Leaderboard

A SH 3% nonelective amount is part of the rate group calculations, whereas a SH match is not. A match is still part of the average benefit percentage test (along with deferrals) though.

oooh, I'll start with the easy one: Failure to follow the plan's written terms. Hopefully that triggers the "we don't have to be your TPA anymore" clause in the service agreement!

Let's not forget that if the employer is not a corporation, any person who owns more than five percent of the capital or profits interest in the employer is considered a more than 5% owner. Technically, for example, a 95%/5% capital interest split wouldn't make both partners key employees, but allocating more than 5% of the profits in a year to the 5% owner would make it work for that year. And while not on topic, let's add to the perks of an owners-only plan that the plan gets to file a Form 5500-EZ.

IRC 414(q)(2) defines 5% owner for purposes of HCE. That definition references IRC 416(i)(1).

Safe harbor match does not factor into passing cross testing.... that's why you design cross tested with 3% safe harbor safe harbor 3% is used for everything to pass testing and remember... you have to pass gateway before you can cross test.....

operational failure in accordance with plan doc terms, potential failure of ADP/ACP, potential failure of TH test, and I hope a need to find another TPA

Well we haven't figured out if the guy would qualify as Key under the 1% owner test.

"Balance-forward" commonly is used to refer to a plan accounting method where historical transactions that occur in an account are summed up to a specific point time - typically up to the beginning of a plan year - or up to the date which provides the basis for an allocation. This technique was used to condense the data needed to be stored and processed which saved computer storage and decreased the amount of computer resources and time it took to perform an allocation. Almost all legacy recordkeeping systems used some form of balance-forward accounting, and several have an annual "roll forward" process for each new plan year. With the drop in the relative cost of storage and increase in computer power, recordkeeping can keep all transaction history available which allows them to easily compute a participant's balance at any point in time. The basis for an allocation is the amount that is used to pro-rate a participant's allocable share of an amount that is being spread across all participants included in the allocation. Employer contribution, interest, dividends, and expenses are typical examples of amounts that are allocated across all participants. The plan document may provide the formula for calculating the allocation basis for each type of transaction. If it does not, then the calculation should be well-documented in the plan accounting documentation. For example, an employer contribution may be allocated over plan compensation. Interest may be allocated over all participants who are in the fund in which the interest was paid. Expenses may be allocated over participants' total account balance. Some plans use only balance-forward method for allocating income. Typically, the investment is in a pooled fund that is valued periodically and the income earned over the period is allocated over the account's basis. Some plans use daily valuation for daily-valued investments, but may also have one or more pooled funds. There is a ton more detail to plan accounting. If your question is related to plans that use only balance-forward accounting, my experience is they are very rare and typically are used in small plans that only have a profit sharing contribution. If your question is related to any plans that use balance-forward accounting, my experience is every plan does at some level for some transactions in some accounts.

In general, the required contribution in a defined benefit plan is based on the difference between the market value of assets and the actuarial present value of accrued benefits, measured on the plan's valuation date. A significant decline in the market value of assets could result in an increase in the plan's required contribution (conversely, a sudden rise in the value of plan assets could result in a reduction in the maximum contribution, possibly to the dismay of an employer who was looking forward to a large tax deduction). The increase in the required contribution due to a drop in plan assets may not be dollar-for-dollar however, as the "funding shortfall" amount is amortized over a period of 15 years. This only speaks to the minimum required contribution under ERISA 303 / IRC 430. Plans may have a funding policy that directs the employer to contribute an amount larger than the required minimum. Cash balance plans may use an interest crediting rate based upon the actual rate of return of plan assets, which may even be negative (although the "preservation of capital" rule of 26 CFR 1.411(b)(5)-1(d)(2) prevents the interest credit rate from being negative on a cumulative basis). Proponents of these formulas claim that it ensures that plan liabilities will always be in line with assets; in other words, if the sponsor contributes the amount of the pay credits each year, then the assets will always equal the hypothetical account balances. This may be true, however it can be problematic for smaller plans, especially those that are tested together with a DC plan.

That an employer’s obligation to contribute to a multiemployer pension plan ends in circumstances not of the employer’s choosing is not by itself an excuse from withdrawal liability. Your client needs to lawyer-up, yesterday.

What is the cause of the new found paranoid thinking?

401(a)(26) is good assuming prior structure was compliant. If no one benefits in 2024 then no 410(b) or 401(a)(4) concerns. If the plan was "soft" frozen (just participation) then you would need to include this person in your testing population as (s)he would not be a statutory exclusion.

The simple fact is ERISA puts the burden on the plan to prove the person was paid not the other way around. It pays to send in those D codes on 8955-SSAs. My motto is: when in doubt D. For some clients I have gone back and gotten every old SSA and put anyone we came to be unsure if a D code was filed back in the days when it wasn't required. I have had a lot of luck simply writing a letter to someone telling them the plan shows they do not have a benefit any more. But if they push it the burden is on the plan. The plan sponsor ought to keep records that can prove they paid someone forever is the thinking of the lawyers who come around here and I am sure they will tell you that in reply to your question.