Can a plan be amended say effective 1/1/2022 to exclude employees who previously met eligible and were covered under the plan?  Specifically the employer wants to exclude a defined class of employees, some of which worked 1000 hours in a past year and became eligible in a prior year.  Now the employer wants this group excluded even if they previously met plan entry. I'm thinking this is ok.  Coverage testing of course would have to be passed.  I believe anyone who EVER worked 1000 hours even if many years ago would be in the testing group.  That is unfortunate because they have many employees who worked 1000 hours in one year many years ago but I believe that will cause them to be in the coverate testing group.

Thank you in advance for your comments.

Tom

Initial plan year defined in document to be 3/1/20 to 12/31/20.  Calendar plan year.

Partner's earned income is determined to be 300,000.

Is the pro-rata to be:

300,000 * 10/12 = 250,000

or

285,000 * 10/12 = 237,500

Thank you.

Plan fails coverage and does not have fail safe language.

What happens if the coverage failure is not discovered until November the next year.  It's now too late to do an -11(g) amendment.  How does it get corrected?

Absent a plan document provision requiring elective deferrals to be deposited within x days of the payroll date, the late deposit of deferrals is not an operational failure and therefore does not fall within the guidelines of EPCRS. The late deposit is a presumptive prohibited transaction (loan to the employer) and fiduciary breach.  Corrective action requires payment of an excise tax of 15% of the "amount involved" which is based on the value of the use of the funds or the disgorgement of profits.  

Every auditor and tax preparer that I know has traditionally calculated the missed earnings and resulting excise tax using the DOL calculator, and prepared Form 5330 accordingly, regardless of the actual earnings of the participants' accounts.  However, I am aware that others say you can't use the DOL calculator to determine missed earnings if you don't file an application under the DOL's VFCP. 

What authority is there that the IRS method(s) of calculating missed earnings contained in EPCRS should apply to late deposits?    

Plan A excludes a large class of employees that are required to be included in testing for minimum coverage.  Coverage testing had never been an issue in the past due to there being no HCEs (non-profit entity, so no owners).  Now there is a HCE under compensation rules, and we have a coverage test failure.  Plan Sponsor of Plan A wishes to amend Plan A going forward so that HCE's are excluded from participating in order to pass minimum coverage under Treas. Reg. Section 1.410(b)-2(b)(6).  Does this proposed amendment violate Anti-Cutback provisions?  Any other concerns?

hello!

I have a participant over age 72 that passed away in 2020.    The RMD was waived in 2020

His spouse (beneficiary) passed away in 2021.  She was over age 72 as well.

The 3 children are the beneficaries.

RMD is required for 2021, based on 12/31/2020 value.

Whose date of birth would the RMD be based on? 

I appreciate your help!

We have a company that is a US based company with the majority of their employees residents of the US. However, they have a number of employees that are residents of the Philippines. Are the employees located in the Philippines able to participate in the 401(k) plan?

For many years, individuals A, B, and C own Corp. X 1/3, 1/3, 1/3, while A and B own Corp. Y 50-50. Also for many years, Corp. Y has a 401(a) plan that has not been adopted by Corp. A. Assume no affiliated service group has ever existed among X and Y.

In 2020, C retires and Corp. X redeems C's stock. For remainder of 2020, through today, A and B each own 50% of both Corp. A and Corp. B, so Corp. A and Corp. B comprise a brother-sister controlled group of corporations under IRC sec. 414(b).

The text of IRC sec. 410(b)(6)(C) says that the 1- to 2-year grace period rule applies when a company "becomes, or ceases to be" a member of a controlled or affiliated service group, which would literally cover the above fact situation, especially when one considers that in the redemption Corp. X acquired C's stock. However, the caption of IRC sec. 410(b)(6)(C), which could be used by a court in interpreting the provision, says that the rule applies to "CERTAIN DISPOSITIONS OR ACQUISITIONS," and Treas. Reg. 1.410(b)-2(f) says that for purposes of the rule, "the terms 'acquisition' and 'disposition' refer to an asset or stock acquisition, merger, or other similar transaction involving a change in employer of the employees of the trade or business." Thus, at least arguably, the provision's caption and the reg narrow the application of the rule to only those situations in which an employer becomes or ceases to be a member of a controlled group as part of what we would otherwise refer to as a "merger or acquisition." Moreover, the legislative history (at least the TRA '86 Blue Book) of 410(b)(6)(C) would seem to support such a narrow(er) interpretation, because the first sentence of its discussion of the change to 410(b) is, "The Act contains a special transition rule for certain acquisitions or dispositions of a business."

I reviewed Q 11:2 of the 6th Edition of Derrin Watson's "Who's the Employer," and I think it quite reasonably punts on this question, so I am looking to see whether others have had experience with this issue in the marketplace or have experience with arguing the issue with IRS.

Standardized preapproved plans are required to cover all controlled group members, but their adoption agreements usually provide for each controlled group member to execute the plan document, typically by using a page called a "Participating Employer Addendum." Having the "non-lead" employer sign an addendum to make clear its agreement to be included in the plan makes a lot of sense for collateral reasons (e.g., having a state law basis for requiring the controlled group member to pay its share of the plan's costs, including contributions other than elective deferrals; deductibility under Section 404 of contributions made by the controlled group member), but is it necessary to satisfy the Code? IRC secs. 414(b) and (c) state that the controlled group members are considered a single employer for purposes of Section "401" of the Code, thus seeming to forestall any argument that separate adoption by each controlled group member is necessary to satisfy the exclusive benefit rule.

Derrin Watson in Q 10:2 of the 6th Edition of "Who's the Employer" states unequivocally, I think, his conviction that adoption of the plan by the controlled group member is not required, and I'm inclined to agree with him, but because he cites no direct authority for this conclusion, I'm trying to gauge whether others have experience in the marketplace with IRS or other practitioners that would push back on this conclusion.

If separate adoption by the controlled group member is not required, then it would appear that an employer in a controlled group can potentially solve a 2020 410(b) problem created by a missed controlled group situation through the adoption in 2021 of a 1.401(a)(4)-11(g) amendment, I think.

I've completed all the required modules and have registered for the exam in November.  I can't find any practice tests anywhere and I understand the essay format.  Are there any recent test takers out there that can shed light on their preparation and what to expect as far as the actual exam goes?  Thanks!

Granted, should know by now, but has been awhile.

Received a call from an accountant on Friday, who files 5500s for his clients, asking whether 5500s due on the 31st if 31st is a weekend.

Possibly, he was looking at today as the due date as 1040 is due the following business day, isn 't this the case for any IRS tax return.

Not 100% certain, I advised file 5558 on the 31st to be safe. 

You know what "they" say about "assuming", though!

Corporation A has a calendar year profit sharing plan (elective deferrals not permitted) using ftwilliam nonstandardized plan document, which does not automatically include controlled group members and says controlled group members "must adopt" plan with approval of plan sponsor in order to participate. A became a member of a controlled group with B in 2020. B has no plan and A's plan will fail 410(b) for 2020 without including some of B's employees. If A adopts resolutions approving B's adoption of A's plan, and then B adopts it and B's employees share in allocations with A's, is that a 1.401(a)(4)-11(g) amendment? I'm thinking yes, but wanted to poll others on the topic. I don't know whether B extended its 2020 return, but I guess if it did SECURE Act addition of 401(b)(2) would also apply.

I posted this originally in the plan corrections board but have not received any response there yet so thought I might post here as well.

I have a client who started a SIMPLE with less than 100 employees.  They have grown over the years and have exceeded the 100-employee threshold for a few years (beyond grace period).  I see the IRS permits "correction" of this ineligible employer issue via EPCRS VCP -- 

https://www.irs.gov/retirement-plans/simple-ira-plan-fix-it-guide-you-have-more-than-100-employees-who-earned-5000-or-more-in-compensation-for-the-prior-year

by stopping all contributions to the SIMPLE and making the required VCP filing and sinning no more.

Question:  If we make this correction now per VCP, can the client start a new 401(k) Plan to permit contributions for the remainder of 2021?  There does not seem to be any discussion in the EPCRS corrections literature regarding possible establishment of new plan going forward.  I'm concerned because of the general prohibition on making contributions under a SIMPLE for a calendar year if it maintains a qualified plan during the same year.

For a bit of a wrinkle on this, what if the company is being acquired and buyer sponsors an existing 401(k) Plan and demands the SIMPLE be terminated prior to closing.  Can seller's employees participate in buyer's 401(k) post-closing in 2021?  Maybe special transition rules would permit this even if the seller couldn't start their own new 401(k) in the same year?

Thanks for any thoughts.

One of the 25 highest paid restricted HCE in a DB plan wants payment of his benefits as a lump sum. He does not want to deposit funds into an escrow.

Can anybody recommend an insurer that would sell a bond to cover his restricted benefit?

Greatly appreciated.

A public company client is thinking of adding employer stock to its plan. It would match in employer stock. The employer stock received would be sold and invested according to the employee's wishes unless the participant affirmatively elected to keep the stock. No participant could elect to purchase any employer stock with their own funds. In these circumstances, there would not be an investment decision on the part of the participant (even the election to get stock or cash). So, no S-8 would be required, but the participants and the plan would hold "restricted securities" that must be sold in accordance with Rule 144 or some other exemption. Anyone hear of a company actually do this? If so, how do they handle resales of the unregistered shares?

If a plan is terminating effective 8/31/2021, does the pre-approved document still need to be restated for Cycle 3?  I know that it would need to be amended for CARES/SECURE, but is the restatement required?

Many small-business 401(k) plans allow an owner’s young children as participants.

To support contributions, the child must be capable of, and actually perform, real work that is useful to the business.  Likewise, the business must pay no more than reasonable compensation for that work.

Sometimes, the facts call into question how real the child’s job or pay is.  For example, some might wonder whether a six-year-old (who presumably attends school during about 80% of a year) does enough work to earn $24,000, or even $20,000, in a year’s wages.

Which facts are bad enough that you would suggest a client needs advice about whether the IRS would see the child’s wages as a sham?

If the business does no advertising (or uses none in which a model’s image would appear), is there an age that is too young for an owner’s child to be a worker?

We divorced almost 10 years ago in California. My ex was rewarded part of my deferred comp. She hasn't filed a qrdo yet and has been putting it off every time I mention it.  I haven't been able to do anything with my account since and it has cost me thousands I would have earned in the account. I'm not sure what my options are. What can I legally do?

A DB plan was not administered for a few years. They came to us to bring them up to date (valuations , filings etc.). There were no AFTAPS since 2017. Do we take the AFTAP percentage  that was prepared for 2017 and subtract 10% for each year until we reach  the current year? Thank you.

Our company is small and deals with small plans.  Are there other TPAs out there that have non-participant directed funds that need the new lifetime income disclosure coming up in September?  We also have fiscal plan year ends, and I have several 9/30 plans.   What type of solution have you found for this or are you already using a product that will produce this disclosure?  Thanks for your help!