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Under this formula, a participant no longer is credited with additional service after 10 years of service. At 10% per year that means their accrued benefit is equal to 100% of their average compensation after 10 years of service. They will most likely still have increases in their accrued benefit after year 10, not due to additional service, but due to increases in average compensation. Lump sums in DB plans are subject to the 417(e) minimum. If the employee's average pay was $75,000/year, that's $6,250/month, which would be equal to their accrued benefit if they have 10 years of service. My software tells me that the present value factor using the 2022 applicable mortality table and the October 2022 segment rates, for a participant currently age 47 with normal retirement age 65, is 52.571. $6,250 x 52.571 = $328,569. The actuary should be able to explain how they came up with the $315,000 number.

You may want to dig into the 415 aggregation rules, since it appears owned >50% of each (LLC and sole prop) during the year and maybe a combined 415 limit applies. I don't know if you need to look at the year as a whole or aggregation doesn't apply because the >50% ownership in the entities didn't overlap. Maybe making any new solo plan effective say 6/1 makes that moot? But then a short PY means prorated comp and 415 dollar limits which may or may not impact this person.

This is also important for Combo Plans as certain degree of coordination on key provisions (and NRA is one of them) is desired/recommended between 401(k) and DB/CB plan.

oh well, while we are at it, how about a plan "permanency" issue? if this is a one year 1099 arrangement this might be a problem. Devil is in details.

Per the IRS 1099R instructions: G—Direct rollover and direct payment. Use Code G for a direct rollover from a qualified plan, a section 403(b) plan, or a governmental section 457(b) plan to an eligible retirement plan (another qualified plan, a section 403(b) plan, a governmental section 457(b) plan, or an IRA). See Direct Rollovers, earlier. Also, use Code G for a direct payment from an IRA to an accepting employer plan, and for IRRs that are direct rollovers. Note. Do not use Code G for a direct rollover from a designated Roth account to a Roth IRA. Use Code H.

You may also want to inquire about the independence and type of services performed. Especially on the look out for any managerial functions. A management-type affiliated service group exists when: (i) An organization performs management functions, and (ii) The management organization's principal business is performing management functions on a regular and continuing basis for a recipient organization. There does not need to be any common ownership between the management organization and the organization for which it provides service. Any person related to the organization performing the management function is also to be included in the group that is to be treated as a single employer. [IRC Section 414(m)(5)]

I agree with Lou - basis is distributed first.

Just wanted to add my two cents. There is nothing wrong with flat fee billing. Nor is there anything wrong with hourly billing. But, you need to see what your agreement was with the client. While the law requires your fees to be reasonable, I would argue that this is a standard to be determined by the plan sponsor (and we put that into our service agreements, BTW). So, if the client determined that the $15K fee was reasonable, the fact that you could have charged $12K and still made money is likely not relevant. (If, on the other hand, you were accused of charging an unconscionable fee under Circular 230, there would be an argument that what others would have charged or how much time it took to do the project could be probative of whether the fee was off the chart. The difference between $12K and $15K,however, should be so large that the high end is "unconscionable.") Having said all that, your service agreement or your "estimate" language likely made it clear whether you were billing by the hour or by a flat fee, and you need to stand by that. And, what everyone else said about whether you would charge more if it had taken you longer, etc., are important factors.

Yes - NRA is an important definition when doing nondiscrimination testing, combo or not, and lots of profit sharing contributions with 1000 hour and last day rules have exceptions for normal retirement (among others). It is also relevant to note that ANY separation on or after the date a person qualifies for normal (or early, if applicable) retirement is considered "retirement" regardless of whether the person terminated/retired voluntarily, was laid off or involuntarily terminated.

Interest rates for minimum DBP lump sums will increase substantially for annuity starting (distribution) dates in 2023 which will dramatically reduce lump sum payouts. I thought I read someone's article within the last month or so that said such reduction is in the 15% range, which would take $315k down to $270k. This impacts the owner as well.

As noted above, it's mostly about vesting, and with accelerated vesting schedules compared to the olden days, it often doesn't matter. But sometimes it does...some years ago, my mother-in-law left a job after working only a few years, and they were going to pay her a partially vested amount. But she was over 65, and the plan said NRA was 65 with no service requirement, so we pointed that out and got her the full account balance.

I recommend this: https://www.lfg.com/wcs-static/pdf/Attribution of Ownership in Retirement Plans - PDF.pdf

If whether an individual-account retirement plan generates account balances that could provide retirement income depends exclusively or heavily on whether eligible employees make elective contributions and the plan’s fiduciary prudently finds that some eligible employees would not contribute unless they can direct investment to a fund that meets one’s religious or social interest, that finding might support selecting a fund that otherwise might not be selected as an investment alternative (if the fiduciary finds that the availability of the investment alternative would not harm other participants, or that harm to other participants involves a reasonable balancing within a fiduciary’s duty of impartiality). The US Labor department’s revised investment-duties rule to be published tomorrow tends to support that idea. “The plan fiduciary of a participant-directed individual account plan does not violate the duty of loyalty under paragraph (c)(1) of this section solely because the fiduciary takes into account participants’ preferences in a manner consistent with the requirements of paragraph (b) [prudence] of this section.” To-be-codified 29 C.F.R. § 2550.404a–1(c)(3) (to be published Dec. 1, 2022; effective Jan. 30, 2023), https://public-inspection.federalregister.gov/2022-25783.pdf.

For many individual-account retirement plans that permit retirement distributions (even without waiting for severance from employment) as soon as age 59½ and (by requiring no more than a few years of vesting service) make most participants’ accounts nonforfeitable before an individual’s 60-something age, that a written plan specifies a normal retirement age seems mostly a vestige. As Riley Bretton mentions, many plans do not impose an involuntary distribution earlier than needed to meet Internal Revenue Code § 401(a)(9)’s tax-qualification condition, which now usually refers to age 72 (for a participant who is no longer employed, or is a more-than-5%-owner). Although I imagine few plans so provide, a plan may provide an involuntary distribution once the participant reaches the plan’s normal retirement age or, if later, age 62. “Immediately distributable. Participant consent is required for any distribution while it is immediately distributable, [that is], prior to the later of the time a participant has attained normal retirement age (as defined in section 411(a)(8)) or age 62. Once a distribution is no longer immediately distributable, a plan may distribute the benefit . . . in the normal form . . . without consent.” 26 C.F.R. § 1.411(a)-11(c)(4) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.411(a)-11#p-1.411(a)-11(c)(4) Under Reorganization Plan No. 4 of 1978 § 101, the Treasury department’s rule interprets not only Internal Revenue Code of 1986 § 411 but also ERISA § 203.

usually full vesting is required at normal retirement age...

My understanding of ROTH-IRA distributions is that basis is recovered first so if the partial distributions is less than the basis there would be no taxes due since participant is over 59 1/2. If partial withdrawal exceeds the basis recovery the earnings would be taxable as you don't meet the qualified ROTH distributions since it is less than 5 years.

Couple of thoughts. 1. If you agreed to bill by the hour, then bill by the hour. 2. There is a value in the services that isn't tied to time. It's tied to knowledge and efficiency. One shouldn't be punished for being smart and working quickly. 3. If you bill less than estimated, be sure the client is aware. And remind them that things sometimes go the other way and you would still expect to be paid.

Ooh, just in time for everyone's 2 hours of Ethics CE for the year! "The fact that you're even asking...."