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After reading Calavera's comment, I realized I had earlier replied under the assumption that Joe and Mary were (or at some point had been) married. I re-read the original question and that was not part of the facts. So, my mistake. Anyhow, whether or not Mary's company has to be aggregated with the partnership for purposes of 415 depends on whether or not the partnership is a "predecessor employer" with respect to Mary's company under 1.415(f)-1(c). This is a facts-and-circumstances determination, but I would lean towards yes since she is continuing to do the same business with the same clients. Maybe she knows an ERISA lawyer who can give her an opinion.

IRC section 415(h) provides that for purposes of applying IRC sections 414(b) and (c), the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" each place it appears in IRC section 1563(a)(1). I was thinking the rule was "50", but it is actually "more than 50 percent" rule. I don't know the answer, but maybe it isn't a cut and dry as previously assumed.

Assuming Joe and Mary are not related, I don't think the offset would apply. Companies are not in a controlled group.

If the participant died on or after his required beginning date, and the spouse beneficiary does not rollover the account to one she owns, RMDs start in the year following the participant's death and are based on the longer of their own life expectancy or the decedent's life expectancy, using the Single Life Table. Also, if not already taken by the participant, the spouse must take the RMD for the year of death, based on the participant's life expectancy using the Uniform Life Table unless the spouse is more than 10 years younger than the participant, in which the Joint and Last Survivor table would be used instead.

The core issue from a participant's perspective about is the stock is or is not company stock is whether the participant can take an in-kind distribution of the stock from the plan and be able to exclude the stock's net unrealized appreciation from taxation at the time of distribution and also get favorable capital gains treatment upon distribution of the stock. If you have access to the EOB, I suggest reading CHAPTER 7 TAXATION RULES Article 1. Calculating NUA. The topic as it relates to corporate transactions is too complex for a simple post here. You will see in the discussion that there are rules that are applicable to spinoffs and to acquisitions where employer securities are swapped out or are transferred in-kind. Under certain circumstances, the character of the stock as employer securities is preserved and NUA treatment remains available. For the most part, the circumstances involve both employers to structure their plans to preserve the status of the stock as employer securities and to coordinate any movement of employer securities. This is not something an individual participant can do (with a possible exception if leaving the participant's total account balance and employer securities in seller's plan.)

Do not give the auditors any ideas

A few court decisions about a fiduciary’s decision-making regarding a security that is no longer an employer security after a spin-off are: Young v. Gen. Motors Inv. Mgmt. Corp., 325 F. App’x 31, 32 (2d Cir. May 6, 2009) (a fiduciary’s duty of diversification applies to the plan as a whole). Usenko v. MEMC LLC, 926 F.3d 468 (8th Cir. June 4, 2019) (applying a presumption that a publicly-traded security trades at efficient-market prices; allegations were insufficient to make plausible an assertion that it was imprudent to continue a security, no longer an employer security, as an investment alternative). Schweitzer v. The Investment Committee of the Phillips 66 Savings Plan, 960 F.3d 190 (5th Cir. May 22, 2020) (Construing the present-tense word “acting” in ERISA § 3(5)’s definition of an employer, the former employer’s stock no longer was employer securities of the spun-off employer) (For a plan that provides participant-directed investment, a fiduciary need only provide investment alternatives that enable a participant to create a diversified portfolio; the fiduciary need not ensure that participants actually diversify their portfolios.), cert. denied, No. 20-1255 (Dec. 13, 2021). Stegemann v. Gannett Company, Inc., 970 F.3d 465 (4th Cir. Aug. 11, 2020) (The complaint alleged enough facts to assert a plausible claim that a fiduciary failed to monitor a nondiversified investment alternative.), petition for rehearing en banc denied, No. 19-1212 ECF No. 48 (Sept. 22, 2020), cert. petition filed sub nom. Gannet Co. Inc. v. Quatrone, No. 20-609 (Oct. 30, 2020) {On April 19, 2021, the Court invited the Acting Solicitor General’s brief. On November 9, 2021, the United States filed a brief arguing that the Fourth Circuit’s decision was correct (at least on the particular alleged facts), and that what the fiduciary described as a circuit split did not need review.}, cert. denied sub nom. Gannett Co., Inc. v. Quatrone, No. 20-609, 142 S. Ct. 707 (Dec. 13, 2021), Civil Action 1:18-cv-325-AJT/JFA, 2023 U.S. Dist. LEXIS 216644, 2023 WL 8436056 (E.D. Va. Dec. 5, 2023) (by Judge Anthony J. Trenga) (after a bench trial, finding no breach of diversification or prudence) (“[A] prudent fiduciary considering the timing and other circumstances of divestiture would have weighed the risks of single stock fund holdings against the risks of forced and/or rapid divestiture.”). Snider v. Administrative Committee, Seventy-Seven Energy, Inc. Retirement & Savings Plan, No. Civ-20-977-D, slip op. pages 14-17 (W.D. Okla. Oct. 8, 2021) (Rule 12(b)(6) permits a dismissal of a claim as barred by an affirmative defense only when the complaint and properly considered materials admit all elements of the affirmative defense by alleging the factual basis of those elements.).

That begs the question, what does "completed" mean? When it was prepared? When it was sent to the client for review? When it was reviewed by the client? When the client communicates to CPA/preparer that they agree with the K-1? When the full return is accepted/signed by the client? When the return is filed with the IRS? The list goes on, which is probably why you have never had an auditor ask the question

You can start with an opening account balance for a past service benefit, but past service is limited to a safe harbor of 5 years, otherwise must be nondiscriminatory. However, you need to align the DCP and test balances accumulating from the same date. Note that if you use prior service to "dilute" current high HCE credits, the impact of that dilution decreases dramatically each subsequent year, so it's not the best longer term strategy to pass testing. That said, it might be a quick fix for year one and possibly year two testing, if you're using an OAB to bump HCE(s) up or waiting on young new NHCEs to become eligible and help pass annual accrual testing.

There is no issue with using accrued to date testing, but in the first year with a typical cash balance/profit sharing combo, it's going to be equivalent to doing annual testing. You only count years in which the employee was eligible to accrue a benefit under the plan, so unless you have a DB plan that grants accruals for prior years of service, your years for accrued-to-date testing are just years of participation, which will be 1.

agreed, I agree with Corey as well regarding the spin-off, it might be the most practical approach.

Clearly the contribution can't be allocated to Mary since she isn't an employee. It would need to be treated as an employer contribution and should be allocated to the participants in the plan according to the plan's allocation formula.

I agree. The good news is they also get credit for years of participation in the old plan for 415. They could also possibly spin off one of the plans to avoid the termination and offset.

I have seen similar situations that fit this fact pattern and how each situation was resolved has varied. There are four parties involved: the participant, payoll, the recordkeeper, and the plan administrator. Here the participant requested a loan and obviously received the loan check since the it was cashed. I expect that the promissory note accompanied the check along with the comment that repayments would start on April 7, 2023 - and most likely said the repayments will start automatically by payroll deduction. The April start date was 8 weeks after the loan was issued and, depending upon payroll cycles, the repayments could have started as much as 10 weeks after the loan date. That is more than enough time for the start of loan repayments to be out-of-sight, out-of-mind for the participant. (In one situation I have seen, the participant's spouse died between the date of the loan and the expected payroll start date and the participant certainly was not focused on the loan.) In all of the situations, the participants took for granted that the company knew what it was doing and payroll was going to start taking loan repayments on time. That argument becomes weaker over time, but the default date can arrive before the participant becomes sufficiently concerned to ask the company why payroll deductions have not yet started. Certainly, receiving a default letter should at least triggered the participant to ask, but here it did not. In all of the situations, the plan's loan policy required the loan repayments to be may through payroll. Fundamentally, this is the root cause of the problem here and it is the participant who is suffering due to the failure of payroll to start taking the required loan repayments on time. Under this policy, a participant's ability to repay a loan fully depends on payroll. The IRS has acknowledged employers can be a root cause of loan failures as seen in Rev Proc 2021-30 6.07(3)(a). The recordkeeper sent a letter to the participant about the pending loan default. In most of the situations I have seen, the recordkeeper also sends a periodic report to the plan administrator listing loans with missed payments and also reporting the impending loan default date. Some recordkeepers copied the plan administrator on the letter sent to the participant. There is no mention here of any reporting from the recordkeeper to the plan administrator. If such reporting already exists, then the plan administrator should share some responsibility for not taking action to have the loan repayments taken from payroll, and in effect protecting the participant from the consequences of the payroll failure. In some of the situations I have seen, the recordkeeper is adamant that the default and 1099R are irrevocable. Given that Rev Proc 2021-30 6.07(3) provides correction methods for loan failures, I find this position to be overly restrictive. Further, we now have Notice 2023-43 regarding the availability for self-correction for certain inadvertent loan failures. The notice comments: "Section 305(b)(1) of the SECURE 2.0 Act provides that an eligible inadvertent failure relating to a loan from a plan to a participant may be self-corrected under section 305(a) according to the rules of section 6.07 of Rev. Proc. 2021-30, or any successor guidance, including the provisions related to whether a deemed distribution must be reported on Form 1099-R." I offer these observations to highlight that in the situation described here, the participant suffers all of the consequences yet others were involved in the loan process and contributed to the participant's loan default. I suggest exploring relief in this situation that may be available under SECURE 2.0 section 305 which may alleviate the consequences for the participant. I suggest that the payroll, the recordkeeper and plan administrator discuss modifications to the loan administration and default procedures to address potential future such situations. If robust reporting of missed loan repayments does not exist, I suggest the plan administrator should request the recordkeeper to prepare such reports preferably at least quarterly and include any participant who has any missed loan repayments.

I am guessing it is an auto-generated notice. You must file 945 if you have to file but you do not. Just ignore it? Paul, the IRS rep will not discuss the plan related issues in details unless the practioners provides a POA

There should be information in the letter on how to contact the IRS, including a telephone number. If not, try calling the number which appears in the instructions 800-829-4933. Have a copy of the letter in hand when you make the call and explain the situation. It is difficult to know what possibly may have triggered the message in the letter without seeing the information submitted with the application. EINs are used by many entities and for many purposes, and a single entry can throw the process off track.

I think you can send in a letter stating "no distributions from the Plan ever, Form 945 not required"

Tax-exempt entities do no have deduction limits but individual 415 limits apply.