Leaderboard

If an individual owns the entire interest in her unincorporated trade or business and is its only employee, an elective deferral under a retroactively established plan is treated as having been made before the end of the plan’s first plan year if the proprietor makes her elective-deferral election before the time for filing her Federal income tax return (without any extension) for her tax year that ends after or with the end of the plan’s first plan year. This tolerance can apply only to the plan’s FIRST plan year. Internal Revenue Code of 1986 (26 U.S.C.) § 401(b)(2) http://uscode.house.gov/view.xhtml?req=(title:26 section:401 edition:prelim) OR (granuleid:USC-prelim-title26-section401)&f=treesort&edition=prelim&num=0&jumpTo=true. This is not advice to anyone.

I agree with John - I think switching an active plan from "pro-rata" to "no pro-rata" would be a 411d(6) violation. And, FWIW, I agree with Truphao that I don't understand why the IRS has permitted "no pro-rata" as it is clearly a reduction in the accrued benefit during the year, but I acknowledge they do permit it.

But remember, my opinion and 8 dollars will get you a cup of coffee.😁 Happy Friday!

Money is fungible. The requirement is to refund out of his account. You don’t have to find the specific dollar that was contributed in 2023.

Personally, I would send to Penchecks for a paper-trail showing that the company didn't benefit from assets of the plan. A third party feeing out is different than a fiduciary zeroing out, and is allowed so long as fees are reasonable.

Paul I, that is out of date. The PBGC does not allow for rollovers to an IRA for non-responsive participants. The plan would need to use the PBGC Missing Participant Program.

All great advice. I'll also mention ERISApedia. A great resource, with some outstanding bells and whistles available. Furthermore, the knowledge and generosity of their time and expertise among the many participants on this board has helped me immeasurably over the years. While I'm at it, yet another thanks to Dave and Lois Baker for doing such a great job in providing this forum!

You've started in the right place - HERE! ASPPA's programs are great. The 401(k) answer book is helpful if you know what you are looking for. The ERISA Outline Book (and others), as well. Here, though, on Benefitslink.com you get PRACTICAL information. Real world issues, industry experts helping out (and not always agreeing - which is a good thing). To be successful in this industry you need a few things: 1) an appetite for playing in the "gray." Not everything has an answer supported by law, regs, case law, or other authority. Embrace it! 2) Step one is to train yourself to be an issue spotter. Plan sponsors are notorious for running amok. You have to know what's going on before you can be helpful. 3) Rely on others. NO ONE KNOWS IT ALL. I've been doing this for 40 years - and work with a team much younger than me - and I learn something new every day! I ask questions of them and others. I post here when I have something I need or "value" I think I can add. I will never stop learning, nor relying on others to add to my body of knowledge. Good luck, and see you on this board!

I find that The 401(k) Answer Book is a very good resource.

The buyer would need to do the testing as soon as possible after closing (doing it before closing is ideal). Doing it at the end of the year is highly risky. Having two separate plans for even a portion of the year risks failing the eligibility portion of the tests. In my experience, this is not a priority for the IRS, but of course that could change.

Unlike retirement plans, there is no transition period for health and welfare plan nondiscrimination testing purposes. It poses some difficulties in M&A deals. There are work-arounds, which are generally only partially satisfactory. Speak with your benefits counsel.

Is this a DB plan, or other plan subject to QJSA? If so, does the plan exempt distributions between $1,000-$7,000 from the QJSA requirements? If it does, then I agree with the other commenters that you can go ahead and distribute the single sum upon plan termination. If it does not, then you have to make the distribution in a form that preserves the QJSA rights. This probably means buying an annuity contract, or transferring the benefits to the PBGC's missing participants program. Optional forms of benefit with respect to distributions less than $7,000 are not a protected benefit under 411(d)(6), so the annuity options could be eliminated without disqualifying the plan. Once the annuity option is eliminated, you could distribute the single sum. However, if the plan is covered by the PBGC, you may not amend the plan to eliminate a form of benefit after termination, regardless of whether it would be ok under 411(d)(6).

I, too, agree that you need to hire an attorney to work with you. Here are some things you can do now to facilitate the process. Gather every scrap of written documentation you have that is related to any agreement between your wife and the medical practice. Preferably, the parties to each document and the date of each document are available. Documentation includes letters, agreements, contracts, email, text messages... If there were oral promises, at least describe to the best of your knowledge who made the promises, when they were made, and who else may have known about them. Gather copies of your tax returns showing any income received from the business. This includes all supporting documentation and schedules going back as far as available. Included copies of any information that may have been provided to your wife about the finances and financial condition of the practice. Prepare a timeline of events from her starting to work with the medical practice up to now. In particular, was the offer of ownership made around the time the COVID loan was in default? With respect to the promised retirement plan, provide any information that show she was accruing a benefit. In particular, have documentation if the offer of partial ownership was in place of the previously retirement benefits. Be prepared to respond to the question of why she did not ask about her retirement benefits earlier. Gather similar documentation about the promised dividends. Note that corporations pay dividends to shareholders. Your wife should have documentation of the number of shares that she owns, and of how she acquired (or was given) those shares. With this information in hand, schedule an interview with a reputable attorney from a reputable law firm to discuss your wife's case. If you are not comfortable with how the discussion goes, approach another attorney or law firm. You may wish to ask whether the attorney sees this as a likely case of employment law, or a case of fraud on the part of the other owners, or both. You commented that "if she leaves her job, we lose everything." The attorney can provide some guidance to what extent, if at all, this may be true. Depending on the terms of the agreements, walking away may be the better option. You also need to be prepared in case the medical practice can force your wife out of the business. Full disclosure - I am not an attorney and this is not legal advice. I am sharing with you the kinds of steps I have seen others take when confronted with seemingly impossible situations. You have a difficult and stressful road ahead. You will need help to navigate the way forward. Stay focused on the facts, get help, and may you find peace.

Look in DOL FAB 2014-01 in the section titled Individual Retirement Plan Rollovers – Preferred Distribution Option, third paragraph. The DOL says (and provides its supporting references) that if the plan is terminating and the participant is missing (read the plan cannot make the payment), then the plan should rollover the account balance to an IRA. You may wish to speak with some of the companies that specialize in setting up this type of account. On a separate note, it is possible to amend a plan after the termination amendment has been adopted. In this case, amending the plan should not be required unless the plan document, basic plan document, and termination amendment are silent on the issue and you want to rely on something more than the FAB.

Doesn't the plan-termination amendment that already was done provide that the final distribution that ends the plan is a single-sum distribution of the participant's, beneficiary's, or alternate payee's whole account? Else, how would one end a plan?

Can't you just force them out to an IRA due to plan termination under Treas. Reg. §1.411(e) regardless of the existing threshold?

I agree with @ratherbereading and @Bill Presson. This is way beyond what can be addressed on a message board, OP needs to engage an attorney ASAP.

Agree with the above. You also should have had an attorney and CPA involved either the initial agreement and the acquisition agreement. Seems like those were big misses.

Someone else can chime in but this is beyond the scope of this board (at least mine) - sounds like you need a good attorney to address this. Bankruptcy isn't the end of the world; you can recover from that. Best of luck.

Can? The plan sponsor may wish to consider the expense of amending vs. a phone call to "remind" the participant whose court the ball is in.

That’s a good start. ASPPA has several worthwhile designations to consider and pursue.