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No, I'm not nearly as creative or talented as Derrin. This came to me in a fit of inspiration after yet another prospect objecting to the plan design I was presenting by asking "why would I cover all these employees when I can do a SEP for myself?". But as for musical abilities I have pretty much zero. Have at it!

I got my first call from a client about a deactivated trust identification number this morning. My days could be so dull were it not for the intervention of the IRS.

Only 1, 2, and 5. Adult son owns 100% of Company 4 and it is not attributable to parents.

I would say no. The allocation method is whatever it says in the plan document, presumably individual groups if it's new comp. Just because you choose to test the allocation by imputing permitted disparity, does not mean that the allocation is based on permitted disparity.

Egold, not only is that amount allowed but much more. The overall max for 2022 is $61,000; the catchup doesn't count towards that so effectively it becomes $67,500. Can he get there? Well if we subtract 20500 from 61000 we get 40500. The employer contribution is limited to 25% of pay, which is 50000. 40500 < 50000 so 40500 is ok as an employer contribution...if we are talking about a corporation. If it is a sole proprietor then you have to subtract the employer contribution and part of the self-employment tax to get net/net compensation, and that number would be somewhat less than 40500. The gist of your question seems to be whether the employer safe harbor contribution counts against the 401(k) limit and the answer is emphatically "no." As others have noted, there is no point to the safe harbor if he is the only participant. It doesn't actually hurt but is probably causing confusion.

Agree with ESOP Guy. (Not the question that was asked, but just fyi - you can disregard service prior to the effective date of the plan for VESTING purposes.)

Family aggregation! Less affectionately (but more commonly) known as family aggravation.

1. Plans are required to satisfy 410(b) each day in plan year or on one day in each quarter, or on last day of plan year (1.410(b)-8). Per your facts, Catch22PGM, they would not pass for periods before 12/1 without aggregation, so I think you will want to aggregate for period before 12/1/2021. After 12/1 they can't be aggregated, since different employers. 2. If the plans satisfied coverage on 12/1/2021, including by aggregation, they should be good through 12/31/2022 as long as coverage not significantly changed. 410(b)(6)(C).

Yes, you can have a nonqualified retirement plan that is not a top-hat plan, but you do have to comply with ERISA requirements for things like vesting and putting assets in trust and probably a number of other things. What you don't need to comply with are IRS coverage and nondiscrimination rules, but any tax deferral you want to accomplish is subject to deferred comp rules, and probably 409A now as well. I have been around a long time and do not recall actually ever seeing one of these but do remember getting very infrequent inquiries with the conclusion they were not worth the trouble.

Why do you think it unlikely? They are set up as Trustee of the specific plan they participate in. I know firms that have dozens of these. They trace back to when 401(a)(26) was amended so as not to apply to DC plans.

I would suspect they'd have to re-sign updated pages with 2022 as the effective date, and double-check that they didn't inadvertently have any changed provisions that needed a 12/31/21 signature date. And yet, if this were a brand new plan (absent salary deferrals) it would be fine, right? Hmmmm......

How about, partnership match amounts count as deferrals?

I'm imagining Derrin Watson singing that as lyrics - got a melody for it?

True dat. I didn't think it was needed. Thanks.

I am advising a TPA firm that unfortunately had an employee who helped backdate a plan amendment for a plan customer. This means that the plan client and TPA missed a plan amendment deadline but backdated the signature date to be within the deadline. This happened fairly recently. The question is how to correct this. My opinion is to reach out to the plan customer and draft a new plan amendment which rescinds the backdated plan amendment. After this is accomplished I will determine through EPCRS what additional steps need to be taken. Any thoughts on this as to whether rescinding the backdated plan amendment is the right first step here and then what additional steps need to be taken, other than using EPCRS?

They want separate plans because they need separate plans. Each plan is trustee directed. No discrimination. IRS has blessed this arrangement for years. Holland and wickersham yes wickersham are on tape specifically stating that this design works and is not discriminatory.

You are correct. Blame it on jet lag.

See §1.401(k)-3(h)(4) as long as you meet that you are fine. Money Purchase plans aren't specifically excluded so I don't see why you can't use a Money Purchase Plan.

If you read the rehire provisions of the plan document they don't make any reference to the effective date of the plan. They simply say if this person is rehired after working 12 mo and having a 1,000 hours they re-enter upon rehire. If so, they enter upon rehire. I believe that reflects the general rule of the law. You can't disregard service prior to the effective date of the plan for entry. Check the plan document very carefully. I am convinced it will answer your question.

In case it's helpful, here's a prior post that touches on QDROs for AP accounts: I agree with others--a plan can pay an AP, and if the AP is a spouse or former spouse, he/she should be taxed on the payments. What they do with that money after the fact is up to them. But I don't see how a QDRO could be accepted that also requires payment to the P.

You have a tax issue. The AP can elect to take a taxable distribution but under IRC 72(t)(2)(C) there will be no 10% early withdrawal penalty regardless of her age. The Participant has no ability to avoid the 10% penalty if he is under age 59-1/2. And if the Participant is still employed by the Plan Sponsor he/she may be be able to make a distribution to himself at all. He can take out a loan for 50% of the vested balance but not to exceed $50,000, or the plan may have an option for a taxable hardship withdrawal that will also be taxable income to him and, I think, will also be subject to the 10% penalty. It looks to me like the Participant is looking to circumvent the ability to take a distribution and the required 10% penalty. Last but not least, a QDRO is at instrument created to permit a transfer of pension or retirement assets to a former spouse without running afoul of the antialienation provisions of 26 USC §401(a)(13)(A). 26 USC §414(p)(1)B)(i) says "(i) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant." The only way that the Participant can use a QDRO to give money to himself is to transfer it to his ex-wife, let her take a taxable distribution at her (likely lower) marginal tax rate (with no 10% penalty), and they turn it over to him. This is not an uncommon event. Of course it's not set forth in the QDRO and it may be worded in the underlying Marital Settlement Agreement in a well disguised way. Or, it may be possible that the answer is found in the following. https://youtu.be/zeIsxXDyjlc David

If a plan’s administrator uses a summary of material modifications (rather than a restated summary plan description), consider this logic path. An SMM describes “any material modification to the plan and any change in the information required by section 102(b) of [ERISA] and § 2520.102-3 of these regulations to be included in the summary plan description[.]” 29 C.F.R. § 2520.104b-3(a) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/section-2520.104b-3 The referred-to rule about the contents of a summary plan description requires “[t]he name, title and address of the principal place of business of each trustee of the plan[.]” 29 C.F.R. § 2520.102-3(h) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-B/section-2520.102-3. The need for a name and address follows the preceding requirement that an SPD or SMM include “a statement that service of legal process may be made upon a plan trustee or the plan administrator[.]” 29 C.F.R. § 2520.102-3(g). Even if a change in trustee from one bank to another is innocuous and otherwise immaterial, the information is not idle. For some ERISA claims, a participant or beneficiary must sue the trustee, even if only so the court will have jurisdiction to order the trustee to do (or refrain from doing) something. And the plaintiff or her attorney needs to know where to send the process server. About the timeline, the plan’s administrator may furnish its SMM as late as “210 days after the close of the plan year in which the modification or change was adopted.” 29 C.F.R. § 2520.104b-3(a). Depending on when the plan’s sponsor adopted or adopts a cycle 3 restatement, is there an opportunity to integrate the trustee information with an SPD or SMM used to meet other disclosure needs? Also, has the plan’s administrator considered electronic disclosures for those who affirmatively consent, are required to use electronic communications as an “integral part” of the employee’s work, or furnished (or were assigned) an electronic address and did not opt out of an electronic-disclosure regime?

CBZ is spot on. Having to aggregate for coverage treats it all like one plan anyway so there is no advantage to carving into separate plans.

Agree - no control group and no >50% ownership in both so no aggregated 415.

Well the deferral limit for 2021 is $19,500 with $6,500 catchup. So 2021 has a $26,000 limit. The employer contributions don't count against that limit. This thread has me a little concerned.

While the advice here is good (we'd reject for the reasons stated), my guess is that this wasn't lazy, but rather intentional on the part of the participant's attorney - who is waiting for "Mr. Green" to arrive. In other words, the participant needs to pay their lawyer and the only pool of money may be the plan.....

The right to direct the investment of your account is a benefit, right or feature that has to be available to all participants on a non-discriminatory basis. Even if they split the plan into 3, the two owners' plans would not satisfy coverage testing on their own, so they would have to be aggregated with the plan covering the employees for nondiscrimination testing purposes. If the effect of the change would be that each of the owners would have the ability to direct the investments of their own accounts, but that option would not be available to their employees, then that would be discriminatory.

You raise a really good question. Unfortunately, what the client did was fraud - plain and simple. Two schools of though on this. 1) Since it was fraudulent, it was of no effect whatsoever, and should be "ignored." The problem is, how does one ignore a documented issue? 2) Do as you suggest and "rescind" that amendment - but I'm not sure another amendment is necessarily the way to go. It basically codifies for all time the fraud that occurred. Clearly, documenting that the amendment was not a legitimate amendment to the plan would be advisable - but I would lean slightly in favor of documentation outside of the plan, that indicates why the amendment is of no effect, and then, as you say, correct the issue appropriately through EPCRS.

Why would you have a safe harbor plan if there are no other participants? Does this individual have a SEP or any other plans?

I would want to see all the documents, but I will take a different approach for the sake of argument. I don't know what the "DRO" says, but it appears to carry most of the formalities of section 414(p). The MSA (which is also a "domestic relations order") has the juice, which is the substantive terms of assignment of benefits. The MSA has a bunch of other stuff, too. When a "DRO," that by itself does not want to be a QDRO, is incorporated by reference, but has an essential ingredient for qualification, the plan administrator should identify what is the subject of the qualification and what is not (i.e. disregarded). Many courts have moved toward a simple checklist approach to qualification. If the right stuff is there (and no wrong stuff that that offends the plan design), then the plan has a QDRO. I don't see the provision for the alternate payee to give the participant funds from "the marital portion of Participant's retirement account" as wrong stuff. I look at that provision of the MSA as other MSA stuff like "sell the house, divide the proceeds, and then the husband gets an additional $XX from the wife's portion of the house proceeds." The plan pays no attention to the incorporated provisions that are other MSA stuff that have nothing to do with the assignment of retirement benefits, i.e. the 50% of the marital portion. The plan does not enforce the provisions that are not essential parts of the QDRO, Whether or not the AP asks for a distribution and forks $$ over in compliance with the MSA is a matter for the state court. The plan should be very clear about what the QDRO is, and what is disregarded, and that the plan will not require the AP to take a distribution, and that the plan will pay all proceeds of distribution to the AP. This approach gets the job done at the least cost to the plan and the parties. The bad drafting upsets me, too. I also don't like something that veers close to an unpermitted assignment of part of the AP's benefit, but I think if the plan is not involved with the AP disposition of funds, the plan is not implicated. Also, we just have to get over the sham divorce aspects of "liberating" retirement funds for the participant. That has been settled and is part of the trend to focus on the qualification checklist and the rest of reality (and the domestic relations implications) be damned. I opt for practicality. If a particular lawyer is responsible for this and repeats the crappy drafting for other clients affected by the plan, then I opt for discipline and making for a clean order by denying qualification.

A QDRO does not order a payment to a participant. A qualified domestic relations order “creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan[.]” ERISA § 206(d)(3)(B)(i)(I). Likewise, ERISA § 206(d)(3)(C)(ii) refers to “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee[.]” Whatever is not assigned to the alternate payee is the participant’s portion of the participant’s benefit, and remains governed by the plan’s terms. Even without the attempted convoluted provisions, one might justifiably be grumpy about an order that purports to state its command only by incorporating a marital-settlement agreement. An order that merely describes what the divorcing parties agree between them (even if it says, in passive voice, what the alternate payee “shall receive”) is not the same thing as a court’s command that a specified person do (or refrain from doing) a specified thing. Under the statute’s definition of a QDRO, an order can be a QDRO only if the order “clearly specifies” the amount the plan must pay the alternate payee. ERISA § 206(d)(3)(C)(ii). Once an administrator decides to deny that a submitted order is a QDRO, a good denial letter explains all potential grounds for denying QDRO treatment. The order RatherBeGolfing describes might have more defects. Among them: Even if the plan’s administrator were to interpret the order as commanding the plan’s payment only to the alternate payee, doing so when the administrator has some reason to know the alternate payee might have some duty or obligation to pay over some amount to the participant could allow the participant to get indirectly a benefit the plan does not provide. A QDRO “does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan[.]” ERISA § 206(d)(3)(D)(i). http://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true

Yea that is what I'm thinking too, but at this point Im annoyed at the whoever drafted the lazy DRO (and the judge for signing it...), so I think I make them fix it first.

Sorry to hear that. Not sure when you worked there, or in what area, but a lot has changed in the 5+ years I've been there. Been great for me!

Yes, because of IRC §1563(a)(1). IRC §1563(b) does not apply.

5500EZ is for owner + spouse so believe they need to file 5500SF

You cannot make a deferral election until the plan is established . See Treas. Reg. 1.401(k)-1(a)(3)(iii)(A).

Well, be a little careful here. IMHO, you cannot make a valid election to defer to a plan that doesn't exist. So merely signing a deferral election in December would not allow you to retroactively adopt a 401(k) the following year and deposit deferrals for that prior year. Others may have a different opinion on this.

Since a sole proprietor's income isn't known until their tax return is completed, they are not required to deposit their deferrals until their income is known. However they are still required to make an election to defer before the end of the plan year.