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Does it actually exclude partners though? The document that we use (FT William) defines "Employee" to mean "any individual who is employed by the Employer, including a Self-Employed Individual." Guaranteed payments are not compensation for plan purposes. For a partner, compensation is net earned income. Net earned income is typically not known until the partnership's tax return is finalized, so that is when the income is considered to be available to the partner and they can make their contribution. The partner can make their deferral contributions out of their guaranteed payments if they wish, however it is going to cause problems if it turns out later that their compensation (net earned income) is not enough to support the deferrals that were made. Since the plan was not using net earned income for this participant in the past, they should go back and calculate his true compensation for past years. They may need to re-run their ADP tests.

Hello to all This might be a rhetorical/stupid question but have been thinking about it. Let's assume, the plan year=corporate year aka calendar year 2020. SECURE Act now allows pension plans to be set up after corporate fiscal year end and prior to the due date of the 2020 tax return. Let's assume 9/15/2021 is the extended due date. A candidate approaches for a new plan in July 2021 for a new plan effective 2020. Profit sharing combined with cash balance - no can do on the 401k for 2020. I get a census for 2020 and also thru July 2021. I notice that some eligible employees on the 2020 census are no longer there as of July 2021 i.e. terminated sometime during 2021. With this knowledge, I do not see a problem designing the 2020 plan in July 2021 with the events taken place in 2021. This way, I can anticipate any issues for 2021 and take that into consideration for the 2020 design/testing, done in advance. What do you think? Thank you.

Right. It's both. It is a new plan, but since you are merging a spinoff of the MEP into your new individual employer plan it is a continuation for purposes of counting service, vesting, no cut-back, etc.

I found this website, and I have to say, it's dumbed down just enough for me http://blog.acgworldwide.com/ebars-the-first-step-in-cross-testing

Generally, I take what the accountant calculates on the K-1 as net Self Employment Earnings and start there. As mentioned above, I believe some guaranteed payments are included in that figure, some are not.

The AO has been semi-replaced with goactuary.org. The Outpost is up and running again, but with a much pared-down forum section. Though there is a back-door somewhere so that people can get into the legacy forum and still post. Not sure if any new exam questions would be answered, but the old stuff is probably there.

The prohibited transaction exemption under IRC 4975(d)(1) also requires that the loan bear a "reasonable" rate of interest. A rate of interest that is too high opens the door for abuse. It could be used as an avoidance of the annual contribution limits. If the IRS are not enforcing this then they are failing to do their jobs, in my opinion. For example, consider a loan of $50,000, amortized into monthly payments over 5 years at an annual interest rate of 5%. The amount of each monthly payment is $943.56. The sum of the scheduled repayments is 60 x 943.56 = 56,613.70. Under the recordkeeping system that MoJo described, the participant could immediately repay the loan by making a single payment of $56,613.70. That would have the same effect as allowing the participant to make an additional contribution of $6,613.70 without regard to any applicable limits. The rate of interest in this case would be 6,613.70 / 50,000 = 13.23%. If the loan were paid back the next day, the equivalent nominal interest rate on an annual basis would be 13.23 x 365 = 4,828%.

When transferring assets due to a spinoff, protected benefits should be adhered to, as i understand the regs. Should the definition of compensation be considered? What about safe harbor provisions?

Bird, thank you for your helpful information. About ownership percentages, people get it wrong if they don’t carefully distinguish a partner’s or member’s capital interests, profits interests, and loss interests. And a count of a self-employed partner’s or member’s deemed compensation often is wrong if someone fails to account for the relation between guaranteed-payment rights and other elements.

Look to the terms of the MEP master plan document. It will give you the procedure to follow. If the procedure is unclear, please write back.

Could the employer open an account solely for the use of these funds and institute a policy that within a certain time of the account being funded, a wire will be issued to the reserve fund?

While I’ve advised regarding a VEBA, I haven’t faced a situation of the kind you describe. In other situations, I’ve seen reasoning that a trustee may act through an agent. But a good agent segregates her principal’s assets from her personal assets. Before using the workaround, the VEBA trustees might consider how they would prove: that the employer/agent could not use the VEBA trust’s money for anything beyond the VEBA’s purpose; or that there were prudent controls for the trustees to detect the employer/agent’s bad act, and fidelity-bond insurance or other ready means to recover what’s stolen or misused. Might it be quicker for the VEBA trustees to select a bank with the needed wire-transfer services? Or to select a TPA that accepts the trustees’ check?

We've done an occasional spin-off, say where two docs split up. I'm quite sure we have created a new plan and then spun-off the assets in a separate transaction. Yeah it is considered a continuation of/from the original plan in a way but I don't think, e.g., that you would use the original effective date of the old plan when setting up the new plan, nor do I think you would call it a restatement. I'm not sure if I am disagreeing...

We ask in various ways until we are satisfied that we have the right answer, or at least have a paper trail that we can blame someone else for not providing accurate info (only half-joking). Often it goes to your last item - ask the accountant. Experience and getting a feel for things goes a long way. As far as the original question, I believe it is highly unlikely that the partner is not included; as noted by C. B. Zeller, "employee" probably includes "partner." On a somewhat related note, I've had accountants state that sole props or partners can't get contributions because the plan definition of comp is "W-2." Sigh. W-2 comp does include self-employment income; you don't literally (only) read numbers off of a W-2.

I agree with C.B. - but FWIW I'd be a little cautious on the "Guaranteed payments" question. Sometimes this terminology is used on a blanket basis, but certain "guaranteed payments" are included when computing net earnings from self-employment, and some (see IRC 1402(a)(10)) are excluded. And as C.B. notes, you can get into trouble if the "net earnings from self employment" turns out to be less than the guaranteed payments.

One more thing to consider - the plan administrator has a duty to ensure that the loan is repaid, as any amount that remains outstanding is at risk of default. If the plan administrator chooses not to allow prepayment, they are increasing the risk to the plan, perhaps imprudently so. If the plan is participant-directed then this may be less of a concern though.

The 401(k) portion of the plan still has to be in effect for at least 3 months to be able to use a safe harbor. SECURE didn't change that. You are spot on about the BRF issue. The reg that is violated is 1.401(a)(4)-4. The right to make an elective deferral (at any rate) was not available to the NHCEs. It was available to HCEs. Boom - instant current availability failure.

I think you have a problem with effective availability with respect to the NHCEs since presumable they won't be able to make any deferrals but I'm not sure there is any specific reg that is violated. I know in the past we have put in 401(k) plans in December with prior year testing to allow the owners to put in 5% of annual pay + catch-up if over 50 but there was always the understanding that at least 3% TH minimum would be made for all employees and NHCE would be offered the plan for the final payroll(s) of the year if they wanted to contribute. With SECURE I suppose they could have put in a 4% non-elective safe harbor and got the full 402(g) limit for 2020. Though again you might have an effective availability problem since effectively only the owners could make deferrals.

No, not all employees. The plan document should have some provisions to add for waiving eligibility, like all employees employed on a certain date or work 83.33 hours per month. Must be very careful though on the options and if you want some out of box provisions, always ask the vendor and/or an attorney if they are kosher.

Usually when the plan is set up with a recordkeeper (either a brand new plan or a takeover from another RK), the RK provides a form for the plan sponsor to sign. It lists everyone that gets access from the sponsor to the TPA to the advisor. It also lists what level of access they get. If you weren't on that original list, you'll need to talk to the sponsor and/or their contact at the RK to get the approval.

It's all based on the document. Does the plan exclude partners? Why would you think he wouldn't be eligible?

Same goes for a "1% owner."

The option to electronically file a 5500-SF for a one-participant plan went away on January 1, 2021. If you filed during 2020 using the 2019 5500-SF, you should be fine.

Not related to your question, but This is not quite correct. To be a 5% owner you must own more than 5% of the company. Someone who owns exactly 5% is not a 5% owner. 416(i)(1)(B)(i)

The answer is yes. Both the Code and Treasury Regs allow plans to have a 1000 hours/last day rule as a condition to receiving an employer non-elective allocation. This would certainly be a "reasonable classification" under the 1.410(b)-4 Treasury Regulations. I want to make sure, however, that this condition to receiving the forfeiture allocations is already provided in your plan document.

The below is from the same revenue procedure. You did not miss anything; there is no special situation for ESOPs. You cannot file for a DL for an ongoing ESOP but can continue to rely on the existing DL (with the expiration date no longer operative) unless and until changes are made (or required and not made). SECTION 13. RELIANCE ON DETERMINATION LETTERS .01 Rev. Proc. 2016-6 provides that, effective as of January 4, 2016, determination letters issued to individually designed plans will no longer contain an expiration date. .02 Under this revenue procedure, expiration dates included in determination letters issued prior to January 4, 2016, are no longer operative. .03 In general, a plan sponsor that maintains a qualified plan for which a favorable determination letter has been issued and that is otherwise entitled to rely on the determination letter may not continue to rely on the determination letter with respect to a plan provision that is subsequently amended or that is subsequently affected by a change in law. However, a plan sponsor may continue to rely on a determination letter with respect to plan provisions that are not amended or affected by a change in law. Reliance on determination letters is discussed in section 13 of Rev. Proc. 2016-4, 2016-1 I.R.B. 142 (updated annually) and section 21.01 of Rev. Proc. 2016-6, 2016-1 I.R.B. 200 (updated annually).

Based solely on the information you have provided, and ASSUMING he had no ownership in 2019: Non-key for 2020. IRC 416(1)(A) provides that the key employee tests are made for the plan year that includes the determination date. IRC 416(g)(4)(C) defines the determination date to be the last day of the prior plan year. except in the case of the first year of the plan. So if no ownership in 2019, and with the comp level you provide, non-key for 2020. Will be key for 2021.

If the plan’s governing document, summary plan description, 404a-5/404c-1 information, and loan agreement were carefully written (and the administrator has evidence that the disclosures were delivered), a claim that a fiduciary breached its responsibility by allowing a participant loan that was an imprudent investment might be negated by the fiduciary’s ERISA § 404(c) defense that the loan, including the lack of a right to prepay, resulted from the participant’s investment direction and exercise of control. If a loan was a non-exempt prohibited transaction, the plan’s equitable relief might include that the borrower disgorges the ill-gotten proceeds (with any profits made from using the proceeds) and restores the plan to no less than the result the plan would have obtained by keeping the loaned amount and prudently or properly investing the amount. But it’s unclear whether the participant loan Belgarath inquires about was or would be a prohibited transaction. Although 29 C.F.R. § 2550.408b-1 might preclude some participant loan terms that are less favorable to the plan than terms that would obtained “by persons in the business of lending money”, I don’t read the rule to preclude terms that might be more favorable than terms a commercial lender would get. https://ecfr.federalregister.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-F/part-2550/section-2550.408b-1 And unless the plan itself is in the business of banking (or the plan is not the lender), ERISA ought to preempt States’ laws.

Allowing access to see participant transactions is quite common. Allowing the advisor to execute transactions (other than investment trading) would be very uncommon, I would imagine.

You might be concerned with something that is usually overlooked, including by the IRS and DOL. Loans have to have commercially reasonable terms. At least some commercial loans are regulated and are required to allow prepayment of some sort. In the environment, I would venture that it is very common, if not universal to allow prepayment, although the specific terms probably vary, e.g. there may be a permissible prepayment penalty under some loans to protect the expected profit of the lender. It may be commercially unreasonable to deny prepayment altogether, and it may be unreasonable to have prepayment penalties for plan loans. Denying partial prepayment is common, as an administrative burden, and should be allowed.

To be overly simple as a starter, what is the business of the management group that allows it to maintain a plan for its employees/members? Then look at the relationships to see if there are complications and limitations.

The reg section you are quoting is talking about plans that have mandatory employee contributions. Elective deferrals, by definition, can not be mandatory contributions (otherwise they wouldn't be "elective"). I don't see how the vesting provisions you described can be legal in a qualified plan. Do they have a determination letter?

How does someone ask for a 90% deferral and not notice for 3 months?

Your use of the term "management group" is confusing, because there is a type of affiliated service group called a management function group, but that is not what you were asking about. I'll refer to the organization with the 50 partners as the partnership/LLC. The short answer is, if they are unrelated employers then separate 415 limits apply. When you say they want to max out in both 401(k) plans, presumably you mean the annual additions limit in both plans, since the 402(g) limit applies on an individual basis. The tricky part is determining if they are unrelated employers. With that many partners, it is unlikely to be a controlled group. It is possible that an ASG exists though. Do any of the 50 partners of the partnership/LLC have any ownership in the network? What kind of entity is the network? Does the partnership/LLC receive any income from performing services for the network? There are probably other relevant questions - determining ASG status can be complex.

Always used an official third party appraisal and never accepted anything else. This is especially important for db plans as any incorrect valuation may result in under contributions or over deductions.

A colleague of mine found this: "A Plan Sponsor cannot avoid liability to make corrective contributions for the missed deferral opportunity by making its employees responsible for checking pay records to ensure deferral election has been implemented." https://www.irs.gov/pub/irs-tege/epcrs_401k_phoneforum_presentation.pdf Unambiguous.

To avoid plan disqualification, the employer is responsible for correction of the missed deferrals, and related match, if any, in accordance with IRS guidance. As to the ultimate responsibility for the cost of correction, I suppose the employer/plan sponsor can argue with the administrative services provider.

I know this was directed at @Bird, but I'll add my thoughts as well. @Bill Presson is correct that money in an account due to an uncashed check is a plan asset. It doesn't matter whether it sits in the plan's account or if the financial institution holds it in a different account until it clears, it is a plan asset. In situations where the check is issued in December and clears in January, or we know that $xx.xx of trailing dividends will hit in January, I have no problem making the accounting work so that liabilities cancel out assets, and we can avoid a new plan year just for the sake of a slow clearing payment or trailing dividends. When those events start taking longer and longer, going in to February, march, or beyond, it loses any nexus it had with the prior plan year. I would not treat a check clearing in March as no plan assets on January 1. I believe it was mentioned in another thread that "client does not want to file a Form 5500 for an additional year". I think we all know that what the client wants to do or does not want to do in regards to reporting and disclosure is irrelevant.

This. It needs to be a a third party appraisal, and it needs to be FMV.

In our experience, we've seen certified real estate third party appraisals, and also seen real estate agents provide "comparables" market value information provided on their letterhead (for whatever that's worth). But as far as I remember, never used tax assessment.

I don't know where you are, but in the counties I'm familiar with assessed valuation bears little relationship to fair market value. The plan assets have to be carried at FMV. Showing an incorrect value on a 5500 isn't fatal, but yes it will affect the MRC and 404 DB contribution calculations as well as the AFTAP. And in a pooled DC plan it would affect the value of accounts and distributions (where an incorrect valuation could lead to a qualification failure). And an incorrect value could lead to a qualification failure in a DB distribution, undervalued could result in a 415 violation, overvalued would lead to a benefit being underpaid. Fair. Market. Value.

OK, I guess we don't disagree then. I wouldn't change my position if it is outstanding for a while but it can get...not pretty.

We've done the same on occasion, especially if we're talking about a few days or weeks in to the new year. But what if the check gets lost or if the participant never cashs it?

Don't confuse a couple of issues here. If a participant gets a check in December of 2020, then he gets a 1099 for that money representing a 2020 distribution. Regardless of when he cashes the check. A plan can't shut down until all the money is gone. So money in an account because the check hasn't been cashed IS still a plan asset. That's why wire/ach/certified checks should all be used for a plan termination.

Sorry, I missed the fact that this is a SH match plan. That makes a huge difference in response. If the plan document requires the match to be made on a payroll by payroll basis, then the safe harbor rules require the funding to be made no later than the last day of the quarter following the quarter for which the contribution is otherwise due. If the plan document states that match is based on full year comp and deferrals, then the deadline is 12/31/2020.

They will have a qualification failure and need to correct it under EPCRS. If eligible to self-correct, they have until the end of the 2022 plan year to do so, or longer if it is not a significant failure.

The portion not contributed by the tax filing deadline is not deductible under Section 404 of the Code for 2019 plan year. For what it's worth, if it is contributed by 12/30/2020, it could still count as an annual addition for 415(c) purposes for the 2019 plan year.

The SH match is an Employer contribution and therefore due to the Trust by the time the Employer files it's tax return (plus extensions). In other words, the true up contribution must be in by the Employer's tax filing deadline unless it extends, then it would be the extended date. Does this help?

What does your amendment say? I'm pretty sure you can set up separate sources and have the QACA safe harbor follow that vesting schedule and the traditional SHNE follow the 100% immediate if that's what client wants.

Just an FYI, the pass ratios for EA 1 are very low, typically only about 20% or less pass. This is generally thought to reflect the quality of the student taking the exam, not the exam itself. Most "strong" students are going the ASA/FSA route and don't take EA1. The "weaker" students take EA 1 and therefore the pass marks are very low. Normally less than 100 students take the test each year. The material generally doesn't change much from year to year. Best approach is just get a bunch of old exams and make sure you know how to do all the questions. All the old exams and answer keys are available on the Joint Board site. Really no reason to buy the newest study material and solutions for EA1. You would probably be just a well off if you could find someones used stuff from a year or so ago and save yourself some money. The text books you mentioned are great, but practicing on old exams is the best way to go. Also, save the 2 or 3 most current exams and practice on them in simulated exam conditions. This will give you good insights on where you need help.