Group:

Client's ESOP is under audit. Along with a number of affiliated entities.

Due to health reasons clients' former TPA resigned in early 2021 and a new TPA was hired. 

The auditor has inquired about an alleged $22k contribution in the plan year under audit (2018).  However, the 5500 does not reflect any

contribution.

I can't seem to reconcile where the former TPA came up with the $22k of contributions.  Nor can I reconcile plan stock forfeitures.

We have already informed the auditor that a former TPA prepared the annual reports and 5500's.  and are working with the new TPA.  I'm well aware that the taxpayer/client may still be held liable for any record keeping fines/tax assessments notwithstanding errors caused by the former TPA.

Q:  Would you inform the auditor that there were no contributions and the auditor's report inadvertently stated that there was a contribution?

This does not change the participants share account values.

Also state that the taxpayer is in process with new tpa to amend the report to properly reflect no contributions.

Thoughts and comments appreciated.

If a US-based employer (with existing 401k plan) establishes a wholly owned subsidiary in Puerto Rico is there a requirement they either a) must setup a PR plan for those employees or b) if they do, is there a requirement to offer same match, PS, etc provisions.  Thank you

This is for my own personal situation. My wife took a new job this year. The 401(k) plan does not exclude pre-participation compensation from the definition of compensation, and it has a year-end true-up (and a 30-day wait before participation).

By my reading, that means she should have been eligible for match on her whole year's compensation, including before she was eligible for the plan, not just her compensation while a participant. Does that sound right? Or does a plan document not need to exclude pre-participation compensation; it's just assumed by default that pre-participation comp isn't eligible unless otherwise stated?

Note that the plan only matches on the first 6% of deferrals, but she deferred 8% each period after she became eligible. That unmatched extra 2% could've been counted toward her her pre-part comp if pre-part comp is eligible. In other words, if you look at her whole year's comp and her whole year's deferral as a percentage of that comp, you get a bigger total match than you do when just looking at the period after participation.

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401(k) provisions (these come from the full plan document, not the SPD which is pretty silent on most this stuff):

- Provides a Match: "ACA Safe Harbor Matching Contribution to each Participant equal to 100% of the first 4% of the Participant’s Elective Deferrals plus 50% of the next 2% of the Participant’s Elective Deferrals to the extent that such Elective Deferral amount does not exceed 5% of the Participant’s Compensation."

- Matching is done by payroll period 

- Has a True-up: "in an amount equal to difference between the Employer Matching Contributions actually made during the Plan Year and the Employer Matching Contributions that
would have been made during the Plan Year if the Employer Matching Contributions were made on an annualized basis and not on a payroll-by-payroll basis."

- Compensation:

  "(a) Unless otherwise specified, the term Compensation means Form W-2 Compensation, and includes (i) elective deferrals under a salary reduction agreement authorized in Section 3.2(b) or under any plan described in Sections 401(k), 408(k) and 457 of the Code sponsored by the Employer; and (ii) salary reduction contributions to a cafeteria plan described in Section 125 of the Code and sponsored by the Employer. 

  (b) Unless otherwise specified, the term Compensation excludes:

   (i) differential wage payments paid while on active military duty;  
   (ii) post-severance compensation (any compensation paid after the last day of employment); and
   (iii)  the following Code Section 415(h) safe harbor exclusions: [fringe, expenses, relo, welfare pmts]"

- Participation: "Eligibility for participation shall commence on the Entry Date coincident with or immediately following the Eligible Employee’s completion of the Eligibility Requirements"

-Eligibility Requirements: "[E]ach Eligible Employee who is not a Participant as of the Effective Date shall be eligible to become a Participant on the first Entry Date coincident with or  immediately following his or her completion of one month of Service and attainment of age 21."

- Entry Date: "shall mean the first day of each calendar month, unless otherwise specified in Appendix B."

Note that despite being capitalized in the plan document (see the excerpt on Compensation above), "W-2 Compensation" is not a defined term in the plan doc.

[I also think there's a typo in the Match definition. The last reference to Elective Deferral -- "to the extent that such Elective Deferral does not exceed 5% of the Participant's Compensation" -- should be to "ACA Safe Harbor Matching Contribution.

Company is acquired and they terminated their 401(k) Plan. The termination Resolution indicates that the Plan Termination Date was 12/30/2021. Mus the CYCLE 3 Restatement, with SECURE and CARES Acts Amendment be adopted before the Plan Termination Date?

Different rules for a Stock sale or an Asset sale?

Thank you.

A sole proprietor showing a loss on his Schedule C.

Is he allowed to have a 401K deferral. 
If he can, what is the maximum he can defer?

The plan sponsor is a 501(c)(3) org and can sponsor a 403(b)... Either ERISA or Non-ERISA.   The CalSavers program requires the employer to have a plan for exemption.  CalSavers is an IRA so I think a Non-ERISA plan would satisfy the exemption, but CalSavers is a little vague about this.  Any knowledge or opinions on this subject?

Thanks

Patricia Neal Jensen, JD, VP

FuturePlan

It seems questionable to me that the following is permissible, but thought I'd solicit other opinions, as it is a sticky question. Thoughts? Thanks!

Plan is a QACA, with 1-year vesting. The plan currently utilizes the Plan Year (calendar) as the vesting computation period.

Client wants to amend the plan, for vesting purposes only, in 2022, to be elapsed time. 

At the very least, even IF it is permissible, it would require a 30 day advanced notice.

Is it permissible?  When the service crediting method is changed from Years of Service to Periods of Service, the participant receives credit for the GREATER of ..."(the Periods of Service that would be credited to the Employee under the elapsed time method for service during the entire computation period in which the transfer occurs, or the service taken into account under the Hour of Service method as of the date of the amendment.)" 

So, let's say a participant has less than 1,000 hours as of the date of the amendment - let's say May 1. Participant would receive 5 months of service as credit toward a "Period of Service." But, let's say participant terminates employment in October, with 1,000 hours or more of service. Participant would only get credit for 10 months toward a "period of service" for vesting purposes, so would NOT have a 12-month Period of Service, but would have had 1-year of service for vesting under the prior method. This would seem to violate the following requirement of IRS Notice 2016-16 for prohibited mid-year amendments. (My emphasis)

1. A mid-year change to increase the number of completed years of service required for an employee to have a nonforfeitable right to the employee’s account balance attributable to safe harbor contributions under a QACA pursuant to the safe harbor rules under § 1.401(k)-3(k)(3) or 1.401(m)-3(a)(2).

I am currently working on a Sched. H in which my predecessor had reported a figure in Part 1 Line 10 for the past few years. The accounts in question are really pooled separate accounts. My predecessor included a Sched. A that was blank for each of the prior years. Trust and Insurance were also checked off for the funding arrangement but no assets are with an insurance company.

My question is if I "move" the value that shown at the beginning of the year to where it should be ( registered investment accounts), will that raise a red flag? If I leave it where it was and make the ending balance zero, FTW is looking for a Sched. A still.

The ending balances would still be the same.

Or do the prior years need to be amended?

Any help would be appreciated.

It is my understanding, the loan gets offset when the participant has a distributable event.  Therefore, if the plan allows for distributions at age 59 1/2, and the participant is still employed. the loan will offset when the participant turns 59 1/2.

But what happens if the 59 1/2 withdrawals are restricted to deferrals only and the loan was taken from deferrals and match?  For example, a $10,000 loan was taken: $6,000 from deferral and $4,000 from match.  $5,000 was paid back, so his loan balance is $3,000 in deferral and $2,000 match.

Loan defaults, deemed distribution processed.  Participant still employed, and turns 59 1/2 on May 1.  Plan allows for distributions of deferrals only at age 59 1/2.  So he has a distributable event (for deferrals) on May 1.  Does $3,000 get offset?  All $5,000?  None?

Having a discussion about this.

What do you consider a plan related expense?

Thank you

Hi

I know this was discussed before but cannot find it.

A sole-prop has multiple business's and files multiple schedule c's. Let's call them X, Y and Z. No employees.

Pension plan is sponsored by X only.

X net amount is 200k - only sponsor of the plan.

Y net amount is 50k

Z net amount is negative 75k.

If I recall correctly, net c for pension is the sum of all 3 i.e. 175k and this is the amount se tax needs to be calculated.

Do I recall correctly?

Thank you

401k plan with 3% SHNE + Integrated Profit Sharing

Has a last day and 1000 hour requirement - Two out of the three NHCE's terminated with over 1000 hours worked in 2021.

Two HCE's - both max 401k and get 3% SHNE and then and integrated PS - one HCE above wage base so slightly higher percentage on the PS cont.

HCE 1 non-elective = 3% + 10.28% = 13.28%

HCE 2 non-elective = 3% + 7.38% = 10.38%

NHCE 1 non-elective = 3% + 7.38% = 10.38%

NHCE 2 non-elective = 3% + 0.00% = 3.00%

NHCE 1 non-elective = 3% + 0.00% = 3.00%

Plan passes 410(b) ratio at 100% because all are getting a non-elective.  But my question is do I have to now test the plan for general non-discrimination because two of the three NHCE's are only getting the 3% SHNE and no profit sharing?  

It will not pass average benefit percentage part of non-discrimination because HCE 2 is a spouse of HCE 1 and defers at a rate of 70% 

I was thinking there is a multiple formula rule that exists when something like this presents itself - even in what is otherwise a "safe harbor" allocation of the profit sharing which integrated with SS would fall into.  

Hi

I have a confusing situation I have never seen it before.

John, LLC (filing as a single member) provided me with the 2021 schedule. This is the entity sponsoring the pension plan.

I was just informed that, the LLC is a 16% partner in a totally unrelated entity (assume no CG and ASG issues at this time). 

Net C amount was 150k but the K-1 received from the partnership show loss of 50k income. This loss was not reflected on the schedule c.

When I was provided the SE tax form, the SE calculations were based on 100k.

Has anyone seen a situation like this?

Currently I have no other information and asked about the nature of the partnership income.

What am I missing here and what should the income be for pension purposes?

Thank you

A Partnership sponsors a 401(k) plan. There are 3 physicians who are partners and they have about 10 employees who are also participants.

There is a new physician who is also now a partner, except rather than him, his partnership interest is owned by his S-Corporation. His S-Corporation is now a participating employer in the plan.

The 404(a) deduction for employer contributions to the plan is 25% of the compensation of all eligible participants.

Question:  Is the S-corporation subject to its own 404(a) deduction limit of 25% of its employees? In other words, suppose the new physician is the only S-corporation employee and he has W-2 salary of $100,000. Is his deduction limited to $100,000 X 25% = $25,000 or is his $100,000 salary added with all other participants of the plan and that total is subject to the 25% limit?

Thanks.

Insurance company has agents that are 1099 contract employees..  These 1099Agents are not covered by the Insurance Agency's 401k plan nor other benefits of the insurance company and want to start their own 401k plans.  The 1099agents also lease employees from the Insurance Agency that are licensed employees.  The agent has control over these employees daily activities but ultimately the right to fire or hire the actual employees is really up to the larger insurance company. 

Trying to determine if the employees that are leased to the agents should or should not be included in the plan and what questions I'm forgetting to ask!   

Here's a 401k- safe harbor- profit sharing plan where every eligible participant can defer and also receives 3% safe harbor non-elective contribution.  The doctor wants to give himself and spouse up to 6% profit sharing non-elective contribution and 0% to staff.  This formula passes 410(b) Ratio Percentage Test, Rate Group Testing and General Test Average Benefits Test by aggregating non-elective and SHNEC.  And Gateway is met with 3% to NHCE and 9% to HCE - 1/3 test.  Seems discriminatory, testing says otherwise.  Anyone have experience with this?  Thanks!

Is spousal consent required to process an RMD?  I have one being held up by the custodian, due to needing spousal consent. 

Thanks in advance, and if you could let me know where in the regs I can pull the info I'd appreciate it!

Purchaser wants seller's 401(k) Plan to be included as party to an asset purchase agreement. The 401(k) holds a significant amount of seller's stock and purchaser wants the 401(k) plan (or trust I presume) to be party the the agreement as a shareholder. This would include the Plan making reps and warranties related to seller's business.

Is this allowed? I have significant concerns with this - first from a fiduciary duty standpoint, but also because the plan cannot make reps and warranties related to the business as the Plan has no knowledge. But purchaser's counsel is pushing back. 

Has anyone seen this before? Am I off base? 

Hi. For 2021, What is the Max PS contribution in these circumstances. 1 person plan, S Corp, age 38, maxed out 401(k) deferrals of $19,500, W2 of $25,500.  I thought 20% X  $25,500 = $5,100.  This Contribution Calculator at https://www.calcxml.com/calculators/qua12 says max PS is $4740.  (If anyone tries out the online calculator, select self-employed, not Corporation, to get the S Corp quote)

So I have a client where the owner earns wages/self employment income from all 3 companies (a construction company, an architectural firm, and a real estate firm) in a controlled group.  This is the first year that all 3 companies have adopted and become participating employers in the SHNEC 401(k) Plan.  The construction company was the original plan sponsor and where the owner has always (and did this year) taken his deferrals.  

My question then is whether the owner will end up with a SHNEC in each company since he has income from each company and is a participant per the document and participating employer agreement for each company?  I know for testing purposes he wouldn't have to but to comply with document provisions it certainly seems as if he does.

There are also a handful of overlapping NHCEs in the 3 companies each of whom receives income from each company - I assume they would also each receive a SHNEC for each participating employer.

Am I thinking of this wrong?  I certainly don't think this is the result the owner was anticipating when he and the advisors decided to have the other companies adopt the plan (especially as it relates to the handful of NHCES).

Thank you.