The IRS recently issued a TE/GE Issue Snapshot entitled "Calculation of Plan Compensation for Sole Proprietorships."  This Issue Snapshot involved the calculation of earned income with respect to nonelective contributions to a defined contribution plan in the situation where the self-employed individual has made no elective deferrals and the nonelective contribution is fully deductible under Section 404. 

My question is, assuming that the proprietor's net income from self-employment is equal to $100,000 for 2021 and s/he has established a solo 401(k) for 2021, how do you calculate the elective deferrals? I know that for the common law employee, elective deferrals are subject to FICA withholding. By extension to the self-employed individual, I would assume that the elective deferral would also be subject to the self-employment tax on earned income. If that is the case, do you simply multiply the earned income amount by the 0.9235 (which is the amount you would multiply self-employment income to arrive at the amount which is subject to self-employment tax and then multiply that by 15.3%, leaving the balance as potentially available elective deferrals?

I would appreciate anyone's thoughts on this issue.

We have a parent who is owned by an ESOP.  The parent owns Company A, and Company A owns Company B.  We were told that we had to have this structure because of the ESOP.

We would like to change the structure so that the parent owns Company A and Company B (making A and B sister companies).  I don't see any problem with doing this, but I am concerned with messing up something in the ESOP based on the previous advice.  Is there anything preventing us from making the change?

Plan Administrator wishes to exclude HCEs from participating under the Plan in order to pass minimum coverage tests under 1.410(b)-2(b)(6).  In order to avoid minimum coverage failure for 2021 Plan Year, Plan Administrator proposes adopting amendment to exclude HCEs retroactively to 01-01-2021.  The Plan does have one HCE currently participating the Plan.  If the Plan Administrator adopts the amendment, can the deferrals for 2021 year be refunded to the HCE (and included in gross income of the HCE), since the HCE is no longer eligible, so that no HCE benefits under the Plan for the 2021 plan year and the Plan passes minimum coverage?

Any problems or issues with this I am missing?

I have 3 questions about Workday all as it relates to monitoring the DC Plan 415(c) Annual Addition limit ($58,000 in 2021.) 

1. Please confirm Workday can actually monitor the 415(c) Annual Addition limit.
2. Can Workday calculate DC Plan contributions sequentially: for example, determine non-elective contributions first before payroll deductions/matching contributions.
3. Can Workday also calculate DC Plan contributions concurrently: for example, Basic Pre-Tax, Basic Roth, and Matching Contributions can be calculated concurrently up to the Annual Addition limit.  Sequential deductions may lead to Basic Pre-Tax Deductions up to the annual addition limit with no room for matching contributions.

Has anyone seen an ERISA 404(c) plan that allows participants to have their own investment advisor's fees paid out of their plan account?  I have seen this, but only in the case of self-directed brokerage windows within a plan.  I have a client asking if they can allow participants to obtain advice on allocating their accounts between the plan's designated investment alternatives and charge the associated advisory fee against their account.  This strikes me as technically permissible, but a huge pain to administer.

I've located a couple of similar message board threads which reached a similar conclusions, but they predate the service provider and participant level fee disclosure regs, which seem like they would raise some additional roadblocks.

Any thoughts appreciated.

A 401(k) Plan is a single employer plan and filed Form 5500's as such. Mid-year 2019 the plan selects a multiple employer plan provider and converts to become a participant in a multiple employer plan. The Lead employer that sponsors the multiple employer plan files a full year 2019 Form 5500, and this 401(k) plan is listed as a participating plan. While the IRS received a single plan Form 5500 from this 401(k) Plan in 2018 they are asking why no 5500 was filed for 2019. Thus, we are sending them the multiple employer plan Form 5500 that was filed for 2019. Is this enough? Or does the plan need to file a short year 5500 for 2019 for the months it existed as a single employer plan and use the DOL DFVCP to correct this apparent filing error?   

Here is my situation:

- Plan sponsor is a partnership with a cross-tested profit sharing plan

- We received the K-1s for 2020, which only had Guaranteed Payments subject to Self-Employment Taxes in Box 14A.

- For one of the partners, he was limited (to pass testing) to a profit sharing of $20,000 (Box 14A was only a little over $100K).

- We just found out (after the September 15th deadline), that the K-1s were in error, and he should have had over $300,000 in Box 14A. They are filing an amended 1065

He would like to put in the full $57,000 for 2020 (an additional $37,000 contribution). 

He can still put in the additional $37,000 for 2020 since it is still within the time frame for a 2020 annual addition, but he cannot deduct this on his 2020 1040, but could on his 2021 1040. However, the next question is if he wants to do the maximum in 2021 ($58,000), can he deduct the full $95,000 ($37,000 for 2020 plus $58,000 for 2021) on his 2021 Form 1040, or would that be limited to $58,000 only?

I tend to believe the answer is yes, he would get the full deduction in 2021 - but I am struggling to find support for that position. He isn't violating the 415 limits or the maximum tax deductible contribution for the plan.

Thoughts/support for that position?

Are cash values in a profit sharing plan used in the calculation of required minimum distribution. I have paid my PS58 costs each year.

While I know there is opinion that separating a 401(k) plan into two plans solely to avoid large plan/audit status may not be an acceptable reason to create a second plan, we did this for a client several years back.

In 2012 we spun off to a new plan those hired on or after 1/1/2011.  Those hired before 1/1/2011 remained in the existing plan.

We have tested the two plans together in all years (they are ADP/ACP tested plans with all of the same provisions).

We are now to the point where the second plan is reaching large plan status.  The client asked if we could split that plan into a third plan, but I told them I didn’t think that was a good idea.   Instead, we are exploring the idea of “rebalancing” the two existing plans, changing the plan eligibility from the 1/1/2011 hire date to a 1/1/2019 hire date.  In essence, we would be moving all those hired between 2011 and 2018 from the second plan to the first plan, which would reduce the count in the second plan thereby allowing it to grow again.

Has anyone ever done anything like this?  The recordkeeper for the plans (Empower) is saying they would simply do a plan to plan transfer (since it's one company) and so no black out notice would be needed, but I feel like it is a bit more involved than that.

Any thoughts/advice would be greatly appreciated.  Thanks in advance.

Hi, 

One of the terminating plan has been advised by their counsel to have company name changed as of the effective term date.  Will this require an amendment? since they want the 5500 and all filing to be done with the new company name hence wanted to check if a plan amendment is required. 

Thanks

Taking over a case where there are 6 participants, but technically 5 of them are HCE (2 partners, and 3 of the employees who have no ownership stake).  Is there an issue from a testing standpoint to use all 5 as HCE or should we test them with just the 2 partners considered HCE?

(Only reason I'm asking is because it does make a difference in regards to passing or failing)

Thanks in advance!

Sole prop (with employees) defers. But ends up with zero Schedule C income. Deferrals returned timely.

Do you report this on the 5500SF on line 8(e) for the year of distribution, or another line, or not at all? 

A plan is a SH match plan.  However, they decide to allow for after-tax contributions.  The plan is now subject to the ACP testing.  I believe the test can be conducted with or without the SH match included.

The question I have is...The plan is also top heavy.  The plan "loses" the top heavy exemption and is now required to fund the top heavy minimum.  Is this still true even if no participants actually make after-tax contributions?  My gut says yes they are required to fund because the plan is not considered "solely" safe harbor.   

Thoughts?

Say a QDRO specifies a lump sum of "X." Participant has several sources - deferrals, match, Roth, Pre-tax, etc.

QDRO and plan are silent on the issue of which source(s) from which the funds would be distributed. My answer would be proportionately from all sources - but does the Participant or Plan Administrator have the right to then dictate the source(s) from which the distribution is made? For example, all from Roth, or none from Roth, etc.?

Thanks.

A plan that currently permits profit sharing allocations to participants with 1,000 hours wants to add a last day requirement effective 1/1/22.  I believe that not having a last day requirement is not a protected benefit, so the amendment would be OK?  Is this correct?

2020 5500 will be ready to timely file since the plan no longer requires an audit, but 2019 5500 with its required audit will still be unavailable.  Should we file the 2020 5500 or will this make the DOL and IRS more likely to ask after the 2019? Prior years were filed timely; so the DOL has to know the plan is out here.

401k Plan currently excludes part-time employees from participating in the 401k plan.  If a full time employee moves to part-time can they be excluded prospectively? 

Of the popular mutual fund providers, which furnish prospectuses in Spanish, and which do not?

All of my research and in my experience working in a prior job says cash balance is a qualified plan that has to pass testing.  Has anyone ever heard of an executive cash balance plan?   Can a plan sponsor designate only HCEs and/or executives for a cash balance plan?

My understanding is that, for MEWA definition purposes, the DOL follows the common control rules, including an 80% ownership requirement for a subsidiary, although the Form M-1 filing exemptions apply down to 25% ownership. My further understanding is that the DOL will not consider an ASG to create a single-employer plan for MEWA definitional purposes unless they also meet the requisite ownership requirements.

I also understand that several (or many?) states' laws follow this definition to determine when a MEWA exists that may be subject to state regulation.

In other words, a subsidiary owned 70% by a parent would still give rise to a MEWA for DOL and state-law purposes (but would be excused from filing a Form M-1).

I'm interested in others' practical experience with how employers address this issue, particularly as a matter of state law with self-insured group health plans:

1. Whether intentionally or inadvertently, they ignore the arrangement's status as a MEWA. My guess is this occurs inadvertently somewhat regularly. Are state regulators more lenient on good-faith situations like this (as opposed to the problematic self-insured MEWAs that have made headlines)?
2. They follow all state law rules governing self-insured MEWAs, including registration, filings, etc. and continue the self-insured MEWA as such.
3. They don't cover the subsidiary and find another group health plan alternative (e.g., fully insured plan covering the subsidiary's employees).

Would appreciate any insight.