Client is participating in a solo 401(k) and would like to terminate it.  If they have already funded the account during 2021, are those EE/ER contributions valid, or does the account need to remain open for the entire fiscal year in order to qualify them?

Edit to explain title: they wanted to convert the plan to a broader 401(k) but haven't been able to find a good option for this, so they are exploring whether they can just close out the solo plan and restart in 2022 with a different plan provider. I'm sure there's options to help them solve that part of it, but as we do so, they have asked about the impact of closing in a year that they have funded it.
 

We still have a lot of plans that prefer to have allocation conditions hard-coded in the plan (probably so that the SPD shows them).  For plans with an hours threshold, there are going to be a bunch of participants who normally cleared the bar that don't for 2020 because they were temporarily laid off, or were furloughed, or whatever for part of 2020 and didn't work enough hours to meet the plan threshold in 2020.

Do these plans/participants have any options (other than the plan sponsor giving them what they would have given them as a contribution outside the plan as a bonus)?  Possibly a one-year-only amendment that says that for 2020 only, the hours of service required for a contribution is lowered to X hours?

This is just speculation at this point (for me, at least), but I can see that it might cause coverage issues (in which case, we can start bringing participants back based on highest hours first, but only until 410b is passing and then no further).

I have an employee that had an excess contribution in 2020. We will be assisting in getting the amount refunded by Fidelity using their Return of Excess Contribution form. It is my understanding that the employee will receive the amount directly from Fidelity and a 1099-R will be issued by Fidelity. My question is are we required to correct the employee's 2020 W2? This is a new role for me and I am a one person show. I appreciate any guidance.

Question: In a Defined Contribution Plan, can the transferred Defined Benefit surplus assets being released for 2020 Plan Year (received into it on account of prior DB termination), be allocated in addition to the employer's contribution equal to the 25% of eligible pay or must the 25% deduction limitation be reduced by the amount of DB surplus being allocated?

Example:

DB Surplus Suspense Account must release at least $35,000 for 2020

Total Eligible Payroll $500,000 therefore 25% Deduction Limitation is $125,000. There are multiple participants. It is understood the maximum any one participant may receive in annual additions is $57,000 (+ catch-up if any).

Can the Employer contribute and deduct the full $125,000? This would mean a total of $160,000 ($35,000 DB surplus released plus $125,000 employer contribution) will be allocated for 2020. OR, must the employer's contribution and deduction be reduced to $90,000 (the $125,000 deduction limit reduced by the $35,000 DB surplus to be released and allocated this year)?

Thank you.

The owner in a 1-life profit sharing plan took an inservice distribution and rolled it over directly into his IRA; no taxes were withheld.  He is under age 59.5 and hasn't yet attained NRA, and the Ft William document that the plan has allows for such distributions.  The Form 1099-R, however, shows that code 1 (early distribution) should not be used with code G (direct rollover), or vice versa.  I recall that such distributions aren't allowed before age 59.5 from pension plans, but this is a psp.  Was this an impermissible rollover?

For Profit Sharing contributions, a plan has an allocation condition of 1000 hours and employment on last day of the plan year, unless "Participant retires during the plan year". What does "retires during the plan year" mean in this case? My interpretation is that the employee must reach Normal Retirement Age (NRA) before terminating service. Would you agree or is there a more subjective interpretation of retirement? I looked at the plan document and it does not specify what retirement means in this circumstance.

Thanks!

Participant received a distribution in December, client has until the 15th day of the following month to pay the withholding.

Accountant paid the withholding electronically on January 8, 2021.

For which year would 945 be due?  I'm attempting to think ahead of a possible problem with IRS.

A one-participant DB plan terminated in December 2020.  Participant received full distribution on 12/22/20, amount in excess of 2 million.  Read the instructions for Form 945 and Publication 15.  Pub 15 refers to filing for Form 941.  If we use that, and the lookback period was zero, is the client a semiweekly filer?  Or does the next day filer rule apply?

If a plan distributed assets to a participant that wasn't 100% vested in a situation that wasn't a distributable event, is anyone on the hook for paying back the plan? They way I'm reading EPCRS, it seems that if the employee was still employed when it happened, no corrective contribution would need to be made to the plan. What if 6 months later this employee terminated? Would that trigger a repayment of the forfeited amounts if the employee never paid the plan back?

Former employee attained NRA 65 a few years ago. She never received any distributions maybe*. She was a participant in a DB plan and 401k plan. Plan sponsor says they paid a monthly benefit once she reached age 65 based on 50% joint and survivor. But checks were never cashed and they assumed she was dead. She is now asking for a lump sum payment as she insists she asked for this to be paid at NRA when she terminated employment several years previously. What is she entitled to now?

* Employer is a large insurance company that obviously has vast experience administering qualified plans, including their own. Employer insists she was contacted by mail but never responded. So it’s possible some fault for all this lies with the former employee. Nevertheless she should be entitled to something, yes? She has communicated she would accept the lump sums determined as of her NRA without additional earnings. But I’m not sure plan administrator can unilaterally approve that. 

So what does she get? Can she contact DOL to expedite resolving this?

Hello, Company A acquired Company B in a stock sale effective 1/1/2020. Company B has a 401(k) plan that merged into Company A's plan 1/1/2021. 

Company B's former recordkeeper is asking Company A to complete some questions in regards to upcoming non-discrimination testing, as the new owner. One question they are asking for the 2020 plan year is 'Does your Company (B) have any related employers?'
Since Company B was newly purchased by Company A in 2020, is it now a related employer?

Company A and Company B constitute a brother-sister controlled group. Co. A sponsors a calendar-year end 401(k) plan, which Co. B has adopted. 

In June 2019, a business transaction occurs and Co. A and B are no longer a control group, but there remains shared level of ownership (just not enough to be considered a single employer plan). Employees of Co. A are "shifted" to Co. B; thus, in 2019 some employees begin to have account balances attributable to Co. A and Co. B. 

As this is a takeover plan, I don't have ALL the details for 2019 (such as the Top Heavy Test results as of 12/31/19). I do know the plan was not top heavy as of 12/31/2018.

I am working on the 12/31/2020 compliance testing and Form 5500. I am trying to back into the 12/31/19 top heavy account balances to determine if a top heavy minimum contribution is required. I know for a Multiple Employer Plan, Top Heavy, ADP,/ACP, coverage is calculated separately for each employer. I don't know how the testing was run in 2019, but my main concern is whether a 2020 TH minimum is required.

For participants who were employed by Co. A and B in 2019, how do I treat their account balances for Top Heavy determination? Initially, I intended to split out the accounts such that each affected participant has two accounts - one from Co A and one from Co B. as of June 2019 (and pro-rate earnings after June 2019). But, then I started thinking, since they were controlled for part of the year, can I split out the accounts as of 1/1/2020 for top heavy testing? I don't believe there is any formal guidance from IRS on this issue - its just any "reasonable" approach. 

Thoughts/opinions? Thank you!

My employer's plan is terminating and I'm taking a small cash distribution and rolling over the rest to an IRA.   My employer will NOT take federal withholding taxes from the cash portion.    Isn't this required when taking a distribution?   is there any repercussion for not taking the withholding?  I guess I could up my deduction each pay to make up for it so I don't owe it all at the end of the year.    

The  instructions to Form 5500-EZ make it pretty clear that IRS considers a plan wherein the husband AND wife together own 100%. 

What about  attribution - wouldn't the spouse of the oner be included as an owner?

The daughter of an owner if she is a stockholder?

Just wondering.

A federal credit union wants to offer its executives a non-qualified plan.  As a tax-exempt employer, they had inquired about creating a 457(b) plan.  After an initial discussion regarding the deferral limits applicable to 457(b) plans, they wanted to explore either 457(f) or 409A.  During my research, I have come across discussions regarding the  issue of how FCU's should be classified (PLR 200430013 and IRS Notice 2005-58) and that effect on what type of NQ plan they can sponsor.  It  is not clear to me as to whether or not this issue has been resolved, particularly if the plan is just now being created. Can a FCU create and sponsor a new plan under 457(b)? 457(f)? 409A? If so, is there a good reference source for guidance on the best options available?      

I was just notified on Friday, that a client is changing their fiscal and plan year end from 9/30 to 12/31, effective 12/31/2019.     It's too late to prepare a 12/31/2019 5500, so do I  prepare a 9/30/2020 val and 5500 and then do a short plan year of 10/1/2020 to 12/31/2020?     Can I still amend the plan retroactively for a 12/31 fiscal and plan year end effective 12/31/2020? 

Thanks for your help

Husband & wife own 100% of business that sponsors a DB plan. They are the only employees, the only participants, and the plan's trustees. Husband wants to buy an investment property (a building housing a fast food restaurant, but I don't think that's relevant) 50/50 with the plan as tenants in common. I believe this is a PT. Does anyone disagree? 

When a participant has a small voer-deposit, and there have been gains, in lieu of calculating the applicable gains can we just withdraw the principal?

I looked it up in the EOB so I think the answer is no, but the terminology is throwing me a little because I'm referring to a "corrective distribution" just an overdeposit.  I assume there is no distinction, but asking anyway because we do spend a lot of time making sure we take as much money as possible from an NHCE which seems silly.  

6.j.(1) Losses. If the Earnings are negative, a corrective contribution or allocation does not have to reflect a net loss incurred under a defined contribution plan. See section 6.02(4)(a) of the EPCRS Procedure. Note that this exception to reflecting a loss applies only to a corrective contribution or allocation. A corrective distribution is required to reflect net losses.6.j.(1) Losses. If the Earnings are negative, a corrective contribution or allocation does not have to reflect a net loss incurred under a defined contribution plan. See section 6.02(4)(a) of the EPCRS Procedure. Note that this exception to reflecting a loss applies only to a corrective contribution or allocation. A corrective distribution is required to reflect net losses.

We prepared a loan document for a client in December, 2019, at that time, prime rate +2%, and loan issued at 5.75%.

With the COVID suspension and re-amortization, would the interest rate need to be the same?

Since the new re-amortization can not go beyond the original term of the loan, and this participant only made 3 loan payments prior to suspension, the new loan amount plus accrued interest from date of suspension through 12/31/20 at the same 5.75%, yields a higher monthly payment than the existing amortization schedule.

That does not make sense.

I just posted a very similar question in the 401K section of this forum.  As a matter of fact, I basically just copied the initial scenario description from there, but there are some differences in the questions I have.  Hoping someone can help me determine if I have a controlled group issue between multiple businesses my wife and I fully or partially own.  Businesses and ownership is as follows:

1. My wife owns 100% of a S-corporation that does not offer health insurance to her employees since most employees have coverage through their spouse.  We feel it would be redundant to provide additional coverage and instead utilize the funds she would be spending on health insurance to provide additional bonuses and extra paid vacation time to the employees.  This business and health plan have been active for many years.
2. I am a sole-proprietor and have taken a self-employed health insurance deduction for several years.  We have been purchasing our insurance directly through the exchange.
3. I have an associate that also operates his own sole-proprietorship.  That is his only business that I'm aware he owns and he is now on Medicare but I think his wife is still covered via a plan through the state (retired teacher).
4. I am forming an S-corporation with the associate and we each will own 50% to start.  The s-corp was formed to pay joint administrative and office expenses and will have one employee.  We will still operate our own sole-props and will only reimburse the S-corp for our pro-rata share of expenses.  The associate and I will not be employees of the s-corp, but will be officers and directors.  I would like to offer health insurance to the employee, but also want to look at options to obtain health insurance for myself and family through the s-corp.

Considering the above, my questions are:

1. First, are there any issues with me taking the self-employed health insurance deduction through my sole-prop even though my wife doesn't offer any health insurance to her employees?  While I believe I may technically be in a controlled group with my wife's business I am hoping that it doesn't impact my ability to take the SE health insurance deduction for our privately purchased insurance.
2. Second, for health insurance benefit purposes, would the new s-corp being formed be considered a controlled group with my sole-prop and/or my wife's s-corp?  I'm thinking this isn't the case since I am not an 80%+ owner of the new corp.  Assuming it's not the case I am under the impression that there should not be any issues providing health insurance benefits to the employee even though my wife doesn't offer health insurance to her employees.
3. Finally, if we are OK so far, would I be able to acquire health insurance for myself and my family by nature of being an officer of the s-corp without impacting my wife's business?  In a perfect scenario we will obtain a small group policy through the s-corp that covers employees and officers.  My partner would be exempted as he is on Medicare - though possibly he would be eligible to cover his wife through the group policy until she becomes eligible for Medicare.  In any case, I believe this all hinges on the new corporation not being in a controlled group.  IF it is part of a controlled group including my business and my wife's business I am hoping we can just reimburse the employee for individually obtained insurance through the health exchange and I can continue to purchase my own insurance and write if off via the SE health insurance deduction through my sole-prop.

Any help or insight on the above would be very appreciated.  Just trying to cover my bases so we don't get a nasty surprise down the road...

Thank-you!

Matt