Good Morning.  

I have a plan that will be terminating. 

Say they terminate in 7/1/2022.  All participants would become fully vested.

What about any participants that were paid out in the 1st 6 months of 2022?  Would i need to go back and fully vest them and do a secondary distribution?  Or should i fully vest them now knowing the plan will be terminating?

Try to avoid any issues. 

Appreciate your input!

Hello - Thanks in advance for any thoughts you have. 
 

Due to a coding error there were a couple benefit plans (e.g., voluntary life) that were coded as pre-tax when they should have been coded after tax. This happened for about 2 1/2 years. No life insurance proceeds have been paid on there yet. Error was discovered and fixed going forward.

Does anyone have experience with this and how to go about fixing the past errors?

Thanks

Hi,

Thank you in advance for any information or advice regarding the following. The late filing penalty for the 5500s used to be $25 per day. It seems that was increased to $250 per day. This is quite high in relation to tax returns that even if filed up to a month late the penalty is a SMALL percent? True, there is the DFVCP , that caps the penalty  at 750, however, if someone files a day or two late, the penalty is 500? Thank you for any information etc regarding this.

Hi

Company owned by dad and son 50/50.

Company also employs mom and daughter (son's sister).

All above are HCE's for 2021.

On March 1, 2022, dad sell his portion to son and son becomes 100% owner.

When does sister become a non-HCE?

Thank you

I have a self employed client that has DB/DC combo plan.  They are maxing out their deferral and contributing 6% to the profit sharing account and putting 200k into the DB plan.  He asked if they can also contribute after-tax money with the intent of a Roth conversion.  For example; 

• Client is 58
• Client's earned income is $800,000
• He  contributes $27,000 in 401(k) deferrals
• The company makes a 6% Profit Sharing on $305,000 or $18,300
• The company makes a defined benefit contribution of $200,000

Can he contribute an additional after-tax contribution to the 401(k) plan of $22,200 ($67,500 - ($27,000+$18,300))?

.

Good morning.

I work for a TPA firm. We have a client who missed offering its 401(k) plan to one eligible employee for 2021 and will be making a QNEC for the missed deferral opportunity under Rev. Proc. 2021-30. 

The client's 401(k) plan is not a safe-harbor plan. It permits pre-tax deferrals, Roth contributions, catch-up contributions. It does not permit after-tax contributions (other than Roth contributions). It is a deferral-only plan so does not have a matching contribution.

The conditions are met to use the safe-harbor correction method for elective deferral failures that exceed 3 months but do not exceed the SCP correction period. (Appendix A, Section .05(9)) The employer will make a QNEC equal to 25% of the missed deferral for this eligible employee. This employee is not catch-up eligible.

The question--does Rev. Proc. 2021-30 require a QNEC for the pre-tax contribution and another QNEC for the Roth contribution? I think it does, but my colleagues do not.

The eligible employee is a non-highly compensated employee. The average of the ADP for the group of non-highly compensated employees is 2.25% Since the plan permits both pre-tax contributions and Roth contributions, I think that the employer makes a QNEC of .5625% of this employees' 2021 compensation for the missed pre-tax contribution and a QNEC of .5625% of this employee's 2021 compensation for the missed Roth deferral. (Compensation as defined in the plan document.) Do you agree?   

Thank you for any insight you can provide for this question. 

I'm just spitballing here, feel free to shake me out of the tree.

If the plan holds all the stock to the sponsoring company, then if late deferrals are still commingled with the sponsor's general assets.....

 A client of less than 100 participants made late plan contributions in 2020, meaning participant elected deferrals were deposited into the plan a few days after 7 business days. This was reported on Form 5500 and only involved around $10,000 in total late contributions with lost earnings and interest calculated to be around $80. The DOL sent the client a letter suggesting use of the DOL Voluntary Fiduciary Correction Program to correct the error. My understanding is that given the late plan deposits, the 4975 excise tax of 15% would be calculated on the lost earnings of $80 not on the $10,000. Therefore, if the excise tax is only around $14 why not just pay the excise tax on the Form 5330 and not bother with a VFCP application? The counter argument is that by filing VFCP the plan would avoid a DOL investigation over the matter and the VFCP filing and resolution would satisfy the IRS. Any thoughts or suggestions?

Professional services firm where participants have their own accounts with the broker-dealer. Partners always changing, firm name always changing. How important is it that the trustee name be updated?

I have a long-time friend / financial mentor that has asked me to be the administrator for a charitable trust he is setting up.  Upon his death he plans to initiate a $5MM+ charitable trust to benefit a local university to provide scholarships for students-athletes of non-revenue sports. He doesn’t want the university to control the assets, he wants me to “have total control of the asset investments and annual distributions to the school” and I would be responsible for filing taxes, etc for the trust.  He has told me that I should draw a modest compensation from the trust for my administration efforts.   Does anyone know how much compensation is appropriate for providing this administration?  
 

Thanks for your input.  

All our plans with discretionary match are "rigid".  Now a client wants to apply different match formulas to different employee groups.  HCEs will get the lowest or no match so testing is likely not a problem.  So we will amend the plan to include a Flexible Discretionary Match.  The BPD (FIS-PPD) essentially says for the Flexible Discretionary Match that the Employer retains discretion over the formula(s) including the rate, the limit on deferrals subject to match, the match limit, the categories of employees who will receive the match, and the matching time period....except as otherwise elected in the Adoption Agreement (sounds like including specific provisions is optional).   I know about the notification requirement.

This client employer will declare and fund the match after the end of the year.  My question is - does the plan document require a description of the employee allocation groups, or are the groups totally flexible and discretionary from year to year.  (I realize ACP, discrim and coverage testing must pass.)  It seems the plan document does not have to say anything specific - no limit on deferrals matched, no match rate, no period and no mention of employee group descriptions.  Is this right?

Thank you!

Tom

Good morning, I have a potential new client where all of the employees (owners and non-owners) are paid via a K-1 (or so I've been told).  A few questions:

1. Can this be included as income for a retirement plan?
2. If yes, I assume the fact that it's a K-1 income doesn't change that all employees would have to be included (someone is making the argument that since it's K-1, we could set up a plan just for the owners.  I disagree, but I wanted to confirm)

Thanks everyone!

Say an individual's self-directed IRA owns a business, and the individual is curious which (if any) services he can provide to the business (ex. offer consulting services).  Question is, does this run afoul of the prohibited transaction rules?  I'm thinking yes, with respect to Code Sec. 4975(c)(1)(C) - because it would involve a disqualified person furnishing services to a plan asset (akin to the individual being prohibited from providing free labor/repairs to an investment property owned by the self directed IRS).  

Curious if others agree, or have other thoughts.

Since 2007 the company has matched the owner's deferrals in a SIMPLE IRA, violating the 3% compensation cap on matches. With earnings, the excess employer contributions cumulate to $300,000.

EPCRS states that the excess should be returned to the employer and should not be deducted. (The employee, the 100% shareholder, will then get a 1099-R for the $300,000 showing zero as taxable.) The employer, a sub-S, will report the $300,000 refund as income in 2022, the year of receipt, and it will be taxed to the 100% shareholder of the Sub-S as ordinary income in 2022.

All good, so far, but what does it mean in EPCRS that the employer shall take no deduction? Does that mean that corporate returns that claimed a deduction for the excess employer contributions since2007 should be amended? That's impossible. It seems too good to be true that the excess just gets returned to the Sub-S with taxes due in 2022 on the $300,000 refund and no other penalty or sanction.

Another possibility, when returns cannot be amended to disallow deductions for 15 years of excess contributions, may be to leave the excess employer contributions and associated earnings  in the SIMPLE IRA and to pay the 10% sanction in EPCRS. This is listed as an alternate correction, but may be the only available one in these circumstances.

I may ask for a no-names conference with IRS under the new procedures. Any experience with excess contributions to a SIMPLE going back this far? Any thoughts?

Cash Balance Plan freezes all contribution credits and new entrants into the Plan. The Plan is top-heavy. The Plan is covered by the PBGC.

The question I have is when it it considered underfunded for the exception to 401(a)(26) to apply?

Does the AFTAP have to be less then 100%?

If the AFTAP is greater than 100% but assets are less than the sum of the notional accounts is that sufficient to be considered underfunded?

If the assets are less than what is required for the Plan to complete a Standard Termination under the PBGC rules is that sufficient?

To throw out some hypothetical numbers assume

Plan Funding Target (@95% corridor of ARP stabilized rates) $510K

Plan Funding Target (@105%corridor of ARP stabilized rates) $490K

Plan Assets (MV @ valuation date) $500K

Sum of Participant Account Balances $530K

PVAB for PBGC Premiums $600K

I'd like to write up an article -- prolly six or seven paragraphs -- to attract new participants on these message boards.

I'll advertise it on the daily and weekly BenefitsLink newsletters.

What is it about the message boards that causes you to participate -- i.e., to ask questions and post reply/answers? What have been the benefits for you?

Also, if you'd rather write the article instead (or co-write it), I'd be delighted to have a volunteer!

A large company is acquiring 60% ownership of a small firm. The firm is keeping their own EINn and will operate as an indenpendent subsidiary.  Employees will remain employees of the small firm but will be put on the benefits of the large company. Can the small firm's 401(k) be merged into the larger company's plan or does it need to stay separate? Are there any pitfalls to merging it into the larger plan?

Strategy goes back to the 80s, recently took over a client with profit sharing plan, owner and employee are the only two participants.  Employee's funds are with a mutual fund only; portion of the owners funds are invested in a limited partnership.

I know an independent appraisal is needed, but would the whole partnership be part of the plan investment or just the ratio of the original investment to the total?

Prior TPA used the full value.

I have a partnership that is husband wife with no employees so it is a "one-participant" plan per the definition. We started a 401(k) plan for them in 2021 and are trying to max out their contributions to $58,000 each using elective deferrals, profit sharing and after-tax employee contributions. The husband's self-employment income on his K-1 was $120,189 and the wife's was $118,664. They each want to make a $19,500 elective deferral and a maximum profit sharing contribution and then they want to max the rest with after-tax employee contributions that we will convert to Roth immediately after funding using an in-plan Roth rollover. I know you can "gross-up" earned income by the amount of their elective deferrals when calculating what their 415 compensation is and also when calculating the deduction limit. However, do the after-tax employee contributions reduce earned income for these purposes? I would think you would treat them the same as elective deferrals and these contributions would come out of earned income, not reduce it. My software is reducing earned income by the amounts of after-tax employee contributions and it is making my deduction limit lower and forcing my profit sharing contribution to be less. Any help with this would be appreciated. I have researched the ERISA Outline book and couldn't find anything. 

Thanks,