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  1. A non-governmental 457(b) Adoption Agreement defines compensation as "Base Salary". A participant elected to have 5% of pay deducted and contributed to the plan in 2021. The plan sponsor paid a "COVID-19 Bonus" in 2021, withheld 5% from that bonus, and contributed it to the 457(b) Plan. The participant is fine with the 5% withholding so would a plan amendment to the definition of compensation to include bonuses suffice? Neither the plan sponsor nor the participant is interested in finding a way to remove the funds from the account that has been established. We're only talking about a $100 contribution so nobody wants to spend too much time on it, but I want them to do whatever is needed and to do it properly.
  2. Plan excludes bonus from compensation and there are post entry compensation for two participants (as per plan document). How should I determine total 404 (25% Deduction Limit) compensation for any plan year? excluding bonus & post entry compensation or only consider gross compensation Thanks in advance.
  3. Good afternoon to all, I have been asked to get your input on the following question: "Can a " 3508 direct seller" person participate in a 401(k) Plan? They are paid by way of a 1099 rather than W-2 and are recognized as "Employees" for some benefit purposes. We do not have experience with this type of "employee". If the plan defines compensation as W-2 income then they have no compensation to defer from. Maybe they make Roth deferrals or Voluntary Employee Contributions? Any thoughts or comments are appreciated." The questions is being raised on behalf of a plan sponsor who DOES wish to cover such persons if a way can be found to do so. Thank you as always.
  4. Good afternoon to all, I have been asked to research a question presented by a referral source. I do not have any more information that what is presented below: "I have a client who was a W2 employee January - September of this year. His employer did not have a 401(k) plan and he made no contributions to other plans. As of October 1, he changed his status to 1099 contractor for the same company. When he changed his status it triggered deferred compensation, a lump sum of $400,000 which he will receive at the end of this year. For October - end of the year, he will receive approximately $60,000 of 1099 income from the new consulting business. Both the owner and the spouse are over 50 years old. He wants to max out his Owner K to help defer some of this very large tax bill. Can he use some of the deferred comp? Or can only the 1099 income go into the Owner K? Same question for the wife. It was previously stated that she could receive a contribution, but is her limit subject to the 1099 income, or can the deferred comp dollars count?" This is not my area of expertise and while I have a general notion that deferred compensation is not able to be used in retirement plan contribution calculations, someone out there may know of exceptions to this. Any help will be appreciated.
  5. For a plan that chooses to pay in the Safe Harbor 3% Non-Elective contribution on a payroll basis, are they required to "calculate" the contribution based on annual compensation and thus need to do a "true-up" each year? I seem to be finding evidence that for the Safe Harbor Matching contribution you can choose to calculate and deposit it based on a payroll basis (as long as it's chosen/defined in the plan document). I've read the Treas. Reg. 1.401(k)-3(c)(5)(ii). I would like to confirm that for the Safe Harbor 3% Non-Elective Contribution the IRS currently does not allow an employer to calculate it on a per payroll basis? Thanks for your help!
  6. We have a client for whom we are doing a self-correction. Salary deferrals were not deducted from bonus wages per terms of the Plan plus the applicable matching contributions. However, an HCE doesn't want to be part of the correction - wants to waive any funds he is otherwise due under the correction measure. The question is (1) can we allow this ....have him sign a waiver? and (2) would this put the Plan in a worse position upon audit for not correcting the failure in full and in accordance with IRS Guidelines. Is there even a waiver option discussed in the IRS guidelines on correction? Any thoughts are welcome.
  7. Good morning to all, Today we are working on the 401(k) plan of a sole proprietor who passed away in 2018. When the CPA sent the Schedule C, she made the comment that this is the Schedule C of the owner while she was alive, and that if I needed the Schedule C that is being filed with the estate, let her know and she will provide me with a copy. I wouldn't have even known that these are two different things, if the CPA hadn't brought it up, and while my first inclination tells me that the Schedule C while the owner was alive is the one I need, I don't know that for a fact. Does anyone else have any experience with this? Which of the two should I be using for 2018? Thanks in advance, as always.
  8. Money purchase plan has single entry date. If someone meets eligibility during the year, they become eligible as of the beginning of the plan year. Plan sponsor uses a temp agency to "test drive" workers. If they like a worker, they hire them after 3 or 6 months. Once hired as a regular employee and no longer temp, So it is possible for a worker to meet eligibility during the plan year and have worked as a temp for part of that plan year. The question is how to calculate the contribution for a participant who was a temp worker for part of the year. Do you have to get the compensation paid by the temp agency for that period? Or do you just use the compensation paid by the plan sponsor from the date the worker became a regular employee?
  9. A plan sponsor provides pet insurance to it's employees as a benefit. The employer pays the premiums and the employees are taxed on them. Their plan excludes "Fringe Benefits" from the definition of plan compensation. Does anyone know if this "income" should be excluded form plan comp or included in plan comp?
  10. Does anyone know where I can find a guide to understanding what items are included in the different definitions of compensation (W-2, withholding, safe harbor, etc.) for S-Corp. shareholders?
  11. We have a client who owns two companies and both have employees including himself. One is a corporation; the other is a LLC. He has W-2 wages of about $190,000 from the corporation and over a million from the LLC. Both companies are adopting employers to the same retirement plan and all employees are covered for both entities. Question: In calculating the maximum benefit he can have for 2017, are we allowed to use both his W-2 wages plus enough K-1 income to get him up to the maximum we can take into account for the year of $270,000? Our gut reaction is "yes" but one of us has some doubts. We are grateful for any help!
  12. Self employed person with no employees has a 401k and a DB Plan. Sched C income minus 1/2 SE tax is $120k in 2017. Required minimum DB plan contribution is $200k for 2017. If the only retirement plan contribution he makes for 2017 is the $200k contribution to DB Plan, I understand he can deduct only $120k of it in 2017, and will have a carryover of $80k deduction, which he can deduct in future year(s) if he has sufficient compensation in future. Is he allowed to make elective deferral and catch up contributions to 401k plan in the amount of $24k for 2017? Is he allowed to deduction the $24k 401k contribution and $96k of the DB plan contribution in 2017, and carryover to future year(s) the undeducted $104k of the DB Plan contribution? Or is he just not allowed to make a 401k elective deferral and catch up contribution in 2017 because the DB Plan contribution used up all of his compensation? The question is: which plan contribution uses up compensation first, the 401k or the DB Plan? Is there a rule about this somewhere? Thanks.
  13. I have 2 companies that have a multiple employer plan. My question has to do with the compensation for the owner. I have an owner who owns 100% of Company A and 50% of Company B. This owner receives W2 compensation from both companies. I am wondering how I actually test the plan? Do I have this owner in both companies' separate testings and give them an allocation in both? (They want to do the max) Or am i allowed to aggregate the compensation and only have the owner in one company's testing? I am leaning toward the first way as I feel they do need to be tested under each employer, but I cannot find a definitive answer anywhere. I do know that the 415 limit is based on the compensation the owner receives from both employers.
  14. Is there a regulation that defines "base salary" for purposes of a 409A elective account balance plan? I typically use a definition in my plan docs that describes what is versus what is not considered base salary, but I'm working with a takeover plan where the doc does not define base salary. The client continues to have fluctuations in contribution amounts due to PTO donations. They have always considered PTO as part of base salary. Is there any 409A standard definition or some other basis for me to look to? Thanks.
  15. I hope to have an "easy answers" question, but I don't know.... Plan compensation is defined as W-2. Exclude fringe benefits. Auditors are picking apart the profit sharing calculation. In the employers words "When the Profit Sharing was calculated, the Wage base included pretax deductions, Flex Spending and Health Insurance. They(auditor)believe this is incorrect and those deductions should not be included for calculating the Profit Sharing". With w-2 compensation per the document, I would expect the wage base plus pretax deductions, Flex spending to be included. I have a question whether Health insurance deductions are included in compensation. 1. I always thought Flex or Section 125 deductions were to be added to W-2 compensation. Correct? 2. Are Health Insurance deductions added to W-2 compensation? Thanks
  16. Plan compensation is W-2 plus deferrals and excludes fringe. The Employer decided to do a profit sharing for 2016 and calculated the profit sharing on the gross compensation. Out of 300 employees, only maybe 60 "could" be affected as they had some other pretax items come from their pay. I would say most of the employees still received the correct profit sharing because the w-2 pay plus deferrals was the gross compensation. If anything the 60 get a little more than they should have.(Got* not get.) edited Auditor is bringing this scenario up as a topic of interest. The employer is looking to me to help ease the audit question. I don't find this to be that objectionable. Should I? Let me know your thoughts on this.
  17. Please confirm the compensation earned from all members of a controlled group of businesses is aggregated for purposes of allocation, coverage, ABT and General Testing. Facts: LLC (single member, taxed as S-Corp) sponsors a Safe Harbor 401k with Discret PS features. The LLC controls all plan provisions. There are several nonHCE covered by the Plan in addition to the "owner" C-Corp (owned by same person who is Member of LLC) adopted the LLC's Plan, follows the LLC's provisions as stipulated, is a "participating employer." Suppose for this question the LLC Member's elig compensation is $50,000 and his/her C-Corp is $100,000. Total earnings $150,000. Is compensation for purposes of SHM $150,000, irrespective of which source of income (LLC or Corp) it was deferred from, meaning if the 401k deferral is deferred from the LLC source, wouldnt you still determine the SHM on the aggregate of both compensation sources? In this instance, the SHM w b $6,000... Further if the Corp fails to contribute its proportionate share of the SHM, the LLC will (be forced to contribute it to satisfy the SH) and can deduct it? Is compensation for purposes of the PS allocation $150,000? Deducted by entity who contributes it, correct (Same as above)? Further if the Corp fails to contribute its proportionate share of the PS, the LLC will (be forced to do so) and can deduct it (subj to 25% limitation)? For purposes of the ABT and Rate Group testing, the aggregate compensation is used for the Accrual Rates, correct? For determination of HCE status, aggreg is used? Each entity tests based on its compensation for 25% deduction limitation? Thank you
  18. I have a take over plan that is a single member LLC that is taxed as a sole prop. The owner pays himself W2 wages in payroll throughout the year and then also files a Schedule C reporting his net income. For plan purposes, is his compensation W2 or Schedule C or a combination of both? Everything I have found states you cannot pay yourself W2 wages when you are a Schedule C filer, however this is how the CPA is doing it.
  19. If a plan's definition of compensation is simplified 415 and a new owners compensation is K1, does a change in compensation need to be made? If so, which one?
  20. Public employer calculated the mandatory pick-up contributions for one employee based on the wrong definition of compensation (definition varied based on date of hire, and when he was rehired, his rehire date was in record rather than his original date of hire). So contribution was smaller than it should have been for some period of time (since adjusted prospectively). Is anyone aware of guidance - or informal IRS statements - addressing this kind of situation and whether the employee needs to make up the contribution or whether the employer can simply absorb the cost for its error? The error was in no way the employee's fault.
  21. Plan A is a traditional DB plan with a Final Average Earnings (FAE) formula. It defines FAE as the average compensation for the 60 months of Employee's last 120 months before retirement that produce the highest average. Plan A counts post-severance payouts of accumulated vacation pay in FAE. Typically, it's paid in the month after the Employee terminates. E.g., if Employee terminates on 1/15/15, the vacation payout will be made around 2/15/15. Is there a legal impediment to counting that February payout as part of January's comp (the last month for which Employee received a regular paycheck)? This would be more favorable to Employee's FAE because it would spike January's comp, rather than marooning it in February. I can't find any authority one way or the other. Thanks for any replies.
  22. A 401(k)/PS plan excludes fringe benefits from compensation in the adoption agreement. Employer mentioned that some of the wages reported for employees includes cash in lieu of electing the employer's health insurance (they are covered by spouses' plans). Amounts vary, but are up to $9,000. Deferrals have been withheld from these amounts. My review of the IRS website and EOB indicate that any pay other than basic compensation for the job (one's salary) is considered a fringe benefit, though I haven't found anything specific for this cash in lieu of insurance. Does anyone have anything specific regarding these types of payments as a fringe benefit? thank you.
  23. Would either participant be included the adp test? 1 - An [eligible] participant is now terminated, but listed with no compensation (or hours). 2 - An [eligible] participant is "still on the books" and only works as needed, so they have no real term date, but is listed with no compensation (or hours).
  24. Company's DB Plan currently uses a traditional final-average-pay formula. Company is switching to a cash-balance formula for new hires and rehires only (i.e., no conversion of prior traditional accruals and no switch for continuously employed participants). Vested terminated employees with traditional benefits who are rehired after the switch will have a frozen traditional benefit and a new cash-balance benefit. Is there any need for the plan to provide that compensation from the period reemployment will be taken into account when calculating payment of the frozen traditional benefit? The regs suggest that this would be necessary if the traditional benefit were converted to an opening account balance, but I don't see any requirement that later comp be counted if you don't convert. Any thoughts appreciated. Cheers.
  25. Good morning! Code Section 401(a)(17) places a limit on the amount of compensation that can be used to determine the amount of a defined benefit plan participant's benefit. There is a special transition rule for governmental plans. That special transition rule for governmental plans provides that the Code Section 401(a)(17) limits will not apply if such limits will reduce the amount of compensation that was taken into account (for purposes of determining a participant's benefit) under a governmental defined benefit plan on July 1, 1993. The governmental plan however, must be "amended so that the plan incorporates by reference the annual compensation limit under section 401(a)(17), effective with respect to noneligible participants for plan years beginning after December 31, 1995 (or earlier, if the plan amendment so provides)." It's unclear to me whether the foregoing language means that a governmental plan (i) only has to be amended to incorporate the Code Section 401(a)(17) limits; or (ii) has to be amended to incorporate the limits effective with respect to noneligible participants. Can a governmental defined benefit plan apply "special" Code Section 401(a)(17) limits to eligible participants if that governmental plan (i) was amended to incorporate the Code Section 401(a)(17) limits by reference, but (ii) did not indicate that such limits applied only with regard to noneligible participants? There seem to be varying opinions on this issue. I appreciate any thoughts.
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