I have looked at pension plan payments to nonresident aliens before in the context of a survivor annuity payable under a joint and survivor annuity to a (surviving spouse) nonresident alien individual residing in the Cayman Islands.    The deceased participant was a U.S. citizen who participated in a U.S. pension plan.  My basic conclusions then were:

1. A foreign person nonresident alien is subject to U.S. income tax on U.S. source income.
2. The survivor annuity is U.S. source income (it was derived from a pension attributable to contributions made to and held in a U.S. trust for services performed by the participant in the U.S).
3. The survivor annuity is subject to Chapter 3 withholding at a 30% rate (no tax treaty, nonresident alien individual did not engage in a trade or business in the U.S., payments not exempt under 871(f) because survivor annuity is derived from a pension earned by a U.S. individual).
4. The pension plan is required to report the payments to the IRS and the nonresident alien individual on Form 1042-S and to file a tax return with the IRS on Form 1042.

The same basic facts apply in this instance, except that the (surviving spouse) nonresident alien individual is a resident of Kenya (no tax treaty).  Thus, I think my prior basic conclusions would apply to monthly QPSA payments made to the nonresident alien individual.

The wrinkle here is that the pension plan allows a surviving spouse eligible for a QPSA to elect a lump sum payment in lieu of monthly payments.  This raises issues for which there are no apparent answers:

1. Is the lump sum payment an eligible rollover distribution for which the pension plan must offer the nonresident alien individual a direct rollover/direct payment election.  The clearest guidance for a yes answer may be the 402(f) notice providing that "If you are a nonresident alien and you do not do a direct rollover to a U.S. IRA or U.S. employer plan, ... the plan is generally required to withhold 30% of the taxable amount...."  No need for this statement if a nonresident alien individual is not required to be provided with a direct rollover/direct payment election.
2. If the nonresident alien individual elects a direct rollover to a traditional IRA, questions include (i) is the direct rollover subject to any withholding, (ii) is the direct rollover reported on Form 1099-R, and (iii) if reported on Form 1099-R, is the direct rollover also required to be reported Form 1042-S.  Form 1042-S provides only for reporting of "gross income."  It is not clear if 'gross income" is "taxable income."  A concern here is what tax rules would apply to the IRA if the amount of the direct rollover is reported on Form 1042 as subject to 30% withholding.  A factor here may be that the direct rollover is not taxable income (at least for U.S. residents) and the dollars remain in the U.S. in a U.S. IRA and presumably would be subject to withholding when paid by the IRA custodian to the nonresident alien individual.
3. If the nonresident alien individual elects a direct rollover to a Roth IRA, same type of questions.  However, the direct rollover would generate taxable income.  This argues for the application of 30% withholding and reporting on Form 1042-S.

I would appreciate any input you may have

Rich Kennedy

I have a plan where the partners are saying they are not going to fund their own safe harbor but put in the 3% for all other employees.  Is there something that allows them to NOT put the safe harbor in for themselves?  

This subject has come up in discussion before, but since I've seen the new FIS plan termination amendment, I thought I'd bring it up again.

We've been taking the conservative position (rightly or wrongly) that the jump to $7,000 only applies if the plan ALREADY has a $5,000 limit. A plan that has a $1,000 limit, we've been amending to $5,000, then operationally switching to $7,000. 

The FIS plan termination amendment, which of course isn't IRS approved language, does provide an option to jump directly from $1,000 to $7,000. But, this is a termination amendment, not an amendment for an ongoing plan.

I believe in one of the webcasts quite a while ago, there was some musing that operationally jumping directly from $1,000 to $7,000 operationally, and catching up with the formal SECURE/2.0 amendments, would be acceptable, but that was REALLY unofficial - just some general discussion.

Anyone have any new thoughts on this subject? 

We have 401(k) plans that cover 4 businesses using participation agreements between the plans, using one of the plan documents as the master plan.  There is common ownership among the companies, making it a controlled group.  Plan provisions allow a discretionary profit sharing contribution.  One of the companies has had a very profitable year, while the other 3 only so- so.  Can the successful company make a profit sharing payment, while the other 3 do not?  Also, Successful company's owner (100%) does not take any salary, so would not benefit from the profit sharing payment.

If a company matches employee contribution with company stock, do they have to register these stocks? I understand that company stock offered for sale in the plan needs to be registered, if I'm not mistaken, but I'm not sure if the matching contributions in company stock belong to this category. Also, are the rules different for public and private companies? Any info is greatly appreciated.

I have a client who wants to do a Safe Harbor plan with the following formula:

For each 1% contributed, the Employer will contribute 2% (maximum 5%)

So - if a participant contributes 5% - they would receive a 10% match  (2 for 1)

the max comp for Safe harbor is 6% - the max allowed in the plan is 5% 

Does this mean that this is a valid Safe Harbor Match Formula? 

or would i have to separate this between SH Match and Discretionary Match?

Thanks!

I need some clarification. Someone in my organization (that we normally see as the expert) is saying that the rules for successor plans only apply to the business/EIN. In other words, if a company dissolves and opens a new LLC under a different EIN, they are not at risk of violating the successor plan rules.

I always thought that these rules also applied to ownership. Our director is saying that they don't. I thought the purpose of the successor plan rule was to prevent employers from cycling through retirement plans so they can't simply have a distributable event and then open another plan. I would think this applies to ownership as well, because what's to stop an owner from dissolving and creating new companies to terminate/start up a new plan?

Do you have any feedback? Is this person at my company correct? I don't want to dismiss the possibility that I might be mistaken, but I could really use a source that specifically mentions that the owner is exempt from this rule as long as the other company closes and the new plan is with a new company and EIN. All I can find uses the word "employer," and that seems vague in this particular instance. Again whether I am right or they are right, a source would really be appreciated. Thank you!

We do most of our 1099s through FT "fulfillment" service where the print/mail/ and send everything to the IRS.  But after 1/31 we need to do them manually (for example when a client only tells us about it now).

For years we have been ordering the IRS's red ink 1099s and trying to print the 1099s on those before mailing hard-copy to participants.  Can someone explain to me why I am making my life so much more difficult even though I know from doing my own takes that taxpayers don't even send those to the IRS??  Are people sending this out just on regular whit paper??  If there was a compelling reason I would be all over it but if there is one I just can't see it...

Basics:  Individual account 401k plan with 4 insurance policies owned by the plan.  Decision has been made to surrender these policies for the cash surrender value and invest the proceeds into the individual participant's accounts in the plan.   The participant in over 59 1/2 and the plan allows for in-service at 59 1/2.  At least one of the insured plans to take an in-service after the proceeds are received and roll them to an existing IRA. 

The insurance company form indicates 10% of the proceeds will be withheld and sent to IRS.  Form also says owner can instruct insurance company to not withhold taxes.  This obviously makes it seem like insurance company is treating this as a distribution and not a "transfer" of assets inside of the plan.  So even if they are instructed to not withhold any amount for taxes it makes me think they will still create a 1099R.  1) I don't think a 1099 should be created 2) I think they will screw it up.  

Can someone confirm I am correct in thinking that the surrender and the transfer of assets into the individual account should not be a taxable event nor require a 1099?  

Hi

Double checking the following for a combo plan design as haven't seen for a while:

Existing DC plan with NRA 65 only

Planning to add a DB plan for 2023 with NRA 65/5 YOP

Owner is age 64.

Under DC plan NRA is 65

Under proposed DB plan NRA is 68

What is the testing age for combo plan?

The system is taking the AB and actuarially reducing to age 65 and testing it. I find this a bit skewed and favorable to owner as:

• less years to project
• lower AB for testing

What am I missing here?

Thanks

A 401k plan owns company stock, in fact owns 95% of the company stock. One participant has more that 5% of the company stock within his account balance, no company stock outside plan.

Is he a more than 5% own of the company?

Thanks,

Just curious whether anyone knows whether large recordkeepers are moving to self-certification of hardship withdrawals as permitted by SECURE Section 312?

Is this a choice by each plan sponsor, or are the recordkeepers mandating a specific service model?

Looking at a DB/DC combo and checking on otherwise excludable (OEX) testing

Do I need to have an HCE in the OEX group for the PS portion? This is for 401a4 only as 410b passes easily without separating the groups (this is NESH plan with 3% mandatory allocation)

It makes a difference in the gateway as I have 5 NHCEs that are OEX.

Thanks

We set up a DB plan for a sole proprietor who is on extension for 2023.  Not surprisingly, the accountant is asking whether his client can contribute property instead of cash to fund the pension obligation.

I have not run across this question in years, I doubt this can be done without raising a red flag to IRS and am looking for a cite.  

I can't think of any employer wanting to offer part-time, barely subsisting employees the "opportunity" to reduce a meager salary and contribute to the company 401(k).

That being said, suppose an eligible PT (500-100 hours in the last three years) employee does not elect to contribute, or completes an election for with 0% or $0 deferral.  Wouldn't that suffice, assuming the employee had 30 days notice prior to 1/1/24?

OR, effective 1/1/24, the Plan Sponsor elects to use Elapsed Time with no hours.  One year eligibility, enter the plan on the anniversary date coincident with or next following completion of the 12 months;  contribution would be based on the one year of service (12 months) during the plan year (?)

Vesting would be based on year of service with no hours.

But, wouldn't such an amendment to the plan need to have been signed by 1/1/24 and all (not just LTPT) be notified at least 15 days in advance of 1/1/24.

The whole concept of LTPT is mind boggling.

Husband and wife are getting a divorce and have a signed Marital Settlement Agreement saying they each waive their rights to any retirement plan of the other. Plan has J&S provisions.

My understanding is that the MSA is not enforceable by the plan itself - that is, the plan would have to pay the husband if wife died before their divorce was final (which should be soon so this is a bit of a theoretical question, we hope). Putting it more clearly perhaps, the plan could not recognize a bene designation for anyone other than the husband unless he specifically signed a plan waiver; the plan cannot look at the MSA and say that is a satisfactory waiver.

My "research" (a quick google search) seems to imply that without a plan waiver, the plan would have to pay the husband, but then the estate could seek to recover assets from the husband since he had waived his rights. But the plan itself cannot recognize the MSA. That last part is what I've always thought. 

Getting a little pushback from the attorney and wanted to double-check here; thanks in advance.

An interesting situation has arisen and I'm looking for any and all opinions.  Company A is a physician's office and the Company A 401(k) Plan has been around for 20 years - one owner/doctor with a dozen employees.  The owner reached an agreement to "partner" with a large organization which created an Affiliated Service Group (ERISA counsel confirmed) back in 2021.  In the pile of paperwork the owner/doctor signed was a "participation agreement" with the large organization's 401(k) plan that was to be effective 1/1/2023.  That agreement is a boilerplate 1-page joinder agreement.

The Company A 401(k) Plan is never frozen, terminated, or merged, and the participants continue to participate in this plan to this day (Feb 2024). The owner/doctor and his employees never intended to participate in the large organization's 401(k) plan - in essence, he was slipped a piece of paper and signed it without knowing what it was about (not an excuse, but not unusual in my experience with physicians).

The large organization is now demanding Company A cease operating the Company A 401(k) Plan, return all 2024 contributions to the Company A 401(k) Plan as a "mistake-of-fact", and start participating in the large organization's 401(k) plan by the end of February 2024.  The employees have never been provided enrollment materials, the SPD, or any other documentation for the large organization's 401(k) plan.  They have deferral agreements in place with Company A and the Company A 401(k) Plan so I don't see how a mistake of fact would apply.  Also, since the "participation agreement" has an effective date of 1/1/2023, I don't see how trying to back-out 2024 contributions from the Company A 401(k) Plan fixes anything.

The owner/doctor doesn't want to change the plan he has in place and wants to disregard the "participation agreement" that he never would have signed had he known what it represented.

1. Has anyone come across a similar situation and if so, what was the outcome?

2. Is the "mistake-of-fact" correction being thrown out there by the large organization appropriate?

3. If the doctor just ignores the large organization's "participation agreement", and continues to keep the Company A 401(k) plan active, are there any issues he should be warned about (other than coverage testing)?

4. Any other comments/suggestions are very welcome.

Hi

Looking at a proposal for combo plan DB/DC, owner plus a bunch of employees

DC is in existence for many years and DB will be retro to 2023. No PBGC coverage.

Just found out that, the owner of the company sponsoring the DC plan also has a schedule c (no employees) which has substantial income but not adopted the DC plan as an additional employer so only w-2 is being used as his income. FYI W2 is 150k and schedule c income is 1M

Q1. Can the schedule c retroactively adopt the DC plan as additional employer?

Q2. If schedule c cannot adopt the DC plan retroactively as an additional employer but is included in the new DB plan, what compensation can be used for:

• Combined testing
• Combined deduction at 6% DC limit
• Combined deduction at 31% limit

Thank you

Good afternoon, thank you in advance for your help!  I have a two-man plan who has a Cash Balance + Profit Sharing combo Plan.  One of the owners if, given the 6% limit into the Profit Sharing for deductibility, does he still have the ability to a mega backdoor Roth.  Anyone have any guidance?

Thanks in advance!

For a 401-k plan that allows hardship withdrawals I have 3 questions as I'm confused as to what has changed with the Secures Act, and what may have changed back!!:

1. For a 1st time homebuyer is there a limit of $10,000 or is it based on need (which may be $14,000 for example).

2.  Can funds be used from the safe harbor match (for a safe harbor 401-k)?  Are there certain needs it could or couldn't be used for.  

3.  Can the new qualifying birth and adoption withdrawal come from all sources?  (safe harbor match included)

Any help is appreciated!!!