So, there is a segment of a business that that is being spun-off and a new company will be the employer.  The employees in the new company are being transferred from the old one as part of the transaction.  The business selling off will retain 9.9% ownership in the new company and an affiliated service group relationship will exist post sale.  

Is itt true that companies in the same service group may be treated as a single employer under the Code (409A) but not as a single employer under ERISA?  Meaning no termination of employment under the qualified plans or health plans?

So, there is a segment of a business that that is being spun-off and a new company will be the employer.  The employees in the new company are being transferred as part of the transaction.  The business selling off will retain 9.9% ownership in the new company and an affiliated service group relationship will exist post sale.  We've settled that under 409A a bonafide separation of service will occur under the NQDC (they can get a distribution).

But is it true that companies in the same service group may be treated as a single employer under the Code, but not as a single employer under ERISA?  Meaning no termination of employment under the qualified plans or health plans?

Should also mention that it is intended that the "significant portion" test regarding the provided services under the 414(m) rules is met, in that threshold is 5% so we shouldn't have to aggregate employees.  

Wasn't even sure where to post this since the question is pronged along 2-3 tracks.  And yes, we are seeking counsel as well, but I always like the perspective gained here. Confusing!  

WASHINGTON The Internal Revenue Service today announced cost of living adjustments applicable to dollar limitations for pen (irs.gov)

We generally write our plans' loan policies to say that in the event of a participant termination, the loan can be rolled out of the plan - this way, if the participant finds a new plan that will take it (which is a big "if" in its own right), they can transfer the loan to the new plan, establish payments, and not have to deal with the extra taxation.  It's a rare moment where I care about the participant. LOL

Thankfully, it doesn't come up very often.  But we just learned that one recordkeeping platform that we work with will not play nicely with this - their policy is to default the loan due to non-payment and then 1099-R it.  They claim it is due to a system limitation.

Obviously, we have to issue new loan policies to all these plans to say that they cannot do this.  So... could this be a protected benefit and therefore not allowed to be cut back?  I figure that since loans themselves are not, then the disposition of them shouldn't be, but I thought I'd see if I was overlooking something.  Thanks.

How would the proposed investment-advice rule affect you?

On October 31, President Biden and Acting Secretary of Labor Julie A. Su announced that she will propose a new rule to interpret whether a person provides investment advice that makes the person an employee-benefit plan’s fiduciary. The same rule would interpret also whether one is a fiduciary regarding an Individual Retirement Account or Annuity (IRA), a health savings account, an Archer Medical Savings Account, or a Coverdell education savings account, even if the account is unconnected to an employment-based plan. (Whether a rule would be or might become contrary to law is beyond this explanation.)

To go with those interpretations about investment advice that makes one a fiduciary, the Secretary will propose changes for five class prohibited-transaction exemptions (PTEs). These matter because both section 406 of the Employee Retirement Income Security Act of 1974 (ERISA) and Internal Revenue Code of 1986 (I.R.C.) § 4975 make it a prohibited transaction for a fiduciary’s advice-giving to affect her compensation, business, or other personal interest.

Under a 1978 government reorganization plan, the Labor department’s rules, exemptions, and interpretations are authority not only for ERISA-governed employee-benefit plans but also for accounts subject to a tax-law consequence under or regarding I.R.C. § 4975.

BenefitsLink’s news pages link to the prepublication texts and some news releases and articles. Eight hyperlinks are posted in the October 31 news.

The proposals are not yet published in the Federal Register.

If published soon, the 60-day comment period would end in early January. And without waiting for a request, the Labor department expects to schedule a hearing in mid-December.

What’s in the proposals?

Here’s a few key points:

Investment advice that makes one a fiduciary includes a recommendation of any investment transaction or any investment strategy. That applies for someone in a business that regularly involves investment-related recommendations, or who “represents or acknowledges that they are acting as a fiduciary when making investment recommendations.”

The proposed rule’s explanation of a recommendation aligns with uses of that word under securities law and insurance law.

A recommendation need not be about securities; it would be about any kind of investment property, including an annuity contract, even a fixed annuity contract, and a life insurance contract, unless it has no investment element.

An investment adviser is a fiduciary only “to the extent” it renders investment advice. For example, a securities broker-dealer or insurance agency that presents a rollover recommendation might be a plan’s or IRA’s fiduciary only when it forms and presents a particular recommendation. One might be a fiduciary only for a day or two. For example, a one-time recommendation to rollover a payout into an IRA could make the recommender a fiduciary, but her responsibility might end when the distributee accepts or rejects the recommendation.

Responsibility for one-time advice also might apply to a suggestion about how another fiduciary selects or monitors designated investment alternatives, or about whether to allow a brokerage window.

That a person is not (or is no longer) a fiduciary under ERISA or the Internal Revenue Code does not excuse the person from duties under banking, commodities, insurance, or securities law.

The revised best-interest exemption (PTE 2020-02) would let a Financial Institution—such as a bank, trust company, insurance company, securities broker-dealer, or registered investment adviser—and its Investment Professionals provide self-dealing advice if they don’t put their interests ahead of the Retirement Investor’s interests and don’t put the Retirement Investor’s interests below the Financial Institution’s or its Investment Professional’s interests.

Some changes would widen which persons can get relief. Some changes would tighten disclosures. Among other changes, a Financial Institution and its Investment Professional must confirm in a written disclosure that they act as fiduciaries.

A change would require a Financial Institution’s yearly compliance reviews to check “that [t]he Financial Institution has filed (or will file timely, including extensions) Form 5330 reporting any non-exempt prohibited transactions discovered by the Financial Institution in connection with investment advice covered under [I.R.C. §] 4975(e)(3)(B), corrected those transactions, and paid any resulting excise taxes owed under [§] 4975[.]”

If the Labor department adopts its proposed change in PTE 84-24, an Independent Producer who recommends an unaffiliated Insurer’s annuity contract could get a fully disclosed commission or fee if the exemption’s protective conditions are met. What’s the big change? The Insurer “would not be treated as a fiduciary merely because it exercised oversight responsibilities over independent insurance agents under the exemption.” And the Insurer “only would be required to exercise supervisory authority over the independent agent’s recommendation of [the Insurer’s] products.”

Another proposal would change PTEs 75-1, 77-4, 80-83, 83-1, and 86-128 so each provides no relief for a self-dealing transaction, including conflicted compensation. Instead, a fiduciary must meet the conditions of the best-interest exemption.

This is only a quick and short look at a few of the many points in the proposals. For more information, read the source texts. Or, post your query in this BenefitsLink discussion.

Participant (owner) born in 1938 has been taking RMDs for many years. Spouse was born in 1954 🫤 so we have been using the joint table.

Participant dies in 2022. Normally calculated 2022 RMD was paid to spouse as beneficiary.

Going forward...I think:

The 2023 RMD is based on the 2022 joint life expectancy, minus one.

The spouse can roll over (after the 2023 RMD is paid) to her own IRA, or her account within the plan.

Does that sound right?

I have a client that completed their 2022 audit and discovered employees who are due an additional Safe Harbor contribution.  The advisor is asking if these can be made to the PEP.

My initial response is they should be made to the original plan and then a second wire/transfer can be sent to the PEP.  The prior recordkeeper is unwilling to accept the Safe Harbor contributions as they have completed the termination.

I thought maybe the Safe Harbor contributions can be submitted to the PEP and then have the recordkeeper reclassify these amounts as transfer funds.  I know this won't be the last time a situation like this occurs with a PEP.

Any thoughts ?  

Just polling the folks on this forum. As a TPA business owner, If you could only pick one of the two organizations for membership, which would it be and why? Thanks in advance.

Hi

Here is a new one for me.

Having a discussion with a broker about which table to use for a DC plan RMD calculation. I never heard of this before.

Age difference between the 2 spouses is 20 years.

The broker wants to use uniform versus J&S table.

If uniform, the RMD is 10,000, if J&S table, RMD is 7,000 (making up numbers)

Q1: Can the table be optional?

Q2: Assuming not optional, should not the excess 3,000 distribution be subject to in-service and 20% withholding rules?

Q3: Plan normal form is lump sum and no spousal consent is required for distributions but still, need to complete a distribution election form for the extra 3,000 distribution?

Q4: none of the above as they can choose between the 2 table and either number is ok under RMD rules???

Any other questions I am not thinking of/not asking?

Any comments are appreciated.

Thanks

For anyone that has experience with annuity buy-ins, how have you calculated the Funding Target liability for the purchased group?  I believe for accounting purposes the liability is set equal to the fair value of the GAC, but is that also true for the FT?  Or are we required to use the PPA-defined segment rates?

I have a question about if this plan can file using Form 5500-EZ.

There are 2 people in the company: 100% owner and his child. The child does not yet qualify for the 401(k) plan because he has not met the eligibility requirements (the plan requires participants to be age 21 and the child is not yet 21).

Since the 100% owner is the only participant in the plan, can a Form 5500-EZ  be filed instead of Form 5500-SF?

Below is the text from the 2022 Form 5500-EZ Instructions:

"1. Covers only you (or you and your spouse) and you (or
you and your spouse) own the entire business (which may be
incorporated or unincorporated); or

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); and

3. Does not provide benefits for anyone except you (or you
and your spouse) or one or more partners (or partners and their
spouses)."

Thank you!

Hi

Asking for a CPA friend of mine.

Corporation A.

Joe's year of birth is 1952. So Joe will be 73 in 2025

Joe owns 10%, Joe's wife owns 1% and Joe's son owns 89%

Joe will sell 8% to his son in 2023.

Is there anything I cannot think of that would allow Jow to defer RMD until forever?

Also, assuming Joe needs to start RMD, 2025 is the first year, correct?

Thanks

In the adoption agreement compensation is described as "W-2".  The Post-Severance box is not checked:

[  ] Include Post Severance Compensation in definition of Statutory Compensation.

So... if an employee terminates on say 10/1 but is receiving severance pay through the end of 2023, we don't count any income earned from 10/2 through the end of the year, correct?  AND, the employee can not defer from that severance compensation either, correct? 

Company A acquired Company B - Stock Purchase

Each passed coverage at the time of acquisition. Plan has taken advantage of the Transition Rule. The transition rule ends 12/31/2023.

As of 1/1/2024 the employees under the prior company will know be enrolled in the surviving plan.

Company B will be a participating employer in Company A's Plan.

The recordkeeper of Company B will not liquidate the assets until 1/15/2024. Funds will be transferred to Company A's plan.

Question -

The fact the assets transfer after the end of the transition period does not negatively impact the transition rule - correct?

The transition rule relates to the 410(b) testing and transferring the assets after the end of the transition period should not be an issue.

Have a scenario where an employee became a partner of the firm sponsoring a 401(k) plan on 1/1/2022. However, they became sick just before 1/1/2022, and left the firm 3/15/2022. During 2022 they worked 0 hours but had $86,000 of ordinary income also considered self-employment income. Would they be entitled to a 2022 SHNE contribution for 2022?

As an employee, she was eligible for the plan.

Apparently, the firm paid her disability payments of $86,000 between 1/1/2022 and 3/15/2022. 

I know there cannot be an hours requirement (like 1,000 hours etc.) to receive a SHNE contribution. Just wonder if someone working 0 hours would even be considered eligible to receive a SHNE contribution. The plan document does not seem to address this.

Thanks.

My firm was recently contacted by Winklevoss.  They advised us our license fee would be increasing by 50% effective 1/1/24.  Has this happened to anyone else?

This is really a screwed up mess.  When I say 'he' I am referring to the employee spouse and 'she' will be referring to the non-employee spouse.  Anyone else I refer to, I will try to be clear about who I am talking about.  The plan is a multi-employer defined benefit pension plan through a union.

After a 20 year separation, she agreed in Court to her portion being one half of the 'earned amounts' from the time of marriage to the separation. The earned amounts for each of those years were read in Court from a pension statement from that time period, by his attorney, so everyone understood she would not be getting her portion based on the current rates, but at the rates as of the separation.  The Decree left out the amounts for those years, but it does say 'earned amounts'. 

When he turned 60, his disability from his pension was to convert to regular pension, but the QDRO was not in place.  She said she did not have the money to get the DRO drafted.  He then went to her attorneys office to pay the amount she told him it would cost.  He did this in April, trying to keep his benefits from being suspended. 

Two weeks later, he called that office to see if it had been drafted.  The paralegal drafted it at that time, using an example she found on the plan website and plugged in the information.  The DRO that was submitted used the formula which will calculate her portion using the 'current' rate x 1/2 of a fraction, the numerator being the number of months of credited service from marriage to separation and the denominator being total number of months of credited service.  Which is understandably the normal way of calculating the AP's portion.  However, the agreement was half of those earned amounts that were read aloud in Court.  She would receive that amount each month for the rest of her life. 

The Decree left out other vital information, including whether she would receive her portion as a shared payment method or a separate interest.  The QDRO states that the method is a separate interest.  I believe it sounds like it should be a shared payment method because the monthly amount is basically already determined, but I definitely don't know enough about pensions and QDRO's.

After it had been approved and he realized the current rates are used, entitling her to around $300 more per month than what she agreed to, he told the paralegal it was wrong (his attorney in the divorce action would not respond to pleas for help, and when he did finally respond, he said "just let her have it all and when she dies, get it back", so he communicated directly with her attorney's office  pro se). The paralegal was making minor corrections to send it back to the plan admin for approval again, then all of the sudden, the paralegal told him that they were spending too much time on something they had not been paid for and that what he had paid was their client's balance that she owed from the Hearing. 

The paralegal then sent it to the Judge for signature, just as it had been approved, and for it to be filed.  It did not have signatures of either of the two parties. 

He never received a filed marked copy and neither has the plan administrator.  Recently, after many ignored attempts to find out why it had not been sent to the plan administrator, the paralegal finally told him that they sent it to the her to obtain the identifying information information on him (they already had that), along with hers and for her to send it to the plan administrator herself since she refused to give that info to them. 

That was shortly after it had been filed on July 3 and she has been sitting on it ever since.  Who does that? 

So even if he agreed to the terms of the QDRO, he is still going without his money because of her and her attorney.

We don't know if the Order would even qualify if amended to state the actual terms of the agreement.  The transcript proves what was agreed to. Her attorney would not order the transcript, so he did.  Both divorce attorney's obviously had a lack of experience in pensions and QDRO's. 

Are there any provisions in the laws that afford him any rights to proceed with applying for benefits, without her portion being considered, because she is the reason his benefits were suspended in the first place.

This could go on forever!  Seems like there should be something he can do to start receiving his benefits. 

I apologize if some of this is off topic.  A little back story was necessary.  Any advice would be much appreciated.

Apologies as I'm not sure this is the correct place to post this question but figured folks watching this board would have some good thoughts as you usually do.  Apologies too for the long fact pattern but figure the set up is needed to capture the predicament.  

Client / Seller ( founder / owner) sold her private company to large company earlier this year in an asset deal.  Deal has closed and seller received funds now held in her shell company.  Business had 25 or so employees who all were hired by Buyer and are now employees of a sub in Buyer's group. Seller did not provide any transaction or sale bonuses to employees at closing--had no plan / contractual obligations to do so and failed to build bonuses into the transaction (whereby part of the purchase price might basically have been earmarked for employee bonuses to be paid out by Buyer as part of a post-closing bonus / retention plan, etc.). 

Seller regrets failing to arrange some sort of bonuses and feels strongly about getting something to former employees.  Seller would like to do that in a tiered way so a few very long-term employees get significant amounts.  Some of those individuals are old enough and the anticipated bonus amounts large enough they might result in individuals leaving buyer or retiring if paid all at once. Other, younger employees would still get meaningful bonuses but likely not career-altering.  All former employees would get some amount.

Seller is generous and willing to do this out of proceeds however works but does not want to have to pay tax on the deal proceeds and then pay them out without any deduction and with recipients also getting taxed on the payments.  Seller has thought about just taking cash when distributed from company and making "gifts" to the former employees over some period of time.  Seller would generally be ok doing that but understands the risk such "gifts" to former employees may get characterized as taxable compensation if ever audited.

Buyer is not really interested in helping Seller with her issue or opening the terms of the deal back up.  Seller wonders if there could be a deferred compensation plan of some sort set up by the Seller Company with the bonus amounts contributed to an irrevocable trust and the bonuses distributed over a period of years to the former employees on a schedule the Buyer would not object to as potentially impacting employee retention (e.g., plan would provide for $75,000 per year over 4 years provided employee remained with Buyer rather than giving $300,000 at once) with all amounts due accelerated upon death or disability.  Seller would be fine in having the amounts contributed to trust so they never revert back to Seller and any forfeitures would get allocated among remaining employees and any ultimate remainder (in highly unlikely event there was no remaining employee at the end of 4 years) going to a charity.  In short, Seller would be ok setting up as a completed transfer never to receive any portion back.

While intriguing, it is unclear to me Seller's company would be entitled to an immediate tax deduction (this year) on the amount transferred to an irrevocable trust for distribution to former employees over multiple years.  And, even if that did work somehow, it seems such an arrangement would clearly fail to qualify as a top hat plan since it would cover all former employees (few of whom are highly compensated or management employees).  Seller is not really interested in setting up anything governed by ERISA (if that could even be done) for covering former employees.

Sorry for the long fact patter but hoping somebody may have seen a similar situation and come up with an easy or simple solution that may work.  Thanks for any thoughts. 

Suppose you have a 401(k) plan that is sponsored by a partnership of corporations. Each corporation then adopts the plan to become a participating employer. 

This is often the case with a group of physicians. 

If each corporation only employs one physician, is that physician automatically considered a key employee because he/she owns 100% of their corporation? What if they own 100% of their corporation but their corporation only owns 4.5% of the partnership? Does that then make them a non-key participant?

Thanks!

Suppose you have a Safe Harbor 401(k) Plan sponsored by a partnership with 12 partners and 6 employees. The plan has a December 31 year end.

The plan provides a 3% Safe Harbor Non elective contribution to only non-key employees.

Suppose a non-key employee becomes a 5.5% partner in December (i.e. they are only key for one month of the plan year). Would they be required to receive a 3% Safe Harbor contribution for that plan year?

Thanks!