Message Boards Digest

February 18, 2021

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

Vlad401k created a topic in 401(k) Plans

Disaggregated Plans Testing Method for ADP

"I have a question about special testing rules for the ADP Test. I understand that there are 2 ways to run the ADP Test for the Otherwise Excludable (OEX) Employees: [1] Early Participation Rule (where only OEX NHCEs are left out of the test), and [2] Disaggregated Plans Testing Method (where all Non-OEX employees are tested together and all OEX employees are tested together)

In the ADP test, there are 4 HCEs, one of which is OEX. All HNCEs are non-OEX. I believe he plan should be tested as follows: [1] Non-OEX HCEs tested together with Non-OEX NHCEs; [2] 1 HCE OEX tested by himself because there are no OEX NHCEs--this portion of the plan should pass automatically because there are no OEX NHCEs

However, our testing software is testing all HCEs (even the 1 who is OEX) vs. NHCEs for the Otherwise Excludable test. I don't think that's correct as I think there should be a separate test for OEX employees because we're using the Disaggregated Plans Testing Method. Do you agree?"

2 replies   |    40 views   |    Add Reply

ratherbereading created a topic in 401(k) Plans

Partnership/K-1 404 Deduction Limit

"Plan has 2 partners, no employees. They both get a K-1. Is the limit based on 25% of their combined net/earned income, or is the limit based on 25% of their individual net/earned income?"

2 replies   |    42 views   |    Add Reply

Steamboat created a topic in Nonqualified Deferred Compensation

Account Balance Plan with Earnings and Then FICA Taxed

"A participant defers a portion of his salary in January until termination, and each month the deferral account is credited with 4% interest. When FICA tax is paid at the end of the year (using the rule of convenience), does the amount subject to FICA include the original amount of salary deferred plus the interest accrued throughout the year, or is the amount subject to FICA only the original amount of salary deferred?"

3 replies   |    51 views   |    Add Reply

erisaman27 created a topic in 401(k) Plans

Rollover of Tax-Exempt Combat Pay from TSP to 401(k)

"A participant is seeking to transfer or rollover funds from the Thrift Savings Plan. Part of those funds consist of tax-exempt combat pay. I am not seeing any guidance indicating whether an employer-sponsored 401(k) plan can accept transfers or rollovers of tax-exempt funds. If permissible, I think it would need to be separately accounted for as tax-exempt and properly reported as such upon distribution for 1099-R reporting and withholding purposes. Am I missing guidance on this? Any ideas on permissibility and whether it's an eligible rollover distribution?"

1 reply   |    17 views   |    Add Reply

CuseFan created a topic in Cross-Tested Plans

Individual Rate Groups & Gateway

"Combination cash balance plan (1,000 hours for allocation) and PS 401k with SH match and individual groups with no allocation conditions for PS.

Two NHCEs terminated with less than 1,000 hours, so no CB allocation and no top-heavy (if applicable, but not TH yet anyway). The CB providers doing the testing think that the employer can declare zero PS for these two NHCEs and therefore, they are not benefiting under the (combined) plan with respect to 401(a) source and need not be provided the gateway allocation of 5%. Employer was given option to give these two 0% or 5%.

The DC providers think that these two NHCEs are required to get the gateway because there are no allocation conditions.

I am in the CB camp (no gateway). Regulations say gateway is required for employees benefiting under the "plan" and refers to 1.410(b)-3 for 'benefiting', which says:

§ 1.410(b)-3. Employees and former employees who benefit under a plan.

(a) Employees benefiting under a plan -

(1) In general. Except as provided in paragraph (a)(2) of this section, an employee is treated as benefiting under a plan for a plan year if and only if for that plan year, in the case of a defined contribution plan, the employee receives an allocation taken into account under § 1.401(a)(4)-2(c)(2)(ii), or in the case of a defined benefit plan, the employee has an increase in a benefit accrued or treated as an accrued benefit under section 411(d)(6).

These two terminated NHCEs are not receiving an allocation. It is clear we cannot exclude them from coverage and nondiscrimination testing, even if hours are less than 500, because that's not the reason they do not benefit -- the reason is that the employer (under the terms of the plan) decided that these individual allocation groups will not be given a profit sharing contribution. As long as coverage and nondiscrimination pass with these people included as zeroes (in the denominators only), I think we're good and isn't an issue because this is a fairly large plan.

Who is correct -- the CB or the DC providers?"

4 replies   |    35 views   |    Add Reply

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