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Pay him the difference with interest and move on? Not sure if that's the right answer but it seems reasonable given the small size of the data error than is now being corrected.

Locking due to double posting. See duplicate thread for responses. (Yes, I recognize this is slightly different, but the differences were minor and they were clarified on prior thread.)

To state again the key is to preserve the MP characteristics of that money. The big one is the MP money has a lot more rules on when and how distributions can be offered than a PSP. That can be a bit of a pain as you have to make sure people are trained to not just treat this money as part of the PSP. Back when I did those decades ago it was like running an MP within the PSP except no more contributions were being made to that part of the plan.

Our document contains this language:

Perhaps an attorney or another legally-knowledgeable person can confirm, but I believe the deadline is still April 15, regardless of the tax deadline. See IRC Section 402(g)(2)(A)(ii) which says: (A) In general If any amount (hereinafter in this paragraph referred to as “excess deferrals”) is included in the gross income of an individual under paragraph (1) (or would be included but for the last sentence thereof) for any taxable year— (i) not later than the 1st March 1 following the close of the taxable year, the individual may allocate the amount of such excess deferrals among the plans under which the deferrals were made and may notify each such plan of the portion allocated to it, and (ii) not later than the 1st April 15 following the close of the taxable year, each such plan may distribute to the individual the amount allocated to it under clause (i) (and any income allocable to such amount through the end of such taxable year). Publication 525 for 2021 returns (https://www.irs.gov/pub/irs-pdf/p525.pdf) also says April 15. I recall that last year the deadline remained April 15 even though the regular tax filing deadline had been extended due to COVID.

Seems like purely an individual income tax issue. I don't know how there could be an exclusion from income for an independent contractor's coverage. Seems like the relevant cites on the individual deductibility side would be §162(l)(2)(C) and §213(d)(10). You also may have a MEWA issue with offering to outside directors.

From somewhere ont he web: Does a Section 125 plan need to file a form 5500? There is currently no annual filing requirement for Section 125 Plans. However, the underlying benefits may be required to file a Form 5500 if they are considered a Health & Welfare Plan.

S-corp dividends are considered a return on investment and not subject to FICA/Medicare tax, so would be excluded from retirement plan compensation. Here is the link from the IRS Retirement Plans FAQ: https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-contributions-s-corporation

Unless the plan is considered unfunded or fully insured, the bonding requirements apply. The amount to be bonded includes contributions, so if the plan receives $200,000 in contributions the bond would be $20,000. Here is the link to Field Assistance Bulletin No. 2008-04 https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2008-04#:~:text=ERISA refers to persons who,plan official has handling functions.

Since this is a safe harbor plan, you have to take into account the rules for mid-year changes to safe harbor plans. Notice 2016-16 III.C.1 states: It sounds like the recordkeeper wants to rely on the 30-day safe harbor. Under the circumstances, I think a shorter period (or even immediate) would be reasonable, as the change does not affect any current participants. However, you and/or the plan sponsor may have an uphill battle convincing the recordkeeper of that.

I think it's an overpayment under the terms of the plan and should be repaid. I do not see a reason the plan cannot and should not accept a check for $1,000 + earnings as repayment. Just be sure to document everything and make sure whoever is responsible for 1099 reporting has all facts as well.

I think the only possibility is to purchase some type of variable annuity with a cap of the 415 limit. I'd agree with Effen and Bird in that this is a terrible idea and you should use your consulting skills to have them consider amending the plan to allow lump sums instead of including this......stuff.

And about anything that might ask the Internal Revenue Service for reasonable-cause relief, consider advising your client about the practical difficulties of getting the IRS even to process, and much harder to get a human to read, anything not submitted by e-filing.

I am not aware of a regulation that would require a mandatory 30 day wait to amend. My guess is the RK cannot amend any faster due to their internal processes and therefore they are pushing the 30 day timeframe to give them time to amend.

I agree with Bri. These "pass through" distributions aren't eligible for plan purposes. There was a court case way back, (Durando) that ruled an S-corporation owner could not have a plan as a self employed. Therefore, W-2 as a common law employee is what is used. Also, I'm quite sure the IRS has publicly taken this approach, although I couldn't give you a specific citation or reference.

Yeah. Actually it's hard to believe that's not exactly what they're trying to sell - a variable annuity IRA. Not that it's a good idea. I guess if the plan doesn't permit lump sums then that's a different story.

Aren't those essentially dividends paid to the shareholder of the S-corporation? (And thus, not wage income - and taxed at a different rate, too)

Did the participant elect out of withholding? Is his state one where withholding is mandatory? RMDs don't necessarily have to have withholding. And absent an election, the FITW is generally 10%, but could have been waived by the participant. In which case there may indeed be no free throws pending.

1. No. Too late to change 2021. 2. Possibly. If the employer is operating at an economic loss, or if the safe harbor notice provided that the safe harbor may be suspended mid-year, then they could suspend the safe harbor match and adopt the retroactive safe harbor which may be 3% or 4% depending on timing. See Notice 2016-16 III.D.3 and Notice 2020-86 Q&A-8 for more info.

Although ERISA § 408(b)(2) and Internal Revenue Code § 4975(d)(2) might exempt from prohibited-transactions consequences the transaction of providing necessary services for reasonable compensation, the Labor and Treasury departments have (at least since 1976) interpreted that exemption as not providing relief for self-dealing. “If the furnishing of office space or a service involves an act described in section 406(b) of the Act (relating to acts involving conflicts of interest by fiduciaries), such an act constitutes a separate transaction which is not exempt under section 408(b)(2) of the Act. The prohibitions of section 406(b) supplement the other prohibitions of section 406(a) of the Act by imposing on parties in interest who are fiduciaries a duty of undivided loyalty to the plans for which they act. These prohibitions are imposed upon fiduciaries to deter them from exercising the authority, control, or responsibility which makes such persons fiduciaries when they have interests which may conflict with the interests of the plans for which they act. In such cases, the fiduciaries have interests in the transactions which may affect the exercise of their best judgment as fiduciaries. Thus, a fiduciary may not use the authority, control, or responsibility which makes such person a fiduciary to cause a plan to pay an additional fee to such fiduciary (or to a person in which such fiduciary has an interest which may affect the exercise of such fiduciary’s best judgment as a fiduciary) to provide a service. Nor may a fiduciary use such authority, control, or responsibility to cause a plan to enter into a transaction involving plan assets whereby such fiduciary (or a person in which such fiduciary has an interest which may affect the exercise of such fiduciary’s best judgment as a fiduciary) will receive consideration from a third party in connection with such transaction. A person in which a fiduciary has an interest which may affect the exercise of such fiduciary’s best judgment as a fiduciary includes [and is not limited to], for example, a person who is a party in interest by reason of a relationship to such fiduciary described in section 3(14)(E), (F), (G), (H), or (I).” 29 C.F.R. § 2550.408b-2(e)(1) (emphasis added) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-F/part-2550/section-2550.408b-2#p-2550.408b-2(e)(1). Accord 26 C.F.R. § 54.4975-6(a)(5)(i) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.4975-6#p-54.4975-6(a)(5)(i). {Except for references to ERISA or tax Code sections, the Labor and Treasury rules are almost identical.} If the son is the retirement plan’s fiduciary, his father might be a person in whom the fiduciary has an interest that could affect the son’s best judgment as a fiduciary.