A plan failed the ADP test for the 2020 plan year and a refund was properly issued to the HCE by 12/31/2021.  When preparing the 2021 testing, the client discovered some of the compensation reported for 2020 was incorrect.  The 2020 ADP test was re-run with the correct compensation and the HCE is now due an additional $184.00.  Since we are past the 12 month correction period, will the refund fall under EPCRS and a one-to-one correction required?

Has anyone else been having trouble with Relius ASP customer service?  I understand we probably aren't their ideal client, but our issues aren't being resolved.  Problems like posting transactions easily see weeks turn around time, and more often than not I'm finding some manual workaround.  Since they've switched to that Portal, though, I'm wondering if I'm going about submitting for help the correct way.  It just seems very disjointed for the past year or so.

I'm also unsure that we've gotten any correspondence about the IE discontinuance and how to log in.  (I'm using our old stand alone version of the software currently because the plans I want to work on don't work on ASP.)

As we enter into another economically challenging time, I have a business owner who needs money for a short term issue.

He wants to, and can, take an in service distribution, and then return it to the plan within 60 days.  I'm thinking he is better off putting it into a new IRA but the advisor is saying to put it back into the plan.  What do other piggy bank owners do with such distributions? He understands he will receive a taxable 1099-R.

Has there yet been any consideration/action to waive 2022 RMDs [as in years prior] in light of the market plunge in valuations from YE 2021 highs due to the negative impact on retirement savings?

Has anyone seen guidance regarding paying out grandfathered deferred comp when the employee who deferred the compensation becomes an independent contractor?

Per Section 1.409A-1(h)(ii) of the 409A regs, an employee is not considered to have a separation from service if he or she shifts from employee status to independent contractor status.

A client has a grandfathered 2003 deferred compensation agreement.  The executive deferred the compensation until "Retirement," which has a rather loose definition.  If the plan committee finds that the employee has had a cessation of services to the company that is deemed to constitute a retirement, then he has retired. 

The executive has scaled back his work level, is retirement age, and is ready to retire.  The employer would like him to remain a consultant for a few years, likely working much less that he was as an employee.  Both parties would like to treat him as retired for purposes of the deferred comp agreement.

It seems the 409A concept of separation from service should not be applicable.  I am rusty on my pre-409A deferred comp payment triggers and whether there is a well-defined concept of separation from service (I have not found one in any event).  If in his new role he is truly a contractor as opposed to a common law employee, I believe he can reasonably be deemed to have retired and should be paid the deferred compensation that was deferred until his "retirement.'

Thanks in advance for any thoughts.

UPDATE - Edited for revised facts:

I received updated facts.  Turns out the individual was already an independent contractor when he made the original deferral in 2003.  He remains an independent contractor but will soon enter into a new agreement for a much lower payment and will be "significantly less active."  Though 409A does not apply, it would state that the individual does not terminate until there is an "expiration of the contract" and a "good faith and complete termination of the contractual relationship." § 1.409A-1(h)(ii)(2).

In the pre-409A landscape I could not find a definition of separation from service.  Even in the qualified plan space, there is no real concept of making distributions upon shifting to part-time status.  Also, contractors do not report the amount of hours or work done to the service recipient - they merely do requested tasks.  As such, it seems risky even in a non-409A world to deem a contractor to have "retired" and make a payment of deferred compensation based on a mere reduction in the scope of services under a new agreement.

Finally, what if the company pays out the deferred comp without an expiration of the contract and the IRS disagrees that there was a "retirement." Would 409A become applicable, with the IRS perhaps arguing that the company had made a "material modification" to the agreement, by adding a new distribution trigger (payment despite no cessation of services)?  The parties would have failed to follow the terms of a grandfathered plan and the failure would result in a material change to the payment timing.

Thanks again for any thoughts!

Facts -

Company A has a Safe Harbor Match Plan - 1 year of service

Company B has a non Safe Harbor Plan  - 2 months service requirement

Company A wants to merge Company B's plan into their plan. Can a non safe harbor merge into a safe harbor plan did year?

The only thing I found  was is if the surviving plan is Safe Harbor and a maybe notice was provided, the merger can happen mid year. Company A has a Safe Harbor Match so do they have to wait until 1/1/ to merge the plans?

thanks

Good afternoon!  Have a potential client that's looking to setup both a DC and DB Plan.  No issue in that, but where they are looking to invest the money is asking for separate EIN # for each Plan.  Is that normal?  Just curious, as it's not something I've previously encountered.

Thanks, and sorry for all the questions lately!

Does anyone have 4-Tier Integrated PS Calc in Excel that walks one through the steps to calc per tier?  I am super rusty and want to make sure I do it correctly.

Hi

Taking over a TBP - target benefit plan -  with some issues that I was able to determine for 2020 plan year:

1- Participant had $1,000 salary and got an allocation of $3,000 - they did not check this 415(c), 100% compensation limit rule even if the report clearly stated 415 violation. They simply applied the contribution based on the formula without looking into the 415(c) limit.

2- The owner was allocated $0 but I think should have had an allocation due to the incorrect calculations. The owner had $10,000 in salary.

So:

• The contributions were made after the end of 2020 plan year so I can fix the 415 issue but the fact that the deduction was taken is another issue. What to do with the excess deduction (assume no allocation to the owner for this scenario). Cannot allocate to others as all TBP calculations are based on a formula.
• If I determine an allocation was due to the owner, I can use a portion of the excess from above but still would be short. As the contributions are mandatory, how to correct the missing contribution? For arguments sake, let's say $5,000 is short for 2020. They probably will need excise tax of 10% for each 2020 and 2021 i.e. 5330.

Any suggestions especially of self-correction?

Thanks

Facts:

Company A, owned 100% by Adam has a 401k plan

Company B, owned 100% by Bob has a 401k plan

Neither company are currently related in any way.

They are going to form Company C (33% owners each with a third unrelated owner) starting July 1, 2022.

All of Company A clients and employees will move to Company C

95% of clients and employees of Company B will move to Company C.

The owner of Company B will be on payroll and Company B & C.

The idea is to have Company C take over as plan sponsor of Company A.

The question is:

1. Can company B retain their 401k plan and not be related to Company C? The owner would like to keep his assets where they are while all of the employees of B transition to C would roll their money over. 

2. Or should Company B terminate 6/30/22 to avoid issues.

3. For Testing purposes, how should this be handled?

     1/1-6/30 for A, 1/1-6/30 for B and 7/1-12/31 for C?

     C do 1/1-12/31 for A employees and 7/1-12/31 for B? 

any help would be great.

If a DC Plan wants to amend the Normal Retirement Age (i.e. for 55 to 65), is that an amendment that can be done mid-year or should it wait for the first of the year?  The question is due to vesting, as the Plan states that they become 100% vested at Normal Retirement (which the previous TPA set at 55). 

The second question is, I know a change like this can't have a negative impact (like when you amend the vesting schedule).  Does that mean that anyone who is currently employed must still become 100% vested once they reach 55, or can it impact anyone who has not yet reached NRA (if a current employee is 54 and they amend the NRA to 65, does that mean that participant has to wait until 65 or to work the necessary years).

Thanks!

Hello, 

We are looking for an actuary for a school district defined benefit plan in CT.  Can you please contact me if interested?

Thank you.

This seems to comes up periodically... some of the threads end up trailing off, and some don't seem to come to the same conclusions (though that might be me misreading them!) because this is not particularly intuitive, so let me try and ask this with a concrete example that was just presented to me.  I'll even link some of the previous threads that I thought were good ones.

Doctor D is doing the max 403b deferrals and getting a match in the hospital's 403b plan.  He is now about to start a practice of his own (100% owner) and wants to start up a 401k plan - deferrals, 3% SH, class based profit sharing.  He does not control the hospital or sit on its board.  He is 55 years old.  I don't have exact numbers, but let's make the math easy and say he's getting $200K compensation from the hospital and expecting $300K from his S-corp practice.  The hospital's 403b match is capped at 2%.

He can't double-dip on deferrals between both plans, so he will do those in the 403b plan to get the match (if the CPA can find a tax angle for him to do deferrals from the private practice in 2023 that is worth giving up the match, he can make that change in January 2023).  But let's assume that he keeps deferring into the 403b plan.

Do I have to include the 403b deferrals in any testing that I do?  It appears "yes": $67,500 max including catch-up less $27,000 403b deferrals = $40,500 that he can get as employer (i.e., non-401k) contributions in the 401k plan.

Does the match he is getting affect this at all?  I'm thinking "no", since it is an unrelated employer, even though there is all that stuff about the 403b 'belonging' to him.

That's actually another question: the 1.415(f)-1 regs refer to a 403b "annuity contract"... but what if the 403b plan is not held in annuity contracts, but it's instead on a mutual fund recordkeeping platform?  Is that splitting hairs?  Admittedly, it might be...

If Doctor D was establishing this as an equal partnership with Doctors E and F 1/3 apiece, since D's ownership would be less than 50%, would he not have to count his 403b deferrals against his $67,000 limit and/or $27,000 limit, in effect getting two separate limits?

Is there anything else that needs to be considered?  Any of this incorrect?  Thanks.

November 2016 thread
July 2017 thread
March 2018 thread
November 2021 thread

Also reference your favorite site for 415(c) and 1.415(f)-1(f) (see especially Examples 6 and 7).

Why do companies put in days instead of months for a service requirement? It is MUCH easier to figure it out with months as the baseline.

For example, a plan requires 60 days of service, monthly entry (next or coinciding). Employee is hired July 3. When does she enter the plan? September 1. That's 60 days of service.

What if it was April 3? June 1? Nope. July 1. 60 days of service is June 2.

If it was two months of service, it's much easier. Anyone hired on the 3rd of the month enters the same day: first day of the third month after hire. No counting days. No missed deferral opportunity.

Someone hired on Aril 3 has to wait 28 more days to enter the plan than someone hired on July 3.  Doesn't make sense.

Good morning everyone.  Just a quick question, our document software defaulted to add the following when we entered to exclude part-time employees:

"Notwithstanding the foregoing, any Part-Time Employee who is excluded hereunder will nevertheless be considered an Eligible Employee if he or she is credited with at least 1,000 Hours of Service during any Eligibility Computation Period beginning on or after his or her Employment or Reemployment Commencement Date and is an Employee on the last day of such Eligibility Computation Period"

Is there an issue with removing this language?  They want to exclude all part-time employees, even if they ultimately work 1,000 hours in a year, and they definitely wouldn't have a testing issue.

Thanks everyone!

PSP only pooled account.  Client is considering amending plan from distributions as soon as administratively feasible in plan year following termination to as soon as administratively feasible in year of termination.  We never do that and have our reasons but just trying to think through if I'm missing anything.  Who allows this?  What kind of issues do you encounter?  Plan has a right to an interim valuation if warranted and will be doing that this year if they make this amendment.

I guess I never saw this situation before -

All participants have self directed brokerage accounts.

Plan is set up as a 404(c) plan.

There is no QDIA.

I thought 404(c) plans had to have a qdia.

Plan sponsor has finally agreed to correct a plan by depositing long overdue safe harbor contributions (w/earnings).

They would like to terminate the plan, but they do not want to do the following:

• Submit a formal VCP correction
• Restate their plan document

I cannot stress enough, getting this deposit made is a tremendous achievement that we celebrated with jellybeans in the office.

I know we are not the only ones with awful clients. I also know the standard recommendation is to 'fire the client', but that frustrates me because that doesn't really solve the problems. 

That being said, I'm just looking for thoughts on helping them terminate the plan under those conditions, aside from incredibly caveated letter at what their risks are going to be.

Recently, I was asked for advice on State-law fiduciary issues about a retirement plan.

The plan’s sponsor, a profit-seeking limited-liability company (treated as a partnership for Federal income tax purposes), has no employee, and no intent to hire an employee. Everyone who works in the business is an LLC member. And yes, I checked that the LLC interests are real, and not a sham to evade treating a worker as an employee.

How often does this happen—that every worker is a partner, an LLC member treated as a partner, or otherwise an owner treated as not an employee?

Does it happen often enough that a service provider would plan for these situations?

I understand a plan is not required to restate if it terminates prior to 7/31/22, albeit it must be fully up to date, including at this time the Hardship and SECURE amendments.

That being said, if a plan does terminate but does not yet distribute assets in full by 7/31/22, would there be any qualification issue?

I'm thinking it's okay but wanted to throw that out.