Good afternoon,

This is a "what is your shop doing?" question.  Some years back, before each participant could be in his or her own group for new comparability contribution allocations, groups were specified in the plan document.  For example "partners, family members of partners, supervisors, clerical staff, the office manager, and Top Heavy minimum participants".  Each year, we (where I worked at that time) did a document something like a resolution of the board of directors approving a specific dollar amount of contributions per group for the year in question.  We got it signed by the employer and provided them with a copy for their records.

With the advent of each person being in his or her own group, those resolutions of the board of directors went by the wayside.  The employers I worked for stopped doing them.

My current employer was wondering if that's really okay and wants to know what the rest of you are doing.  

I did look it up in Sal Tripodi's bible, and found "Written direction could take the form of a separate letter, the acceptance of a proposed allocation report that shows how the nondiscrimination test would be satisfied, or an entry in the memo section of the contribution check."  I believe my predecessor in my current position was using the part in italics above to justify not doing the resolution anymore.  We run the numbers, we test, we send the employer a proposed contribution allocation, he accepts it and makes the deposit, say, at John Hancock in accordance with the contribution report.  Later the employer gets that contribution report and the accompanying testing in the annual report for his archives.  With that, my predecessor said that was enough, and there was no longer any need for further documentation.

What are the rest of you doing?  Thank you as always.

We are looking to acquire a TPA, but want to know more about how these are priced by looking at comparable transactions. There aren't many comps with data around profitability, and so its hard to figure out what is a good price to offer. Would anyone have direct experience with M&A in TPAs that we can speak with? Thank you.

Paychex set up a non profit 401k plan.  No employer money, no loans etc.  Can they terminate the 401k and start a Non ERISA 403b?

Dr Doogie Howser (age 47) and Dr John Trapper (age 51)  are eye doctors who both own 50% each of Lazy Eye, Inc (an S-Corp).  They have 7 employees and don't own any other businesses.

They currently in 2020 sponsor a 401(k) Safe Harbor with a Basic Match.  In 2021, they will be selling their business (it's a stock sale) to another entity and the expected proceeds from the sale will be $5 Million.  The doctors are expected to stay on as employees for the forseeable future.

They want to add a Cash Balance (CB) for 2020 (before the stock sale), so that will be Year 1 of the CB.  For 2021, they will amend the Safe Harbor 401(k) to the 3% Non-Elective and it will be year 2 of the CB.  In 2021, they expect the Stock Sale to go through.  

They would like to take advantage of the transition rule under 410(b)(6)(C) for the 401(k) and to let the CB run through 2021 and 2022.  At the end of 2022, they would like to terminate the CB.  

Of course, in the negotiations, the Buyer would most likely have to agree to all of this and it would most likely effect the $5 Million purchase price of the business.  For example, lets say it's sold for $4.2 Million instead.  By doing this, the doctors would be able to shelter some money away and not have to pay taxes right away on the sale of the business.

What challenges or issues do you see with this strategy of adding the CB (assuming the Buyers are ok with this format)?  In regards to the CB, do you think the IRS would disapprove of it being used in this fashion?  This seems like a great strategy and way to take advantage of the transition rule.  Am I missing something?

Hi.  Company started 3 new welfare plans effective 1/1/2019.  Extensions were filed timely, but it was just discovered that the wrong sponsor/EIN was used on all three.  The Sponsor/EIN of our existing plan (501) was copied over and not corrected when the extensions were filed.  The correct plan numbers were used on the extensions (502/503/504).

I am ready to file the 5500SFs, but unsure how to fix this error.  Should I go ahead and file with the wrong EIN and then amend with the correct EIN?  Or should I file with the correct EIN and wait for the late filing letter?  I hesitate to use line 4 since there are no previous returns/reports filed.  Other options?

Thank you!

Is a sole-proprietorship or partnership who wants to establish a 401(k) considered a Keogh plan? My understanding is there is no longer a distinction as they are now qualified plans that include a self-employed individual. If that is the case, I would like to confirm that SEC rule 144A does not apply then to restrictions regarding the use of CIT's for these plans.

Good afternoon. Just when I think I understand the CARES Act . . .

I cannot find a thread that discusses a loan offset under the following situation, though I was sure I had read one. Please advise me of the thread if one already exists.

• The participant had an outstanding loan and was up-to-date with his loan repayments at March 27, 2020.
• The Plan implemented the CRD and CARES Act loan provisions.   Loan repayments were suspended until January 1, 2021, at which time they are re-amortized and resumed.
• The participant is a qualified individual and stopped making loan payments when the Plan offered the loan suspension. 
• The Plan permits participants to continue making loan repayments after termination of employment.
• The Plan provides that a loan is in default if payment is not made the end of the maximum cure period
• On June 1, 2020, the participant, while still a qualified individual, terminated employment and took a CRD of all his vested account, except for the outstanding loan.  

When does his outstanding loan become a loan offset:

• June 1, 2020, when he took the CRD distribution?

             No--because the Plan permits him to continue making loan repayments after termination of employment. And, the IRS has suspended loan repayments until July 15, 2020.  OR

             Yes--because he took distribution.  He can treat the entire amount, including the loan offset, as a CRD distribution. (The sum of the CRD and loan offset are less than $100,000.)

• July 15, 2020, when he failed to resume loan repayments?

              No, because he is a qualified individual and has until January 1, 2021 to resume loan repayments.   OR

             Yes, because he had 30 days after termination of employment to repay the loan and he did not.  He can treat the entire amount, including the loan offset, as a CRD distribution.       

• January 1, 2021 if he fails to resume loan repayments?

            If so, this cannot be treated as a CRD because it occurs after December 31, 2020.           

Thanks for your help.

Haven't been able to find an answer to this question anywhere:

A 50 year old client has a ROTH IRA that only has the funds that were converted from a traditional IRA (including earnings) a year ago.  The owner wants to take a distribution (no earnings) and he would owe 10% early withdrawal penalty for breaking the 5 year rule on conversion funds. 

No problem here, however, he meets the qualifications for a covid-19 distribution which are not subject to the 10% early withdrawal penalty.  Would this exemption for a CRD override the 10% early withdrawal penalty for breaking the 5 year rule?  I've been unable to find any clarification on this.  Anyone have any thoughts or cites on this?  Thanks

The 409A default rule for determining specified employee compensation uses 1.415(c)-(2)(a) compensation, items in 1.415(c)-(2)(b) and excluding those in 1.415(c)-(2)(c).

The default definition says the special timing rules of 1.415(c)-(2)(e) are not to be used. The special timing rules of 1.415(c)-(2)(e) are of two types: one type is elective, i.e. post termination regular compensation can be included if paid within 2 &1/2 months. That's clearly excluded for the default. The other type is mandatory (exclusion of severance and post-term NQ payouts triggered by termination). 

Issue: do severance and NQ payouts triggered by termination count as compensation under the default rule of 1.415(c)-(2)(a) for measuring specified employee compensation.

Example: Administrative officer terminates in January of a calendar testing year with small compensation that would not put him in the top 50. If large severance is included , he would be in the top 50 (and the result is that an administrative officer ranked #51 by compensation does not get on the list).

I have a client who began a business this year. It is an S corporation and he is the only employee. He does not plan to have other employees.

This year his salary will be $2 million. His profit after his salary will be $5 million.

He is age 55 and he plans to work for this business for 10 more years.

He does not have a retirement plan for this business or from any other employment or business. He would like to set up a defined benefit plan this year. 

He would like to know what the maximum amount is that he can fund and deduct this year. 

He feels certain that he will participate in the plan for 10 years and that his salary from this business will exceed $300,000 for 3 consecutive years.

Could anyone tell me what provision in the Code or regulations would limit him from funding his entire life-time benefit in the first year?

I am aware that under Code section 404(o), the deduction is limited to his “target normal cost”.

To my reading, Code section 430(b) and Regulation section 1.430(b)(1) define target normal cost based on the benefits provided in the plan.

Is my reading correct? If a plan provides that the entire life-time benefit is earned in the first year of participation, can the present value of that amount be deducted in the first year?

Owner owns 100% of Companies A and B; A has employees but B does not.  Company A sponsors a 401k plan in which only the owner and her spouse have account balances (yeah, I know...), comprised entirely of pre-tax elective deferrals and safe harbor matching contributions.  She wants to sell A and have B become the new Employer/Sponsor.  The FT William document that the plan has permits a participant to receive their benefit following their 'Termination of Employment', which is defined as 'any absence from service that ends the employment of the Employee with the Employer'.  

The owner would like to take advantage of her upcoming 'employment termination' by taking a distribution from the plan and rolling it into her IRA.  Company B does a different type of work than company A did, but they are in the same general industry.  I mention this because I recall something about a  'same desk rule' and am not sure if it still applies here.  Can she receive a distribution like a terminated participant based on the above information?

Good afternoon!  A client just asked for something I have not heard about before (not that this is unusual)!

They don't like failing the ADP test and making refunds to the owner of the business.  They won't adopt a Safe Harbor contribution formula.  Instead, they want to know if an ADP test refund can automatically become a non-deductible contribution and remain in the plan instead of being refunded to the owner.

I have never heard of such an arrangement but that doesn't mean it doesn't exist.  Does anyone have some insight on this?  Thanks in advance.

A Terminated Participant would like to request a CRD in lieu of the Terminated Participant Distribution, I suppose to waive tax withholding.  The Plan permits CRDs.

Are Terminated Participants who terminated prior to 2020 permitted to request a CRD? Thank you

Hi

Sponsor is an S-corp.

2019 MRC is 150k and they deducted 200k, all fine, however (

As far I know, S-corp extended filing deadline is 9/15/2020 (not extended by any Acts/laws) but they made the deposit today. They lose the deduction for 2019, correct? Deposit was done by wire transfer so 9/18 date is firm.

As for the extended deadline to meet the MRC.

For 2019 plan year, assuming that they missed the deduction deadline, what should I use for 2019 sch SB+5000? All 200k or 150k plus a few days of interest adjustment, say 1k for total of 151k?

I must be missing something here.

Thank your thoughts/comments

A plan terminated in 2019 with last distribution say 10/31/19. One year wait is 10/31/20.  I know a new plan could start 1/1/21 for sure. What about anything in 2020? Could they do a short plan year say 11/1/20-12/31/20 and have everything prorated? Safe harbor would be a no go.

I found out two years ago that the pension administration of ex spouse did not approve the QDRO submitted by court. It was unacceptable, my attorney withdrew at the end of settlement and appointed another attorney to have me sign the papers! My ex has been receiving the full pension.

I have a stipulated Resolution in which I'm entitled to half; his lawyer has since pass away! I'm on a limited income and the state is Delaware which I no longer live in so legal aid can't help me! My ex is aware of this; he called the administration and they sent him forms to resolve this but its been two years and he has not! The administration actually told him he would be better to just remarry me; we were married 25 yrs and he worked for General Motors!

Please advise if this is a control group.  Your assistance would be greatly appreciated. 

Company A- has 1 owner                    (has employees other than owners)

John Doe   owes 100%       

Company B -has 2 owners                              (has employee)s other than owners)

Owner 1  John Doe owes 50%

Owner 2    Bob Jones owes 50% (friends only)

Two beneficiaries are 50/50.  Participant dies recently (i.e., within a month or so).  Beneficiary A is well off and does not want the money, they want it all to go to Beneficiary B who is not as well off.  Can Beneficiary A disclaim the benefit?

I have the IRS said yes, but one federal court said no, and another one said yes, etc.  And I have heard state law is an issue.  Our volume submitter document (Corbel/Relius) appears to be silent on the issue...

Anybody have a good - or lousy, as long as they have an address ? - participant search service for one-offs?  I had saved a post from long ago that recommended PBI but they are expecting $1000 in fees. 

Good afternoon to all,

The Form 5500 filing for a client has been made under an erroneous EIN for years and was discovered in 2018.  The administrator in our office after trying for days to get through to someone at the IRS finally got an employee on the phone.  He was told to amend the 2018 return showing zero participants, zero assets and mark it final.  Then file an amended 2018 return showing the correct EIN and all the original data that was filed on the first return.

Has anyone else ever done this?  It seems very convoluted and we don't want to create even more problems with the "fix" than we already have with the original problem.  Do you agree with the agent?

Thank you.