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Today I learned ANPRM = Advanced Notice of Proposed Rulemaking

Here is what happened: PPA §1103 directed The Secretary of the Treasury to modify the requirements for filing annual returns to ensure that one participant plans with assets of less than $250,000 need not file a return for that year. §1103 also modified the definition of a “one-participant plan” to treat 2% S-Corp shareholders as partners for annual filing purposes. PPA §1103 did NOT amend the definition of an employee benefit plan. DOL regs treat a shareholder (no S or C distinction) as an employee if there are two or more shareholders who are not spouses. As of 2019, IRS and DOL had not implemented or issued interpretive guidance in regards to the 2% shareholder issue, so the instructions had never been changed. We have Janice Wegesin to thank for the 2020 change we are discussing. While she had retired a few years earlier, I had a chat with her about this back in 2019. She reached out to an IRS contact who happened to be working on the 2020 instructions.

Does it matter at this point (Jan 13) or are you just trying to figure out the penalties? And someone took $2M in cash?! Not having looked at it in a while, I'm leaning towards next day filer, but am not sure. Totally unhelpful, sorry!

Also must watch how and if it will affect the testing issues, if any. As Sherpa stated, you need to watch for 415 limits and also make sure that at least 1/7th of the db excess is allocated with 95% of the active ex-db participants receive an allocation.

You're good to allocate up to the 415 limits.

Since it was a rollover, you don't use code 1. It's strictly a G.

The $35K released from the suspense account is not being deducted, it's simply being allocated so I don't see a problem with allocating $160,000 as long as it follows plan and IRS rules and complies with 415. If you had a client who was reallocating $35K of forfeitures on top their 25% of pay employer contribution, would you have a problem with that? I wouldn't.

As long as accountant deposited it as a 2020 tax liability, you wont have any problems. If accountant deposited it as 2021 tax liability, you will get IRS love letters.

Happy accident. We were working on missing participants, but since Janice was the 5500 guru I asked her for advice on an S corp issue. She was always very generous with her time both before and after retirement.

In my opinion, this will become the biggest issue (assuming as Luke notes that there is no underlying PT based on the husband not having enough personal funds, etc.). If my experience is any indication, at some point the husband will want to engage in some form of transaction with the plan's interest, whatever that may look like. I dealt with a very similar situation recently where an individual co-invested alongside his plan several years ago, then the plan could no longer support its obligations in the underlying investment. We had to tell the individual he could not fulfill the plan's obligations or buy out the plan's share of the investment personally. In a fact pattern like this, it leaves few good options.

Wrong, and that wasn't the point of the apparent change in 2020.

It seems clear the plan needs to be made whole for the amount that would have been forfeited. EPCRS is only speaking to if it was paid in error for the lack of a distributable event. In such a case no one is "hurt" as the person only got their money- just early. In this case anyone that would get a forfeiture allocation would be hurt if the forfeitures are re-allocated. If the forfeitures reduce then the money is being paid to the plan regardless as less forfeitures means large contributions. I would still go through the process to cover the plan and just in case no contribution is made- at which time it becomes like the forfeiture re-allocated fact pattern.

Yes.

No need, unless there is something in the plan document that says self-employed individuals are excluded. And if that is the case, it's probably easier to amend the plan document than to set up a new entity.

If the partner were being treated as a W-2 employee, it is almost certain that their compensation was being calculated wrong. Even if their net earnings from self employment happened to be exactly equal to their guaranteed payments, that amount still needs to be adjusted for 1/2 self-employment tax and employer contributions made on behalf of the partner in order to obtain compensation for plan purposes.

Speaking from personal experience, starting and running a TPA and/or recordkeeping business takes a tremendous amount of work and expertise. It is not something to just "dabble" in. Furthermore, an unbundled platform (separate FA and TPA/RK) has many merits and the main thing we promote is that the client gets an expert in each field instead of a "jack of all trades - master of none". I would suggest you consider a small to mid-size TPA/RK (where you are a big fish in a smaller pond for the personal attention) that is specifically non-producing (they don't compete with you at all). Send me a PM and we can discuss further.

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.

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.