This question is related to a 401(k) Plan with many partners and rank and file employees and not to a Solo SEP or 401(k) with 1 partner.

For the 2018 Plan Year:  After i calculated a maximum Contribution (employee deferrals, Safe Harbor 3% NEC, and Employer Profit Sharing for a partner as $55,000, their accountant is telling me that the partners maximum Contribution should be limited to 20% of their reduced K-1 income, which comes to approximately $50,000.

I have found information about the maximum contribution for self employees individuals to be limited to  20% of their reduced K-1 income, but does this apply to 401(k) Plans? and not just to SOLO SEP'S and 401(k)'s with 1 employee (the partner)

Any guidance is greatly appreciated

Alex

A partnership with 3  related partners normally funded their contribution separate from another business owned by them with several other people.  Until 2018 they were not controlled group.  This year, the same 3 people (family members) own both companies.   So the question is not If they have to pass coverage as a controlled group of employees/participants, but whether the Owners can fund their $55,000 max contribution through either plan?   or do they have to fund  it through the 2nd company with all of the employees/participants?   It's confusing and I've never run into that before where they wanted to fund it to manipulate profit in one company.  Help!

It's actually 2 questions!

1) If a plan defines a year of service for eligibility as 1,000 hours, would you HAVE to look back at hours history to determine the otherwise excludable employees (to see if any never met 1,000 hours).  Or could you just use hire date (and birth) for administrative ease/sponsor does not provide hours?  Especially for new takeovers, it's tough for sponsors (especially large ones in certain industries) to provide hours history for a long period of time.  I'd just assume a part time employee who has been at a company for 20 years met 1,000 hours once.  I think it's common practice to make certain assumptions but can't find any language anywhere.

2) If a plan uses elapsed time for eligibility, could they not use the 1,000 hours to determine if they ever met a year of service for otherwise excludable classification?  I think the regs just reference year of service, which would then come down to how the plan defines it.

Thanks!

I have a small Defined Benefit Plan that is terminating due to the sale of the Sponsor's dental practice.  The Plan is underfunded so the owner will be signing a waiver for the unfunded portion of his benefit.  So far no problem.  A substantial contribution was deposited in 2019 to make up some of the unfunded shortfall.  The amount deposited was well within the Plan's maximum deductible limit.  However, when the accountant completed the 2018 preliminary returns the Net Schedule Income for 2018 is about $17,000 less than the deposited amount.  The accountant is going to take a deduction for only the portion up to the Net Schedule C amount, not the full amount of the deposit.

According to the accountant there will be no Schedule C Income after 2018 so the excess $17,000 cannot be deducted in a later year.  My understanding is that the Sponsor will owe a 10% penalty for the non deductible contribution for the 2019 Plan Year (the year of the deposit).  How is the excess contribution paid out of the Plan? 

Pardon my senior moment, but we recently took over a new comparability profit sharing plan (no 401K option) with a 1,000 hour/last day contribution req't.

Two participants terminated in 2017 with >500 hrs, but <1,000.  The previous TPA had given these two participants a contribution for 2017.

Is this correct?

Is it an industry trend for pension plan auditors to go nuclear and penalize a plan sponsor with all kinds of Notes for seemingly minor data discrepancies such as one participant's date of birth off by a year out of 400 total participants, or a gender being incorrect on 3 participants?

Hi to all,

I am researching the elements that went into a top heavy test for a client for calendar 2018.

Two doctors, A and B, owned Happy Feet PA up until 08/12/2018, and maintained the Happy Feet PA 401(k) Plan.  They sold their practice in an asset sale to Better Feet, P.A. owned entirely by Dr. C.  Doctors A and B continue to be employed by Better Feet for the remainder of 2018.  Better Feet took over as the plan sponsor on the sale date, the plan was re-named Better Feet, P.A. 401(k) Plan, and Dr. C became the Trustee of the plan.

Because Better Feet already had a SIMPLE plan in 2018 for the Better Feet employees, with the advice of a local ERISA attorney, we amended and restated the Happy Feet plan such that only the former employees of the Happy Feet PA were eligible to participate in the Better Feet, P.A. 401(k) plan for the remainder of 2018.  At 01/01/2019, all of the employees of Better Feet, whether they used to be employed by Happy Feet or not, became eligible to participate in the plan and the SIMPLE plan was terminated.

So now, as to the Top Heavy test for 2018:  I am understanding what I read to say that because Dr. A and Dr. B were owners of the (previous)  plan sponsor "at any time during the relevant plan year" (2018), they are Key employees for purposes of the 2018 test.  We had initially hoped that perhaps they could somehow be considered non-Key because by the end of the year, they were not owners, the plan sponsor had changed, their company had been completely bought out by the new owner, etc.  

The reason it matters:  Running the Top Heavy test for 2018 with Drs. A and B as the Key employees results in the plan being Top Heavy for 2019.  This puts Dr. C in the unhappy position of now sponsoring a plan that is considered to be Top Heavy for 2019 even though he had nothing to do with it getting to be Top Heavy.  He and his own employees were not even eligible to participate in 2018.  That may be irrelevant.  This just may be a risk he was assumed to be taking when he agreed to sponsor and continue the Happy Feet 401(k) Plan when he bought out Happy Feet PA.

Am I missing anything that would change the test results?

Thank you as always.

Can a money purchase plan that has merged into a PS plan be allowed as part of an in-service withdrawal?

Good morning to all,

Here's a new one for us.  A client called this morning to say that she (owner of the company sponsoring the plan) wants the company to pay off an existing participant loan.  The participant happens to be her son who of course is Key and HCE by virtue of his relationship to his parents, the owners.  He is currently making payroll deducted payments but "the company" wants to pay his loan off for him in 4 quarterly installments beginning now.  She had already called John Hancock to find out if this was feasible and they told her to call us as the TPA.

Our first inclination is to say "Sure, why not?" but then we started wondering if this could somehow be construed by an auditor to be a contribution that went only to this one employee and was therefore discriminatory, or whether there is some other problem associated with it.

We have no idea how the company would eventually treat this for tax purposes.  It's not supposed to be a contribution to the plan of course.  It might be additional pay for the son, from which it appears that he's making the payments? This is an issue they have to work out with their CPA.

At a minimum, we should run a new amortization schedule for them to correspond to the payments they actually intend to make.

Any thoughts on how this could somehow get the client in trouble?

Thanks as always for your advice, thoughts, help.

So say an S-corp has a leveraged ESOP. Total value of shares is 1 million. $200,000 has been allocated to participants, the remaining $800,000 is in the suspense account.

When determining if the plan is top heavy, do you include the suspense account when determining the 60% figure? Or, is determined solely on the assets that have been allocated, and the suspense account is ignored?

I have a new plan for 2018 that is a safe harbor match. 

Owners spouse contributed to 401k but worked only 300 hours. 

The plan is based on a full year with an effective date of 1/1/18. 

If they want to do profit sharing, can they exclude her to keep the other non-key employees who worked less than 1000 hours from getting psp?

Want to see if I'm nuts. I'm looking at a situation where an employer has an ESOP, and a 401(k) plan. The 401(k) plan provides deferrals and a safe harbor match only. The census/testing results provided for the ESOP are confusing at best, but it APPEARS that the ESOP failed the 70% ratio test for coverage. It further appears that the ESOP was then permissively aggregated with the 401(k) to "allow" it to pass coverage.

Now, under the mandatory disaggregation rule in 1.410(b)-7(c)(2), it would appear that for coverage purposes, an ESOP plan (or portion of plan) can't be permissively aggregated even with another non-ESOP Profit Sharing plan (or portion of plan), (other than as provided in 54.4975-11(e)), much less with a 401(k) or 401(m). Am I missing something? Before checking with the TPA, I'd like to think I understand what I'm talking about...

Thanks.

We had a participant that was upset their Plan didn't allow for their ROTH IRA to be rolled over to their Retirement Plan. They had a ROTH 401(k) and didn't reply when their Plan was terminating and was rolled over to a ROTH IRA. I was wondering if this was an IRS Rule or something that can be allowed.

I have a highly compensated ineligible participant that deferred into the 401(k) Plan before her entry date.  EPCRS and the SCP say you can correct this by  a retroactive amendment if the participants are predominately NHCE's.  How do I correct it since this is a HCE?

I received a Schedule K-1 (form 1120S) for the owner and sole employee of a corporation. This K-1 includes no box 14a. It does however include box 17 code W, which has an amount of $50k. I'm waiting on a response from the client as to when exactly during the year he earned this W2 compensation of $50k as you normally shouldn't receive both K1 and W2 income. But at the risk of asking a dumb question, would this mean that the only compensation that would be taken into consideration for plan purposes would be the $50k in box 17W (plan’s definition of comp is W2)?

A participant in the cash balance plan refuses to cash his RMD.  He even sent the check back to the plan.  I am not sure how to proceed.  I know the IRS has issued guidance regarding missing participants with respect to uncashed RMDs, but in this case, we know of the participant, he just refuses to cash his check.

So, suppose that an s-corp ESOP has what I would consider (fairly standard?) language to permit the transfer of shares from the ESOP account to a "non-ESOP" account within the plan, in order to avoid a potential 409(p) failure.

Are there any tax implications of this, other than the fact that the shares so transferred will be subject to UBTI on their pro-rata share of the s-corp earnings?

I recently started a new job as benefits manager.   Our record keeper (a public company) states that their testing department typically reclassifies regular (non CU ) contributions AS catch up contributions in order to help our test results.    this is new to me....anyone ever seen/ heard of this?   any comments greatly appreciated!

I have a group of three companies all previously owned by the same family (three brothers, owning all three companies jointly), that have operated a single 401(k) Plan as a controlled group. Now they have sold 49% of one of these companies to an unrelated outside individual. They are asking if they now have the option to kick the 51% owned company out of the Plan. I believe they can, but also think the successor plan rule would apply since they maintained the 401(k) after the acquisition. Does anyone here have any thoughts?