Hello, I am a 1099 independent contractor who has incorporated with an S-corp (one person/employee, which is myself). I've set up a solo-401k in order to make salary deferrals and employer profit-sharing (up to 25% of employee gross pay) to maximize the 55,000 contribution limit. This solo-401k is currently with Fidelity.

Recently I have learned about the cash balance plan. I thought I could just open an account at a place like Schwab, which offers a Personal Defined Benefit Plan, and be able to contribute some amount each year. I am aware this amount is based on age (currently 32 y/o). Upon some other discussions online, it sounds like the total contributions (401k salary deferral, 401k employer contribution, cash balance plan) may not exceed 31% of payroll.

If my annual 1099 income is somewhere in the range of 300-400k, would it make sense to consider adding a cash balance plan? I haven't been able to find clear-cut answers to this. For example, from this calculator (https://www.dedicated-db.com/defined-benefit-plan-calculator/) with a 350k income, I can only do 401k salary deferral of 18,500, 401k employer 6% contribution of 16,500 (not profit-sharing), and the defined benefit contribution of 33,400, which is only 68,400 so not really worth it.

My goal is to save up at least 120k annually in these accounts. With Schwab, it would cost $1500 annually for their plan. Someone suggested I find a full service provider to manage both my 401k and cash balance plan to ensure everything is in order. Would these companies run numbers for me and let me know if it's worth it or how much I would realistically be able to contribute?

Thank you.

Hi to All,

A client has a profit sharing plan currently with only the owner and his wife as participants.  They want to invest the assets in a real estate program of some sort and have decided to terminate their plan and roll their funds to an IRA for each of them.  Each IRA will invest in the real estate.

The question came up as to whether it would be better to keep the money in the plan and let the plan invest in the real estate, because there would be more bankruptcy and creditor protection within the plan than outside of it.  Is that true?  Does the answer change when only a husband and wife are participants?  Does the answer change if they amend and restate the profit sharing plan as a Solo 401(k) plan?

Thanks in advance for any advice!  I did look on the internet and found one article that states there is absolutely more protection within the current plan, and yet another one that said there is some kind of exception to that protection for Solo 401(k)s.  We're confused.....

I have a client that has a hard time keeping a certain employee type to stay with his company. He would like to have a 10 year cliff vesting schedule. This is obviously not allowed but the idea we came up with was as follows:

Assuming he wants to give $5,000 per year of service to these employees. In year 5, he would make a $25,000 profit sharing contribution for these employees. Any amount in excess of the annual additions limit will be given as a bonus. None of the employees are HCE's and the plan makes each employee their own allocation group.

1. Does anyone see any issues with the above arrangement?

2. Should he be accruing the expense on the books (I think yes)?

3. Is this a deferred comp arrangement? Are there any 409a issues?

Thanks

I recently received a cash balance plan that defines the accrued benefit as the actuarial equivalent of the hypothetical account balance (where the hypothetical account balance is the usual sum of principal and interest credits), reduced by the actuarial equivalent of the balance of the "hypothetical offset account." The plan states that the hypothetical offset account for each participant is credited with an allocation equal to the lowest allocation rate from [Sponsor Name] Profit Sharing Plan plus the actual rate of return from the participant's account in the profit sharing plan.

The profit sharing plan uses a new comparability allocation formula with each participant in their own group. In past years, the owner received a contribution equal to the 415(c) limit, and the non-HCE received the minimum gateway, let's say it was 6%. The profit sharing and cash balance plans satisfied the numerical tests for coverage and nondiscrimination when tested together.

The idea behind this design seems to be that although the participants are not getting a uniform allocation in the DC plan, they are getting a hypothetical uniform allocation in the form of the hypothetical offset account, and it is that account balance which is being used to offset the accrued benefit. In other words, even though the owner is really getting a 20% allocation in the DC plan, his balance for purposes of the offset is based on only a 6% contribution since that is the lowest allocation rate of any participant in the DC plan.

My concern is whether this arrangement satisfies the minimum participation requirements. 1.401(a)(26)-5(a)(2)(iii)(A)(2) states that the formula meets the requirements if "The employees who benefit under the formula being tested also benefit under the other plan on a reasonable and uniform basis." The word "plan" here concerns me as I do not think that a hypothetical offset account constitutes a plan. Nor do I think there is any permissive disaggregation rule that would allow that portion of the employer nonelective source which is attributable to contributions not in excess of a certain allocation rate to be considered its own plan.

This plan does not have a determination letter. Has anyone ever encountered this type of plan design before? Does this seem permissible?

If anyone is willing share, what types of clients do you find to be "ideal" target clients who could benefit from a cross-tested or new comparability plan?  I will be glad to share my thoughts.  I look for smaller businesses that have a lot of income with demographics that are favorable for the testing and with owners who want to sock away some money, take advantage of the tax deduction, and mitigate the costs of benefits to their staff.  

New client with a plan document which is on a 403(b) Adoption Agreement and the plan's name is "403(b) DC Plan" but the plan only permits a nonelective employer contribution: no deferrals.

Is this a 403(b) plan?

(Why do I care?  Because it is not a PPA document.  If it is a 403(b), then I can restate now; if it is not a 403(b) but a DC plan, it is a problem.)

Self employed owner funded a SEP for the first time based on "projected" income.  Later discovered he had a self employment loss.  He took back the SEP contribution, less losses incurred while invested (before his tax return due date).  Is there an excise tax 10% on this reportable on 5330?  Also, is the 1099-R reporting only for employees, and since he has none this is a non-issue?  Anything else to worry about?  Can he take the "loss" on his tax return somehow?

Hey Relius users using the financial interface  - I was looking today and see in my software that American Funds (both Premier and Recordkeeper) show as available under the vendor list.  I use the import function for Premier plans because you can use the Empower (Great West) option since those systems are the same.  I had not noticed the American Funds option before.  Has anyone used them?  If so, how do you generate a file in Recordkeeper that works with the import?

FWIW - I did look on the Relius "help" information and did not find anything there....

An employer allowed an employee to begin deferring in 2017, but they are not eligible until 2018.  The employer does not want to use the EPCRS amendment correction method so that the participant would be eligible for 2017, since they would be required to provide a top heavy minimum allocation.  If the early deferrals plus gain/loss are returned to the participant, what 1099 code should be used? It seems like it should be a 2017 tax event.

Company B is purchasing 100% of the assets of Company A.  All employees of Company A will terminate effective July 15.  Company A's 401(k) Plan is terminating.

Owners of Company A would like to make a discretionary profit sharing contribution to Company A 401(k) Plan for this final plan year.  

Even though the asset sale will occur on 7/15 and all employees/owners will terminate employment effective 7/15, can Company A elect to wait until 12/31 to formally adopt a resolution to terminate the plan, thus avoiding a reduction in the compensation limit, 415 limit, 1,000hrs allocation service requirement for PS, etc...?  As an added benefit, the employer would not have to provide top heavy minimum contributions since the limitation year would be extended to 12/31.

While I cannot find anything suggesting the plan is deemed terminated or must terminate as of the transaction date, it doesn't seem right that an employer could manipulate the staff funding requirements by postponing a formal plan termination.

Have Company A 100% owned by John.  Have Company B owned 100% by Bill.

In May 2018 Company A buys Company B and John is 100% owner and Bill is 0% owner

Each company had their own 401(k) plan in 2017, company B's plan is merged into company A's plan.  

Is Bill:

1)  a key employee in company A's plan based upon prior year ownership?

2) a former key employee in company A's plan?

3) or just a regular empoyee in company A's plan?

thanks

Is it reasonable that the Prefunding Balance can jump from $145M to $982M in one year? Previously the balance ranged between $100M to $200M. (That's about 25% of the Total Plan Assets).

Is this something to worry about? What might cause it?

The data came from my pension annual funding notice. I'm retired now.

https://benefitslink.com/src/ctop/Chamber_v_DOL_5thCir_Denial_of_Motion_to_Intervene_05022018.pdf

Seems that way...  The DOL is not defending it.

Curious to know what others think or know (i.e, because of legal knowledge about the process) regarding the future of this thing...

Participant - Husband is requesting a primary residence loan of $25,000.  Participant submitted paperwork showing the actual costs incident to the acquisition of a principal residence is $65,000.  The paperwork shows both the husband and wife on the purchase agreement.  Primary residence loans permitted in the plan and the loan is in the process of being approved.  Another loan request recently came in from another Participant in the Plan - the Wife for $50,000 with same purchase agreement submitted.  Individually, these amounts would be approved.  However, when added together, there is an extra $10,000 that would not be used for the actual costs of the principal residence.  I understand there are tracing rules on these residential loans.  Is there an issue on approving both loans in this case? I would think so, but if so, how do you avoid this issue from occurring in there were multiple unrelated plans?  Does self-certification help?

Thank you!

For the A-org test, if the purported FSO is an LLC that has elected to be taxed as a corporation and that is not a professional service corporation (or a professional service LLC), would it fail to be an FSO as a "corporation" that is not a professional service corporation since it is being treated as a corporation for tax purposes?  Or would it have to actually be incorporated under state law (and not just treated as a corporation for tax purposes) to be considered a corporation for purposes of this rule?   

Doctor and Lawyer are married and have a child under age 21.  Doctor (our client) has 401(k) plan.  We are inquiring as to the spouse lawyer as to whether he maintains a plan (our first year admin).   Disregarding the child, they would not be considered a controlled group as they meet the 4-part CG exception and they are not in a community property state.  But my read is that the child trumps all this and does cause them to be a controlled group regardless of the fact that they are not in a community property state. 

Comments? Thanks Tom

Employer was given the calculation for employer SHM contribution for 2017.They contributed about 2X as much to participants' individual accounts and want the money returned.

The fundholder told them they could have the excess returned as a "mistake of fact" and send the employer the proper form to be completed.

I would not consider this a "mistake of fact" solely on the basis that the funds have already been allocated to the participants.

I would like to advise them to keep the money in the plan, use the same amount for 2018 SHM that was used for 2017 and allocated the difference as an employer profit sharing contribution.  The total employer contribution (PS and SHM) is within the 25% limitation.

Thoughts??

There is a safe harbor plan that is top heavy.  The plan also has a New Comp and wants to exclude 3 Non-Key employees from receiving a Profit Sharing.  These Non-Key Employees are also HCE that are excluded from receiving the Safe Harbor Non-Elective.  Can those individuals be excluded from receiving the 3% Top Heavy/Minimum Gateway OR do they have to receive a funding.

For many years, Client has sponsored a volume submitter SH plan with an Enhanced Match and discretionary integrated PS formula.  The SH notice was timely prepared and distributed for 2017 by December 1, 2016. Client became unhappy with TPA, fired them for 2017, and hired its Payroll service provider to do admin, effective December 29, 2017.

Payroll Service restated the Plan and changed it to a 3% SH Nonelective formula and changed the PS formula as well, and claims it's for the 2017 plan year.  Client didn't notice the changes in the two formulas until just now., but obviously discontinuing the SH match without Notice and amending the Plan mid year 2017 are clearly unacceptable.

Question is what to do next?  Does the former, volume submitter Safe Harbor match plan with the integrated formula control for 2017, or could there be a viable argument to use the 3% Nonelective plan with the comp to comp PS allocation formula?

For top heavy account balance determination in a DC plan, are unvested amounts that are forfeited included when adding back distributions for participants who terminated during the year? For example, a participant with a total account balance of $10K, of which $9K is vested, terminates during 2017 and takes a distribution during 2017. Would you add back $10K or $9K? EOB gives an example that says, "the former employee's account balance must be included in the top heavy ratio" [my emphasis added]. I can't seem to find anything definitive in the Regs., but logically, it seems like you would add back what would have been the full value of the account (unvested portion included) since that's the amount you would include for someone who wasn't terminated.