Planit 401k

Hi Tom--- I am challenged with the current 3% ACA level for this type of plan. The advisor/sponsor hasn't found their path to having a good conversation to have with new eligible employees. Moving to 6% or even 10% ACA are both available once good communication is established. I'd strongly suggest doing an in-plan re-enrollment for all employees targetinga 6% or 10% ACA as the best course of action to both reduce the HCE's issues and also improve the general retirement savings of the entire group. It is increadibly easy to say to the entire group...."ABC Company is excited to again focus all employees on your 401k savings. Following retirement industry guidance, we have re-set all salary defferal amounts to 10% and as part of this initiative, we want to help each of you personlize your amount to your preferred level. Here are instructions to personalize your deferral as well as additional information". Focus on how extremely simple it is for any employee who doesn't want the 6% or 10% to make a quick, simple change to whatever deferral amount they prefer---It takes only 3 minutes to personalize this "default" salary deferral amount and this is a one-time adjustment. Focus on the process of building better results for employees inlcuding a very simple and clear pathway for them to personalize that amount. Then the actual ACA number becomes irrelavant due to the focus on them personlizing whatever number you pick..6%, 10% etc..... Two thougths here---One is that this is very doable. Two is that I am not aware of other effective means of quickly moving the testing needle. ER contributions always can help, but that is dumping 3% to 6% of ABC company payroll to the problem prior to trying the "free" reenrollment. If the answer is more and better employee guidance/education, then combine that guidance/education with the 6% or 10% re-enroll to be effective. Due to Secure 2.0 requirements targeting 10% deferral, as an industry we are about to find out 10% is a good starting point (as long as we combine that with clear and effective information). And that's my .02 cents....

Hi, Please provide your thoughts on how to answer question 6A of form 8881 to determine the Startup Credits. Specifically: Line A seems relatively straighforward. Quote from the IRS Form 8881 instructions: "Enter the number of employees of the eligible employer who received at least $5,000 of compensation from you during the tax year preceding the first credit year that applies to the small employer plan startup costs credit". This clearly includes terminated employees and employees earning over $100,000. However I am confusd by the IRS Form 8881 line 6A instructions: "Enter the number of your employees during the tax year preceding the tax year for which the credit is claimed". With respect to 6A: How do you count "number of your employees"? When looking at an annual census, do you only count people employed on 12/31? Or do you add the total of all employees throughout the year including terminated and employees who never met eligiblity/entry (assume fairly high turnover so many more were employed than the company normaly "employes". Do you count employees with less than $5,000 in that years earnings? Do you count employees earning over $100,000? Thank you for this and any additional guidance. Keith IRS 401k Tax Credits Form 8881.pdf

Thank you for your ideas and comments above!!!

A sponsor and a job applicant were 99% sure the applicant would become an employee of the sponsor. While final negotiations was taking some time, the applicant rolled in money from a prior company to this sponsor's 401k plan, this sponsor signed approval of the roll-in, and the roll-in was completed, and an account holding assets was created for a non-employee roll-in to this plan. Then the negotiations fell apart without the applicant ever becoming an employee (though in this case, the applicant may still become an employee in the next 6-12 months). I've no background on this to even know where to begin asking questions, but here goes....... Is this a violation of ERISA type rules? Is it an automatic violation of plan document design? What type of penalties exist? Must the plan disgorge the assets back to "never-employee" immediately? Does the "never employee" now have rights as a current plan participant? Can they just treat this "never-employee" account balance as a terminated employee? Does it have any impact on testing? Would it impact the count for plan audit status? Any thoughts on how to address this are appreciated. Thank you. Keith

Bird- I had seen it, but I forgot to remember the original posters situation was a Money Purchase. Thank you for the correction. Purple-- You are correct, I was referencing a 401k to 401k (not including your MPPP situation) and thank you for the information.

I'll ask on this post as the OP may also be interested in this.... FAB 2014-01 indicates for nonresponsive participants the IRA distribution is the "preferred" method and states two "Alternative methods" (Federally insured bank or State Unclaimed Property). It also seems(to me) to provide a bit of latitude in language of "FAB 2014-01-- If a plan fiduciary cannot find an individual retirement plan provider to accept a direct rollover distribution for a missing participant or determines not to make a rollover distribution for some other compelling reason based on the particular facts and circumstances" (italics are mine). I'm involved in a plan termination with 20 participants who are becoming employees at the acquiring company and 5 participants (former employees) not becoming employees at the new company. As a method of "mass transfer" for those who do not timely respond to the normal and appropriate plan term distribution paperwork process (non-responsive), can the trustee default direct rollover the 20 to the acquiring company plan and the remaining 5 to outside rollover IRA's? This could simplify the transfer request workflow for most of the 20 who just want to rollover to the acquiring company's 401k plan. As the terminating plan advisor(who is not chasing the IRA assets nor benefitting from the plan to plan transfer option), I can see this as an equal or better option (and certainly not worse) than transferring to a default IRA. The acquiring company plan also allows "in-service distribution of rollover assets". Is a trustee deciding to default nonresponsive participants to the acquiring company's plan based on simplicity of transfer and very low plan cost in the new plan "compelling" based on the particular facts and circumstances? How much of a "gray area subject to scrutiny" is this? Thank you in advance for your thoughts.

I understand and agree with the keep 'em out approach from a simplicity/administration approach and from an ease of use and expense savings to Plan Sponsor viewpoint (and especially from the top-heavy standpoint). I look to see how much that simplicity costs potential participants in the form of lost contribution opportunities. How many investing years is a person in their 20's unable to contribute to a plan based on job changes and 1 year+ entry wait periods? I can easily see someone in their 20's loosing 5 out of 10 years of contribution opportunities. This can help keep overall participant balances low and inefficient from pricing efficiency standpoints (I may be stretching a bit with this comment). I also wonder for the majority of employers how many employees leave a job within the first 12 months avoiding a small plan balance vs. leaving a job within the second 12 months creating the small plan balance issue?

I'd say a majority of plans are needlessly restrictive when it comes to limiting employee entry into the 401k plan. I always start with the idea of nearly immediate entry and then see if concerns (like those mentioned above) would guide to more restrictive entry. I promote to plan sponsors that long wait times are very damaging to employees ability to save for retirement using qualified plans and unless actual plan specific reasons exist to limit (like those already mentioned) then it is generally easier and better for the employer to have quick entry. I remind them that entry and eligibility rules were put in place pre-computer systems.