Message Boards Digest

February 14, 2023

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

Jakyasar created a topic in 401(k) Plans

402(g) limit is exceeded

"Hi Here is a new one for me. 401k plan with 3% NESH and PS provisions so no ADP testing required. This is combined with CB plan and tested together. (I only handle CB plus testing) Just got the info for 2022. HCE/owner and spouse, both exceeded 402(g) limits (changed payroll companies in mid-year and they did not pay attention to the deferrals). Refunding prior to 4/15/2023. If ADP tested, the full amount would have been included, only for HCE's. Do not have any issues with the NHCE's. How for ABPT? Based on 2022 limits (20,500) or full incorrect deferral (30,000)? Assume under age 50. Thank you."
3 replies so far   |    Click Here to Add a Reply

401kSteve created a topic in Retirement Plans in General

In-Plan Roth Conversion of Employer SH Match

"I'm finding vague references to this and looking for guidance. In-plan Roth conversions are allowed in the plan, but I've never had a participant ask me if they can convert their pre-tax Safe Harbor Match to Roth. Anyone have any insight on this? Thanks in advance!"

1 reply so far   |    Click Here to Add a Reply

401kSteve created a topic in Retirement Plans in General

Resititution on Prior Year Prevailing Wage Job

"Small company has a 401k plan, 3% SHNE, pretty straightforward. The company is in the construction business and often works on public projects. The Department of Labor audited a job they had completed about 4 years ago and determined that the company had applied state-level prevailing wage parameters, but apparently there were federal monies included in the project, and as a result, the company should have used federal prevailing wage parameters. The result is that the company will have to pay a few people who worked on that job some restitution, and it's required to be paid via W2 in the current year. Most of these people no longer work for the company, though some were participants in the plan previously. The company does have a 1-year break in service provision, but if those participants are excluded, the plan fails the 410b test in the current year. So, the question is, how should the company should treat the SHNE contributions for these participants. Amend the plan to include them in this year's SHNE? Should they receive lost earnings going back to when the SHNE would have been paid had the earnings fallen in the year in which the original job occurred and thus SHNE would have been paid?"

1 reply so far   |    Click Here to Add a Reply

David Olive created a topic in 401(k) Plans

Employees Paying Back Signing Bonus - ADP/ACP Testing

"An employer hires an employee in 2021 and pays a $10,000 signing bonus. Two months after beginning employment, Employee enters 401(k) Plan. In 2022, Employee terminates service and, under terms of employment contract, pays back sign on bonus by issuing a personal check in 2022. Does this reduce that employees compensation in 2022 for purposes of Testing, if using the definition of Compensation under 414(s)? I am inclined to say no, as you simply look at what the Employer paid the Employee during 2022. Does this require new testing for 2021?"
1 reply so far   |    Click Here to Add a Reply

ERISA1 created a topic in Distributions and Loans, Other than QDROs

Roth Conversion of After-Tax Basis in Deemed Distribution

"I am speaking with someone who is hurting from having been taxed on a deemed distribution due to failure to an an installment by the end of the cure period. I don't think it can be corrected because payment was made after the cure period. However, I think I can offer him some consolation by suggesting he repay the loan and make a Roth Conversion of the repaid balance. There won't be tax on the conversion because he has "basis" in the funds (i.e., the money has already been taxed). I am concerned however about whether there is a restriction against converting this type of after-tax money. I can't think of a reason, but I am paranoid. (After all, I work in the pension industry.) The literature only speaks of tax-free conversion of 'after-tax contributions'. Repaid deemed loans are after tax, but they have a kind of moral taint for failure to repay a loan. Does anyone think that this type of after-tax money cannot be converted to Roth? Assume that payment was restored to original sources (e.g., Profit Sharing, Pre Tax Elective Deferrals, Rollover account), and assume the plan allows conversion of vested funds held in any account. Any problems?"

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Gilmore created a topic in Correction of Plan Defects

SECURE SEC 301: Overpayment to HCE

"Would SECURE Sec 301 apply if the overpayment was to an HCE? Say an employer miscalculates an HCEs match and prior to discovering the error the HCE has terminated and already taken a distribution. ACP passes so no corrective distributions were due. Does the fact that the HCE is the only overpayment negate Sec 301, or can the employer allow the HCE to keep the overage assuming no other participants are affected? Thank you."

2 replies so far   |    Click Here to Add a Reply

metsfan026 created a topic in Retirement Plans in General

DB/DC Gateway - What If Safe Harbor Match?

"I know the gateway for the combo plans is typically 7.5% (which can be split between 3% SH + 4.5% PS). What happens if it's a Safe Harbor Match? What type of Profit Sharing contribution do we have to include, because we're running into the 6% deductible contribution going over 6% to the eligible employees (less for the HCE)"
6 replies so far   |    Click Here to Add a Reply

Coleboy1 created a topic in 401(k) Plans

ADP/ACP Testing Question

"Working on a plan where the owners and their spouses in a corporation had no compensation for 2022. Do I still include them in my testing? This is the first time working on this plan but I see that they haven't taken any compensation for a few years now. One year the prior TPA included them and the next year they were excluded. Not sure why hence my asking this question."
4 replies so far   |    Click Here to Add a Reply

Molgilny89 created a topic in 401(k) Plans

QNEC Calculation for Elective Deferral Failure in Auto Enroll Plan

"The Plan automatically enrolls participants immediately at 3% of compensation. Employee was hired and 35 days after starting employment made a 25% deferral election. Unfortunately, because of an admin error the participant was not auto enrolled and their 25% election was not implemented. EPCRS is clear that the auto-enroll safe harbor correction would apply in this scenario, as it includes a caveat that the safe harbor also covers "employees who made affirmative elections in lieu of automatic contributions but whose elections were not implemented correctly." Unfortunately, the error was not corrected timely and now a 50% QNEC is owed. What's not clear in EPCRS is how to calculate the QNEC in this type of scenario. Would the QNEC be calculated using a missed deferral opportunity of 3% or a missed deferral opportunity of 25% (the affirmative election amount)? The section of EPCRS that discusses calculating QNECs for safe harbor failures appears to indicate it would be 3%; however, the language in that section does NOT include the same caveat indicating whether it would apply to employees who made affirmative elections in lieu of auto contributions."
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