11/1 - One of two named trustees terminates employment with Plan Sponsor

12/1 - Company informs us they have changed trustees

Questions:

• Can change in trustee amendment be backdated to 11/1?
• Does outgoing trustee who is no longer employed have to sign the change in trustee amendment? (last time this was done ten years ago the outgoing trustee signed).

Divorced,.  Both signed qualified Domestic order, accepted by plan and judge. All in order. In 2010.

Now, in 2016, ex filed for retirement, and instead of choosing. j&s,. He choose , no death benefits,. Even though he and plan manager knew,  about quadro.   

Question.  Does plan have to follow quadro already in place?

Or, follow what ex signed after quadro. 

Does ex  over ride judge's order.  I think not. And plan manager should follow judge order.

Does anyone have a summary of what changes are being made to documents for the upcoming required restatement?  I was searching but couldn't seem to find one.

Thanks!

I was wondering of what advice/suggestions you might have for me. I have a 401k plan client with a participant that went on leave April of 2019. His 401k loan payments were suspended then. By rule, these payments can be suspended for up to a year (April 2020). Employee is still sick and still on leave. Client has NOT defaulted loan yet (yikes, should have been defaulted April 2020).

All the employees of this company were affected by COVID from a financial standpoint. Some were furloughed, others had hours cut, etc...  This employee in question will eventually come back.  Client and I are trying to see if it would be wise/legal to use the CARES Act loan payment suspension relief to give this participant another year (from April 2020 when original one year suspension was over) maybe until April 2021 to begin payments again vs defaulting loan.  Any suggestions/thoughts? Tax on defaulted loan will obviously be a burden..

Suppose you had a small DB and PSP (each covers 5 participants). Suppose both of these plans have been in place for 8 years and the plans are expected to be active for 2 more years.

The business owner is 60 and assume all employees are nhces age 30. For 8 years all participants in the DB have received a benefit of 3% of average compensation. All employees have gotten a 7.5% contribution in the PSP for 8 years and the business owner has gotten $0. There has been light turnover in the past 8 years.

Now the business has experienced a windfall and will this year and next year. Clearly the business owner has received less than employees for the past 8 years.

Could the DB plan be amended to provide 15% of average pay for shareholders with the same 3% of average salary to remain for all non-shareholders? A fresh start would be used of course.

Then, is it possible to use accrued-to-date testing under this scenario?  The idea is that the business owner has not accrued that much on an average basis.

Thank you!

We have a plan with a plan year of 4/1/2019 - 3/31/2020.  One HCE exceeded the 402(g) limit for 2019 and we processed a refund for him (he is not catchup eligible yet).  In a calendar year plan, the excess for the HCE would be included in the ADP test since it is the year of deferral.  What happens with the off-calendar year plans? Do you just ignore the excess for ADP testing since the testing is for the plan year ending in 2020 and not the year of deferral (2019)? 

Hi to All,

We have a client who sold his business and ceased making payroll as of 10/06/2020.  He let us know that we needed to terminate his (calendar year) 401(k) plan and we made the termination date of the plan 10/06/2020, which means we had to prorate the 415 limit and thus the client will not get to put in the full amount for himself that he would have had if the plan had run up until 12/31/2020.  He is not happy with us and feels like his limitations are our fault.

Did we make a mistake in terminating the plan to coincide with the business being sold and ceasing to make payroll?  We have never done it any other way, but then we've never had a complaint before.

Could the plan have run through 12/31/2020?

Thank you in advance for your ideas.

This is a wacky situation -

Subsidiary had a 401(k) and filed Form 5500-EZ  correctly for many years through 2013. In 2014, Parent Company adopted a new ESOP with 401(k) features (KSOP) and merged Subsidiary 401(k) into KSOP. 

For 2014 - 2019 they continued to file Form 5500-EZ using the name of the prior 401(k) plan (instead of KSOP), listed Subsidiary as plan sponsor (instead of Parent Company), but correctly used Parent Company EIN. Participant information and financial information on the filings was KSOP information.  Clearly several issues here, including that the wrong form was used for the KSOP filings as ESOPs can't file a 5500-EZ and there was never a final filing for the 401(k).

So correct EIN, plan number, participant information and financial information. But wrong form filed and wrong plan name and sponsor name. 

Specific to the KSOP, would this be considered a failure to file 5500s for the affected years, or would the filings described above be considered incorrect (but filed) 5500s?  I would lean toward incorrect filings, but am unclear of the impact of filing a 5500-EZ instead of a 5500. 

Thank you.

Couldn't find a direct answer on this:

Company has a 3 year cliff vesting schedule.

Employee has been working at the company for 5 years.  Then, finally decides to enroll into the 401K... but he leaves 9 months later.

Is he fully  vested?  I think yes, because he has more than 3 full years of service... but wanted to get confirmation.  Thanks!

I just found out I lost my 401k company match since Sept because I have reached the IRS maximum on 9/4.

The details are:  I adjusted my 401k contribution in Q4 (24%) last year because I didn't put enough at the beginning. I did a calculation beginning of this year, it seems it'll be fine to use the large contribution. 

Then Company sent us WFH in Mar,  soon company had to reduce all employee payroll 20% for a few months, but we'll get back by Q3. So I did see the net pay number on my paystub increased in Sept , I though that's good thing,  company kept the words, and I need the money, so I didn't really dig into the details, or ask HR.  Well what happened, in Sept, I see my paycheck increased because there was no money into my 401K plan. I rolled to put 24%. Company match 6%. So I lost the 6%  since Sept till now. And HR told me that they'll start to match from 2021. Of course I adjusted the 24 down to 15 for 2021. I realized this is my fault, because I put too much into my 401k from Jan. I didn't realize I'll be over the IRS limit at all, which never happened before, and the consequences. Moreover company issued bonus (10%) in Apr, which brought a few K into my 401k plan too. I didn't consider that. 

It's a lesson I learned, my question here, is that normal practice for corporate HR, when employee reach IRS limit in the mid of year, HR administrator just stop the payment, and employee lose their company match without any notice, any possible way can get the company match? I was thinking the whole situation last nigh, even I found the paycheck change right away in Sept, at that point, I was basically not able to do anything. Right?   My company only offer 401K pre-tax match. I do my own Roth IRA through Vanguard. 

It's a very expensive lesson, not only lost the company match, I'm also pay higher tax. 

Thank you all for any suggestion, any input............. 

I've been asked to help with a QMAC calculation, though i've never done one.  Does the unrestricted up to 5% of comp apply to QMAC as i think it does for QNEC?  Can it be targeted or bottom up as long as it''s no more than 5% of comp?  Sorry, not sure where to start, and this seems a reasonable start.  Thanks.

Hi all

I was asked the following (hopefully asking correctly):

Owner of corporation got 20k salary in PPP monies and 50k salary from corporation thus 70k w-2 for 2020.

Wants ps deduction for 2020. Which amount can the corporation contribute and deduct for? 50k or 70k?

Thank you

New client spaced off both EGTRRA and PPA '06 restatements.  Does it take two or just one VCP application/fee to correct?

A plan is effective for the first time 1/1/2020 and is not Safe Harbor. The owner is over 50 and contributes $4,000. There are no other employees contributing and her ADP refund will be recharacterized as catch-up. For the 12/31/2020 Top Heavy test, is her balance excluded from the ratio because it is characterized as catch-up? Is the plan considered Not Top Heavy at 0% for 12/31/2020 (2020 and 2021 plan years)?

Any guidance is appreciated! Thanks!

We administer a combination CB/401(k) which we recently took over.

The 401K is calendar, the CB is 9/1-8/31.  Client wants to bring the CB to calendar year, so we have a short plan year in the SC 9/1/2020-12/31/2020.

Client is in cash flow (who isn't these days) and wants to keep the CB as low as possible.

The limitation year is calendar for both plans.  Thinking of doing CB with actual salaries 9/120-12/31/20 and full cal year for 401K, but that does not sit right.

Full calendar salaries for both and then pro-rate the CB contribution?

Owner                        Company 1         Company 2

1 Husband                 50%                     100%

2 Wife                         50%                     0%

Company 1 has a 401k plan - although plan allows form employer match all they do is allow for 401k deferrals - no match has been made to plan over the years.

Husband recently acquired company 2 - only has 5 employees and he is only HCE.  Wife has no part of company 2

Husband and Wife have one child under age 21

Am I correct that because they have a child under age 21 there is a controlled group situation here?  If they did not have a child under 21 than there would not be a controlled group? 

Hi All:

One of our clients, who historically filed a 5500-EZ Form, filed their final 5500-EZ Form for their 10/31/2019 plan year.  The form was marked as a final form.  The client received a letter from the IRS dated 12/7/2020 with a heading:  Filing Requirements Reminder:  Review to determine if you must file Form 5500-EZ or 5500-SF.  The letter references the Plan period ending 10/31/2020, for which the client will not be filing a form.  There doesn't seem to be anything in the letter that requires a reply of any sort.  It appears to just be a reminder to the client that if they are required to, they must file either an EZ by mail or an SF via EFAST2.  

Has anyone else had clients receive such a letter, and is it safe to just file this in our records for future reference?  Anyone know why the IRS is sending these?  Are more to follow?

In the case of a 2020 regular taxable ESOP distribution with NUA reported in box 6 of Form 1099-R, if you self-certify for COVID relief from taxation, Form 8915-E does not allow you to claim beneficial capital gains tax treatment on your COVID distribution.  Capital gains on an ESOP distribution with NUA are normally reported on Form 4972, line 6, and the instructions for Form 8915-E (page 2, left column at the very bottom in the "Note") specifically mentions no capital gains from Form 4972 are allowed.  The link to IRS Form 4972 and its instructions are here:  Form 4972 and Instructions.  Form 8915-E and instructions can be found here:  Form 8915-E Instructions; Form 8915-E

Accordingly, from what I can tell, COVID impacted recipients of 2020 ESOP distributions with NUA will have a choice to make with respect to claiming COVID relief on Form 8915-E:  1) file Form 8915-E and forego capital gain treatment, but pick up the waiver of the 10% early withdrawal excise tax (plus get 3-year ordinary income tax spread & ability to rollover); or 2) don’t file Form 8915-E for COVID relief and keep capital gain treatment, but pay the 10% excise tax if applicable (and lose the 3-year tax spread & ability to rollover).  

In my opinion, if the CARES Act is going to allow taxes to be spread over three years, then spread the taxes normally due over three years.  I doubt the CARES Act contemplated the IRS recharacterizing capital gains into ordinary income as a consequence of getting COVID relief.  If any income tax preparers out there can think of a workaround like attaching a Form 8275 statement or similar, please let me know.  I’ve complained to the ESOP community and LinkedIn.  I’m not sure if anything will happen, but the IRS makes mistakes now and then, and ESOPs are complicated, even for the IRS.  Alternatively, the CARES Act didn't address this issue and it would take an act of Congress to fix.  Any thoughts?

Hello,

My company I work for is currently undergoing asset purchase. In the company there are number of employees fully vested in Stock Appreciation Rights. 

In our case buyer will payout all debt and wants specific amount of left over proceeds to be paid as an earn-out based on company performance in the next year.

My questions is how Stock Appreciation Rights should be treated in case like this? Do you pay them out in full or they become part of earn-out. This is a bit confusing since company is doing asset purchase rather than stock buy.

Any advice is much apricated.