Message Boards Digest

February 22, 2019

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

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mrslappywhite created a topic in 401(k) Plans

Reclassify After-Tax as Roth?

Anyone have a cite or guidance on the feasibility or legality of "reclassifying" after-tax employee contributions as Roth deferrals? A client claims is wasn't aware that their document does not allow after-tax contributions to be matched. They're balking at forfeiting match excesses and have asked if they can reclassify the after-tax as Roth so the participants can keep their match. I want to tell them no, but I can't find anything either in support of this or opposed to it.
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Chippy created a topic in 401(k) Plans

Effect of Plan Termination on Employer's Contribution

Company was sold and plan was terminated as of 10/31/2018. None of the participants has been paid out yet. Plan has a calendar plan year. Eligibility to receive an employer non-elective contribution is 1,000 hours and employed on PYE. During 2018, employer put money into a suspense account for allocation at year end. Since the plan terminated at 10/31/2018, would I allocate to the employees still employed on 10/31/2018? That was my first thought, but technically the PYE is still 12/31 although the employer did not exist at 12/31 and had no employees.
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justanotheradmin created a topic in Defined Benefit Plans, Including Cash Balance

Cross-Testing with a 401(k)

What are the pitfalls of cross-testing a cash balance plan on a contribution/allocation rate basis? Is this prohibited?

Fact Pattern -- bear with me -- Small law firm has two partners, two employees (NHCE). There is an existing 401(k) plan with a 3% Safe Harbor non-elective (will be amended to NHCE only for 2020). The earned income for the partners fluctuates a lot due to when they receive settlements from cases. In years where they have a lot, it would be super helpful to be able to make large contributions to the plans. I was thinking a contribution credit formula that increased the higher the compensation. Something like 100% of compensation in excess of $100,000, or $5,000, whichever is greater. They are not opposed to doing large contributions for their NHCE. If they can be done into the 401(k) as SH and PS, that would be ideal, then they aren't committing to large contribution credits to the NHCE in the CB plan. Because of the ages of the partners and the NHCE, regular combined testing doesn't work well. Its OK, but one of the partners is on the younger side and the main NHCE is older than both partners by 10+ years. The NHCE would get 2.5% contribution credit in the CB.

I apologize, I am not an actuary and don't do a lot of work on DB plans. But I do plenty of rate group testing, 401(a)(4) etc. in the DC world. So if I am testing the combined benefits can't I just take the (Safe Harbor + Profit Sharing + Cash Balance contribution credit) / Compensation = Rate, then do my regular HCE NHCE rate group testing? One of our actuaries is thinking we would need to convert the contribution credit to the NRA annuity benefit, then convert back to present value, then use that amount combined with the SH and PS for testing. I understand his argument, but would prefer my simpler method if possible.

The actuary is proposing just giving the NHCE a flat percentage of pay in the CB and avoiding this type of combined testing. But it would be much more flexible if we could customize the NHCE benefit each year since the partner's compensation changes can be quite extreme. It will be easier to do this after year end with a discretionary profit sharing contribution to the NHCE, than trying to amend the CB plan prospectively to adjust an NHCE benefit.

Some things I've already thought about -- but feel free to chime in: 415 -- The younger partner's CB benefit is limited because of his age -- 404: There should be plenty of money available to give as profit sharing and safe harbor to the NHCE and still stay within the 6% deduction limit

I apologize if I am off my rocker -- I was just thinking if I can cross-test a 401(k) plan on a benefits basis, why can't I cross test the other way, a DB plan on an allocation basis?

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coleboy created a topic in 401(k) Plans

S Corp Shareholder's Insurance Premiums Counted as 'Compensation' for 401(k)?

We have a client that is an S Corp. Census information from payroll co. reflected a salary for the owner. Bookkeeper said that the salary reflected was wrong because it contained shareholder insurance premiums. Plan uses W-2 income. Should these premiums be reflected in the the compensation for 401k purposes? This plan has a SH NEC.
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