Leaderboard

I'm sure Nike has this trademarked or something, but it would be fun to have this on our client engagement letters - the endless amounts of time we spend because the client is trying to "get around" something they have to do, or won't do what we tell them to, etc., etc. - wouldn't it be great if we could contractually point to "JUST DO IT!" Just one of those pleasant daydreams...

@Lou S. has laid out what likely is the best path forward - terminate the plan effective 12/31/2024. Very likely there will be some assets still in the plan after that date which will require a 2025 5500 filing, but that should be easier than juggling all of the other issues that would come up with a mid-year termination. Make sure to dig into the details when navigating this situation. For example, here are some random thoughts: The client is a partnership of corporations, and the other owners do not participate in the plan. Do the other corporations have employees? You need to confirm that there are no (and never have been any) coverage issues. Is the plan top heavy? If yes, letting the plan run to 12/31 may provide a pass on making a top heavy minimum, and keep in mind that the top heavy contribution is subject to a last day rule. If everyone is terminated by 12/31, that should not be an issue. Why Is part of there a concern about hiring some people back? Is the owner thinking he doesn't want to give the rehires the SHNEC? If the rehires are HCEs, their status as HCEs will not change during this plan year. If there are rehires, will the plan continue possibly into next year? If so, then it is possible many of the rehires will not be HCEs next year if they are out of work for a significant part of this year. It sounds as if the owner is overthinking every detail, including wanting definitive answers to situations based on not-yet-known facts. Keeping it simple likely will be the best approach, and in the end, least expensive one.

But since this is MY daydream, I can choose to have it apply only to the items WE tell them to do. 😁 It never rains on my parade in my daydreams...

There are some custodians that offer brokerage windows within their retirement product offerings. Worth looking into, and then all the participants would still be with XYZ recordkeeper, but could have way more options than just a regular fund line up. and getting year end reporting/ statements/transaction history is SO MUCH EASIER I agree they are terrible for plans. Even though I work on a lot of plans with them. Is the plan going to limit what kind of SBDA? maybe to a single financial institution? or are folks going to be allowed to pick their own, wherever? having all the accounts at schwab is simpler than a dozen accounts a dozen different places. And is each account going to have a different advisor? I don't like it when plans tell participants their personal advisor can be the advisor on their account. Accounts often don't get set up correctly, the plan needs to be the owner, the trustees on there, and the participant is only an FBO so they shouldn't be the one controlling the account anyhow. interested party/duplicate copy statements for the trustees, the TPA etc don't always get set up right. And I don't think I've never seen a good participant fee disclosure from a SDBA financial institution, and I doubt the plans are keeping copies of them. I guess my main question is WHY do they want SDBA as part of the plan? Also - if the owners think the investments in an SDBA are so good for themselves, why wouldn't those investments be good for the rest of the participants? If the owners can take distributions out - I would suggest they do so, and roll the money over to an IRA wherever they want, and leave the plan assets in a proper recordkeeping arrangement.

Since there is no official guidance on the effective availability requirement under 1.404(a)(4)-4(c), I'm not sure what degree of confidence there is - depends on how aggressive you are (or more to the point, how aggressive your client is willing to be). Your proposed parameters seem pretty safe to me, although the minimum value to have a SDBA could be an issue. If, for example, the minimum is say, $5,000, and 90% of the NHCE's have $5,000 or more in their accounts, then it seems "reasonable" that this would qualify. I would tell them, if they wish to pursue this, that they need ERISA counsel opinion, etc. - the usual CYA stuff. And of course, the plan fiduciary must determine that the fees are prudent and reasonable, etc., etc., and a flat fee for small brokerage accounts might not qualify. As you said, potentially a bad idea on many levels.

Average compensation is used to determine an individual's 100% of comp 415 limit. If you have a high enough limit when the plan starts, from historical earnings, then having future net after-pension earnings go to zero isn't usually an issue. You just need to manage the timing of funding so that current non-deductible contributions can be deducted in the subsequent year. Depending on SE earnings in future years, you might be playing that time lag game consistently. You've got apples and oranges you're juggling. You need to make sure that (1) minimum required contributions are funded by 9/15 of the following year (or off-calendar equivalent) and (2) the deduction does not exceed the SECA adjusted net SE income and nothing that is not deductible is contributed during the year.

You may find Q&A 7 helpful in this IRS Q&A https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers As I read it, you repay the amount to the plan and then file amended tax returns for each year in which you received a payment to claim a refund of taxes you paid on the distribution in each year. In effect, you are reversing the payments out of each year's tax return. It would make sense to have the repayment flow back to it's original source. Of course there is no mention of what to do about state taxes. FYI, Q&A 7 in particular reads: Q7. May I repay a coronavirus-related distribution? A7. In general, yes, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution. If, for example, you receive a coronavirus-related distribution in 2020, you choose to include the distribution amount in income over a 3-year period (2020, 2021, and 2022), and you choose to repay the full amount to an eligible retirement plan in 2022, you may file amended federal income tax returns for 2020 and 2021 to claim a refund of the tax attributable to the amount of the distribution that you included in income for those years, and you will not be required to include any amount in income in 2022. See sections 4.D, 4.E, and 4.F of Notice 2005-92 for additional examples.