Sorry for all the questions lately!

For a Plan that does their Safe Harbor Match on a payroll-by-payroll basis, are they required to do a true-up at the end of the Plan Year for those participants who started their contribution mid-year (or for those who maxed out prior to year-end)?  Or can they put in the document that they will not do a year-end true-up?

414(n) gets into all the rules about leased employees, and the code sections it applies to... and doesn't mention 403(b).  So I was thinking that the time that an employee worked for a leasing agency would never be considered for the plan sponsor's 403(b) plan because the leased employee rules wouldn't apply.  And this article from Plan Sponsor magazine seems to support that theory:

https://www.plansponsor.com/blines-ask-the-experts-leased-employees-and-403b-plans/

But then I happened to come across IRS Pub 7003 (revised June 2021).  On page 2, it specifically says... well, let me quote it:
 

Quote

Unless the plan provides that all leased employees within the meaning of section 414(n)(2) of the Code are treated as common law
employees for all purposes under the plan, a determination letter issued with respect to the plan’s qualification under section 401(a) or
403(a) of the Code will be a determination as to the effect of section 414(n) upon the plan’s qualified status only if the application includes:
1) A description of the nature of the recipient organization;
2) A copy of the relevant leasing agreement;
3) A description of the function of all leased employees within the trade or business of the recipient organization (including data as
to whether all leased employees are performing services on a substantially full-time basis) and whether services are performed
under the primary direction or control of the recipient organization; and
4) If the recipient organization is relying on any qualified plan(s) maintained by the leasing organization for purposes of qualification
of the recipient organization’s plan, a description of such plan(s) (including a description of the contributions or benefits provided
for all leased employees which are attributable to services performed for the recipient organization, plan eligibility, and vesting).

Am I getting twisted up in the legalese, or is this being contradictory?  It sounds like this is saying that the 403(b) plan has to comply with 414(n)... but 414(n) itself doesn't reference that 403(b) plans have to subject to it.

Thanks for any help setting me straight...

Hi,

I hope all ae well and healthy. A doctor owns a PC, with no other employees. He received a 1099 from the PC for quite a few years. Can this 1099 income be used as compensation for his DB Plan? Thank you.

I have a client that has a main entity, which owns various LLC.  They want to setup a plan, but have different Plan entry requirements:

Main Entity - Entry after 1 year of service (with a vesting schedule)
Sunsidiary LLC - Entry after 2 years of service (knowing that anyone who qualifies would become immediately 100% vested)

There are numerous subsidiary LLC, but most of the employees are temporary so they are looking to keep them out of the Plan legally.  I believe setting it up with two different sets of entry requirements is alright, but I just wanted to confirm.

Thanks in advance!

Can a participant in a 401(k) transfer their in-plan annuity to an IRA?

I have a client plan in which a participant 20+ years ago was convinced to purchase an immediate annuity as investment option. The Plan was listed as the owner of the annuity and all subsequent annuity payments have been deposited into the participant's 401(k) account. Fast forward to today and the plan administrator is tired of administering this one unique asset in the plan for 'who knows how many more' years and wants it removed. The participant tried to transfer it into an IRA by having it re-titled, but the insurance company has come back (after the participant completed all the paperwork) stating that the IRS does not allow plan changes on annuitized contracts. I do not work with annuities, so I have asked the insurance company for the specific citation. But from a purely taxation standpoint, I don't see why such a transfer would be prohibited as it puts the participant in the exact same position they are in today. Confirmation of or guidance with respect to the insurance company's position from those of you that deal with annuities regularly would be greatly appreciated.

I know the issue has been discussed before, but I'm curious how others are handling 1099-R reporting where you know you have an invalid SSN.

Assume the participant has unequivocally confirmed they have been using both a name and SSN that was not properly assigned to them. They have a vested balance in the plan and are now requesting a distribution. The participant is still in the U.S. Assume the plan administrator cannot ascertain the participant's country of origin or legal citizenship. No question that payment is due under the terms of the plan, etc. 

I would assume most would not continue using an SSN on a 1099-R they know to be invalid as to the participant.

It seems the participant could apply for a taxpayer ID using a Form W-7. I'm not familiar with the process, but I assume the plan administrator could not force the participant to do so. 

Is there another mechanism to report while somehow flagging that the SSN is invalid?

Is there an argument to be made that a distribution cannot be processed until the participant has provided accurate information allowing the plan administrator to report the distribution?

If not, how would you report?

Thanks in advance.

Dentist wife works for his company.  She never worked 1000 hours to reach YOS requirement to be in plan.  They want to let her in so she can max out 401k and get SH Match.  Her hire date was February 2019.  There are quite a few part time employees in the company who have never met the YOS requirement.  Many have hire dates after February 2019.

Do you see an issue doing an open enrollment and stating the plan is waiving the 1 yos requirement for anyone employed on 02/20/2019 so that the wife can get in the plan and then it only lets in a few other part-time people with a hire date before hers?  This way I could limit the number of Part Time employees who become eligible due to an open enrollment.

Also - they sometimes bring back people for a day or two to cover for staff on vacation.  If they brought someone back for a few days who had an original hire date prior to February 2019 but left and only works occassionly - would they be immediately eligible if I did an open enrollment?  Or maybe I could come up with some exclusion for those employees.  

I know that the Secure Act says that a PS or DB plan can  be adopted for the previous year up to the time the plan sponsor files their taxes.  That December 31 deadline date scramble is no longer for them.  The act did not change the 401(k) rule that says you need to give the NHCEs time to defer for that initial year.  But what if it is a single member plan, a sole proprietor?  Could they adopt a plan now for 2020 and still make deferral contributions in addition to a non elective contribution?  

- Company A acquired Company B as a new wholly owned subsidiary via stock purchase. 

- Company B will terminate its 401(k) plan prior to close.

- Company B employees will participate in Company A's SH plan 10/1/2021 but will remain on Company B's payroll through 12/31/2021.

- Company A plan is a QACA safe harbor plan and provides that Company A will make matching and non-elective contributions based on pay for the plan year.

If Company B is not a participating employer in Company A's plan, does Company A need to use former Company B employee's plan year compensation when calculating non-elective contributions or can it use compensation from 10/1/2021-12/31/2021?

If Company B becomes a participating employer in Company A's plan, does Company A need to use former Company B employee's plan year compensation when calculating non-elective contributions or can it use compensation from 10/1/2021-12/31/2021?

I have a governmental client (not state or local, so 457 doesn't apply) that wants to implement a nonqualified plan for an official.  Without getting too far into the details, the plan would provide that the basic benefit is $X per year, but that a supplemental benefit of another $X a year is payable if the official doesn't engage in a paid activity (employment or self-employment) for as much as six months of the year.  Note that any paid activity (not just employment with the original employer) for six months would eliminate the supplemental benefit for that year.

Leaving aside for the moment the question of interpretation (e.g., how do you measure the number of months in the case of self-employment?), does this violate 409A?  In theory, the "form" of benefit could be modified by the participant's decision whether or not to accept paid activity.  (E.g., it would be a life annuity if the participant retired completely, but would be some sort of popup benefit if they continued to be employed elsewhere for several years.)  And the supplemental benefit would be payable on something other than one of the events named in 409A (the cessation of all paid activity, not separation from service with the original employer).  On the other hand, this doesn't seem to be what 409A was intended to get at, since the benefit would be forfeited entirely, not just deferred to some later date, if the individual engaged in paid activity.

Hi

I would like to get some opinions.

I am doing a bit of research for a hypothetical plan design someone. I have worked with overlapping plan/tax years in the past but nothing like the following:

Calendar corporation ending 12/31/2020. Filed 2020 tax return end of May 2021 with extension.

Want to set up a DB plan (non-PBGC and covering owners+spouses only) effective 10/1/2020 with PYE 9/30/2021 using 2020 w-2's. Generating minimum required contribution (MRC) of 100k and 404(o) maximum of 120k. Not deposited till after 9/15/2021 so cannot be deductible for 2020.

Second plan year starts 10/1/2021 and end 9/30/2022 using 2021 w-2's. This plan generates 50k of MRC and maximum 300k of 404(o). They will deposit by 12/31/2021.

They want both plan years to be deducted for 2021 tax year, what ever the amount is permitted.

The plan year starting 10/1/2022 and ending 9/30/2023 will be deducted for 2022 tax year and based on 2022 w-2s.

There are a few different things I am trying to understand here.

1. The last line of 1.404(a)-14(c) states The employer must use the same alternative (either for plan year commencing in tax year or plan year ending in taxable year - I have no idea about the 3rd alternative i.e. weighted average so let's leave it alone) for each taxable year unless consent to change is obtained from the Commissioner under section 446 (e).”
2. The above item 1 is inconsistent, at least to my understanding, with the design in mind above. Am I missing something here and/or overthinking it?
3. Separate than above 1 and 2, what is the maximum deduction for 2021 tax year regarding the DB plan? I think 300k as it is the 404(o) limit under the 2021 valuation using 2021 w-2's. It includes for MRC's for 9/30/2021 and 9/30/2022 plus some cushion. I believe this is very conservative approach but still concerned about above 1 and 2

Now, as a bonus, they want to add a 401k/PS plan for 2021. I do not believe it is an issue if the plan is calendar plan (remember no testing issues as all are HCEs). The deduction would be limited to 6% of all 2021 w-2's as not covered by PBGC. Do you agree?

Your comments/expertise are appreciated.

A former employee used a bogus SSN when hired.  The employee became a participant and earned profit sharing and safe harbor benefits (no 401(k) deferrals).  The participant was one day arrested for domestic battery and then found to be in the country illegally.  The participant was subsequently deported and never heard from again.  Numerous attempts were made to find and reach the individual, but all were unsuccessful.  Now, the plan is scheduled for termination.  What are some ideas on how to handle this account?

Hi All - not sure where to start with this mess!  Have an employer who failed to notify their employees that they were eligible for the 401(k) Plan.  They thought they had an owner only 401(k) plan (so they say!).  I'm trying to determine the steps now to correct.  I've reviewed EPCRS.  I'm having trouble determine the corrective contribution because no NHCEs were able to defer so I have no average to give them and I can't find a default percentage when this occurs.  Someone told me 4% but I can't find that anywhere.  Also, of course now we have ADP testing every year since 2017 and there will be corrections for that and because it's been 12 months since the correction, there will be corrections for that.  Add to that the tax form filing.

I feel like there is a building block of contributions and penalties that will be due.  The filings or non-filings I know how to handle.  I guess I'm looking for some direction on is there an overall way to correct this or will I just need to go piece by piece and add it all up.    Suggestions as to how to handle and is the 4% per year per person the correct default QNEC to provide?

Thank you.

We are saddened to learn of the death of Prof. Jonathan (Jon) Forman, who held the Kenneth E. McAfee Centennial Chair in Law at the University of Oklahoma College of Law, and had been on its faculty since 1985.

Prof. Forman was a member of the American College of Employee Benefits Counsel, and a prolific author on numerous tax and ERISA issues. "He will be greatly missed in our academic community," said Prof. Donald T. Bogan, also of the University of Oklahoma College of Law.

He taught courses in Individual Income Tax, Corporate Income Tax, Pension and Health Care Benefits, Nonprofit Organizations, Tax Procedure, Wealth Transfer Taxation, Tax Policy, Elder Law, and Welfare Law.

Following several successful surgeries after suffering an aortic dissection while out of state, he appeared to be on his way to a full recovery, but incurred a massive brain hemorrhage while his family prepared to bring him back home to Oklahoma.

Links to many of Jon's pension-related articles have been published on the BenefitsLink web site and its daily email newsletters.

More about Jon is on his LinkedIn page.

50% owner of llc also works for wife as w2 employee. Contributes the max 401k and gets a 25% match

Can he get the dc max in the llc's plan if his comp is high enough? He will not do any 401k in the llc.

I have a client that wants to setup a successor Trustee, just in case.  It doesn't appear that there's an option to put this into our Plan Document, however.  Is there something else that I can have signed stating who the successor Trustee is?

Thanks in advance!

We need to calculate survivor benefits for a spouse, but we only have male/female, female/male mortality tables.  Do male/male and female/female tables exist that we can use?  Or is it okay to use the opposite-sex tables even for same-sex couples?  If we do the later, are there any special considerations (i.e. do we need to notify the parties or obtain consent)?

For 415 lump sum limitation calculations, IRS says it will accept linear interpolation as a reasonable method. For example computing the maximum lump sum at age 62.45, we can use the factor for age 62 and age 63 and linear interpolation. I am looking for other acceptable methods that might provide a higher value. Can't find anything....

Hi

Looking into a new plan possibility.

Company A started 4/1/2020 (with a 12/31/2020 year end) and want to set up a db/ps plan for 2020. Non PBGC

2 owners, each with 90k salary. Total 2020 compensation 180k

Do you agree that there is no 415 proration here for salaries/deductions? I have always thought/did 415 limits when everyone was at maximum, never such low levels.

For example, I can generate a DB deduction 100k (based on 9k salaries each) and 10.8k of ps (6% of 180k) for 2020 using full salaries?

Thank you

Hi

RR 76-28 states that contribution can be made after the closing of the taxable year end and still be deductible for the prior year whether company is filing on a cash basis or accrual which also references to 404(6)

I am doing a little research and see if there any other regs/codes etc supporting RR 76-28 and cannot seem to find any.

Are there any other codes/regs etc out there that i am not able to locate?

Thanks