Message Boards Digest

October 4, 2022

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

AdKu created a topic in 401(k) Plans

Penalty Relief Program for Form 5500-EZ Late Filers

"Background: A potential client adopted a one-participant 401(k) plan (AKA Solo 401(k) plan) in 2015. The plan assets were over $250K by the end of 2020 and the brokerage account services provider didn't file Form 5500-EZ. [1] Can this plan use the Penalty Relief Program for Form 5500-EZ Late Filers to fix the error?

[2] Are there any additional things I need to take into consideration?"

4 replies so far   |    Click Here to Add a Reply

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cheersmate created a topic in 401(k) Plans

401(k) Deferral or Corrective Contribution or Unallocated Suspense Account?

"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.

[1] 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?

[2] 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."

No replies yet   |    Click Here to Add a Reply

Lucky32 created a topic in Retirement Plans in General

Plan Permanency Issue -- Prudent to Formally Freeze the Plan Instead?

"I recall the recommendation that a contribution to a DC plan, even just a small deposit, should be contributed at least once every three years in order to show the intent of permanency. This was presented to me as a guideline rather than a regulation.

Presuming this is not a regulation, if the sponsor of a profit sharing plan has said it will not make contributions for at least five years, would the plan be required to be frozen via amendment if it is to keep operating? If so, what would be the latest effective date for the amendment, the start of the fourth plan year after the year for which the most recent contribution was made?

Due to the plan holding many illiquid assets across numerous accounts, the sponsor has said it would be preferable to keep the plan going and pay admin fees than to try to liquidate/rollover the assets and then go through the trouble of starting up a new plan sometime in the future."

3 replies so far   |    Click Here to Add a Reply

John314 created a topic in Defined Benefit Plans, Including Cash Balance

401(a)(17) Limit and Decreasing Compensation

"Until about a month ago I was certain I knew how this worked, but I am getting push back from a plan sponsor and their legal counsel. I am hoping someone here may be able to point me to guidance (even if informal) on how this should work. Traditional average pay DB plan. Pension plan formula is based on the highest consecutive 12 months of earnings. Plan year is 7/1 - 6/30. Earnings are as follows:

  • Plan Year beginning 7/1/2019 = $400,000; 2019 comp limit = 280,000
  • Plan Year beginning 7/1/2020 = $300,000; 2020 comp limit = 285,000
  • Plan Year beginning 7/1/2021 = $325,000; 2021 comp limit = 290,000

Approach 1: apply the comp limit to each 12 months of earnings, then look for the highest, and divide by 12 to get the FAE. In this case, that would mean using 7/1/2021-6/30/2022 earnings capped at $290,000/12 = $24,167.

Approach 2: find the highest 12 months of earnings, then apply the cap, and divide by 12 to get the FAE. In this case, that would mean the highest 12 months of earnings is $400,000 in 7/1/2019, capped at $280,000 /12 = $23,333."

1 reply so far   |    Click Here to Add a Reply

metsfan026 created a topic in 401(k) Plans

Safe Harbor Matching Contributions -- Two Basic Questions

"Just want to make sure there's no issues with another Plan we are taking over: [1] They fund their Safe Harbor Match on a payroll-by-payroll basis. If someone opts to start contributing in the middle of the year, can they simply match from that point forward (calculated on a payroll basis) or do they have to do the calculation on the full years salary and true the participant up? [2] The prior TPA allowed them to include commission compensation for the sales staff, but exclude it for everyone else. Is that something people have seen before, where the definition of compensation is different, based on the class of employee?"

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