I have a situation where the prior year profit sharing calculation missed giving a contribution to an eligible employee that should have entered the Plan.  The normal correction method is to do a make-up contribution for the prior year plus earnings.  Total contribution due is approx $1k.  However, I have an extra issue with this Plan.  It is a partnership subject to the self-employment calculation.  To be technically correct, 2018 should be redone adjusting the contributions/plan compensation of the partners in 2018.  That would cause many more problems, i.e. amendment of the partnership return, the individual returns of the partners.  Would it be more practical to factor it into the 2019 partnership calc along with the staff ER contributions for 2019?

I have a C corporation which is a hospital and employs hospital staff (PAs, non-owner doctors, etc.). I then have a separate partnership which was setup as a billing entity and bills the hospital for services (1099 income); they try and zero out the c corporations income each year by having the partnership (billing entity) bill the C corporation.  The owners of the billing partnership are 22 S corporations (4.55% each) which are owned by 22 individual doctors who provide services to the c corporation hospital. The owners of the C corporation hospital should Theoretically be the 22 owners of the s corporations but they have told me they haven’t been the best at keeping its ownership up to date (I probably need to ask them who the actual owners are) when new partners are admitted to/removed from the partnership. The 22 S corporations and the C corporation are the only entities with employees and are the only entities covered by the plan; the billing partnership isn’t covered by the plan. Here are my questions:

1. Are the S corporations and the billing partnership b-organizations to the C corporation? This would make them an affiliated service group with no A organization, right? 

2. What ownership percentage do I use for determining if the 22 owner doctors are HCEs? 4.55% or 100%? I assume 100% because each of the 22 owner doctors own 100% of their own S corporation and each S corporation participated in the plan. 
 

I am starting a new thread because I think it it warranted and better suited in the 401(k) message board. 

Please see my prior question and the replies from @Larry Starr and @Bill Presson

I'd like to clarify upfront that I am NOT asking about the start-up cost credit. I think I have a pretty good handle on that one. I am asking about the NEW! automatic enrollment credit provided by SECURE. Please don't conflate the two. 

Question: Section 45T that adds the new EACA credit. Can a one-person plan (HCE only) claim this credit? Assuming of course they are amending their plan to add an EACA? 

I don't think the plan start-up costs definition in 45E is relevant because this isn't a plan start up cost. 

Does anyone think the sponsor of a 1 person HCE plan CAN'T claim the credit? If so, why? 

Participants husband and wife in same plan.  Reciprocal beneficiary designations-His to her and hers to him.  Wife has died.  Husband is, as stated, the  beneficiary and has requested an immediate lump sum. Husband want to Roll over the distribution to his rollover account in the distributing plan. Can this be accomplished by an intra plan transfer?  1099 to be issued with G code.   What am I missing?  See the attached "Rollover Chart" from IRS, as annotated with highlight.  Thanks for your thoughts.

rollover_chart.pdf

Hello!  Long-time reader, first-time poster....

I have a prospective client that I won through an RFP, therefore, I didn't know a ton about the plan until we "won" the business.  I don't work with any 403b plans, but I wanted to share the scenario with you for any insights:

This is a 403B plan for a college.  The college states that they are ERISA exempt and the plan document reflects that as well, however, they are allowing an employer match and their plan document also designates the employer to have responsibilities that should be prohibited in a non-ERISA plan (QDRO processing, etc). They have NEVER performed testing, had a plan audit (150 pcps), or filed a 5500.

1. There isn't some legitimate reason how they could possibly be operating the plan this way, is there???  I'm not finding anything.

2. To correct this, would they have to retroactively test and file 5500's dating back to 2009?

Obviously my suggestion would be for them to hire an ERISA attorney, but I wanted to kick the tires with the experts here first in case I was missing something glaringly obvious.

Good evening. 

I have a simple IRA setup, but Looking back I am stuck on some of the fine print and want to make sure I am doing it right.  Probably over thinking this. My eligibility requirements for example are as follows. For our plan year 2020, you have to be expected to make at least 5 K in 2020, and also have made in 2 preceding years (2018 & 2019). 

What I am stuck on is the second part of the following statement. 

"For a calendar year, an eligible employee may make or modify a salary reduction election during the 60-day period immediately preceding January 1 of that year" - Ok with this

"However, for the year in which the employee becomes eligible to make salary reduction contributions, the period during which the employee may make or modify the election is a 60-day period that includes either the date the employee becomes eligible or the day before"  What is this saying?  My understand that eligibility is based on calendar year, so lets say, an employee  earned 5K in 2018, and 2019, and are expected to in 2020, I would have given them the notification paperwork prior to the 60 day notification period ending Dec 31st. 

Let me begin by giving a bit of background:

My understanding is that 401(k) withholding  - also called the employee deferral - max of $19,500 in 2020, must be withheld from a paycheck. That is the gross wages must be high enough so that when the withholding is taken out, there is enough left for a net check that is $0.00 or higher than zero.  For example, I have a doctor group of S Corps who have a partnership. The S Corp /Doctors have salary schedules. They front load their 401(k) withholding in January/February of each year because they can - their cash flow is high enough to allow this.  In order to do it, we have to increase the gross wages to accommodate the withholding of the 401(k) deferral. My understanding is that the law requires the gross wages to be included in this situation so they can collect social security & medicare on those wages. I have had 2 pension “experts” tell me this over the last 10 years.

Recently, the law firm’s pension administrator (internal admin person, not a lawyer) said that the law firm’s policy is to treat all partners the same with respect to 401(k) withholding, and that is to withhold it from their “compensation” - in this case, since the entity is a partnership, the compensation is in the form of guaranteed payments as required by IRS rules.  Partners cannot receive W-2s from the partnership if they are more than 2% owners. They must receive guaranteed payments (GP). GP are subject to “self-employment taxes” if the partner is an individual. But when the partner is an S Corp, there is no self-employment tax at the S Corp level. The S Corp must pay a reasonable salary to the shareholder, but if the shareholder does not take any money out of the S Corp that year, the IRS would not receive any social security or medicare taxes on that “compensation.” It is my understanding that this is therefore NOT an allowable approach when the partner is an S Corp - withholding from GP to take the 401(k) employee deferral of $19,500.00.

 My question is the following:

Were both of the “experts” incorrect, and in fact, the law firm is allowed to handle this the way I stated above, when the partner is an S Corp - withholding 401(k) employee deferrals from GP? Or are they correct and what should happen if the S Corp should have a salary schedule that includes gross ups sufficient to allow for the 401(k) withholding to be paid that way?

Background:  DB plan is terminating, I've just begun the PBGC application.  Traditional DB plan was frozen 30+ years ago.  Two participants, vested terminees, remain as they'd been awaiting age 65.  Plan never had a lump sum option, only annuities.  As part of the decision to terminate, the company that now administers the plan (bought the prior company, which is no longer in business) decides they should just offer a lump sum option, so it's been written into their final PPA restatement as of 1/1/2020.  The lump sum option also helps so the plan doesn't end up with maybe 5,000 in residual assets, too.

Now, one of the two participants immediately returned his form for a lump sum.  (Although he hadn't asked for early retirement benefits, he's past the plan's ERA of 55 and so he's eligible to be paid now, independent of the PBGC review.)  Anyway.  he scanned over a QDRO for an unrelated plan.  But that had me thinking, and I reviewed the prior TPA's distribution files which we have.  I found a QDRO from 2006 signed by a judge.

Or, at least it was meant to be a QDRO.

I'm concerned when I read it, because the order assigns 50% of the participant's account balance as of some date in late 2005, with all the earnings thereon, to his ex-wife.  Seems normal enough except that the plan did not offer a lump sum option at all, and so technically there's no account balance to speak of.

Now that there is a lump sum option, there's at least some substance to the request to assign 50% of the lump sum value to the Alternate Payee.

What's the actual legal rule for something like this - The order indicated a form not authorized by the plan.  At the time.  But now the plan does authorize such a payment.

I am suspecting that a revised Order will be needed, if for no other reason that there never really has been an "account balance" to divide and assign.  But I also want to learn the legal standing of something like that, where it's as if a would-be QDRO suddenly flips to being legitimate after the fact, so to speak. 

(In other words, the "account balance" terminology notwithstanding, would an order like this be acceptable, now that the plan was amended in such a way that the original order now is properly compliant with the terms of the plan as they now are.  Something like, well, it wasn't Qualified when it was written, but it is now.)

thanks.

--Bri

Husband and wife work for the same company.  Husband holds private stock in the 401(k)retirement plan.  Husband passes away.  Since the stock is held in the plan fbo husband will a 1099-R code "G" be needed?  None of the assets actually leave the plan they will be transferred to the spouses participant account.

I was watching the ERISApedia webinar on the SECURE Act questions - and Ilene mentioned that in order to sponsor a SIMPLE IRA, an employer must cover / have a NHCE. 

Does anyone have a cite for this? 

I have never heard that particular rule, but I don't work with SIMPLE IRAs, so I'm sure there is lots I don't know. 

I thought a sole proprietor with no employees could sponsor a SIMPLE IRA, but maybe I'm mistaken. 

Plan uses 415 safe harbor comp.  The Owner of a Sub S Corp is now on Medicare.  The business pays the Medicare and Supplement premiums on behalf of the Sub S Owner.  Would this premium be added to the Sub S Owner's compensation for plan purposes?

Employer deposited $50k in 2019 for a profit sharing contribution not realizing they had excess DB assets of $52K  that came over from their terminated DB plan which would cover the 2019 profit sharing contribution which ended up be $44K to max out the owner. 

Question - if the CPA does not take a deduction for the $50K deposit can they just carry the $50K over and allocate it in 2020 or is there an issue with funding the plan and not allocating the money - is there a penalty for that?

A charter school 403(b) plan provides that all employees who work 10 or more hours a week are eligible to participate in the plan. Plan also establishes a minimum deferral of $10 per month.

My understanding of Universal Availability is that no minimum age or service requirement is allowed for eligibility to make elective deferral contributions. Statutory exclusions for elective deferral contribution eligibility:

• Employees whose annual contributions will be less than $200
• Employees eligible to make salary deferral contributions to another 403(b), governmental 457(b), or 401(k) plan sponsored by the same employer
• Non-resident aliens with no U.S. source income
• Students performing services described in IRC Section 3121(b)(10)
• Employees who normally work less than 20 hours a week (lower number of hours can be selected) subject to certain conditions.

Does the charter school 403(b) plan design comply with 403(b) regulations?

There is a lot of information out there about what a permissible Normal Retirement Age is.  IRC 411(a)(8) says that a plan cannot have a NRA later than 65 & 5.

The plan I am looking at has a NRD that is the last day of the plan year (December 31) in which 65 & 5 is met.  So, for someone born on January 1, the NRD would basically almost be age 66 for them.

Typically, plans define NRD as the first of the month coincident with the attainment of NRA.  This has the same issue as the one noted above, in that someone born on the 2nd day of the month would have a NRD that is almost at age 65 1/12 and someone born on the first day of the month, the NRD would be 65.  But this doesn't feel as unfair as the example above, where the NRD is practically at age 66.

What restrictions are there on NRD?  This might be a dumb question, but I've never had to think much about it since all the plans I've seen before have a NRD that is close to NRA.  

Client sent me a screen shot of their prior TPA's data collection module.  It seems to be called "Plan Sponsor Link".  There are several tabs across the top of the screen, including one that says "Annual Data Collection".  Underneath there, are a series of "Steps" including General Information, Principal information (e.g., owners and officers listings), Family relationships, Other Businesses, etc.  Green Checkboxes appear for steps that are complete.

It's obviously a program someone built for TPAs. And it looks awesome.  Really awesome.

Does anyone know the name?  I figure some of you are probably using it too.

Client recently notified us that they have a 457(b) plan for their executives and they are not sure if they have a Rabbi Trust in place.  Their plan was established over 10 years ago.  Is there a problem with establishing one for the assets now?

Employer make prevailing wage profit sharing contribution. That is the only profit sharing contribution.  Is it subject to General Testing? If yes, Gateway if using accrual basis? In this plan's case, there is an HCE who receive the PW contribution.

Also, how do you determine who is "eligible" for the prevailing wage?

SHM 401k plan with age 21 and 1 year eligibility, excludes union employees.  A non-union employee has been contributing to the SHM non-union plan for several years.  During 2019, he switched to a union employee but is continuing to make deferrals to the SHM non-union plan.  His Shop Steward told him that "since he cannot contribute to the union 401k for a year, he can continue his SHM 401k Plan contributions until that time."   Is this accurate?  Since he already completed the one year of service requirement with the Employer as a non-union employee, shouldn't he be able to enter the union 401k plan on the date he switched?

I have a large plan that failed ADP/ACP testing for 2019.  They have 11 HCEs and 200 plus NHCEs -- they want to know now how much HCEs can put away in 2020 in order to pass the test. Not sure how to figure this out.   They do current year testing and are less than 5 years old so they can't switch to prior, correct?