Looking for guidance to convert 412e3 plan into Cash balance plan. Am a single owner S-corp 44 years with 2 years into 412(e)3 plan with Whole life and Annuities.

Life insurance was not required personally and seems foolish now to got sold into policy by the CPA. (should have been a red flag that CPA is the sales agent). I was not even mentioned about the CB plan option that looks more attractive with conservative investment strategies and flexibility compared to 412e3.

Can the 412e3 converted into Cash balance plan instead of Termination? Any references for good companies with this kind of experience will be appreciated.

Goal is to fund the pension plan in 10-12 years instead of stretching for 20 years.

Hi.  We have a few participants that are receiving installment distributions (monthly) from their 457(b) accounts.  Typically the monthly distribution occurs on the 15th of the month.  Due to an administrative issue, the distribution still has not occurred for September.  At what point is the distribution deemed late?  And what type of correction is required?

Thanks.

New plan - effective date 01/01/2018

4 employees - Dr. & his spouse & 2 non-related staff members

Allows for EE deferrals, Profit Sharing & SHNE.

SHNE limited to only NHCE's

EE deferral and SHNE component of plan set up with special effective date of 10/01/2018

4 employee all became eligible 07/01/2018 

Compensation is based on full year pay - not date of entry

Only contributions into the plan will be two $18,500 contributions made by the doctor and his spouse and the 3% safe harbor to the two staff members (neither of the two staff members deferred)

When calculating the 3% safe harbor non-elective for the 2018 plan year is the SHNE contribution based on just compensation from 10-01-2018 to 12-31-2018 due to the SH being effective 10/01/2018?  Or should it be on the full year compensation 01/01/2018 to 12/31/2018?  Plan will be top-heavy for 2018 based on the two HCE's deferral but it is a consists solely of plan. 

I just received and interesting question from a client whose Plan EXCLUDES bonuses from the definition of Plan Compensation:

"Participant has a $30K/year guaranteed hours bonus to his base salary.  Owner uses the term ‘bonus’, but the spirit of the hours bonus is really to incentivize attorneys to meet a set goal of hours.  Since participant's amount is guaranteed for this year (and next), is it fair to say that this should simply be classified as regular salary?"

What does everyone think?

Hello.

We have a prospective client that is looking to pull out of a MEP and start their own plan effective October 1, 2019.  Current MEP provisions include a safe harbor non-elective contribution.  New document to include a safe harbor non-elective.

1.  Does the client lose safe harbor status by pulling out of the MEP before the MEP plan year ends?  I think so.  What are your thoughts?  The new plan being established is also a safe harbor plan.  Does that make any difference?  Do the ER contributions made in the MEP and the contributions made to the new plan need to be tested together?  New plan has a new comp allocation formula.  Still waiting for prior MEP Participating Employer agreement to determine prior ER contributions and allocation conditions.

2. In the above example, what if the client is pulling out of the MEP (safe harbor provisions)  because it has been purchased by an other entity, Employer A.  And Employer A is setting up a new plan effective 10/1/19 , which is not safe harbor?  I believe that safe harbor provisions are preserved due to business transaction.  what are your thoughts?

I have a deep in the weeds question with a narrow application that I wonder if anyone has come across:

Background

The Code has a concept of a "statutory employee," which  makes an otherwise non-common law employee an employee for employment tax (but not for income tax) purposes.  These employees receive a W-2 with box 13 checked.  A common type of statutory employees are full-time life insurance salespersons. The Code also provides that a full-time life insurance salesperson is treated as an "employee" for purposes of participating in a qualified retirement plan and for Code Sections 104, 105, 106, 125, and certain other sections (which generally provide that an employer can provide welfare benefits on a tax-favored basis).

ERISA generally subjects welfare plans that cover employees of two or more unrelated employers to state insurance law (among other things) because the plan is a MEWA.  If an entity provides benefits to independent contractors, for example, it risks creating a MEWA.

Question

Can a life insurance company offer welfare benefits to its full-time life insurance salespersons (i.e., ones who are statutory employees) without creating a MEWA?

While the Code provides for favorable tax treatment on providing these benefits, it does not appear as if ERISA will permit this type of arrangement without invoking the dreaded MEWA rules because these salespersons are not common law employees.  (The Code is not ERISA and ERISA is not the Code.)   At least, I have not found any DOL guidance that addresses this issue.

Has anyone come across this admittedly obscure situation?

Thanks

If there is a plan sponsor who wants to switch from a Closed MEP to their own plan after 10/1, and they currently have safe harbor status with the Closed MEP, can they maintain that safe harbor status with the new spinoff plan?  I have been researching and see mixed opinions, but nothing definite.

A client (owner of a two-member LLC) is considering selling his business (the LLC) or transferring his interests to the other member (his brother).  The LLC maintains a defined benefit plan for the LLC's members/employees.  Does the LLC have to or should it terminate the plan? Can the plan continue in effect? Under what circumstances would it be best to terminate the plan? Should the plan be frozen regardless? 

Unusual question came up. Sole prop - plan is a 3% SH plan, HC's are NOT excluded.

It has been proposed that the plan be amended to exclude the sole prop from receiving the SH for 2019, on the grounds that since the sole prop isn't required to receive a SH (if the plan is set up that way) that it is ok.

To me, this seems like a very aggressive approach, and I wouldn't do it. However, I always like to hear the opinions of others - anyone have a different viewpoint?

A client maintains a VEBA which provides the following coverages: dental, life insurance, critical illness and accident benefits, vision coverage and group legal services coverage. All coverages except group legal coverage are excludable from the participants' gross income. The employer pays the premium for all such coverages and employees do not have the ability to choose whether or not to have certain coverages, other than to indicate for dental and vision whether the coverage is for the employee only, the employee and spouse or family coverage. If the client was unaware that the group legal plan was not excludable from members' gross income but learns for the first time that such coverage is taxable, should the client limit the taxability of such coverage to the current year and prospectively thereafter, prospectively only from the point of learning its true taxability or should the employer retroactively revise its tax treatment of such coverage?

A related question relates to the treatment of benefits received for such coverage. Section 120 of the Code excluded both the employer's contribution or premium payment for coverage as well as the value of benefits received for such coverage. How should the employer determine the value of such coverage for tax purposes?

A final question is whether the group legal benefit should be completely removed from the VEBA since it is taxable.

Thank you.

Traditional 401(k) - not safe harbor - plan sponsor had small system glitch in last half of 2018 and one NHCE received $86 more match that he should have.  It was discovered during the audit.  HCEs received refunds of excess deferrals for failed ADP.  Plan sponsor would prefer not to ask for the $86 back from NHCE.  Is that an option for them or does that cause other problems?

We deal mostly with SH 401(k) plans so we are a little cold on how to address this.

Thanks!

We have a plan that is a spin off from another plan.  Do we have issues regarding protected benefits that need to be addressed in the new plan's AA?

Thank you for your replies.

A company had a layoff where 30% of their employees were let go in February 2019, so it's a clear partial plan termination and they will be 100% vested. IRS guidance seems to indicate that any other participants who leave the company during the same plan year, even voluntarily, would also become 100% vested. Is that correct?

"An affected employee in a partial termination is generally anyone who left employment for any reason during the plan year in which the partial termination occurred and who still has an account balance under the plan."

We are working through our list of clients that need the PPA restatement for their current documents.

I have come across a plan for a Boys and Girls Club.  I know that 'nonprofit recreational clubs' are tax exempt but cannot sponsor a 403b plan.  Would a Boys and Girls Club fall under this definition of 'nonprofit recreational clubs'? 

Does anyone reading this blog have Boys and Girls Club as a client who have a 403b plan?  Or is it enough that the Form 990 reflects the company as a 501(c)(3) organization?

Thanks for any guidance you can provide.

A current physician practice bought another practice in an asset sale.   the Assets of the benefits plans were not included in the sale.     May the new employer bring the employees of that plan into their plan immediately and count service with the prior employer for eligibility and vesting?    Is a plan amendment needed?   thank you

Sole Proprietor has set up 5305-SEP and wants to set up a 401k plan for current calendar year and only contribute to 401k plan.

No contributions yet for current calendar year. He will notify recordkeeper that he will terminate the 5305-SEP (seems that is how to terminate such a SEP?)

Question: Can the PS feature of the 401k plan be effective 1/1 of the same year, which is prior to the 5305-SEP being terminated? 

We use Sharefile and I suppose it is OK, but it is too complicated for a lot of our clients and I presume there must be a better option out there.  I'm curious if anyone uses a different system. Sharefile is integrated with Outlook so we can easily encrypt our attachments, AND our clients can upload files directly to our own personal in box.

But the password thing is clunky, clients always forget their passwords, etc. Anythng better out there?

Has anyone done an Anonymous VCP submission through pay.gov yet? I'm wondering how to handle the payment. They only take ACH and credit cards. Doesn't seem very anonymous.

There are two entities -- A and B -- in a controlled group together.  Each have their own 401(k).  We want to eliminate B's plan at the end of the year, but over the course of the next few months, we are going to have a bunch of B employees moving over to A and they will be immediately eligible for A's plan.  So, we are going to violate the 2% rule under the successor plan rule because at least 2% of the participants in the B plan will have participated in the A plan in the 12 months leading up to terminating the B plan.

Is there a way we can spin off the accounts in the B plan of the people we expect to transfer to the A plan?  That way we'd have B1 holding those accounts and B2 holding the other accounts.  At the end of the year, we can terminate B2 without any successor plan issues, and merge B1 into the A plan.  Any thoughts or issues?

A client has a DB plan, started in 1998. The plan was subject to a Hard Freeze in 2016, and a new pension plan was established.  The frozen plan is DB001, the new plan DB002.   Both plans are overfunded with significant excess assets. DB001 accrued benefit is $12,000/mo, DB002 $1,500/mo.

Both plans terminated in 2018, participant is now 70. The aggregate 415 limit is $14,166.67/month ( C limit) and the aggregate 415 LS (both plans) is $1,799,000. Note the accrued benefits in both plans is $13,500 < 415 limit. The question is how do I apply the 415 limit to each plan? The plan doc says to apply the 415 limit first to DB001. The problem comes from the MPV which impacts the 415 limit even though the total accrued benefits as annuities do not exceed 415. The PVAB ( MPV) is $1,700,00 in DB001 and $225,000 in DB002.

It seems that DB001 pays the full PVAB  and  DB002 get the knife. This doesn't seem right. Is there another approach?