I’d appreciate views on whether the groups below “chain” for §410(b) coverage testing. 

Facts (2021–2026)

Husband (oral surgeon) owns 100% of a dental professional corporation in California (an S corp). The PC is one of four PC partners (25%) in a dental group practice (a partnership with about 80 employees), and Husband regularly performs services for the partnership through his PC. So the PC is an A-org and the partnership is an FSO under §414(m)(2)(A). The partnership sponsors a 401(k) for its staff.

Wife (dentist) owns 100% of her own dental practice, a sole proprietorship, which sponsors a solo 401(k) covering only her.

Wife has been a W-2 employee of Husband’s PC since 2021 (about $100,000 a year). That defeats the spousal exception in Reg. §1.414(c)-4(b)(5)(ii), so she is attributed his 100% of PC, and her practice and his PC form a brother-sister controlled group under §414(c).

Wife’s practice has no ownership in the partnership and performs no services for it. Neither her practice has other employees.

Here's a diagram: 

https://drive.google.com/file/d/1w72CAr4jlnkDsZR1zcAZaW_hUa1HkqVY/view?usp=drive_link

Question
For §410(b) coverage testing of Wife’s solo 401(k), do the overlapping groups combine, so the partnership’s 80 employees must be counted? Or is Wife’s plan tested only within the controlled group (her practice and his PC)?

What I’ve found

TAM 201715001 (very similar facts) applied the §414(c) and §414(m) rules separately and held the doctor’s two plans share one §415(c) limit, but expressly reserved “any other possible implications” of the overlapping membership in footnote 2.

An ERISA attorney, on a comparable structure (spouse was a 50% owner and W-2 employee of the husband’s PLLC, which was an A-org of a professional corporation), concluded that all three entities were related for plan purposes, without addressing the TAM.

Going forward: Wife comes off Husband’s payroll from 2027, so the question is whether her plan needed testing for 2021 through 2026 including Husband's partnership's 80 employees, and if so, whether VCP is the expected route.

Is there authority, or an IRS position, on whether the groups chain? Thank you.
 

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One lifer DB plan, owner only.

Owner rolls over the assets into an IRA without informing the TPA/actuary. This was done 45 days ago. The issues:

• Plan is not terminated so no termination resolutions, required amendments etc
• No distribution forms are completed
• Do not know if married, if yes, no spousal consent
• Rollover was in excess of 415 limits by 100k

Attended the new EPCRS webinar today by ASPPA and looks like not correctible, if I understood correctly:

• By rolling back all assets into the DB plan within 60 days
• Self correction - SCP

For all out there who may have dealt with this situation, what course of action was recommended to the client to take?

Thanks

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Just started with a new company and in reviewing their 401k plan, I am seeing that it is a safe harbor plan through Fidelity.   Compensation is currently defined as "Code Section 3401(a) wages definition as described in 2.01(k)(1)(B)" with the only exclusion listed as "Reimbursements or other expense allowances, fringe benefits (cash and non-cash),
moving expenses, all deferred compensation, and welfare benefits."  The plan does add back in pre-tax deductions per the summary plan document.

The company recently went public, so I think it now makes sense to exclude "The value of restricted stock or of a qualified or a non-qualified stock option granted to an Employee by the Employer to the extent such value is includable in the Employee's taxable income."  There is no intent or desire to withhold or match on compensation that results from Stock Option exercises/RSUs.

With that said, if we check the box on the adoption agreement to exclude equity transactions as a 3401(a) plan, I think that opens us up to 414(s) testing.  While it is is unlikely that this would result in a failure, it could happen if the Highly Comped Employees hold onto their equity and the Non-Highly Comped Employees are exercising.

If I modify the plan to use the 415(c)(3) definition, I think this by default would exclude equity compensation.  Given that we are only excluding "Reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, all deferred compensation, and welfare benefits" would it make sense to switch the definition to 415?  What are the downsides/risks?

Thank in advance. 

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