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Assuming your post is accurate, the w-2 comp from the s corp is the only earned income for the docs and the person saying otherwise is wrong and needs to start over in pension school.

Garnishment of a participant's account outside of a QDRO is allowed under ERISA only for federal tax debts or court-ordered criminal restitution. If it doesn't say it's for one of those things, I'd respond that this is a qualified plan which is forbidden from complying except in those situations.

The 415 regs address this issue. Have you reviewed the reg? The 100% pay limit is what it is, and the actuarial increases cannot exceed it. Therefore, you will have to determine (as best you can) the precise point in time at which the increases reached that limit and create an immediate benefit commencement date. A BCD means you must offer the retiree all the payment form options available under the terms of the plan. This means some determination of retroactive payments. No comment about how you determine a J&S benefit if that is chosen, because there are some other facts needed for that discussion. Also not opining on whether there is any issue w/r/t late payment under RMD requirements.

A plan can allow the use of any definition of compensation defined under 1.414(s)-1 Definition of Compensation to perform the ADP test. Assuming that the plan document does not restrict the definition of compensation, you can use any of the available definitions in this section regardless of the definition of compensation used to calculate elective deferrals or for other plan purposes.

Your W2 from each firm should have the amount of deferrals you made while employed by each firm (Box 12). That should be sufficient proof for all parties.

I think you are missing the point here - the question/issue is severance pay not post-severance compensation. The person is no longer employed and severance pay (per IRS) is never plan compensation.

Thank you! And I'd love to have BenefitsLink take over that page. I've e-mailed you with information. Thanks, Bill! This is definitely bittersweet for me. I've been practicing employee benefits law for 46 years now, and maintaining my site for 28, and it's hard to walk away from all that. But I am 72, and it's time for a new chapter in my life. I've been accepted as a volunteer EMT trainee with a local fire department. That will be about a year of classes, practical training, and helping out the EMTs, after which I'll be certified as an EMT myself. Some questions have been raised as to whether I actually understand the meaning of "retire," which I hear is supposed to mean relaxing and playing golf or something. But I'm excited about the new challenges.

Hi Carol -- We'd love to have the database and create a page on BenefitsLink, with credit to you. Let me know how I can get it and make it easy for you. What is this retirement thing of which you speak? I thought it was only mythology 🙂 CONGRATULATIONS!

Well on its face it is a true statement. Once you adopt the plan, simply not adopting it again is not enough to end your participation. With that being said I think you just do a new one today and have them execute it. All of their original information regarding the effective date of their participation is unchanged. Then you will have a participation agreement that more perfectly aligns with the new format of the plan document.

Divorced in 2016, but terminating the plan now? Why is J's former spouse relevant?

It's a game accountants like to have their clients play to minimize their FICA and Medicare payroll taxes, which often screws them out of the ability to make maximum retirement contributions (not to mention limiting their ultimate Social Security benefit if below the SSWB). If W2 is already over the SSWB then it's only 2.9% Medicare taxes they are saving, which is not smart when the retirement contribution percentages missed out on are typically much higher. S-corp plan comp is W2, K1 is not included, that is not an item open to plan administrator interpretation and if they insist on doing so I would likely resign from that engagement.

You only need to test them all together as one big group. Under 414(b), members of a controlled group are treated as a single employer for testing purposes. So if A, B, and C are all the same employer, and C, D, and E are all the same employer, then logically all of A, B, C, D and E must be the same employer.

I have now retired, and will no longer be updating my site. So for all of you who have been relying on my maximum benefits and contributions page for historical limits, it is unlikely I will be updating it and I may take it down at some point. However, I do have the database with all the limits back to 1996. If anyone wants it so that they can develop their own page, let me know.

Ta-da, now on BenefitsLink (with Carol's consent): Inflation-Adjusted Limits on Retirement Plans, Including Maximum Benefits and Contributions (1996-Present)

No can do - as @Bri states - company contribution/check, as that is where any deduction occurs and where an IRS auditor would be looking to substantiate. Beyond that, plan sponsor and his accountant can figure out the details to make that happen.

I would approach it as, that should be a company check for the deposit. Where the company got the money from, I don't mind hearing/seeing/speaking no evil as to how. So that I can at least apply a standard of reasonableness

Thanks @WCC - I agree that if the intent is not to match separately elected catch up, then the document should state that but just the standard "catch up contributions are not matched" provision, my opinion is that you must follow the term in regulations and catch ups are defined as deferrals that exceed either an plan or statutory limit (not verbatim obviously).

The new 401(b)(3) rule doesn't require the post-year-end new benefits to separately pass 401a4 in and of themselves, unlike the way an -11g amendment used to.

If the accountant is a member of the American Institute of Certified Public Accountants or is a licensee of a State that adopts the AICPA professional-conduct rules and standards as the State’s rules: “[A] member [or a licensee] should not advise a taxpayer to take a tax position unless the [CPA] has a good-faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits, if challenged.” The standard is not about whether the IRS would fail to detect the pushy position. Rather, the standard looks toward the merits (and pretends the decision-maker would find facts and law fairly and justly). If a shareholder-employee is 49 or older and has two decades’ (or more) business or professional experience, how likely could she defend that the fair-market value of her personal services was only $150,000? This is not advice to anyone.

The definition of HPI stands as is, and the plan should follow the rules. It is between the accountant and the owner on how the owner's income is characterized as W-2 or dividends. You don't want to hear later that the IRS is challenging the reporting of income as tax avoidance and the client and accountant say they did what you told them to do.

Those not eligible by age/service for PS and CB would not be included in your rate group testing. Good luck if you have to navigate a 6% DC limit to avoid combined plan deduction limit with a SHM.

When it comes to state taxation of contributions, Pennsylvania is like New Jersey but PA also taxes 401(k) deferrals. Tennessee used to be like PA but made a change in 2021. Here is a relatively up to date chart that summarizes all of the states (hint: most follow Federal rules or don't tax deferred income). https://www.ici.org/system/files/2022-12/state_tax_2022_survey4_red.pdf To complicate matters even further, there are many local taxing authorities that also have rules that include deferred contributions. The flip side of the coin is which states tax distributions from retirement plans. Many do at some level of taxation with rules that range from taxing all distributions to thresholds when taxation starts and graduated schedules. One thing that most retirees who worked in PA or NJ and then want to live in another state that taxes distributions. Effectively, they will be double taxed at the state level - once when making the contributions into the plan and again when taking the distributions. It is very rare for a plan to get into the details of state and local taxation from the perspective that it is not their responsibility or that they do not want to be deemed to have provided tax advice.

@susieQ it is fairly common for the ESOP document to be structured so that the plan was a profit sharing plan and the ESOP was a stock bonus component embedded in that plan. The plan may already be a profit sharing plan and there is no need for a restatement. If the plan is a profit sharing (either by default or by restating the ESOP into a profit sharing plan) be mindful that the plan must follow all of the rules regarding the investment of the assets. @CuseFan is correct that adding a 401(k) feature to the plan now (post the SECURE 2.0 mandate) is subject to auto enrollment rules.

My understanding is this would be Code G only. The Form 1099-R instructions say to use Code G for a direct rollover to a designated Roth account, including in-plan Roth rollovers (IRRs). I’m not seeing anything in the instructions that allows Code 2 to be used with G, and it’s not listed as a valid combination in Table 1. Also, the attached IRS In-Plan Roth Rollover Phone Forum transcript (page 13, paragraph 2), while a bit older and from when these rules were first introduced, indicates reporting the amount in Box 1 and 2a with Code G, without mentioning any additional distribution codes. It seems like Code G already communicates that this is a direct rollover and not subject to the 10% early distribution penalty, so adding Code 2 doesn’t appear necessary or supported by the instructions. Happy to be corrected if there’s specific IRS guidance that allows 2G here, but I haven’t come across anything that does. inplan_roth_phoneforum_transcript.pdf

Perfect and thank you both

yes, if Owner is the only HCE and the rank and file are NHCE, that fails 414(s). HCE has 100% of compensation included, NHCE only have 83.3%. That spread is too far apart.

Jak, First - it would have to be in the document before the start of the plan year. Second - all depends on the numbers and we didn’t get any. Third - if the owner has w-2 in excess of the comp limit even after the bonus is excluded, the answer is very likely that it would fail.

415 limit is 100% of pay, not to be confused with the 25% 404 limit. None of this needs to be "employer" money. Every dollar of "profit sharing" reduces his Earned Income by the same dollar he could have done more deferral from.

We still give the notice even using the Brief Exclusion rule. I did not go back and look for authority...not time right now... perhaps it is just a best practice principle. I mean how does a plan sponsor provide an excluded participant an "opportunity" to make up the missed contributions without providing them notice that something happened.

Beyond tax law, consider whether a suggested plan provision would result in participant loans that “[a]re available to all . . . participants and beneficiaries on a reasonably equivalent basis[.]” 29 C.F.R. § 2550.408b-1(a)(1)(i) https://www.ecfr.gov/current/title-29/section-2550.408b-1. That’s a condition of the statutory prohibited-transaction exemption.

To allow a $0 correction, then the employer should provide the 45-day special notice after the correction begins. If the employer wants to give the 50% QNEC as part of the correction, then no notice is necessary. Look at Rev Proc 2021-30.

I continue to be drawn to the divorce proceeding, including the domestic relations order (NOT the qualification of the order by the plan), in which B does not seem to have participated in the identification, valuation, or terms of division of the plan interest in the context of the larger division of property between A and B in the divorce proceeding. That is a state court matter in which there may have been ignorance, inattention, unfairness, deception, omission, or other skulduggery, or not. There is nothing* about federal QDRO rules that relates to what B “should” or could get from the plan in consequence of divorce. In fact, the plan is generally not supposed to have any concern for what happened in the state court and may/should look only at whether the proposed QDRO appears to be an actual domestic relations order. The alarm about A’s position and behavior relating to the plan (other than refusal to provide (1) benefit information necessary for fairly adjudicating or settling rights in the state court divorce proceeding, and (2) information about plan procedures) seems misguided, despite the bad optics relating to A. The bad things that may have happened — or things that should have happened and did not — probably happened (or not) in the state court. Which brings me back to, “What does B think B should be getting from the plan by way of benefits that B is not getting under the terms of the QDRO?” The answer probably relates to the terms of the domestic relation order — the product of the state court — not the qualification of the domestic relations order by the plan. *Well, almost nothing.

Congrats on retirement. I would assume most people on a forum like this know about this IRS table with all the limits going back 1989. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/irs-tege/cola-table.pdf

If help from a practitioner doesn’t get what you seek, consider whether you have a friend at Morgan Stanley who would search its files.

Yes, BCD would be established from then. I would provide all applicable forms of benefits as of that BCD, including lump sum that would be payable at that time. Then, based on the election, I would figure out what should be paid now, including missing payments and interest. And don't forget about RMD issues as well.

I would just pay it all out. Covers the RMD and isn’t a burden from a tax perspective.

New Jersey is very odd. Back in 2021 one of my clients asked us to assist one of its employees (someone pretty high up on the food chain) who had deferred over 90% of their income into the company's nonqualified deferred comp plans. This employee was a NJ resident. We are located in the South and normally do not provide any services with regard to NJ so I contacted a friend, tax partner in D.C who is barred in NJ, to assist. The client had treated the deferred comp as required under the IRC, which, we found did not align with the NJ rules (we didn't advise on the original set up). The employee had paid the increased NJ tax based on 2019 601B and was assessed a tax, penalties and interest of over $40K and asked the client if they could provide assistance with at least a possible waiver of the penalty and interest. Though we formulated arguments to assist the employee, we were not optimistic based on our reading of the NJ law. We in fact were researching the statute of limitations as to how far back could they go with this. After "chasing this rabbit" as the client phrased it, and working with the programmers to change the payroll set up, NJ ended up conceding that the deferrals weren't subject to NJ state tax and refunded the client all of the $40K plus interest. None of us understood the NJ reversal but of course did not argue.

The compensation limit can be increased by some annual COLA percentage after a participant separates, I think most pre-approved plans allow for that. These are less than post-NRA increases but apply from separation. This might delay the required (retro) commencement date. From Google AI: For a participant who has separated from service, the IRC Section 415(b) 100% of compensation limit is adjusted annually for cost-of-living increases. IRS (.gov) +1 The specific percentage increase for recent and upcoming years is as follows: For 2026: The adjustment factor is 1.0284 (a 2.84% increase) for participants who separated before January 1, 2026. For 2025: The adjustment factor was 1.0258 (a 2.58% increase) for those who separated before January 1, 2025. For 2024: The adjustment factor was 1.0351 (a 3.51% increase) for those who separated before January 1, 2024. IRS (.gov) +4 Key Rules for Post-Separation Adjustments Annual Indexing: Under Section 415(d)(1)(B), the compensation limit (the "high-3" average) for a separated participant is adjusted annually using procedures similar to Social Security benefit adjustments. Cumulative Calculation: The adjustment is applied by multiplying the participant's compensation limit, as previously adjusted through the prior year, by the current year's factor. Plan Provision Requirement: A participant's benefit can only be increased to reflect these cost-of-living adjustments if the specific retirement plan document includes language allowing for such scheduled post-retirement increases. Comparison to Dollar Limit: The final benefit remains limited by the lesser of this adjusted 100% compensation limit or the overall 415(b) dollar limit (which is $290,000 for 2026 for those aged 62+). IRS (.gov) +6

Seems important enough to include review by the ERISA attorney for the plan. I'll bet the recordkeeper has discussed it with its own attorney and/or E&O insurance provider.

An asymmetry in New Jersey’s income tax treatment of § 401(k) and other kinds of deferrals has persisted since 1984. https://benefitslink.com/boards/topic/80992-403b-deferral-in-new-jersey/#comment-355909 Many people are aware of New Jersey’s law. Past efforts to persuade the legislature to change the law have failed.

Is it? I don't see anything in the text of that item or the items above or below it that would restrict it to the YOS match formula. There is the heading of course, but as it says in the basic document, headings are for reference and convenience only, and are not part of the plan document. It seems to me more likely that the coders at FTW put this item in the wrong place. You could always select "Special schedule" in D.8.f and describe it there. Something along the lines of, "a uniform percentage of Matched Employee Contributions not in excess of X% of Compensation"

They ought to be able to, but they might need to convince either sponsor the excess has really occurred. (Otherwise this is a request for a random-ish looking withdrawal absent the knowledge of the other plan.)

Unfortunately, the vendor is correct and I wish the IRS would clarify this issue because it does cause a great deal of confusion. Your situation is an excess allocation. ECPRS treats excess allocations differently than excess amounts for purposes of the $250 rule. Excess amounts are generally ADP/ACP refunds, excess deferrals, etc...these are amounts that are normally corrected by distribution. The IRS says, okay, if it is normally corrected by distribution and the amount is less than 250, you don't need to distribute. However, in your situation, you have an improper application of the definition of compensation (that is an operational failure) that is causing an excess allocation. The normal correction is not by distributing this amount to the participant. Rather it is forfeiture or re-allocation to other participants. The $250 rule does not apply in such case.

Is there a basic plan document? I have seen some that address SH accruals when 414(s) does not pass. It defaults to a 415 definition of compensation as a fall back.

Link updated and happy to have it still. I liked the acknowledgment of Ms Carol’s contributions on the page. Well done Bakers!

It is hard to guess what is their motivation. The owner's logic may be similar to someone who has excessive tax withholding during the year because they like getting a big refund when they file their taxes. This owner at least gets a little bit of earnings included in the refund while the IRS doesn't provide earnings on a refund of excess withholding. Maybe, the owner treats the family to a Disney vacation every year after the refund check arrives and the owner doesn't want to break the tradition.

That's a more recent version, but yup!

If the custodian of the current brokerage account also handles IRAs, and as @Peter Gulia said if the document allows (if it doesn't you can amend), then you may be able to do in-kind distribution by simple transfer of the account from plan to IRA. Even so, a market value of the distribution and rollover will need to be determined and reported on a 1099R.

So they are using the trust to engage in real estate business? That's what is smells like... are they reporting UBIT? This isn't just a large pension plan that happens to hold some real property as part of a diversified portfolio. It sounds like people whose business in general includes real estate investing and they are also using the plan for that purpose. Beyond the myriad of possible prohibited transactions, the anti assignment wrinkle, and just burdensome issues of having real property in the plan such as making sure all the property taxes are paid by the trust - how would they ever expect to get a mortgage for those properties? A mortgage requires payments, credit, etc. The trust doesn't have a credit score, or income statements like paystubs, would they co-sign the notes? that would be terrible I'm sure someone else with better experience will chime in with a more thoughtful answer, but my instinct would be to walk away. Even their current set-up seems ripe for issues.

If you are permissively aggregating the plans for coverage and nondiscrimination - then the results that they have are irrelevant. They don't matter. You can't have it both ways. You have to distribute the refunds to the HCE's of both plans (as provided by the aggregated ADP/ACP results). Remember that in order to permissively aggregate the plans - they both need to have the same plan year, same testing method, and be able to pass benefits, rights and features testing. You can always try an Average Benefits Test - if you haven't already. If you pass, then you don't need to aggregate the plans.