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For the DB R/O - absolutely if current plan allows distribution of rollover balances at any time. This amount had already experienced a distributable event and all the conditions to distribute were satisfied. However, since the participant is not 59 1/2 this would be subject to 10% premature distribution tax if not rolled over to an IRA. Rollover to a Roth IRA would be taxable, obviously, but not subject to the penalty tax. I think the SEP rollover is treated similarly.

A line parallel to y = 4x + 6 must be of the form y = 4x + C for some constant C as parallel lines have identical slopes. Since (5,10) is on this line, C is clearly -10 as the line must be y = 4x - 10 to get that ordered pair to work. And the line crosses the y-axis when x = 0, so y = 4(0) - 10, or at y = -10 *beep*

I agree with msmith and PamR regarding inability to treat true severance pay as 415(c) comp, but for anyone who comes across this post and has the opposite purpose (i.e., they want to contribute based on the special payment), I would point out that as long as the payment is not made to fulfil a state or local (or union) severance benefit requirement, you could just say it's a bonus for having been great employees.

Does he have any rollover money in the plan? The plan may allow in-service distributions of rollover at any age.

Post-severance compensation is different from severance pay. The employee would be entitled to the former if employment continued and its treatment for retirement contributions must be specified in the plan document. However, the employee is only entitled to the latter as a result of discontinued employment and such severance is NEVER considered plan compensation.

On 10/18 we sent two extensions. One for a 3/31 plan year end and one for a 4/30 year end. Normally we would have waited on the 4/30 year end but because we have been having 5558's rejected we sent earlier than usual. Our certified mailing return receipt (old school green receipt) was stamped as received 11/4/2022 by Ogden, UT. The 4/30 plan year end with the 11/30 filing deadline received a denial letter. The one that was "late" with the 10/31 filing deadline so far has not received a letter. So just like M says, we got our 2848 and are setting aside a morning to wait in queue. This has been an ongoing issue for the past several plan years. How are others dealing with this? I've heard some that send 5558s a month after plan year end just to have it on file. That sounds like compounding the problem with all of the unnecessary forms going in to be processed, but we are seriously giving it some thought for 2022 plans.

That's what they were saying about self-driving cars a decade ago, Brian. And that is a much lighter lift. I'd be willing to bet on that, Brian. Will double the work. As I told my son, who has done AI research for one of the major software companies and is currently finishing up law school, and who tested ChatGPT for legal research and thought it would be helpful to folks fresh out of law school as long as they checked each answer and only used ChatGPT as a start (which I agree with), if someone had told me that 20 years ago there would be something out there like ChatGPT (or Google or Microsoft or Apple translate) that could so flawlessly mimic the workings of a mediocre human mind, I would not have believed it. I would have thought that language was too complicated. On the other hand, I fully expected 20 years ago that by now we would have AI that could diagnose illnesses like House . To my chagrin, both of those predictions were wrong.

Just for posterity's sake, 401king, "12/31/2023" should be "12/31/2028," right? You might want to edit your original post.

Safe harbor is required by statute within 12 months of the plan year end. So 2021 SH amounts may be deposited currently. Tax deductible deposits are due by the extended corporate tax deadline. So a contribution now for the 2021 SH can't be deducted on the 2021 return. Annual additions for the prior year are due within 30 days of the extended tax deadline. So if these SH amounts are going in now, they can't be 2021 annual additions, either. But hey, maybe having 2 years' worth of SH amounts in your annual additions helps this year. (And good luck if it was meant to be there as 2021 annual additions for that year's testing.) And I punt on the issue of someone not having any 2022 415 comp but needing a 2021 SH amount to post as a 2022 annual addition. Punting works better than a schoolyard lateral play.

They're great to include in the testing with an allocation/accrual rate of infinity. Hard to fail with that kind of math!

I third the prior two suggestions (Bri and CuseFan). Follow the terms of the plan document. As an aside, my advice is to always start with the plan document. Read it. Do what is says. If not clear, go to the drafter for commentary and then have the proper plan administrator make a formal interpretative determination. All of this while keeping in mind the law and regulations. If the plan document appears to require something that you believe may be illegal, consult a lawyer. So many, many questions can be answered by reading the plan document. After all, that's one of the things it's there for . . . to tell you what to do.

I was just wondering, since I never seem to find formulas like that in any documents I review. Seems like it would be a great idea for a sole proprietor, where income could fluctuate widely, and that way they don't really have to accrue a more-than-significant benefit until after the net earnings clear some amount the person would need for living expenses. Like, a contribution credit of "5% of compensation plus 75% of compensation above $100,000" where that could eliminate the need to worry about a big obligation in a "bad year". (Okay, maybe throw in a 401a26 failsafe, too.) Plus it's been a decade-plus since I even saw a super-integrated DC plan, and always liked the term.

I've seen it used for real estate agents and for liability attorneys. In both situations, they were making about $100k every year, but every third year or so, they would make $500k, so the increased pay credits were set for above $150k, if I remember correctly. Obviously limited to max comp for the year.

I've also seen these formulas "in the wild." There are documents out there that let you do it. For an owner-employee with earned income, I would be worried about the situation where they have a lot of income, so this formula produces a large credit, but then they make a large contribution and it reduces their income to where they now have only a small credit, which limits their contribution. There is probably a way to manage this well but I would be inclined to avoid it.

Ok, I wouldn't have a problem delivering the notice on 12/20. It has to be delivered a reasonable period prior to the start of the plan year, based on facts and circumstances. 90-30 days is deemed to be reasonable. So in your case, if they can deliver it to participants and they have an opportunity to make/change elections prior to the start of the year, I would argue it is reasonable period prior to the start of the plan year. If it is late (after the start of the plan year) check the link above. You have to see if it impacted some ones opportunity to make contributions and may have to correct for that. Other than that, you maintain SH status.

If it is a sole prop, yes you can make that case, in that the numbers can work out; not saying it isn't somewhat aggressive. We did it once. I don't think it can be made to work in a corporate setting.

Side note: if the individual owns existing pretax IRA's, the conversion outside the plan may not work out as planned due to the aggregation rules.

Whatever one might think about the public policy merits of a rule of the kind Flyboy John might like, the statute does not provide the Secretary of the Treasury authority to make such a rule.

This is a very interesting topic, so I am going to play a "devil's advocate" for a moment. What about an idea of treating the excess over 6% as "after-tax" contribution? Obviously, this is likely not to be supported by the Brokerage House "solo 401k" document. That can be addressed by restating the solo 401k doc before December 31st, can't it be?

Distribution of VAT at any time is not the same as a Roth distribution, check your plan provisions carefully. We typically have person make the VAT, keep it temporarily invested in non-interest bearing cash, then take a withdrawal of their after-tax account and roll to a Roth IRA. If there is some income on the VAT then it must also be distributed and can be rolled to regular IRA, taken in taxable cash, or rolled to Roth IRA (and taxable).

We have that in the plan document, distributions from after-tax at any time. So if they want this to go outside of the plan, it would seem like a conversion to a Roth IRA would be allowable. Conversion takes place, its out of the plan which is what he wants.

If the plan allows for distributions of after-tax, he can effectuate the conversion by a distribution directly to a Roth IRA. Two ways to do it - in plan, and distribution (but only if distributable per the plan provisions - which applies to any pre-tax money to be converted as well).

Does it allow for the withdrawal of Roth at any time? Likely not. Once he converts, it's Roth and not after-tax.

Before December of 2009, IRS deactivated any EIN that had been inactive for "some period of time". (See this archived IRS page.) IRS does describe a process for "reactivation" -- which might at least tell you whether they ever applied for one -- but in addition to the hassle, I do vaguely recall reports that long-deactivated IDs may have been recycled/reused. The PDF Form SS-4 doesn't appear to include the 25-year restriction; fax submission supposedly gets an ID assigned within 4 days. (See How to Apply)

I don't know if there is a way to find out. I do know that if the number is not used for a long period of time it gets deactivated. It's a big hassle and takes a long to time to get it active again when the IRS deactivates it. I would wait until it's needed to process a distribution, and then apply for a new one at that time. Use a more recent plan effective date. We have done that and not had an issue.

I have seen them. They do exist. If you are worried about fluctuating compensation, consider basing the cash balance allocation on a bonus and not the total compensation. The entity must control the amount of the bonus, so they need Board justification to pay the bonus, and the participant can't control the amount, but often the Board and the participant are the same individual who is wearing two different hats. Yes, it can be problematic, but it does solve the problem.

Yeah of course fine to disagree, and thanks for raising the question for everyone's input. I'd be curious if anyone else here is taking that position. I read the rules to require the ALE status of each member to be assessed on a monthly basis. I'd be careful with your approach because it exposes the ALEM to significant §4980H and §6056 liability if the IRS reads the rules the same way I do. The only debate I've really ever had on this point is whether they become an ALEM the month the deal closes or the month following. I haven't seen the position you're taking that it may not be until a year or two later. So I'd suggest the more conservative route here is to take the approach I'm arguing absent guidance stating you can delay. I think the argument that you can delay absent guidance stating ALEM status triggers as of the close is fairly aggressive in this context. Here's the main point I'm relying on from the regs: https://www.federalregister.gov/documents/2014/02/12/2014-03082/shared-responsibility-for-employers-regarding-health-coverage (5) Applicable large employer member. The term applicable large employer member means a person that, together with one or more other persons, is treated as a single employer that is an applicable large employer. For this purpose, if a person, together with one or more other persons, is treated as a single employer that is an applicable large employer on any day of a calendar month, that person is an applicable large employer member for that calendar month. If the applicable large employer comprises one person, that one person is the applicable large employer member. An applicable large employer member does not include a person that is not an employer or only an employer of employees with no hours of service for the calendar year. For rules for government entities, and churches, or conventions or associations of churches, see § 54.4980H-2(b)(4).

https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits Not exactly a cite, but first thing I could grab in a pinch.

I don't know the cite but I do know that it's been a provision in our prototype document going back at least to the GUST document (and probably earlier) that you could have rollover money available for distribution at any time or subject it to the any other restrictions you general have on in-service distributions.

Peter, those whose benefits are collectively bargained are mandatorily disaggregated, statutorily excluded from sections of the plan for non-bargaining employees and tested separately, so does it matter?

Not without amending the plan.

What may happen is that IRS and/or DOL, based the 5500, sends a letter to plan sponsor asking for information to justify a partial termination did not occur. Also, if these termed NHCEs were fully vested then no issue. On your other question, agree you need to test your SH+PS.

Not a bad idea, but haven't seen it in practice. Could make your baseline benefit equal to a 0.5% accrual and then layer on a cash balance credit as a percentage of compensation in excess of some strategic threshold. But can this fit into a pre-approved document without modification necessitating submission? I'd be interested to hear if anyone sees compliance issues or other drawbacks to this approach.

If they have already forfeited under the terms of the plan, whether by distribution of the vested balance or incurring five consecutive one-year breaks, then you do not restore/fully vest. If they have not yet forfeited under the terms of the plan, then they must be fully vested. The key here is "the terms of the plan" as that governs what needs to be done. If people have been gone for longer than five-years breaks but have not yet been forfeited, then you have an operational compliance issue to fix that is different/independent from your question, such as allocating amounts retroactively to applicable years based on entitlement in those years.

It's as of the closing, so as of 10/1/22 in your example. Upon an ALE buyer acquiring a non-ALE small company seller, the small company becomes an “Applicable Large Employer Member,” or “ALEM,” of the buyer’s “Aggregated ALE Group.” Subsidiaries and related entities in an ALE’s controlled group are referred to as ALEMs, and the controlled group itself is referred to as the Aggregated ALE group. So an ALE with multiple EINs in its controlled group is an Aggregated ALE Group consisting of multiple ALEMs. That’s a jargon-filled way of saying that because ALE status is determined on the basis of the employer’s entire controlled group, the small company becomes subject to the ACA employer mandate pay or play rules and the associated ACA reporting requirements upon the acquisition. Furthermore, the small seller company is referred to as an ALEM of the broader Aggregated ALE Group because it is preserving its EIN as a member of the buyer’s controlled group. In short, even if the previously non-ALE seller maintains its EIN, upon the close the acquisition the seller becomes an ALEM subject to: Potential ACA employer mandate pay or play penalties, and ACA reporting for the seller’s employees. More details: https://www.newfront.com/blog/aca-reporting-for-controlled-groups Here's a slide summary: Newfront Office Hours Webinar: M&A for H&W Employee Benefit Plans

Not an option - more than 6% ER was contributed to DC so there is a 31% combined plan deduction limit for 2022, end of story. Can still do CB for 2022 and deduct up to that 31% total for 2022 and deduct the rest for 2023. Maybe the 2023 total max CB deduction is high enough to cover that residual 2022 plus the 2023 minimum, maybe not - it could be 2024 before deductions catch up. They can try to remove the 2022 PS in excess of 6% and maybe it never gets caught, but if it does, you've got some 'splaining to do Lucy and I don't think IRS will buy the excuse.

It's not excess annual additions or mistake of fact. They need to start in 2023.

Starting next year, or paying the excise tax.

I generally would agree with BG, but I'd be a little careful. The IRS generally assumes all terminations are involuntary, but that's a rebuttable assumption. So if the employer can prove to the IRS' satisfaction that these were in fact voluntary terminations (and not in response to some employer action) then yes, shouldn't be a PPT.

So, he could take PS money, but only if the plan allows for in-service distributions of that source and at that age.

No partial plan term, as the terminations have to be employer-initiated.

And, I assume you mean a participant wants to take the distribution. Owner, trustee, etc are irrelevant to this discussion.

What CuseFan explains is further supported by the § 415(c) rule about compensation. See 26 C.F.R. § 1.415(c)-2(e)(3)(iv) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(c)-2#p-1.415(c)-2(e)(3)(iv). Further, the distinction between compensation attributable to the former employee’s services before separation (even if paid after the separation) and compensation paid as severance pay is useful. To get the former employee’s releases and covenants not to sue, the separation agreement must provide the releasor something she was not otherwise entitled to.

What type of plan? What sources of fund are in the plan? Certain sources are only eligible for in service on after age 59.5, other sources can be withdrawn earlier if the plan allows and and you meet certain conditions.

If that's what your document says, I would think annual compensation would control for calculating the match.

Commissioner v. Keystone Consol. Industries, Inc., 508 U.S. 152, 159-162, 16 Empl. Benefits Cas. (BL) 2121 (May 24, 1993) (The Court construed ERISA title II’s parallel text, Internal Revenue Code § 4975(f)(3), as extending, but not limiting, the reach of § 4975(c)(1)(A) [ERISA § 406(a)(1)(A)] to include as such a prohibited sale or exchange a contribution of encumbered property, even if that contribution is not used to meet a funding obligation. The Court held a contribution of property other than money—even assuming the property was unencumbered, and the contribution was valued at the property’s fair market value—was a prohibited transaction.) The Labor department’s Pension and Welfare Benefits Administration further interpreted this in Interpretive bulletin [94-3] relating to in-kind contributions to employee benefit plans (Dec. 21, 1994), 59 Fed. Reg. 66736 (Dec. 28, 1994), reprinted in 29 C.F.R. § 2509.94-3, https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-A/part-2509/section-2509.94-3.

As the Patriots found out on Sunday!