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Let me guess - the doctor never engaged counsel (ERISA or corporate) to review the agreement he signed with the larger organization because why would he need one? What could go wrong? Why would he spend the extra money? This is why.

david rigby has excellent recall. The story goes back even further for the history buffs and those who worked with H.R. 10 or Keogh plans. Attached is a GAO report from 2000 titled "Top-Heavy" Rules for Owner-Dominated Plans. The background section provides a provenance of the concept starting with noting that "Congress first legislated requirements for nondiscrimination in pension plan coverage of a firm’s employees in 1942". The narrative continues with "[b]efore 1962, sole proprietors, partners, and the self-employed were prohibited altogether from participating in tax-qualified pension plans, though as employers they could establish a plan for the benefit of their employees. In contrast, shareholder-employees in corporations could participate in qualified plans..." After 1962, plans created by unincorporated “owner-employees” became eligible for tax qualification with owner-employee participation in the plan, but the plans were subjected to both the nondiscrimination rules and a second, more restrictive set of requirements for equitable apportionment of contributions and benefits." This was the predecessor of current top heavy rules. "The current top-heavy rules came about as part of the Tax Equity and Fiscal Responsibility Act of 1982, when the Congress decided that additional restrictions on owner-dominated plans should not be based on corporate versus non-corporate business structures but on whether any plan’s delivery of contributions and benefits was “top-heavy” in favor of owners and officers." The report also includes a compare-and-contrast commentary of nondiscrimination rules versus top heavy rules which in part links the 5% ownership in the definition of Highly Compensated Employees to the 5% ownership in the definition of Key Employees. Section 242 of TEFRA added 401(a)(9)(A) which linked the RMD ownership to the top heavy rules by referencing "key employee": SEC. 242. REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS. (a) GENERAL R U L E - Paragraph (9) of section 401(a) requirements for qualification) is amended to read as follows: (9) REQUIRED DISTRIBUTIONS.— (A) BEFORE DEATH.—A trust forming part of a plan shall not constitute a qualified trust under this section unless the plan provides that the entire interest of each employee (i) either will be distributed to him not later than his taxable year in which he attains age 70 1/2 or, in the case of an employee other than a key employee who is a participant in a top-heavy plan, in which he retires, whichever is the later, ..." “Top-Heavy” Rules for Owner Dominated Plans.pdf

@Peter Gulia, as best I recall, the creation of Top-Heavy rules (TEFRA, 1982) was the first congressional attempt to quantify the concept of "highly paid". They called it Key Employee. Just a few years later (I think it was TRA86), they created the HCE definition, and greatly expanded its use. Was there a reason? I'm not privy to the discussions behind the scenes, but the 5% threshold was likely a compromise. In like fashion, it's likely the TH threshold of 60% was also a compromise. Students of history will note that TH (and the entire TEFRA legislation) grew out of some significant bad publicity with small (often very small) plans providing 80%-90% of the benefit (and/or account balance) to the owner. This percent increased if the owner's spouse was also covered. Therefore, Congress had to do something! Never mind that the plan design(s) were otherwise "vanilla", and the high percentages were due (almost entirely) to the longer service/employment of the owner. The later HCE creation was in conjunction with a "beefed-up" change in IRC 401(a)(4) and congressional attention to the concept of "non-discrimination". Side note, IMHO, (1) the implementation and use of HCE should have, but did not, alter the use of Key Employee, and (2) congress (and the regulators at DOL and IRS) have done a poor job of coordinating the smorgasbord of statutes and regulations that come under the broad umbrella of "non-discrimination".

Attribution of ownership for purposes of determining who is an HCE, key employee, or required to take an RMD without regard to whether they have separated from employment, is determined under IRC 318. 318(a)(2)(B)(i) reads: Qualified plan trusts are specifically exempt from this attribution. The participant in your example is not considered a 5% owner for the purposes mentioned above.

Thanks, I was thinking uniform vs non-uniform and that is where things got mixed up.

See the rules for testing age under 1.401(a)(4)-12.

While I would never say never, the answer to the first part of your questions is contained in your second part. It isn't feasible to segregate servicing for one client from the norm of processing for all other clients. In addition, my concern isn't as much for our liability (as we are a nondiscretionary, directed, ministerial service provider) but rather for the plan - where a misstep in institutionalizing inappropriate distributions is a plan issue, and possibly a qualification issue. We take pride in being trusted advisors to our plan sponsor clients, and would seriously caution against them directing us to do something we think can have substantial risks to the plan. That said, guidance, guidance, guidance.....

Here are article from Ascensus, Fidelity and RMS about self-certification of hardships. All three see self-certification as optional and citing a need for further guidance. They vary in the sense two are what I would characterize as bullish on plans using self-certification and one is bearish. The biggest conundrum seems to be that a plan administrator who has knowledge that a participant does not need a hardship is not absolved of all responsibility if the participant abuses privilege to self-certify a hardship withdrawal. Self-certification makes the process easier to administer and plan administrators like not having to poke into a participant's personal financial circumstances. Plan administrators are uneasy because they do not know the extent they will be held accountable in the event of abuse of the privilege for a participant to self-certify. Recordkeepers understand that there is a point where abuse has to be addressed and will take steps to protect themselves by delineating between routine approvals and patterns of abuse. The latter are dumped into the lap of the plan administrator. r2023-08-24-secure-2-0-hardship-distributions.pdf SEC2.0 Self-Certification Hardship Emergency.pdf Self-Certification-of-Hardship-Distributions.pdf

Well, the attorney represents the participant (wife), and she (the attorney) basically thinks "the husband signed off in the MSA so why do we have to also get him to sign off on the bene des?" The whole thing started when I got a request from the wife saying "please change all my bene designations to "In trust for my son William XXXX" (yes that is all - no "trust created xx/xx/xxxx" or any kind of details). Apparently she got that language from the attorney, which was shockingly inadequate. I would think that these family attorneys would have more knowledge of pension law or at least know how to write a bene des since it tends to be such a big part of what they are doing, but I digress. Thanks for the comments; much appreciated. I learned something in doing the research and from the replies.

No. You’re not doing component testing. The OEX group is whomever fits that eligibility stratum.

No can do. It's a prohibited transaction. Commissioner v. Keystone https://supreme.justia.com/cases/federal/us/508/152/ DOL interpretive bulletin 94-3 https://www.law.cornell.edu/cfr/text/29/2509.94-3

I suggest there is an argument saying the ability for a terminated employee to repay the loan by ACH was a protected benefit at least for anyone who was doing so at the time of the restatement, and the continuation of the ACH repayments was appropriate. If this situation is treated as a protected benefit, then there is no reason for a retroactive amendment. If the company wishes to add back that provision prospectively, they should do so. Calling anything is a Scrivener's Error will get a knee-jerk response from the IRS that there is no such thing. Attached is a fun read about this. 49_Scriveners Error_ Qual Plan Corrections.pdf

I am curious about who the attorney represents and what the pushback is, but don’t bother with extra work just to satisfy my curiosity. If the attorney represents participant, too bad. I assume that you do not represent any individual, so you have no obligation to convince or educate the attorney one way or another. Even if you work for the plan, I don’t think you have any obligation to argue for the correct answer. As a courtesy, you could say that the plan follows its terms, including any beneficiary designations or waivers done in accordance with plan procedures, and will give effect to qualified domestic relations orders. You might go so far as to say that a marital settlement agreement is not something contemplated by the plan or mentioned in the plan’s policies and procedures.

it is all good for 2024, it is probably too late to do VAT for 2023 given that only contributions made up to January 30th can be considered toward 2023 415 limit.

If the plan allows for After Tax Voluntary Contributions, ROTH 401(k) and In plan conversions/rollover provisions to ROTH, then yes. After Tax Voluntary are subject to ACP testing so if the Plans has any NHCEs that are included in testing you will probably have a testing issue that will make this impractical but if these plans are HCEs only you should be good.

Spouses are usually attributed each other's ownership for controlled group purposes, unless they meet the requirements to be exempt. The requirements to be exempt from attribution are described in IRC 1563(e)(5) - does it apply in your case? If they want to be in a controlled group, it should be pretty easy to make that happen. Personally I am of the opinion that collaborating on a retirement benefit program rises to the level of being involved in the management of each other's business, so just the fact they are both talking to you about adopting a plan together probably makes them lose the exemption. But if you wanted to be more formal about it, you could have one of them hire the other (and pay them a salary), or put each other on their company's board of directors.

The answer is yes, one DBP can cover them both, but the question is whether you have a single employer plan of a control group or affiliated service group (in which case you HAVE to have one plan covering both) or a multiple employer plan for which your reporting is a little different. If you don't have a CG under the new rules or an ASG, but want one, have one make the other an employee for a nominal salary.