Search the Community

Facts: 401k Safe Harbor with Cross Tested Profit Sharing. Employer formed LLC effective 1/1/2021, was sole-prop for 20+ years prior to this. First payroll date was technically 1/12/2021, with bi-weekly payroll thereafter, however, the new LLC bank account was not yet established so all employees were paid a reasonable "Advance" on 1/12/2021 equal to estimated pay (estimated hrs * hrly rate reduced for estimated taxes etc). All employees are hourly paid. It should be noted the 401k estimated deferrals were not remitted over to the plan at this time. The plan was to reconcile all with the 1/26/2021 pay date, in the new LLC account with the new system being implemented. Thereafter the new LLC business account was established, new system set-up, and the first official payroll was processed for 1/26/2021 pay date. With this payroll, the bookkeeper logged all hours year to date (i.e. including hrs for pay date 1/12) making gross wages correct for year to date (both 1/12 and 1/26). Taxes and 401k* were determined, the "1/12/2021 advance" figures reflected, and the resulting net pay to employee determined. *Herein lies the problem: only 1/26 pay date's 401k amounts were accounted for, missing were the 1/12/2021 amounts. Total 401k reported as of 1/26/2021 $956.25 -- this amount was short by the 1/12/2021 payroll's total 401k withholding $922.50. Good news/bad news: The bookkeeper caught her mistake when she remitted the deposit over to the Plan and deposited $1,878.75 -- 1/12/2021's $922.50 plus 1/26/2021's $956.25. (This 1,878.75 matches the employee deferral elections in place and gross wages paid.) Only problem was she never went back into payroll and made adjusting entries to "account" for the correct 401k amounts remitted over to the Plan. Therefore, the three participants affected received the $922.50 in their net pay (i.e. in their pocket). Because of this the W2s are correct as issued. Questions: Can the $922.50 be deemed an employer corrective contribution and a notice issued at this time, or, should it be considered an "unallocated suspense" amount to be applied at a later date? My concern with the former is that it is more than the prescribed correction -- is this acceptable (can correction be more than guidance prescribes) or is it prohibited?? And if the latter, can the employer apply it towards the 2021 Safe Harbor (3% non-elective) contribution to be deposited by 10/15/2022? If the $922.50 can not be deemed an employer corrective contribution at the time is was deposited, a correction is needed for the missed deferral opportunity (1/12/2021 pay date). Is it the missed known amount per participant or 50% of the average NHCE deferral rate? All employees are still employed; no Correction Notice has been distributed. It is a balance forward plan. Thank you so much.

A cross-tested Safe Harbor 401k Plan has approximately $14,000 in forfeitures. The plan permits them to be applied towards ALL employer contributions or pay Plan expenses. The Plan is Top-Heavy. The employer does not want to contribute much if anything because 2021 was down. 1 HCE/Key employee; 6 NHCEs, 1 of whom terminated before end of year. The Safe Harbor Matching contribution plus the discretionary Matching that satisfies ACP Safe Harbor total approximately $11,000. This leaves $3,000 in forfeitures on the table. The $3,000 is not sufficient to fully fund the 3% Top Heavy Minimums - this means the employer will have to fund the difference. Since it is cross-tested the Key/HCE could provide 0% Profit Sharing for himself (Plan does not require THM for Keys) - this would then permit a zero PS allocation to the 1 terminated NHCE; fund only the 5 Active NHCE staff but this still requires some employer funding to satisfy the 3% Top Heavy Minimums to the Active NHCEs. Note: the NHCEs must receive the full 3% because the HCE/Key allocation is greater than 3% even with Profit Sharing at zero. QUESTION: Is there any prohibition in using $11,000 towards the Safe Harbor Matching contributions (ADP and ACP), and not allocate any Profit Sharing to avoid the Top Heavy Minimum trigger; use the balance of the forfeitures towards the Plan's Annual Fees (that is usually paid by the employer)? Would this be prohibited since it is avoiding the Top Heavy Minimum requirement? Thank you.

Having a brain freeze... 4 participant plan - 2 HCEs (father, son) and 2 NHCEs (1 young, 1 older) Plan provides 401k, 3%SHNEC and discretionary PS by rate group (ea ppt is in own) The Gateway is 5% QUESTION: I would like to restructure for (a)4 testing: 1 HCE (father) and 1NHCE (younger) based on cross-testing and 1 HCE (son) and 1 NHCE (older) based on allocation rate testing. Each will pass coverage at 100%. Provided the C/T group passes (and it does) and the the Allocation Rate based group passes (proposed same % for HCE as NHCE), the Plan passes, correct? Am I forgetting anything? Thank you.

In a safe harbor 401(k) plan (non-QACA), is it permissible to have different definitions of compensation for deferrals and safe harbor matching contributions? For example--for purposes of deferrals, compensation is defined as all compensation within the meaning of Code §415(c)(3), including bonuses. For purposes of calculating the safe harbor matching contributions, bonuses are excluded. Is that allowed?

Plan facts: 3%SH to all discretionary PS to all 3 HCES, 3NHCEs, young owner, mixed age staff each participant is in own allocation rate for PS Can the employer "cherry pick" a particular participant - who happens to be youngest and new ppt mid-year w lowest eligible pay - such that his own RG passes (a)(4)? The remaining NHCEs will receive at least GW minimum. Doing this passes all (a)(4) testing, 410b easily. My hesitation is because of perceived bottom up allocation... would it be better to "cherry pick" an existing but younger ppt who earns $100k (obviously more expensive to do so)? FYI, the other 2 HCEs are receiving the 3% SH plus 1% PS, their indiv RGs pass easily. Thank you.

Four different 401(k) plans for a control group. The plan sponsors have always calculated and deposited their safe harbor match every pay period - since 2012. When the documents were restated for PPA their TPA (not me) did not check the box in the adoption agreements to indicate the safe harbor match was calculated and deposited every pay period - instead they are shown as being calculated and deposited at the end of year. I do not have copies of the SPD or Safe Harbor Notices but I would assume they state the same. There has never been a true-up of the safe harbor match in any of the plans. Their TPA had a new account manager take over all four plans for the 2019 plan year and the plan sponsors have been told that they need to go back to 2017 and provide true-up Safe Harbor Match - this is for a few hundred participants each year so we are talking about $100k or more total. Per the TPA's instruction two of the four plan sponsors sent letters to the affected participants notifying them that they will be receiving an additional Safe Harbor Match due to the error. I don't know why they only went back to 2017 instead of when the document errors were created (2014-2016), but those were the instructions given. My initial thought was to retroactively amend the plan documents to conform to its operations, but I could see 411(d)(6) issues. I believe the IRS has accepted retroactive amendments in similar situations. Has anyone had a similar experience that could share how the error was corrected?

I hope someone can verify that I understand this correctly. 401(k) plan has 100%-4% enhanced safe harbor match. They added a discretionary match of 100%-15% for NHCE only in 2019. Since the discretionary match exceeds 4%, ACP testing applies. If I test all of the matching contributions together the ACP test fails - a lot of NHCE still didn't participate even with the extra generous match. However, I believe 1.401(m)-2(a)(5)(iv) allows us to exclude employees who are only receiving the 100%-4% enhanced safe harbor match from the ACP testing. Since that group to be excluded includes all of the HCE, the ACP testing automatically passes. Is that correct? In other words, as long as the HCE are excluded from the discretionary match, ACP is going to be automatically satisfied regardless of the discretionary match formula being used for the NHCE.

We are looking into taking over the third party administration of a plan that currently has a QACA that utilizes the 3% non-elective contribution safe harbor method that vests after two years of vesting service. We are exploring changing the ADP safe harbor method to traditional 3% non-elective which is 100% vested immediately, but if the administrator is already successfully administering the QACA, I am thinking this may not be in their best interest? I think my question is, "is the ability to administer the QACA properly the only difference between a two year difference in vesting requirement, or are there other considerations?" A two year vesting schedule seems like a huge benefit for a small trade-off. The end goal of the program design is to add nonsafe harbor non-elective contributions to the plan and potentially also adopt a DB plan, I want to use the QACA safe harbor contributions towards top-heavy and 401(a) testing if i can, and if it makes sense to continue to maintain the QACA.

Have a Safe Harbor 401k plan that allocates a Safe Harbor enhanced match formula (100% up to 4% deferred). They also allocate a non-elective profit sharing contribution based on integration/permitted disparity and the plan falls into the Top Heavy threshold. The plan has a 1000 hours of service and last day requirement for receiving an allocation of the additional profit sharing contribution. EX-Have a participant who is NOT eligible for the allocation of the profit sharing due to the service, but is receiving the Safe Harbor Match because they deferred. Would this participant also have to receive a Top Heavy minimum allocation or would their Safe Harbor Match satisfy that requirement?

Greetings 401k Board, I am hoping for feedback and guidance regarding an unusual situation. Employer A is about to acquire Employer B. Both parties agree that Employer B will terminate their Safe Harbor plan prior to acquisition (closing in less than 30 days). Is there an exception to the testing requirement for the current year (because of elimination of the SH) due to plan termination? They will have made 11/12 months worth of SH accruals, and there will no longer be a plan for the final month. They will be able to timely issue a "NO 2016 SH" notice, for what it's worth. As an added complexity... If the deal falls through after after 11/30, can Employer B re-issue an updated SH notice to re-institue the 2016 SH contribution? It will certainly be an employee-friendly change, and be done with some time to allow employees to consider the elections for 2016. That's what the 30 day period is intended for if I'm not mistaken. Any observations, questions, input are appreciated! Thanks!