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

Hi

A hypothetical question.

Company A wants a DB plan starting in 2020 but they have filed their tax return on time without any extension. However, they have lots of monies and want to generate a required contribution for 2020 and deduct for 2021 tax year together with 2021 deduction (assume there is enough room for both under 404(o).

What do you think?

Thanks

If I understand the current rules correctly, if I retire at age 62, I can use my HSA funds to pay COBRA health insurance premiums, but after that (18 months) I cannot without paying taxes on the withdrawal.  Seems like a rule that wasn't very well thought out.  Is this correct?  Anyone else think this is unfair?

I have a client whose employee was fired & convicted of embezzling company funds. There is still an outstanding restitution amount.  Employee has a 100% vested benefit in the plan. It is a Safe Harbor Plan so employer contributions (match) are 100% vested. Anyone know I there is of a way to forfeit the employer portion of the benefit?  I am almost 100% sure there is not. 

I am trying to determine Top Heavy (TH) obligations in a safe harbor (SH) plan for an employer who has multiple plans.

The employer (ER) has both union employees and non-union employees. The ER contributes to 2 union plans (DC & DB) under a collective bargaining agreement. The ER also sponsors a "frozen" ESOP plan in which both union and non-union employees are eligible. And, the ER has a safe harbor 401k, using a SH match formula, for non-union employees. Historically, only non-union employees have been Key employees. Last year was the first year in which a union employee personally owned enough company stock (outside of the ESOP) and earned enough salary to be a Key employee. Based on my understanding of the TH regs, an ER must aggregate all plans in which there is a Key employee. And, based on my understanding, this would include multiemployer, collectively bargained plans that include a Key employee. To confuse matters a little, the regs (1.416-1, T-3) seem to indicate that all of the plans must be aggregated to determine TH status, BUT the TH rules do not apply to union employees if benefits are subject to collective bargaining. So, I'm assuming that even if the plans are TH, I do not need to provide TH minimum benefits to any union employees, only non-union employees. Since the ESOP is frozen, and all of my non-union employees are in the SH plan, I am focused on TH obligations, if any, in the SH plan. 

Here's my first problem, the union plans do not have any sub-accounting. The account balances/accrued benefits for union employees include amounts earned/accrued with OTHER employers. Logically, it seems wrong to use this data, as it could skew the TH results in one direction or another. The Internal Revenue Manual says an employer can use a simplified method to compute TH ratios (overestimate Key, underestimate non-key). Let's say we do this, resulting in the plans being TH (on purpose!). QUESTION: If the plans are TH, and I do not need to provide TH benefits to union employees, and my non-union employees are participating in a SH match plan, do I have any obligation to provide additional TH benefits to non-union employees who don't get any SH match??? The ER is not making any additional contributions to the SH plan other than SH match. But the ER is making additional contributions to other plans, namely the 2 union plans: union plans that are part of the required TH aggregation group, but benefit employees who are not required to get TH benefits. 

For the ultimate conservative approach, could I suggest the SH plan switch to a 3% NEC? Or suggest that they simply provide all non-union EE's with a minimum 3% benefit each year?

I'm just not sure how I could ever prove that these plans, in aggregate, are TH or not TH. I'm wondering if the best approach is to simply assume the plans ARE TH. Any thoughts you have would be appreciated. Thank you.  

To present a hypothetical situation, Myra R----- works at Entity W and enters retirement plan 3. She later transitions to work at Entity T, an entity within the controlled group in which Entity W occurs. Entity T has not endorsed plan 3; she attains normal retirement age while at Entity T. To prevent ambiguity, Myra R----- transitioned from Entity W prior to having attained unequivocal vesting, though with a sufficient balance to thwart § 401(a)(31)(B) distributions.  Must she receive full vesting while employed at Entity T?   

Here are the details:

Calendar year plan.

2019 MRC before ARP Relief = $1,000,000

$200,000 quarterly contribution requirement satisfied by credit balance election on 4/15/2019. Remaining contributions satisfied timely with cash, but after 4/15/2019. 

ARP shortfall relief is elected for 2019 plan year reducing MRC to $500,000. New quarterly contribution = $112,500. The sponsor wants to revoke the original election to apply credit balance per guidance on ARP relief. Since all contributions for 2019 are after the first quarterly deadline, would revoking the prior election result in a later quarterly as of 4/15/2019 in the amount of $112,500? I didn't see any relief in Rev Notice 2021-48 but this seems like a ridiculous result - which might actually make it perfectly in line with everything else related to credit balance. 

Hi, 

One of the 401k plans that is terminating, the plan sponsor has a huge balance in the forfeiture account.  The plan document does not states if the balance in the forfeiture can be re-allocated to the eligible participants.  I believe they can have the funds re-allocated however will this require a plan amendment since the plan document does not states anything about this.  I thought IRS permits re-allocation for terminating plans isn't?

Thanks 

Plan has the standard force-out of terminated participants option:  under $1,000 cashout, and under $5,000 roll to an IRA.  Plan is ongoing, not terminating.

If the plan administrator cannot locate someone with less than $1,000 can they roll the money to an IRA and let the new custodian work it out?  This is assuming the PA has satisfied her due diligence by sending mail to last known address and subsequently sent mail to a more recent address obtained via commercial means.  All attempts resulted in returned mail.

What happens is the mail is not returned, but the PA has reason to believe the participant is not at any of the addresses available through commercial investigation?  I guess the people living there now are just throwing away any correspondence to the participant at that address.

I have a current year tested plan with 3 HCEs, no ownership, and a new hire that will become an HCE next year but entered this year with no deferrals. The NHCE can be classified as otherwise excludable since it's immediate entry. Plan does not allow for top paid group. All 3 HCEs basically maxed deferrals.

Can the plan automatically pass ADP testing under the non-excludable participants since there were not any NHCEs or would the non-excludable participants calculation be 0% HCE max as well?

TIA

I know that the Safe Harbor isn't mandatory for the Highly Compensated Employees, but could the client make a lesser match for those people (say 1% to all HCE and the typical 100% of the first 3% + 50% of the next 2% to the Non-Highly)?  Basically the client doesn't have the cashflow to accomodate the contribution for all of the highly, but they want to make something to them.

It's not an issue we've run into before so I wanted to be sure.  Thanks!