Leaderboard

What sets up a restorative payment is that a fiduciary pays it to restore losses to a plan (or IRA) if there was a reasonable risk of liability for the fiduciary’s breach, and other facts and circumstances show the payment is not a disguised contribution. For a § 401(a)-qualified plan (or another plan that has § 415 limits), a Treasury department rule distinguishes between an annual addition and a restorative payment, which does not count as an annual addition. 26 C.F.R. § 1.415(c)-1(b)(2)(ii)(C) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(c)-1#p-1.415(c)-1(b)(2)(ii)(C); Limitations on Benefits and Contributions Under Qualified Plans, 72 Federal Register 16878, 16887 [middle column] (Apr. 5, 2007), https://www.govinfo.gov/content/pkg/FR-2007-04-05/pdf/E7-5750.pdf. That rule follows a general principle described in Revenue Ruling 2002-45, 2002-2 C.B. 116. The Internal Revenue Service has issued letter rulings applying the principle regarding IRAs. IRS Letter Rulings 2009-21-039 (Feb. 25, 2009), 2008-52-034 (Sept. 30, 2008), 2008-50-054 (Sept. 18, 2008), 2007-38-025 (June 26, 2007), 2007-24-040 (Mar. 20, 2007), 2007-19-017 (Feb. 12, 2007), 2007-14-030 (Jan. 11, 2007), 2007-05-031 (Nov. 9, 2006). [In the numbering of letter rulings, the two digits after the year show the week in which the ruling was released under the Freedom of Information Act.] Although a letter ruling is no precedent [I.R.C. § 6110(k)(3)], one might use the reasoning of the three layers of sources described above—and that the IRS has consistently applied the principle since at least 2002—to support a substantial-authority tax-return position. 26 C.F.R. § 1.6662‐4(d)(2)-(3) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR1d0453abf9d86e0/section-1.6662-4#p-1.6662-4(d)(3). The position will be stronger if the IRA holder had and keeps evidence, preferably independent evidence, that shows the settlement was truly made to end a fiduciary’s (or alleged fiduciary’s) risk exposure.

If you disaggregate otherwise excludable employees, your participant A won't have to be included in the gateway test.

As long as there are deferrals for at least 3 months in the plan year, it can be safe harbor. For the initial starting of deferrals and safe harbor match, an additional requirement is that employees must receive a notice by the time deferrals begin for that plan year. So in your case, as long as the deferrals and safe harbor started together, and the safe harbor notice was provided by the date deferrals began, and assuming the plan document was executed by that same date, then the timing requirements appear to have been met to allow the plan to be safe harbor.

Do you mean they didn't satisfy the initial eligibility requirements (e.g. age 21 and 1 year/1000 hours of service), or they didn't meet an ongoing allocation condition (e.g. must work 1000 hours in a plan year to receive PS that year)? If they didn't meet the initial eligibility, then you can probably disaggregate otherwise excludable employees for testing, and as long as none of these people are HCEs then you don't have to test them. If you are talking about ongoing conditions, then check and see if your plan document provides for an automatic waiver of the allocation conditions if needed to pass the gateway. If not, then you might need a corrective amendment to allow you to pass testing. If the amendment is made after the end of the year it would fall under 1.401(a)(4)-11(g).

If you furnish the EXACT name of the Plan we can tell you what sort of Plan you have. A "ension" Plan to many of us is a term of art meaning a defined benefit plan where you retire after a certain number of years or service or at a certain age and receive a lifely annuity based on your years of service and income history, and when you die there is a survivor annuity for a spouse or former spouse. Unless it's a cash balance plan you cannot look at a statement and know what the plan is worth. We use "retirement" plan is shorthand for a defined contribution plan like a 401(k) or a profit sharing plan or a 403(b) plan where there is a certain dollar amount in the plan that you can pay out to yourself when you leave the employ of the Plan Sponsor, for example, by rollover to an IRA account, or by direct taxable distribution, or in an annuitized payout. You can look at a periodic statement and know exactly how much is in the Plan. Since you used the word "freezing" you likely have a defined benefit plan of some sort. Here is an article explaining how it works - https://www.thebalancemoney.com/what-is-a-pension-freeze-5080121#:~:text=When a company wants to,participants may no longer grow. Here is another https://www.groom.com/wp-content/uploads/2017/09/33_FreezeArticle-PostPPA-Final.pdf

Agree with John here, happens quite frequently when there is a new plan established mid year. Plan drafters will use the 1/1/2022 effective date for the plan as a whole so there is not a short plan year and hence prorated 415 and comp limits, and will have the deferrals and match start no later than 10/1 of the year. Alternatively, they could have adopted a 3% safe harbor nonelective for the full year, just depends on the other plan provisions and overall design.

I would definitely check with the plan actuary but if there is a majority owner they can waive the benefits so that the additional funding is not required. Assuming the wife is not a direct owner, the husband would waive but the spouse would get the full benefits (or vice versa if the wife is the owner).

Daily rather than annual coverage testing perhaps?

Start the deferrals January 1 and park them in a plan checking account until you can transfer the assets to the new custodian. Have the self-direction effective 2/1 instead.

If you ran the test with everyone in, without using the otherwise excusable employee rule, then the gateway applies to them. But, as Corey described, if you run the test using two groups, one group that is over the 21/1YOS cutoff and another that is under the 21/1 cutoff, then it is common that you may be able to avoid the gateway minimum for the group under the 21/1YOS cutoff (the OEE rule). If the group under 21/1 has no HCEs or that group does need to cross-test for that group to pass, then that group is not required to receive the gateway.

You do not say what type of pension plan this is - there are a few possibilities and the answers vary depending on plan type. If it is a defined benefit plan, including a cash balance plan, it is subject to ERISA minimum annual funding requirements. If the plan is frozen (no current benefits are being earned) then if the plan is well funded the employer may not need to physically contribute. My guess, by your comment that you have $250k, is that this is a cash balance pension plan. Your employer, saying they will stop contributing, was stating very generically (I assume) that they are freezing the plan and will stop adding contribution credits to your account. Your account will still be required to get credited with interest according to plan terms until it is distributed, whether after your termination of employment or the plan's termination. Regardless, the employer will need to fund the plan each year in accordance with ERISA requirements or be subject to excise taxes. Also note as a large plan (assuming over 100 employees) it is required to have an annual audit by qualified CPA. Finally, each year you are required to get an Annual Funding Notice that describes the relative health (funded status) of the plan. If this is a money purchase pension plan, then it is like a profit sharing 401(k) except with required annual contribution obligations. Employers may amend these plans to cease future contributions but your account continues to be invested as before but w/o those future contributions. I encourage you to review your Summary Plan Description(s), or request them if you can't locate. The industry trend for larger companies has certainly been away from pension plans and emphasizing 401(k) plans. Regarding your individual retirement outlook, I suggest consulting a qualified and trusted advisor. Maybe your employer has resources (financial wellness plan?), the advisor to the 401(k) plan, your accountant? Good luck.

I'd be surprised if there wasn't *something* but I suppose the Plan Sponsor could adopt an amendment addressing it as they wish then.

They do have to clear their minimum funding requirement for the year determined as of the valuation date, which could be changing as a result of the termination. If they do that, then the plan document itself may address what occurs in a termination with insufficient assets. (Possibly the plan says to pro-rate, or perhaps if one of them is the majority owner then that person alone forgoes receipt.)

Any settlement check should be paid to the original owner (the plan) and it is simply different money, still owned by the plan. It is not a contribution. Getting the investment company to recognize that may be the hard part.

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