant becomes fully vested upon reaching NRA in a qualified 401(k) plan. Do I have that right? This really clears up a lot for me - thanks!

I am trying to understand which event triggers taxation - vesting or when the SRF lapses. For instance, if the document states a participant is 0% vested until attainment of Normal Retirement Age (age 65 in the document) and also that the participant will forfeit 100% of the account if no longer employed on 1/1/2026, when is the participant taxed if the participant is age 52 as of 1/1/2026 and still employed as of 1/1/2026. On the one hand, I think he's taxed because the SRF lapsed on 1/1/2026; on the other, he isn't vested in the funds yet because he hasn't attained NRA (but he will no longer lose the right to the funds, since the SRF lapsed. He's merely got to wait until he reaches age 65). Note, I did not write this document.

Hi Duckthing - correct, that is what I was intending to say. If your document says you must bring people in, then you can't use ABT, even if ABT would have passed

Note if the TPA aggregated the plans for coverage, that they would also need to aggregate the plan for ADP/ACP.

My understanding is that you cannot aggregate for coverage because one is SH and the other non-SH; therefore, you cannot aggregate for ADP/ACP. You need to amend Company B and/or A to bring in more NHCEs into the Plan to pass coverage (which may necessitate bringing in Company A employees into Company B's Plan or Company B employees into A's Plan). These NHCEs would be due a QNEC. Also, note that coverage failures need to be corrected within 9 1/2 months of the plan year end. You could try passing coverage under the average benefits test (ABT), instead of the ratio test, if you haven't already. You need to check your plan document, though, to ensure you can use the ABT. I recall Darrin Watson stated that if you document uses a fail-safe to correct coverage, you are precluded from using the ABT.

When are 457(f) contributions actually payable? I know it depends on the document, but under the regulations, when can a 457(f) plan allow for distributions? Is it permissible to distribute upon full vesting, if the participant is still employed? I don't see anything in the regulations that allow actively employed participants to withdraw vested amounts, other than for unforeseeable emergencies, taxes, or attainment of age normal retirement age, or at a stated event. Would becoming fully vested be considered a "Stated Event"?

Depends on what the Plan Document states, but another option is forfeiting the account balance. However, if the lost participant (or their rightful beneficiary) ever resurfaces, the Plan Sponsor must restore the account balance (without earnings). Our document (ftwilliam.com) permits forfeiture of missing participant accounts after reasonable efforts to contact the Participant have failed.

An Adopting Employer left a PEO in 2021. For the 2021 Plan Year, there are 106 participants as on 1/1/2021. Does the Plan need a 5500 with audit for 2021, or can it file the 5500-SF under the 80/120 rule?

Yes, you can remove the Roth provision, as the ability to make Roth deferrals is not a protected benefit. However, if some participants were allowed to continue making Roth deferrals and others were not, then I agree we have a BRF issue. If the plan chooses to eliminate Roth, if the participant utilizing the Roth deferrals is eligible for in-service withdrawals, perhaps a happy medium would be to allow her to periodically take in-service withdrawals and rollover into a Roth IRA. I'm not a CPA and don't administrate IRAs, so I don't know if there is a limit on the amount you can rollover each year or how that would affect her taxes, but something she can consider with her CPA and financial advisors.

Will the client consider going unbundled? That would likely solve a lot of the issues they are experiencing. In regards to Guideline's advice - I don't see why it wouldn't be able to restate the current document, effective 1/1/2022. Then, they can amend as needed for 2023. This new hire wont be eligible until 2023, anyway, correct? Guideline is referring to the successor plan rules, which prohibit a Plan Sponsor from terminating a plan with deferrals or Safe Harbor funds and establishing a new Plan within 12 months of distribution. I don't see why the Plan needs to be terminated if it's a normal 401(k) Plan. Guideline can restate effective 1/1/22 and then amend to add Safe Harbor (or whatever they deem necessary) effective 1/1/2023.

Plan A is a Safe Harbor Match, calendar year-end Plan that provides for prevailing wage contributions and a cross-tested profit sharing contribution. Allocation conditions for profit sharing are last day and 1,000 hours. Document allows prevailing wage contributions to offset all Employer Contributions. I'm (somewhat) familiar with using Prevailing Wage contributions as QNEC in the ADP test. However, as the Plan is Safe Harbor, I don't need the prevailing wage to count as a QNEC for ADP testing. I am struggling with how to approach the Prevailing Wage contributions for cross-testing. Its my understanding these contribution are treated as Non-Elective Contributions for testing purposes. Thus, logically, I should include them for gateway and 401(a) cross-testing. This is a takeover plan and based on the 2020 Valuation Reports, I can see the prior TPA included the Prevailing Wage in gateway and 401(a). Is this the general consensus in how to test these prevailing wage contributions? If I were using the prevailing wage in ADP as a QNEC to help pass ADP testing, I think there would be some additional considerations/limitations in whether and how to use those prevailing wage contributions in cross-testing. But, since I am not doing so, is it as straight-forward as just adding them as if they were profit sharing contributions?

Thanks, John. Yes, I agree - at age 65 the participant can no longer make catch-up. I was leaning toward $0 catch-up available, but needed some reassurance!

Non-governmental 457(b) plan - participant becomes eligible in 2021 and is age 62. NRA is age 65. Since participant is within 3 years of NRA, the participant can make a catch-up contribution. Since there is no under-utilized amounts from prior years (given that the first year of participation is 2021), is the participant able to make catch-up contributions? Since the catch-up is the lesser of 2X the annual limit or the under-utilized amounts from prior years, what do we use as the under-utilized amount from prior years to determine the available catch-up?

Background: A non-profit operates a 457(f) plan for a select group of management. Only Non-Elective contributions are permitted. The plan uses a 5-year graded vested schedule and participants are fully vested at NRA (age 65). The Plan's substantial risk of forfeiture risk (SRF) such that participants who terminate for cause will forfeit 100% of their account balance, even if already fully vested. Plan allows payment upon the later of separation of service or attainment of NRA. Questions to clarify my understanding: 1. As I read the regs, a participant is taxed when the SRF lapses. In this case, then, a participant who may be 100% vested in his account is not taxed on that amount until he terminates employment in good standing (since the SRF doesn't lapse until he terminates). 2. If a participant terminates in good standing at age 65, the participant is taxed on their vested balance, since the SRF lapses. Based on the timing of the payment of benefits (later of separation of service or attainment of NRA), then, there really is no constructive receipt doctrine, in this example. 3. If a participant terminates in good standing at age 55, the participant is taxed on their vested balance, since the SRF lapses. But, the participant cannot commence payment until attainment of NRA (age 65). In this case, the participant is taxed, without actually having taken a distribution (constructive receipt doctrine). Am I missing anything?

Agreed, Excellent point - thank you!

Is the match discretionary? If so, unless your plan document has provisions that prevent you from doing so, you can cap the match for HCEs at the limit where ACP passes. Thus, no failed test and no refunds.

Non-governmental 457(b) plan permits make-up contributions within the 3 years prior to Normal Retirement Age (age 65). Participant is age 64 as of 12/31/2020 and his prior year contributions have been as follows: Contribution Annual Limit 2X Annual Limit Unused Limit 12/31/2013 10,000.00 17,500.00 35,000.00 7,500.00 12/31/2014 15,000.00 17,500.00 35,000.00 2,500.00 12/31/2015 17,000.00 18,000.00 36,000.00 1,000.00 12/31/2016 17,500.00 18,000.00 36,000.00 500.00 12/31/2017 19,000.00 18,000.00 36,000.00 (1,000.00) 12/31/2018 22,000.00 18,500.00 37,000.00 (3,500.00) 12/31/2019 24,000.00 19,000.00 38,000.00 (5,000.00) For 2020, the last year in which the participant is eligible for make-up contributions, is his max make-up contribution $2,000 (the sum of the unused limits)? Or, is it $11,500, the sum of unused limits from 2013 - 2016? Basically, do I reduce the $11,500 each year in which he made make-up contributions? I think so, but just looking for confirmation.

It's my understanding that discretionary employer contributions must be remitted no later than 30 days after the plan sponsor's tax return filing deadline. So, if we are past that date, it is too late to make the contribution. If it is a required employer contribution, then that is a different matter.

Yes, exactly, the treatment of the "Transferred Employees" is the issue.:) And yes, there are Key Employees who are included in the Transferred Employee group. It's my understanding the IRS hasn't issued clear guidance on how to treat mid-year transactions. From the Regs: §1.401(k)-5 Special rules for mergers, acquisitions and similar events. [Reserved]. ...and... From IRS Notice 2000-3: POTENTIAL APPROACHES FOR APPLYING VARIOUS QUALIFICATION REQUIREMENTS IN MERGERS, ACQUISITIONS, DISPOSITIONS, AND SIMILAR TRANSACTIONS Notice 2003-3 requested comments on proposed methods on how to approach testing, etc.. when business transactions occur mid-year.

Company A and Company B constitute a brother-sister controlled group. Co. A sponsors a calendar-year end 401(k) plan, which Co. B has adopted. In June 2019, a business transaction occurs and Co. A and B are no longer a control group, but there remains shared level of ownership (just not enough to be considered a single employer plan). Employees of Co. A are "shifted" to Co. B; thus, in 2019 some employees begin to have account balances attributable to Co. A and Co. B. As this is a takeover plan, I don't have ALL the details for 2019 (such as the Top Heavy Test results as of 12/31/19). I do know the plan was not top heavy as of 12/31/2018. I am working on the 12/31/2020 compliance testing and Form 5500. I am trying to back into the 12/31/19 top heavy account balances to determine if a top heavy minimum contribution is required. I know for a Multiple Employer Plan, Top Heavy, ADP,/ACP, coverage is calculated separately for each employer. I don't know how the testing was run in 2019, but my main concern is whether a 2020 TH minimum is required. For participants who were employed by Co. A and B in 2019, how do I treat their account balances for Top Heavy determination? Initially, I intended to split out the accounts such that each affected participant has two accounts - one from Co A and one from Co B. as of June 2019 (and pro-rate earnings after June 2019). But, then I started thinking, since they were controlled for part of the year, can I split out the accounts as of 1/1/2020 for top heavy testing? I don't believe there is any formal guidance from IRS on this issue - its just any "reasonable" approach. Thoughts/opinions? Thank you!