I think I probably know how this is likely to have to play out but welcome any suggestions from the leaned group here.

Company has had a 401(k) plan for a few years now.  They have over 300 eligible employees / "participants" but have never had more than 50 active participants in the plan in a particular year.  They have timely filed 5500s (well--actually 5500-SFs) for all the years but misconstrued how "participants" are determined and counted and so reported only active participants.  As a result, audits have never been conducted / filed for the plan.  With even fewer people participating due to COVID and the employer facing financial issues, they have decided the plan is not worth the expense and want to terminate altogether.  Then, some helpful soul early on in the termination process noted the need to file a final Form 5500 and audit in connection with terminating which got them asking "what audit."

Without that helpful notation of the audit requirement, they likely would have terminated the plan, filed a 5500 as in the past with no audit and rolled along without obvious issues and been blissfully ignorant.  Now that they know the errors of their ways, however, nobody can sign the final Form 5500 without an audit without perjuring themselves.  And they'll need to get audits for the prior years in order to get an audit for the 2020 final year.  Which is, of course, all going to be very expensive for a company that headed down this path because of financial concerns.

Oh, and my suspicion is that, like the mistake in counting participants, there are likely to be some other "issues" that may get surfaced as the result of any audit.

Any ideas for coming at this in an appropriate but most efficient and least costly manner?

Small payout to a beneficiary. No other assets distributed to this beneficiary before or after.

$416.23 gross amount in pretax Code 4 monies 

$425.03 gross Roth Code 4B monies of which $329.75 is basis ($85.28 in Roth earnings)

What's the mandatory withholding? Don't read anything fancy into the situation. It's just a basic, non-CARES Act related payout to a beneficiary.

Let me know if I've left out a pertinent fact, though. Thanks.

Four different 401(k) plans for a control group.  The plan sponsors have always calculated and deposited their safe harbor match every pay period - since 2012. When the documents were restated for PPA their TPA (not me) did not check the box in the adoption agreements to indicate the safe harbor match was calculated and deposited every pay period - instead they are shown as being calculated and deposited at the end of year. I do not have copies of the SPD or Safe Harbor Notices but I would assume they state the same. There has never been a true-up of the safe harbor match in any of the plans.

Their TPA had a new account manager take over all four plans for the 2019 plan year and the plan sponsors have been told that they need to go back to 2017 and provide true-up Safe Harbor Match - this is for a few hundred participants each year so we are talking about $100k or more total. Per the TPA's instruction two of the four plan sponsors sent letters to the affected participants notifying them that they will be receiving an additional Safe Harbor Match due to the error. I don't know why they only went back to 2017 instead of when the document errors were created (2014-2016), but those were the instructions given.

My initial thought was to retroactively amend the plan documents to conform to its operations, but I could see 411(d)(6) issues. I believe the IRS has accepted retroactive amendments in similar situations. Has anyone had a similar experience that could share how the error was corrected?

A participant is 63 years old and per the plan, he can take an ISW (59-1/2) of all of his money.  The NRA is 65.  He has Roth, rollover, 401k, safe harbor and PS money in the plan.  He is 100% vested.

He wants to take an ISW from the plan just from his Roth.  Is he required to take the ISW first from any of the pre-tax accounts?  The recordkeeper is saying that but I don't see where in the plan document that is required.  Is that an IRS requirement?

Thanks

If an employer has a SIMPLE IRA plan and starts a 401k are they eligible for the start-up credit?  I wouldn't think so, but i can't seem to get any fine print information... 

Is adding a Managed Account option to a Plan a fiduciary decision or a settlor function? 
This would be giving participants the option to enroll in a managed account feature for a fee; they would not be autoenrolled.  A company wants to add the option but we think the fidcuiary committee would need to vote on it. Thoughts?

Do any practitioners on this message board have a checksheet template you are using when you developed the processes you would put in place each year to help your administrators get acclimated with the steps that would need to be performed on a 457 plan each year from a recordkeeping standpoint- trust accounting, tracking of increased salary reductions in 3 years before NRA, processing and timing of distributions, etc?

Plan has a fixed match with last day/1000 hours requirement (waived for RDD)

12/31 PYE

Effective 7/1/2020 they amend to remove the match.  Are they obligated to fund the match through 7/1. I say no since no participant (except RDD) met the last day/hours.  For the RDD, I would think if the terminated prior to 7/1 they would be owed the contribution.

What if the plan is a 6/30 PYE and they amended the plan effective 6/30 to remove the fixed match? (Plan has last day/hours requirement)  I am thinking they owe the match since it was removed on the last day.  Had they amended the plan on 6/29, I think they would not owe the match.

Thoughts?

former participant received a notice from Social Security she had a benefit under her former employer's plan.

the participant terminated back in 1989. The plan has changed TPAs and recordkeepers a couple of times since the 1989 termination date and finding the detail as to what happened to her account (paid/rolled to default IRA) has been challenging.

What is the employer's responsibility regarding this matter. If they can not prove the benefit was distributed is the employer responsible to pay the former participant?

Does the employer have to fund the amount on the notice to the plan then have the plan issue payment and tax reporting to the participant?

thanks

Good Morning - 

Could someone please provide me with the actuarial formula (possibly by way of example with the answer) for calculating lifetime income out of the new DOL Interim Final Rule?  I understand generally the assumptions used (age, balance, interest rate and mortality), but my numbers seem way off.  

Thanks!

Hi

Here is a new one for me.

Sole prop pays spouse consulting X amount as 1099 income, first time in 2019, can 2019 be considered as date of hire for the spouse? Spouse works for another company and receives a W-2, totally unrelated to all here.

Sole prop will do the same for 2020.

Sole prop wants to set up a db plan for 2020 and wants the spouse included as well.

As the spouse is getting income in form of 1099, she is considered as a sole prop as well, correct? Hmmm, not so sure here.

Can a db plan be set up for 2020 and have the sole prop adopt the plan and the spouse adopts as a second employer (assuming that she can be classified as a sole prop)? Each entity will fund their own portion of the db plan. easy to do as only HCE's and different groupings. The sole prop will/cannot fund the spouse's db portion, if necessary, correct?

Thankfully no other employees other than their youngish children which are excluded.

Something does not smell right here, what am I not seeing?

Thank you

Mid-size 401(k) Plan (773 Participants) had ADP and ACP Testing done in late February 2020 for 2019 calendar year.  Plan did fail testing and remedial distributions were paid timely to correct failure.  Subsequent review of participant accounts found that Compensation and Deferrals Values provided by the Client's payroll system were wrong!  Corrected values were finally provided (August 2020, delays were related to "COVID impact" at Client), so testing was rerun.  End result is that testing results were improved for both ADP and ACP; therefore, remedial distributions paid were in excess of amounts defined by corrected testing.  It is my understanding that the Plan Sponsor is expect to collect the over payments, and return those monies to the accounts of the impacted people.  (Amounts range from $2 to $100.)  Questions are (1) is this correct, (2) how would this be done, and (3) how are taxes impacted/addressed by these refunds to the Plan?  Any assistance is most gratefully appreciated!

LLC has elected to be taxed as a corporation. For purposes of the attribution rules under 1562(e)(2), do you still have to look at 5% owners of the LLC in determining whether a controlled group exists? 

Does it matter whether it is an S-Corp or a C-Corp? 

I cannot find anything in the 1563 regs, but my guess is that the answer to both questions is no. 

Any thoughts appreciated. Thx!

I have a client with a one-participant 401(k) that has always qualified for the maximum deferral and contributions.  In anticipation of that, in 2019 they made their allowed 2018 contribution and they went ahead and made a $25k contribution towards the 2019 contribution.

After receiving the documents from the investment folks, I filed the 5500-SF timely and included the 2019 $25k as a contribution along with the allowed 2018 contributions.

Well lo and behold, said client, in the process of retiring, didn't qualify for anywhere near the 2019 max contribution, let alone the $25k payment made in 2019- so we had the investment folks remove the $25k + some earnings.  This occurred this past month, in 2020.

Here's my question:  Do I need to amend the 2019 5500-SF that shows the 2019 $25k contribution that was made in 2019 but removed in 2020?  Or do I show a negative contribution on the 2020 5500-SF?

Maybe I'm cracked. Plan has 2 year eligibility. (Money Purchase plan) Years of Service for eligibility are 1,000 hours, measured on employment ANNIVERSARY years. Participant must have "two consecutive years of service" without an intervening break year to be eligible.

Let's call the end of the employment anniversary years in question, for ease of discussion, 2017, 2018 2019, 2020.

So first employment anniversary year ending in 2017, has 1,000+ hours. Terminates before the end of the first employment anniversary year, then is rehired during second 1-year period. Has LESS than 1,000 hours, but MORE than 500 hours, during the second employment anniversary year period, so no break in service for Anniversary year 2018. Has 1,000+ for both employment anniversary years ending in 2019 and 2020.

Since there was no break year, I believe the 2 year requirement, even though it is a "consecutive" years requirement, is satisfied on employment anniversary year ending in 2019. Participant isn't treated as a new hire, to start counting "2 consecutive years" from rehire date, since no Break in Service. So year two is "washed out" and year 3 counts as the second "consecutive year."

Agree/disagree? Should it still have to be two "consecutive 1,000 hour years" STARTING AFTER the rehire? I don't think so... 

Gracias.

Hopefully a quick question that I think I know the answer to.....

Regardless of penalties and other fees, filings, etc and assuming a flat $ CB credit for simplicity...

If a sole prop reports $200,000 on a Schedule C for 2018 and 2019 and has a $50,000 minimum required contribution to their CB plan for 2018 but does not actually make the contribution, the Plan compensation for 2018 is $200,000 minus 1/2 SE Tax and no other adjustments.  

If they make a contribution in 2020 of $120,000 for 2019 and 2018 and deduct those contributions in 2019, then the plan comp for 2019 is $200,000 minus 1/2 SE Tax minus $120,000.  Is this correct?

I don't know why I'm blanking on this, but we have a client where the only active "employees" are the husband and wife owners.  There is one former employee who still has an account.

Is this considered a 1-participant plan?

MY gut says no, because I would think that the existence of that third account would require bonding of some sort.

I have a last-minute startup 401(k), calendar year, going with 3% non-elective as the safe harbor with discretionary profit sharing.

Prior to the SECURE Act we would make the plan effective 1/1/2020 for the profit sharing portion of the plan, and the deferral and safe harbor portions effective October 1 allowing for implementation time and the safe harbor notice.

Now that the SECURE Act no longer requires a safe harbor notice (although for now we are going to continue to provide safe harbor notices for non-elective plans), and the nonelective can be added after the fact, is there any reason the safe harbor cannot also be effective January 1, 2020, or does the safe harbor still need to be effective on or after the date the deferrals are effective for the first year?

Or let's say they want to wait on the safe harbor until the year is over and are ok with the 4%.  The deferrals still need to start 10/1/2020 so we have a 3 month initial plan year for the deferrals, but what date would we make the safe harbor effective in this case?  The nonelective must apply to all of 2020, correct, so wouldn't the effective date need to be 1/1/2020?

Or possibly I'm overthinking this because the recordkeeper needs the plan design yesterday to set up for Oct 1.

Thanks for your help.

Three companies are owned by husband and wife, two s corps and an LLC.  One plan.  The owners get a W-2 in each company, also K-1s in the third company.

Irregardless of which entity sponsors the plan, K-1 income can not be used for pension purposes??

Our adoption agreement gives employers the option to exclude compensation from nonsignatory related employers.  I am trying to understand the practical implications of that selection.  From what I can find, I believe that regardless of whether this selection is chosen, there are some plan purposes for which you must combine all compensation from related employers:

415 testing

top heavy minimum contribution calcs

determining HCEs and Keys

calculating deduction limit

minimum gateway allocation

rate group testing

I believe that for ADP/ACP testing, the plan can choose to only use pay from the participating employer(s), as long as 414(s) testing is passed with that definition of pay,  EXCEPT there is a requirement for HCEs that all pay/deferrals must be combined for testing in every plan in which the HCE participates if the companies are related.

So it seems that the only practical implication of excluding pay from nonsignatory related employers is that it lets the employer calculate employer contributions on just pay from the participating employers (except for top heavy/gateway).  Is that correct?  I may be totally off base on this