Jakyasar Posted February 8, 2021 Share Posted February 8, 2021 Hi New plan was signed/adopted by 12/31/2020, sponsored by sole-proprietor aka husband. Now they want to add another sole-proprietor aka wife for 2020 as an adopting employer. Can this be done retroactively? Thanks Link to comment Share on other sites More sharing options...
CuseFan Posted February 8, 2021 Share Posted February 8, 2021 Since plan for 2020 can be adopted by tax return due date per SECURE Act, I think that is possible. Bill Presson and Luke Bailey 2 Kenneth M. Prell, CEBS, ERPA Vice President, BPAS Actuarial & Pension Services kprell@bpas.com Link to comment Share on other sites More sharing options...
msmith Posted February 8, 2021 Share Posted February 8, 2021 This question was asked of Derrin Watson and Ilene Ferenczy. They indicated that it could only be done via VCP submission. Link to comment Share on other sites More sharing options...
Bill Presson Posted February 8, 2021 Share Posted February 8, 2021 49 minutes ago, msmith said: This question was asked of Derrin Watson and Ilene Ferenczy. They indicated that it could only be done via VCP submission. Ugh. So start a plan for 2020 and merge it into the current plan and become a participating employer. What one can do this way, one should be able to do the other way and save the client money. Luke Bailey and Mike Preston 2 William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070 Link to comment Share on other sites More sharing options...
Bird Posted February 9, 2021 Share Posted February 9, 2021 15 hours ago, Bill Presson said: What one can do this way, one should be able to do the other way and save the client money. Yeah. And I'm not sure I agree that it can't be done. Did Dennis and Ilene have a cite(s) or were they just being cautious? Bill Presson and Lou S. 2 Ed Snyder Link to comment Share on other sites More sharing options...
Bill Presson Posted February 9, 2021 Share Posted February 9, 2021 1 hour ago, Bird said: Yeah. And I'm not sure I agree that it can't be done. Did Dennis and Ilene have a cite(s) or were they just being cautious? I didn't hear that or at least don't remember it specifically. But Derrin and Ms Ilene are pretty reputable. 😀 William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070 Link to comment Share on other sites More sharing options...
Jakyasar Posted February 9, 2021 Author Share Posted February 9, 2021 Does anyone remember when they were asked this question? Link to comment Share on other sites More sharing options...
BobbyV Posted February 9, 2021 Share Posted February 9, 2021 What kind of plan is it? Does the husband's plan document say anything about automatic inclusion of controlled group members? Link to comment Share on other sites More sharing options...
Bill Presson Posted February 9, 2021 Share Posted February 9, 2021 I've emailed her to ask. William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070 Link to comment Share on other sites More sharing options...
msmith Posted February 9, 2021 Share Posted February 9, 2021 It was discussed on one of their ERISApedia webinar from 06/04/2019. It was their recommendation to file under VCP. Link to comment Share on other sites More sharing options...
Bill Presson Posted February 9, 2021 Share Posted February 9, 2021 12 minutes ago, msmith said: It was discussed on one of their ERISApedia webinar from 06/04/2019. It was their recommendation to file under VCP. But that was prior to the SECURE Act. I'm not sure that would be accurate anymore. Eve Sav 1 William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070 Link to comment Share on other sites More sharing options...
RatherBeGolfing Posted February 9, 2021 Share Posted February 9, 2021 6 minutes ago, Bill Presson said: But that was prior to the SECURE Act. I'm not sure that would be accurate anymore. Im pretty sure this came up during ASPPA All Access as well, with the answer till being VCP. I think it was either Heather or Kelsey. Link to comment Share on other sites More sharing options...
Bill Presson Posted February 9, 2021 Share Posted February 9, 2021 19 minutes ago, RatherBeGolfing said: Im pretty sure this came up during ASPPA All Access as well, with the answer till being VCP. I think it was either Heather or Kelsey. Okay. We'll see what she says. If we don't like her answer, I'll reach out to Ms Heather and Ms Kelsey. 😀 William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070 Link to comment Share on other sites More sharing options...
Ilene Ferenczy Posted February 9, 2021 Share Posted February 9, 2021 Bill Presson asked me to weigh in on this, Derrin and I are being cited quite a bit. Nice to hear you all thinks so well of us. We appreciate it. So, the starting point is the language of the law (imagine that! Ain't that just like a lawyer?): This is a new paragraph under Section 401(b): 2) Adoption of plan.--If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year.''. So, when I read that, I thought, "Well, all it talks about is the employer adopting a plan. Whether it is a multiple employer plan or a single employer plan, all the company is doing is adopting a plan. So, I think adoption by the tax return due date is fine." Derrin, however, put on his "Controlled Group" hat and pointed out that, if the Husband company and the Wife company are part of a controlled group, then the Husband company (on behalf of the "employer," which is both companies combined) already adopted the plan. The problem here is that the Wife company failed to adopt a participating employer agreement under the plan. This potentially falls out of the language above and becomes a different situation - not a nonadoption at all, but a failure of the plan to be drafted to include the employees of the Wife's company. That arguably is a required AMENDMENT of an existing plan, not an adoption of a new plan, and is required to be adopted by the end of the year. And, as the amendment will not benefit all employees, it is likely ineligible for self-correction and must go through VCP. Remember that the Husband's company and the Wife's company are not necessarily part of a controlled group. The "noninvolvement exception" can break a controlled group if the spouses each own their own companies and (a) neither spouse has ownership in the entity owned by the other spouse; (b) neither spouse is a director or employee or participates in the management of the other spouse's company; (c) the spouses have no involvement in the other's company; (c) no more than 50% of the company's gross income is from passive investments, such as royalties, rents, interest, dividends, and annuities; and (d there are no restrictions limiting the spouse's ability to dispose of his/her ownership in favor of the other spouse or their minor children. The noninvolvement exception does not help break the controlled group if you are in a community property state and the business is community property (so that each spouse under state law actually owns 50% of the other's company, thus overriding the noninvolvement exception) or if the couple has any minor children (in which case each spouse's ownership attributes to the minor child and the bambino is deemed to own 100% of both companies). So, when all is said and done, if you are dealing with spouses, you might be better off doing the "separate adoption and later merge" method, distasteful as such a "form over substance" approach is. If we know anything after our collective years practicing in this area, the IRS tends to be very detailed in the way it applies statutory and regulatory language, thereby commonly promoting form over substance. Thanks again for letting me weigh in on Derrin's and my behalf. Best to all -- Ilene RatherBeGolfing, Bill Presson, C. B. Zeller and 1 other 2 2 Link to comment Share on other sites More sharing options...
RatherBeGolfing Posted February 10, 2021 Share Posted February 10, 2021 Thanks Ilene! Link to comment Share on other sites More sharing options...
Popular Post S Derrin Watson Posted February 10, 2021 Popular Post Share Posted February 10, 2021 My name is S. Derrin Watson and I approve of Ilene's message. I add that controlled group status unites two employers for all purposes of Code 401. That includes 401(b), where we find the new statute. And, for what it's worth, I don't take off my controlled group hat except when I go to church. 😀 John Feldt ERPA CPC QPA, Mike Preston, Bill Presson and 2 others 3 1 1 Link to comment Share on other sites More sharing options...
shERPA Posted February 10, 2021 Share Posted February 10, 2021 There's a Smokey and the Bandit joke in there........ Bill Presson 1 I carry stuff uphill for others who get all the glory. Link to comment Share on other sites More sharing options...
Bill Presson Posted February 10, 2021 Share Posted February 10, 2021 Grateful for Ms Ilene and Derrin to provide their analysis for us here. William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070 Link to comment Share on other sites More sharing options...
RatherBeGolfing Posted February 11, 2021 Share Posted February 11, 2021 @S Derrin Watson Thanks Derrin! Really appreciate the input from you and Ilene! Link to comment Share on other sites More sharing options...
PeterN Posted July 9, 2021 Share Posted July 9, 2021 Appreciate the input! Link to comment Share on other sites More sharing options...
Douglas Dahl Posted September 1, 2021 Share Posted September 1, 2021 Hi all! We've dealt with this issue many times, often in connection with company acquisitions and have always said that a VCP is necessary given the prior EPCRS requirement that the corrective amendment benefit all participants. Now that "correction by plan amendment" has been expanded by the IRS via Rev. Proc. 2021-30 in July to eliminate the requirement that a corrective plan amendment benefit all participants, I'm wondering if folks on this thread now believe that the early inclusion failure described above can in fact be self-corrected by plan amendment. I think it is a more than reasonable conclusion. Thoughts? Link to comment Share on other sites More sharing options...
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