A potential client approached us to establish a 6/30 year end 401(a) plan.  They are a governmental entity, so it will be a governmental plan.  It is September 13, 2023, and the client is expecting to establish the plan effective 7/1/2022, because they've already deposited a contribution for the 6/30/2023 plan year end to a Trust.  Can we prepare a plan document with a retroactive effective date at this time?  If not, what should the client do with the money that has already been deposited to a Trust?  I'm attempting to gather additional information from the client (i.e. documentation for the Trust; any documentation regarding the plan provisions).  Any guidance is appreciated.

A doctor called requesting a loan, without saying how much.  I sent a blank application.  I mentioned in the email to complete, return, we would review, get Trustee authorization and direct Merrill to issue a check (the doctor has a plan brokerage account.)  This doctor is one of many doctors and only those on the Executive Committee serve as trustee and he is not one.  He completed the application and just gave it to Merrill who issued a check for $20,000 which is $16,000 over his borrowing limit due to the 12-month lookback rule. 

I emailed him today and the Practice Administrator saying he must pay back the excess right away.  If he refuses to pay, the plan provides for hardship distribution and he could self-certify hardship eligibility.  In-service distributions are not available at his age. But if he will not complete the hardship form, then we have an uncorrected prohibited transaction.  I'm guessing just issuing a 1099 as taxable for 2023 will not solve this problem.   I thought about the group withholding $16,000 from an upcoming bonus but I doubt that is legal to withhold from pay without consent.

The doctor seems very reasonable from past dealings so my hope is he will quickly pay it back but I question his ability despite a high income as he borrowed $50,000 not long ago and I suspect something is going on like a divorce.  This just happened within the last 2 weeks.  So maybe not yet spent.

Comments are appreciated as always.

If an employee terminates and comes back 5 months later they really haven't "terminated" in the eyes of the plan, they simply have a lapse in service.  It's not until they have been gone for 1  complete year when they can be considered "terminated" and in essence would have to start all over if they were re-hired.    Correct?

And the break in service rule is an IRS rule? Not an individual plan rule?

Hi

I am sure this is the first time it is happening

New client (husband & wife only) set up a DB plan for 2022 and literally signed the documents yesterday. No need to file 5500 forms but do I need to file PBGC for 2022? Yes, they are covered by PBGC.

I was told that they had SEP all this time. Yesterday, before preparing the documents, found out that they have a solo 401k plan and not a SEP. Caught it in time to set the plan # properly for the db plan.

Deduction is not an issue.

Solo 401k plan has 800k in assets and never filed 5500 forms - this plan is with a reputable brokerage house.

Did a bit of math and figured out that they exceeded 250k 7, may be 8 years ago and no one told them that they had filing obligations, quelle surprise!

Other than filing with DVFC, anything else I should be aware of? Do not care about the documents etc as I am not taking over the plan, just helping with the 5500 forms?

Thanks

S corporation, owned by Father and Son, each owns 50%. No employees.  Which 5500 should be filed?  EZ or SF?  I am getting lost in the EZ instructions language:

"2. Covers only one or more partners (or partners and their spouses) in a business partnership (treating 2% shareholder of an S corporation, as defined in IRC §1372(b), as a partner);"

We have tax client (not a TPA client) who we just discovered had plan assets exceeding $250,000 as of 12/31/2022 for the first time and it is an owner-only plan.  This is a Sch C client who has his 1040 extended and so taxes are due Oct 15.   We didn't know about this in July so we did not file an extension (nor were we engaged on the plan.)

We've never filed 5500s under the extended tax return rule.  I'm reading that as long as the plan year and tax year are the same and as long as the 5500 is filed by the tax return due date including extension, it is not late.  I want to be 100% on this since I don't want to risk missing the $500 penalty opportunity and risk a much larger late filing penalty which will then be blamed on us.

Thank you

I have a plan that inadvertently did not offer 401k enrollment to eligible employees (non-auto enroll).  However, there were no contributions by any HCEs or NHCEs for any of the plan years involved or any matching contributions. What would be the basis for the missed deferral opportunity?  Should it be assumed that it is 3%?

So, suppose you have a safe harbor (match) plan where some newly eligible (eligible 9/1/2022) participants were inadvertently excluded for the last 3 months of 2022, but were then properly allowed to defer beginning 1/1/2023.

Under 2021-30, Appendix B, .05(9), you have the reduced QNEC requirement if you satisfy certain conditions. One of those, in .05(9)(b)(ii) is that the Notice be given "not later than 45 days after the date on which correct deferrals begin" ...

Well, we're past that date - they started deferring 1/1/2023. But it doesn't seem reasonable that you would be precluded from using the lower QNEC, particularly since the Safe Harbor correction method is otherwise allowed until the end of the SCP correction period.

Now that SECURE has potentially loosened the EPCRS, it seems reasonable to use the reduced QNEC in this situation, other than for terminated participants (and even that piece is debatable, but I'd play it safe).

Any thoughts?

Hi

Recently applied for a coverage determination with PBGC for the following

LLC filing as a s-corp

Owner is Joe owning 100% and Mary (spouse of Joe) is the other employee, no ownership.

First determination said that the LLC is not a professional entity.

Second determination was for substantial ownership and it was determined that 1563(e) does not apply. The LLC is not treated as a corporation under 1321(d) thus Joe's ownership interest cannot be attributed to Mary and that Mary does not meet the definition of a substantial owner.

Also indicated that Mary is not a substantial owner as only Joe owns 100% of the LLC.

Interesting, right?

Now, for determining HCE status, do we agree 318 steps in here i.e. I do not have to run non-discrimination testing? Top heavy is not an issue as providing way over the limit.

Thanks

We have a client that is an LLC taxed as a partnership that also issues a Form W-2 to the partners. This year the partner's have large losses on the K-1 box 14a.  We would normally add the W-2 income and the K-1 income together for plan compensation (after the appropriate SE tax calculation when K-1 is positive) but someone in our office thought they remembered reading that the negative K-1 income could be disregarded and only the W-2 income used.  Does that sound familiar? I do not remember reading anything about that so wanted to see if anyone else was familiar with it.  The negative K-1 amounts are slightly less than the W-2 income so the partners will have a small amount of income for the year.  

Client applies for a residential loan August 1, 2023. Paperwork supporting the purchase is not provided until today. The settlement date was August 7, 2023. Would you allow this to be a residential loan? Clearly the funds are not being used to acquire the home since the purchase has already settled. 

We have a plan with immediate eligibility for elective deferrals and delayed eligibility for the safe harbor match (I believe the standard 12-month with entry date).

I know the ADP test is required for the <1 year group and the exclusion rule can be used, so the ADP test is not an issue.  Someone in this group mentioned in the past though that top-heavy could be an issue.  So when only safe harbor match is funded, no profit sharing, this plan is not deemed to meet top heavy rules because of the differing eligibility?  And not only that, all participants would be eligible for the top heavy contribution if the plan were top heavy.  Fortunately it is not but climbing and getting into the danger zone - approaching 50%.

We always applied top heavy 3% to plans with different eligibility when profit sharing was funded.  90% of our plans are top heavy and have same eligibility for all sources.  But this plan with only delayed safe harbor is a unique plan for us.

Thank you for your comments.

Administer a DB Plan for a small law firm with 5 participants. Non-PBGC.

Plan terminated 9/15/2022 and all benefits were paid by 10/15/2022. There remains about $5,000 which they will use to pay our fees for the termination and administration. 

The 100% shareholder took a $70,000 haircut to his benefits when distributions were paid.

The 100% shareholder now wants to fund $65,000 from the company for 2022 only to himself in the terminated defined benefit plan and then take a distribution of the $65,000. This to make up for the haircut he took.

Does anyone think there would be a problem with this?

Thanks.

If the plan is not covered by PBGC, is it required to file with PBGC for a Standard Plan Termination? 

A one participant plan covering owner and the spouse. Should 5500 SF be filed after divorce, if the none owner spouse stays as participants?

I'm working with a partnership that is split 95%/5%.  I'm being told that the 5% partner isn't really an employee - they perform no services for the entity.  I think that I'm able to exclude them from any plan consideration, yes?

Does your answer change if I add the detail that the two are married to each other?

Thanks...

I've tried and failed to find out if an entity with no plan currently can adopt the Plan mid-year. Parent bought the stock recently, and are within the transition window but they want to add them mid-year,  2016-16 references amendments, but I think that's different then adding participating employers (i.e., adding a Participant Employer is not an amendment and so doing so is not covered by 2016-16).

My own personal conclusion is as long as they are on by 10/1 it should be ok because they would be able to set up their own SH 401k plan in that scenario but I can't find anything at all on point.

Any insight on how a 529 and 127 plan would coordinate with each other?  Code 529 talks about coordination with ESA and American Opportunity and Lifetime Learning credits, but nothing re: 127 plans. 

If this topic already exists, will happily take links (could not find in a few searches)... 

Employee enters the plan on the 1st of the month; payroll is typically run on the 1st of the month, but when it falls on a weekend or holiday, is paid the business day immediately preceding said weekend/holiday. Is the employee eligible to defer from that payroll?

My interpretation is no, since the actual pay date is before their entry date, but open to other interpretations / guidance here!

Example:

• Sally enters Company ABC 401(k) Plan on Sunday, October 1, 2023
• Company ABC follows a monthly pay schedule, with payment on the 1st of each month
• Pay date typically scheduled for October 1, 2023 is instead paid on Friday, September 29th due to the normally scheduled pay date falling on a weekend
• Is Sally eligible for deferral on the September 29th adjusted pay date, or must she wait for her first monthly payroll actually paid on/after October 1st (in this case Wednesday, November 1, 2023)?