Can an investor with a real estate investment LLC but no "earned" income establish a solo 401(k)? The 401(k) would receive rollovers to be invested, but no contributions unless there is future earned income. Is establishing and rolling into a 401(k) allowed, even if contributions aren't?

Hello.  An employee turned in her paperwork and payroll missed setting her up.  We are fixing with the 50% amount of missed deferral plus income.  My question is does the plan safe harbor match apply?

How should the IRS compliance question for nondiscrimination testing for "how the plan intended to satisfy" the requirements for a plan that terminated in a prior plan year? The form instructions say to "Check N/A" if the plan is not required to test for nondiscrimination under Code section 401(k)(3), such as a plan in which no HCE is benefiting. I took a look at this section which discusses safe harbor requirements and saw a statement about the final plan year but it still wasn't clear to me all of the exceptions the form instructions were trying to refer to.

There is a reference to the final plan year and says the following:

Quote

(4) Final plan year. A plan that terminates during a plan year will not fail to satisfy the requirements of paragraph (e)(1) of this section merely because the final plan year is less than 12 months, provided that the plan satisfies the requirement of this section through the date of termination and either— (i) The plan would satisfy the requirements of paragraph (g) of this section, treating the termination of the plan as a reduction or suspension of safe harbor matching contributions, other than the requirement that employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, employee contribution elections; or (ii) The plan termination is in connection with a transaction described in section 410(b)(6)(C) or the employer incurs a substantial business hardship comparable to a substantial business hardship described in section 412(d).

Since the plan year relating to this 5500 is one following the plan termination date and is when the final distributions occurred, would N/A be the appropriate response?

We have a new client that recently purchased annuities for all of its participants (small plan with under 20 participants, all either retired or term vested at time of purchase).  This leaves the plan with zero participants and about $500K in assets that will be used to pay the remaining administrative expenses (final valuation, government forms filing, audit fees, etc.), with whatever is left over after that being reverted to the employer (with applicable taxes due on the reversion at that time).

The client now wants to officially terminate the plan.  Obviously this approach is opposite of what we usually see (i.e., usually we formally terminate the plan first, then move on to the purchase towards the end of the process).

Has anyone ever dealt with a plan termination after all participants have already left the plan?  Does this change the typical IRS and PBGC filing timeline/requirements?

Does anyone know the penalty for a late filing of the 1094/1095?  Have a client that messed up and never provided the information.  Will be filing with the IRS today, just wanted to let them know what to expect the penalty to be.

I just want to make sure I'm not overthinking this.  There's no issue with a Plan design of:

Profit Sharing (and Cash Balance) - Immediate Entry
401(k)/Safe Harbor - 21 & 6 mos.

Obviously we'd have to pass all testing, and as far as I see there are no complications/issues.  They'll just have to make a Profit Sharing contribution for everyone, which will be subject to vesting, but wouldn't need to give Safe Harbor. 

I'm not overthinking this, right?

I've got a plan that we've been working on for a couple of years, and the three original partners (who were the only HCEs) have life insurance policies in the plan that they rolled in when they left their previous firm 20+ years ago.  Since I took over, I've been telling them that they therefore have to offer life insurance to all participants, and provided them a cobbled-up form to have the other participants decline such an election.  I can tell you that no NHCE has ever opted for life insurance, though whether that is a result of those forms, or just not saying anything... well, I've advised them as best I can on that score.

Anyway, 2 of the 3 original partners have left, and their policies are now gone.  There are new HCE partners to replace them, and they do not have insurance.  The last doesn't want to come up with $250K to purchase his policy for the plan.  I'm wondering if I can somehow grandfather that in and have the document say that it is no longer offered going forward effective on some date.  Am I going to run into a BRF issue?

Thanks.

My ex-husband took early retirement at 55 years of age back in Feb 2023. Since he is drawing from that pension how will I receive my payment? Will I get an actual monthly payment or a payment into a pension for when I retire?

Thank you

So there is both k-1 income and W-2 income for the former partner. There seems to be some gray in this area. It seems clear that the compensation for the former partner is the sum of k-1 income and W-2 income. But, how is the K-1 income calculated? Do you just take the k-1, taking into account a PROPORTIONATE share of the common law employees' contribution (let's say 6 months for sake of illustration) or use some other method? Or to put it another way, it appears that another method might be acceptable, but maybe not...?

Any opinions welcome! Thanks.

A client received a letter that I have never seen.  The notice tells them that the IRS has made changes to the form 5500 and as a result the client owes $49,500 + interest (see attached).  What is this?

We don't really do anything with ESOP's, but I was just curious: if/when this applies to an ESOP, does the TPA have any obligation, or is this just a corporate/legal reporting issue that the TPA does not need to worry about?

I have a plan that joined a PEP with an effective date in January of 2024.  The assets have already transferred to the PEP.

Now, they would like to make their 2023 PS contribution.  Can they make this to the PEP ?

In a perfect world, it could be made to the prior recordkeeper before the transfer of assets, but that is not the case.

Any issue in making the 2023 PS to the PEP ?

Thanks!

Company X sells health coverage to employer consumers and would like to partner with company Y, which is not engaged in the sale of health plan or other benefits/insurance products, to incentivize employer consumers to purchase a group health policy from Company X. Essentially, if employers purchase a group health policy, they would receive a nominal discount on services from Company Y. 

I am familiar with incentives in other contexts, but this is new. Curious about limitations regarding this kind of promotion and incentive program. 

Here is a strange problem that an associate of mine is dealing with...

A defined benefit plan is being terminated.  The only participant, I will call Mr. Bill, received the maximum payout allowable and there are excess assets.  There is no possibility of a qualified replacement plan so our only option is to revert the excess back to the Corporation.  Now we find out that the Corporation no longer exists.  My understanding is that there was a divorce and the ex was awarded ownership of the Corporation.  The only employee of the corporation and the sole Participant in the Plan was Mr. Bill.  He terminated employment with the corporation that the ex took over and started a new company.  Now we found out that the ex closed out the corporation.

Any suggestions on what to do with the excess assets.

There was a message in my email inbox this morning (sent after hours on Friday) from an institutional recordkeeper notifying TPAs that the recordkeeper will apply the $7000 increased cash-out limit starting July 2024.

The message in the email to TPAs essentially was the recordkeeper was going to apply this to all cash outs, but no rush, you have until 2026 to amend the plans.

The message in the communication to the TPA's clients was the recordkeeper was going to apply this to all cash outs, and you (the client) will need to update any participant communications and amend your plan document.  If you use the recordkeeper's pre-approved document, no worries, an amendment will be provided asap.  If you do not use the recordkeeper's pre-approved document, then you should notify your document provider so the change can be made and appropriate notice is provided to your plan participants.

It seems this recordkeeper is trying to put TPAs and document providers between a rock and a hard place.

• There is no discussion of amending now versus amending later. 
• There is no suggestion of plan sponsor discretion. 
• There is no opt-out offered. 
• There is a sense of urgency communicated to plan sponsors that is not communicated to TPAs.

What is your opinion of a recordkeeper making a unilateral decision applicable to all of the plans they service?

Recordkeeper $7000 mandatory distribution notice.pdf Recordkeeper to TPA $7000 mandatory distribution notice.pdf

Hi, 

If a participant has a OFAC restriction can they continue contribution? how is the contribution affected? 

Thank you. 

Hello,

Thank you in advance for any guidance you can provide and/or pointing us in the right direction.

1. Spouse owned a "Sole Proprietor" business with her name as the business name and created a Solo401k through Vanguard in 2019. 
2. In CY2021, her Solo401k balance exceeded the $250k threshold (due to rolling funds into the plan), so we filed (CY2021) 5500-ez with the IRS using her "Sole Proprietor" name and EIN in ~July 2022.
3. On 1/1/2022, spouse changed the business structure from "Sole Proprietor" to an LLC (filing as an S-Corp) with a different name (call it XYZ LLC) and a new EIN where she has several (1099) independent contractors who she pays (not employees). 
4. In ~July 2023 (we were late), we reached out to Vanguard to discuss what we needed to do related to this change in business structure and completed forms for "restating the plan" with the new "XYZ LLC" name and EIN number (filed with Vanguard in July 2023). 
   1. With restating the plan, would Vanguard have notified the IRS that our business structure (name and EIN) have changed?
5. We filed (CY2022) 5500-ez with the IRS using her "XYZ LLC" name and EIN in ~July 2023.

QUESTIONS

1. Were/are we allowed to continue using the same "Solo 401k" when she changed her business structure (and name) and we restated the plan?   Or should we have closed out the previous (Sole Prop) Solo401k through Vanguard, filed a 5500-ez closing it out and then opened up a new (XYZ LLC) Solo401k under the new business name?
2. I am now wondering how the IRS would know that we changed the business name and EIN?   Will/would they consider the Sole Prop. to not have filed a 5500-ez for CY2022 and we'd be subject to the severe penalties that go with not filing a 5500-ez form?
3. If there is a problem here, given our situation, what do you recommend as next steps?

I've quote below from the 401k plan fix it guide.

Plan failed ADP test 2 years ago. Seems to still be in a self correction program window of 3 years after the first year of correction.

Under SCP below, 1st option is to bring up the NHCE ADP. The 2nd method would be far cheaper to just determine the correction amount (w/earnings) and then contribute that equivalent amt to NHCE's.

However....all HCE's that are due a return of contributions have already terminated and taken full distributions.  I'm thinking they will need to be sent letters detailing the amount of their distributions/rollovers that were not considered eligible rollovers.

Preference would be to find an allowable correction that does not require a qnec to NHCE's.

---------------------------------

Self-Correction Program:

The EPCRS revenue procedure defines this as an operational error. Employer G determined the plan had established practices and procedures designed to keep it compliant and that the mistake wasn't significant. Correction could involve one of two methods:

• G could make QNECs to the NHCEs to raise the ADP to a percentage that would enable the plan to pass the test.
  • In this example, each NHCE would receive a QNEC equal to 1% of the employee’s compensation.
  • G must make these contributions for each eligible NHCE (if the contribution doesn't cause the 415 limit to be exceeded).
• Under the second method, the plan could use the one-to-one correction method.
  • Excess contribution amounts are determined.
  • The amount is assigned to HCEs and adjusted for earnings and this total amount is distributed to the HCEs
  • An amount equal to the distributed amount is contributed to the plan and allocated based on compensation among the eligible NHCEs.

If a pre-enactment (grandfathered) plan without automatic enrollment now chooses to add automatic enrollment, does it have to be an EACA and comply with the SECURE 2.0 rules?  Or can the plan add a plain vanilla ACA without any problem?

Thanks.

We've been asked to provide testing services for a payroll company bundled plan.  The payroll company did not perform the ADP/ACP tests for 2022.  I don't recall why it was not done or why they would not agree to do it now.  So we agree do it  for a healthy fee (they are a client for other purposes, just not TPA.)  

Testing fails and refunds are due for ADP and ACP, not 401(a) on the match.)  Now that is April 2024 and this is a 2022 plan year.  I believe the last I read was this can be corrected without risk of disqualification by end of second year.  I will tell the payroll company to do the earnings calculation and  hopefully their tax advisors will do the 5330. 

Am I missing anything.  I'm not filing under a correction program.  If someone says that is needed, I tell the plan sponsor to get someone else for that.

Thanks.