Defined contribution guy here hoping for some clarity from a cash balance expert or two. A small business owner with 5 employees has decided to start a 401(k)/cash balance combo in 2020.  The 401(k) is safe harbor and he got it in just under the deadline - the plan effective date was 10/1/2020, however the limitation year and the compensation computation period are both set to calendar year so we can include full 2020 compensation and limits.

We have proposed to do the exact same with the cash balance plan - 10/1/2020 plan effective date with the limitation year and compensation computation period set to calendar year. It is my understanding that the plan years must be identical for the plans to be aggregated for testing so we would have to use 10/1/2020 for the cash balance plan effective date. The actuary I am working with is telling me the benefits would have to be reduced by about 75% of what was originally projected for 2020 because of the short plan year. The cash balance plan document is from the same provider as my 401(k) document and the language regarding the limitation year and the compensation computation period are consistent in both.

I trust the opinion of my actuary but I am having a hard time accepting this. Does 401(a)(17) force a cash balance plan to prorate compensation in a short initial plan year even if the plan document permits us to use the full calendar year compensation?  I don't see that it does (although I could be wrong) so is there something else that forces proration of compensation or contribution limits?

Background:

Susan dies and has left her 403b to a specific "Ministry A" within a religious denomination.

The named "Ministry A" no longer exists.

In the words of the religious denomination: "Ministry A" is now "Ministry B" - a likeminded ministry who also serves the mission of "ministry A". 

To my knowledge there was not a formal merging of entities but rather maybe a reorganization in which Ministry A dissolved and Ministry B took over some of roles of Ministry A.

Susan never named a contingent beneficiary. In the absence of a living/existing primary beneficiary and there is not a contingent beneficiary, the Plan's default is to push to the estate.

Question:

What does the plan need to know about Ministry B to determine if it can serve as the beneficiary of Susan's account?

Does anyone know or be able to provide a source. I have a sole spouse beneficiary of a qualified plan worth around $500,000. She wants to take $200,000 and move it to a Roth IRA (so do a spousal assumption of $200,000 into a IRA and then do a conversion once the funds are in a Traditional IRA in her name) and move the $300,000 and keep it as a beneficiary designation so she wants it moved to a Inherited Traditional IRA FBO her benefit. Can a sole spouse do a partial spousal assumption of the account?

I'm reviewing an existing document that so obviously does not comply with 409A that I feel like I have to be missing something.

1. "Becoming a party to an agreement" providing for the sale of all or substantially all the company's assets is not a permissible payment trigger, right? Doesn't it have to be the actual transaction? The regs read that way... 

2. Also, is amending a retention bonus agreement to extend the retention/payment date by 2 years permissible?  No, unless the bonus is increased by at least 125%, correct?

Somebody tell me what I'm missing here!

A recordkeeper is asking for approval from a TPA in order to process a Internal Roth Rollover. TPA is saying that it's not warranted b/c they view it similarly as an asset-reallocation. I disagree and view believe the TPA needs to provide the approval because IRRs are governed by the Plan, has reporting requirements, and tax implications while an asset-reallocation does not. Any thoughts?

I have a client who wants to give phantom stock to a director.

The phantom stock will vest and pay out upon a change in control.

However, the client wants to be able to remove the director at any time before the liquidity event but the director (now former) will still get paid out upon the change in control provided he hasn't violated his non-compete/non-disparagement, etc. agreement.

This feels problematic but I can't really pinpoint why except I don't know how the company can deduct any payment to this guy if he is no longer a director.  

What else am I not seeing?

A 401(k) plan sponsor formerly had only key employees eligible to participate, so top heavy testing wasn't an issue. The plan included profit sharing contributions.

Next year, a non-key employee will become eligible. To get out of top-heavy testing, they just want to cease profit sharing contributions, allowing only the elective deferrals and safe harbor NECs (safe harbor NEC provision for non-HCEs had already been adopted when the plan was first adopted, but was basically moot until now because there were no non-HCEs).

Under IRC 416(g)(4)(H), is the plan considered exempt from top heavy testing? Going forward it "consists of" only the elective deferrals and the NEC, although it contains "old" profit sharing contributions made during the prior era.

Under the SECURE Act's changes to post-death required minimum distributions, the legislation considers a child to be the participant's eligible designated beneficiary (and thus not subject to the 10-year payout rule) until the child attains majority (whatever that means). However, another category of eligible designated beneficiary considers an individual (regardless of relationship to the participant) to be an eligible designated participant if s/he is at least 10 years younger than the participant. Going back to the child, would the child remain the participant's eligible designated beneficiary because s/he is at least 10 years younger than the participant once the child attains majority? I know of no individual having a child (unless s/he adopted an adult) who is fewer than 10 years younger than the participant. Or is the child, at the point at which s/he attains majority forced onto a 10-year payout from that point?

Let's say participant dies at the age of 60 and designates a child who is then age 15 as his/her beneficiary. Once the child attains majority, does the child remain an eligible designated beneficiary because s/he is at least 10 years  younger? Or does the child lose his/her status as an eligible designated beneficiary and become merely a designated beneficiary, in which case, remaining amounts payable to such beneficiary must be paid out withint 10 years of the date the child attains majority?

I have been searching for the latest bipartisan agreement on the Coronavirus Relief bill in legislative language format. Has anyone been able to access a copy? If so, could you please attach a link to it?

Thank you.

We have discovered that a plan has been accruing funds in an ERISA Plan Expense Account since 2016 and none has been used to pay expenses or reallocated back to participants.  The amount is over $25,000.  I'm not exactly sure when this type of account would NOT be considered a plan asset, but, in this case, it seems to be plan assets (although not included in prior year 5500 reporting) and the amounts should have been allocated to participants each year.  Does this need to be corrected similarly to improperly carried over forfeitures, where the extra revenue each year has to be allocated to those who would share in each of those years, meaning we must go back to 2016, 2017, 2018, etc. to do a separate allocation for each year?

Obviously, I would love to allocate only based upon current participant balances.  Any option here without submitting through VCP?  There are no fees that can be paid with this because advisor and TPA are already paid in full through asset-based payments from the Plan.

Thank you!

Non-profit is in blackout and ADP refunds are due.  This is a non-profit that has definutey be impacted by COVID and the refunds are significant as is the amount of the excise tax.

Now, we can write an amazing "sob story" because this entity is definitely COVID front-line. So for example, the budget is really taking a heavy COVID hit for PPE and testing, etc.  If one was going to ask the IRS to abate the penalty how would one go about doing it?  We were thinking complete the 5330 as normal and then in lieu of sending a check, attach a cover-letter.  Has anyone ever been in this situation before?

Hi all

Having another senior moment.

Looking at a combo plan (both 401k and cash balance plans are top heavy) where the existing 401k plan has safe harbor match (changed to non elective for 2021) and ps allocation is last day+1000 hours and everyone in their own group. Top heavy also requires last day rule. The cash balance will be a new plan effective 1/1/2020.

One employee (DOP 1/1/2019 and non-HCE) terminated 1/10/2020 and rehired 10/4/2020. He deferred a bit in the year and gets the safe harbor match.

He is excluded under the CB plan.

Gateway requirement is 5%

Performed the combo testing and the system did not require a gateway allocation to him and passed the testing (I have others who satisfy the combo test and helping to pass the test).

He should get at least 3% as the 401k plan is top heavy and did not get a warning on that either, correct? As it is safe harbor match, should have 3% of allocation, at least.

Something does not smell right.

I do not believe it matters if he worked under or over 500 hours.

Thank you for your comments.

For those owners who are having some DCA contributions reclassified as after-tax in order to pass the Average Benefits Test, can the employer pull that money out of the funding account and just give it back to the employee? Or, does the employee still need to use those funds for qualified DCA expenses?

It sort of makes sense to give those dollars back to the employee since they aren't really getting any pretax benefits from it anymore. 

Thanks

Cross tested profit sharing plan with everyone in their own group.  Plan excludes a group of employees by job classification - some who would otherwise be eligible other than the job class exclusion.  

When doing coverage testing - plan passes Ratio Percentage test with these excluded employees included in the counts as not benefitting.

When doing non-discrimination testing on the profit sharing allocation (HCE's getting a 20% contribution and NHCE's getting 5% - has no last day or 1000 hour) do I have to include the excluded employees in the calculations at a 0% benefit rate?  

How do you react/respond to a client's request for their current plan docs (AA, BPD, SPD, etc)?

I find in way too many cases, soon after I supply the requested material, I get a letter saying the client thanks us for our service, but they are making a change.

Why should I facilitate that?

I know that's not the case will everyone who requests them, but I also want to shout into the phone:  YOU SHOULD HAVE ALL THIS.  IN FACT YOU MUST.

How do you admonish the client for not having these doc without sounding like a jerk?

A client provided bad compensation data on the plan for 2019 and we are realizing adjustments need to be made.  They also switched carriers and are in blackout until 2021.  Can they still make the adjustment matching contributions.  Document is set up for annual matching contributions and now need adjustments (additional matching contributions) that most likely will not happen utnil 2021.

A business has 3 unrelated owners who each own 33 1/3% of the business.  The business has no other employees.  Can this business sponsor a single plan that is considered an owner only/solo plan which is exempt from nondiscrimination tests and 5500 filing?  The business is structured as an LLC and taxed as an S-Corp.  

During 2019 there were 2 employees and one earned > HCE limit.

If we elect the TPG in 2020 , then there should be no HCEs in 2020 since we round down (2 x 20%)

Just want to confirm that there is no issue here since we are consistent with our rounding policy and that there is no rule we are not considering.

The Document Provider we will be utilizing for the Cycle 3 restatements has a notation at the top of the first page, on the Adoption Agreement - "[Collapsible Version – Elections that are not selected by the Employer and provisions that are not integral to the Plan are not included in the Adoption Agreement. A complete version of the Adoption Agreement has been made available for review to the Employer. The Employer certifies all provisions and elections appearing in this Adoption Agreement were taken from the complete version of the Adoption Agreement.]" 

We are utilizing the Collapsed Version and do not wish to supply the Plan Sponsor with the Adoption Agreement with all unselected provisions. We can see where the Client might just use this to "amend" their Plan, without informing us of the change. Obviously, we could add a watermark - but as you know, this will not stop some Clients from using it anyway.

How are other people handing this? Thank you.

I have a prospect with the following scenario -

Two companies, one a partnership 67/33 owned, and one an S corp, 75/25 owned respectively until May 1, then 100% owned by the majority owner.  As of May 1, 2020, the partnership effectively dissolves in an asset sale.  The S corp has lots of profits for this year and probably a couple of years going forward.

Any thoughts on how to set up a DB for the (one man) S corp?  Can we "just" make it effective May 1?

I think a primary concern is the "effective" dissolution of the partnership; it's probably in existence thru Dec 31.  But no discrimination problems since the only other person potentially in is an owner.