Message Boards Digest

March 13, 2018

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

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coleboy created a topic in 401(k) Plans

401(k) Plan OK If Only Activity is a Participant Loan?

I was given a new 401(k) plan to administer for a small business consisting of only a few employees. Immediately after the plan was made "active", the owner rolled over some money into the plan. She has since taken 2 loans out against this rollover money. She is not making any contributions and no one else has signed up for the plan. This is the 2nd plan that I have where the owner rolls money into it for the sake of being able to take out a loan. Again, no other employees are contributing to it. Is this legal?
Number of replies posted  9 replies      Number of times viewed  106 views      Add Reply
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Dougsbpc created a topic in Defined Benefit Plans, Including Cash Balance

'Average Compensation' Can Include Year When No Schedule C Filed?

Sole proprietor came up with an engineering process and had significant Schedule C profit for the first two years. The third year he spent all of his time making the idea/process better but had no income for that year (and didn't file a Schedule C). In the fourth year, he adopts a defined benefit plan but has not been quite as successful as in years 1 and [2] Per the document, the plan can count past compensation if elected. Can the plan count his first 3 years as his average compensation even though he filed no schedule C the third year? He claims he worked harder and longer in year 3 than any other year.
Number of replies posted  2 replies      Number of times viewed  48 views      Add Reply
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Towanda created a topic in 401(k) Plans

ADP Test Failure But HCE No Longer Has Liquidity in 401(k) Account Due to Participant Loan

ADP test failed, and the HCE does not have enough in his 401(k) account to cover the required distribution (plus earnings) because he recently took a sizable loan, all from 401(k). It seems to me that he must remove the required amount from his account, even if it means pulling from rollover or another source. Help!
Number of replies posted  4 replies      Number of times viewed  78 views      Add Reply
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thepensionmaven created a topic in Form 5500

5500-EZ Needed for Owner and an Excluded Employee?

A 100% owner of the business has a 401(k) with less than $250K in assets. She has an employee who has never worked over 1,000 hours. Under plan characteristics code, there is an item 3(e) -- a one-participant plan that passes minimum coverage, which seems to apply here. Payroll company seems to think Form 5500-EZ must be filed.
Number of replies posted  5 replies      Number of times viewed  44 views      Add Reply
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John Feldt ERPA CPC QPA created a topic in 401(k) Plans

Coverage Failure, But No Correction Action Needed?

Controlled group: 2 employers with their own 401(k) plans. No Profit Sharing. 401(k) coverage for 2017 fails. Plan 1 is safe harbor match, covers only 1 HCE and a lot of NHCEs. Plan 2 is not safe harbor, has no match, no PS, but covers 5 HCE owners and 1 NHCE, prior-year tested. The plans fail ratio percent test (result is under 10%). The plans cannot be aggregated for coverage testing. Seems to me that plan 2 needs to open up coverage to some of the plan 1 NHCEs by providing QNECs until enough NHCEs are above the safe harbor percentage, and then run ABT. That QNEC is based on the 2017 ADP for the NHCEs in plan [2] The problem is, the NHCE in plan 2 didn't defer in 2017. Hence the NHCE ADP for 2017 for plan 2 is 0% and thus the QNEC is 0%. Is there a reasonable argument that no action is needed for plan 2 to pass coverage for 2017? Note: the NHCE ADP in 2016 was also zero.
Number of replies posted  6 replies      Number of times viewed  70 views      Add Reply
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Bumppo23 created a topic in 401(k) Plans

Restriction on Distribution of Deferrals Upon Plan Termination; Applicable to Roth Deferrals?
A distribution may not be made under paragraph (d)(1)(iii) of this section if the employer establishes or maintains an alternative defined contribution plan. For purposes of the preceding sentence, the definition of the term 'employer' contained in Section 1.401(k)-6 is applied as of the date of plan termination, and a plan is an alternative defined contribution plan only if it is a defined contribution plan that exists at any time during the period beginning on the date of plan termination and ending 12 months after distribution of all assets from the terminated plan. However, if at all times during the 24-month period beginning 12 months before the date of plan termination, fewer than 2% of the employees who were eligible under the defined contribution plan that includes the cash or deferred arrangement as of the date of plan termination are eligible under the other defined contribution plan, the other plan is not an alternative defined contribution plan. In addition, a defined contribution plan is not treated as an alternative defined contribution plan if it is an employee stock ownership plan as defined in section 4975(e)(7) or 409(a), a simplified employee pension as defined in section 408(k), a SIMPLE IRA plan as defined in section 408(p), a plan or contract that satisfies the requirements of section 403(b), or a plan that is described in section 457(b) or (f).
Do the strictures apply to Roth deferrals?
Number of replies posted  1 reply      Number of times viewed  28 views      Add Reply
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MLML created a topic in 401(k) Plans

Related Employers, Safe Harbor/Profit Sharing Allocation, 414(s) Test

Two entities (A & B) make up a controlled group. Each has its own plan. Entity A provides SH 3% + PS, entity B provides PS only. Entity A calculates SH and PS based on entity A's compensation only. Entity B calculates PS based on entity B's compensation only. Each plan passes coverage on its own. Each plan passes 401(a)(4) based on 415 compensation (combined comp from both entities). Gateway and TH are calculated based on 415 comp. Do I need to do the 414(s) compensation ratio test for the Safe Harbor contribution type for entity A, because the Safe Harbor allocation is not based on 414(s) compensation? I thought that, since 415 compensation is used for the 401(a)(4) test -- which tests both SH and PS -- I didn't have to do a separate 414(s) compensation test. But perhaps that's the reason why I have to do the 414(s) compensation test, because testing both SH and PS cannot be used to prove that the Safe Harbor (alone) is calculated based on 414s compensation? If so, what happens if the 414(s) compensation test fails? Increase SH to meet 3% of the 415 compensation? I guess increasing SH will reduce PS anyway, so the outcome is the same for the 401(a)(4) test.
Number of replies posted  1 reply      Number of times viewed  39 views      Add Reply, Inc.
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