Message Boards Digest

December 12, 2017

Here are the most recently added topics on the BenefitsLink Message Boards:

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Pammie57 created a topic in 401(k) Plans

Owner's Deferral Mistakenly Put Into IRA Rather Than 401(k)

During 2016, a $4,000 deferral by the owner of a company was incorrectly put into an old IRA rather than into his 401k account. This error was discovered in early 2017 during year-end reconciliation and preparation of the Form 5500. The error was made by the asset platform/broker's office. To transfer the funds, they want us (as the TPA) to write a letter saying something like "the plan accepts this rollover." But I believe there should not be a rollover, because it never should have been put into the IRA. How to resolve? Further, the asset platform/broker's office wants to prepare a 2017 1099-R. But they made the initial mistake of putting it into the IRA, so are we supposed to jump through hoops to cover them?
Number of replies posted  2 replies      Number of times viewed  45 views      Add Reply

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Review considerations for structuring a 401(k) plan. Topics include salary deferral limits and catch-up contributions, matching and profit-sharing contributions, nondiscrimination testing and safe harbors.
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babo111 created a topic in Form 5500

Short Plan Year in 2018; Use 2017 Version of Form 5500?

A client's retirement plan will be closed during its 2018 calendar plan year, and its distribution should be done by March 2018. The plan will need to file a Form 5500 for the short plan year ending March 30, 2018. Which version of Form 5500 should be used? It would seem to be the 2018 version, but the 2018 version won't be available until early 2019. Could the plan use the 2017 form?
Number of replies posted  2 replies      Number of times viewed  44 views      Add Reply
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Mr Bagwell created a topic in 401(k) Plans

Non-HCE Participant Fixes 402(g) Problem; Plans Are Unrelated

A NHCE participant was proactive for 2017 and realized his deferrals into two unrelated plans were over the 402g limit and requested a distribution of the excess. The distribution was done from the currently employed plan that we administer. From the 401k Plan Fix-It Guide: "Excess deferrals distributed to highly compensated employees are included in the Actual Deferral Percentage (ADP) test in the year the amounts were deferred. Excess deferrals distributed to nonhighly compensated employees aren't included in the ADP test if all deferrals were made with one employer." (Emphasis mine.) The overage stays in the ADP total for the year because of the unrelated plans, correct? I guess that makes sense... an employee could manipulate the two unrelated plans if they were devious.
Number of replies posted  2 replies      Number of times viewed  45 views      Add Reply
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Lou S. created a topic in Retirement Plans in General

Coverage Issues Arising from Change in Controlled Group Due to Formation of New Company

Individual O owns 100% of Company A. In October 2017, O sells 60% of Company A to unrelated third party. Owner O starts Company B, of which is the 100% owner. Company A is an ongoing concern with an employee staff. Company B is a new company that employs 3 employees -- the Owner and two individuals who will be Highly Compensated Employees. Owner O wants to have Company B set up a retirement plan that excludes owner O but covers the other 2 employees. Company A and Company B are both calendar year taxpayers. For 2017, assume Company A and Company B are a controlled group. For 2018, assume Company A and Company B will not be a controlled group if there are no change in ownership. Assume there are no affiliated service group issues. Questions: [1] Can Company B establish a profit sharing plan for calendar year 2017 covering only the two non-owner employees of Company B without having to cover employees of Company A? I believe so, because the Company B employees will be non-highly compensated employees because they had no pay in 2016 from Company B. [2] Does this change if they are hired from Company A, where they had earned an amount in excess of the dollar limit during 2016, so as to make them an HCE in Company A in 2017? [3] Can Company B start a DB plan for calendar year 2017 for that doesn't cover employees of Company A? (I think not, because 401(a)(26) would be problematic.) [4] Can Company B start a DB plan effective November 1, 2017 that has a plan year running 11/01/17 until 10/31/18, so as to ignore Company A altogether for the reason that the transaction was completed in October 2017?
Number of replies posted  0 replies      Number of times viewed  20 views      Add Reply
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Pam S. created a topic in 401(k) Plans

Effect of Mid-Year Change in Eligibility Computation Period

If a calendar year 401k plan changes its eligibility computation period from the anniversary year (i.e. the end of the 12-month period that ends immediately before with one-year anniversary of the participant's first day of employment) to the plan year (which is the calendar year), and if the amendment is effective May 1, how would the amendment apply to a participant hired on 9/10/2015? The plan requires 1 Year of Service for eligibility (at least 1,000 hours during the eligibility computation period). So a Year of Service either would or would not be attained as of the end of the day on 9/9/2016. But for the amendment, if the employee had not performed at least 1,000 hours during 9/10/2015 through 9/9/2016, the plan next would be testing to see whether the employee performs at least 1,000 hours during the 9/10/2016-9/9/2017 period. But because the amendment is being adopted effective 5/1/2017, would the plan instead be testing to see whether the employee performs at least 1,000 hours during the 1/1/2017-12/31/2017 period?
Number of replies posted  2 replies      Number of times viewed  51 views      Add Reply
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Gilmore created a topic in 401(k) Plans

Applying the Compensation Ratio Test When Excluding Overtime and Bonuses

A plan uses the alternate safe harbor for 414 comp, excluding fringe benefits, deferred comp, welfare benefits, etc., for purposes of allocating its nonelective contribution. Now the client would like to exclude overtime and bonuses. For purposes of the compensation ratio test, am I starting with my alternate 414 comp as my base for the test, and using only the excluded overtime and bonuses in the ratio? Or am I starting with all compensation, and excluding all of the excluded comp in the ratio? For example, assume total comp of $50,000, including $1,000 in fringe benefits and a $5,000 bonus. Is the compensation ratio 88% ($44,000/$50,000) -- by starting at $50,000 and reducing comp by all of the excluded comp? Or is the compensation ratio 89.8% ($44,000/$49,000) -- by first reducing the $50,000 by the $1,000 fringe to arrive at a "base" 414 comp, then excluding the bonus?
Number of replies posted  1 reply      Number of times viewed  23 views      Add Reply, Inc.
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