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Target benefits in Relius


Guest Tbrown

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I have a target benefit plan (should be new comp but the client just won't let go) that I'm trying to run in Relius. I'm facing several issues that I won't go into here, but the main one is this:

The business is an LLC. The 2 partners have both W-2 income and K-1 income from the business :o

9.0 handles this if it is a regular profit sharing or 401(k), but not if it is a target. Calculating the contribution and then solving for 1/2 SE tax is easy enough. But taking the next step is where it is getting hairy. Compensation used is the average of the highest 3 consecutive years.

Does anyone have any thoughts?

Tim

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my first thought is to use the old Pentabs system because it did target benefit ideal salaries. I know that because I used that method to do ideal salaries for age weighted plans.

A target implies that the contribution for the rank and file is locked in place.

therefore you should know what is leftover for the partners.

you should be able to determine the 1/2 FICA.

So you are left with a number to split between contr / comp.

I guess its time to play HI / LO

run a compensation figure and see what the contribution is.

If the sum is too low, raise the comp and try again.

Knowing you...it will probably take 4 passes to zero in on the amount.

(Or set up in excel. you know the hypothetical amount and the factors for the ee based on age, etc. Plug in a comp figure (add to 2 prior years) run through the formula, and see what the contrib is. Then you would have it for next year.

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This is an old FDP shop and one of the administrators wanted to use the old FDP dos system to do it. But it won't handle it either. It will handle ideal salaries with target plans but not when there is W-2 compensation involved. It can only do one or the other. Of course the easy part is calculating 1/2 SE tax but if I use the old FDP dos system (and I assume Pentabs was the same way but it's been so long since I've used it I can't remember) it would treat all the compensation as K-1 and not split between that and W-2.

I am working on it in Excel. The tough part is having the multiple unknowns, on top of how the net plan comp affects the average which is what is actually used for plan purposes. Fun stuff.

Thanks for your thoughts Tom.

Tim

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yeh, but I have full confidence in you that you will not only solve it, but also post the solution (with the usual caveats, of course)

you are probably correct about the issue involving W-2 comp being thrown into the mix - Pentabe probably couldn't do it either. just dont come back and say the amount is above the max comp anyway! Though you might start by running the previous 3 yr high average - at least you know the minimum contribution.

good luck!

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  • 2 weeks later...
Guest Tbrown

Well Tom, I'm not coming back and saying that the compensation is above the allowable limit, but it did come back low enough that it doesn't impact the actual compensation used in the calculation. The plan calls for using an average of the 3 highest years. This year's compensation was low enough that it did not change it. So all I needed this year's compensation for was 415, etc. That means I am off the hook for now :D Maybe this summer, as time permits, I might actually try and tackle it. If I get it figured out, I will certainly let you know and post it.

Thanks for your input though.

Tim

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