Say a parent company with two operating  subsidiaries sponsors a nonqualified plan in which balances pay out upon the first to occur of death, disability, severance, or change in control. There are participants employed by the parent company directly in addition to the two subs. The plan's change in control definition is sale of 50% or more of parent's stock or parent's assets. On a FMV basis, Sub 1 accounts for 70% of parent company's assets; Sub 2 accounts for the other 30%. Parent company sells Sub 1 and triggers a change in control for parent company employees. Parent company will continue running Sub 2 and will continue to employ the same parent-company employees. 

Has anyone seen a scenario like this where the plan balances are paid out because of the change in control, but the plan is not otherwise terminated? So, assuming no amendments to the plan before the change in control, the existing balances would be forced out, then the parent-company employees could start deferring again? Technically it's just a permissible payment trigger that causes the distribution of prior balances, so I see no reason why the plan couldn't continue.

Thoughts?

Account treats two companies as totally separate entities.

The companies in addition to sharing the same 6 digit SIC code and both essentially are in the carting/waste removal business.

1 co owned 50/50 by husband and wife

Co 2 owned 50/50 by their two sons, over 21 years of age. The two sons, in addition, work for co 1.

In addition, there is one shared employee.

We have been treating the plans as a controlled group/ASG and combining the two for (a)(4) as both plans are New comparability PSPs. 

CPA does not agree.

Is there a specific example in the regs I can show this guy?

Hello, 

I have a question about DB plans that offer a Retroactive Annuity Starting Date. When calculating the make-up payment, is the basis for the amount of the payment the Normal Form of Payment under the plan or the actual form of payment chosen by the participant?  It seems like the actual form of payment chosen by the participant, but I wanted to see if anyone had any thoughts.  Thanks.

There is a participant in a DC plan who adamantly refuses to have neither an employee nor an employer account.  This may have to do with religious reasons against interest bearing accounts. The plan is not top heavy, but it is a 3% SHNEC.

He did not sign a waiver prior to becoming eligible in the plan.

Has anyone encountered this?  How did you resolve it?

We were toying with an amendment:  All employees hired in November 2015 are ineligible to participate in the plan.  He is the only EE hired in that time-frame.

Client got a CP 220 notice stating the IRS made changes to their return and owes $2200+.  Of course no changes are specified or the reason for the penalty.  (It reads like a scam.)  I saw an earlier thread on this and realize it's probably for a "late" filing...but this was a 2011 return, filed Oct 15, 2012.  We didn't handle the plan at the time, so don't have proof of filing the extension and doubt we can get it, but I think we can beat the rap; just looking for the fastest way to do so - does(n't) the statute of limitations cover this? 

(It's very hard not to begin any correspondence with "Are you f-ing kidding me?")

I should be able to find this jut by searching, but the search feature seems to have changed and I'm not finding anything.

Employer sponsors safe harbor 401(k) plan.  Employer is closing its doors.  They are not being acquired, simply going out of business.  Since there isn't a merger/acquisition I don't see nay 410(b)(6) help.   There isn't a business hardship; the owners are simply retiring.  I think if they terminate mid year they have to meet top heavy and are subject to ADP testing.

Am I missing anything? 

Thank you for any guidance.

Recently the IRS has flagged one of our plans for this issue on audit. they want to take it into CAP and claim its a qualification issue. the only issue i see is that participants would need to be vested. if there is only one participant what is the real legal issue that could force the plan into CAP. seems a little harsh. anyone have any experience with this issue?

edit: noticed some earlier threads where they quote the IRS manual saying other than vesting there is no practical consequence though that section seems to have disappeared from the manual. 

Say a sole prop dies - has a small 401(k) plan - all assets distributed to beneficiary. Assume plan doc is up to date, and final 5500 form properly filed, and 1099 to beneficiary issued.

Does the executor of the estate itself have any specific duties with regard to filing anything further with regards to this plan/distribution - forms, paperwork, etc.?

There's a cash balance plan with the annual benefit going to the owners (HCE's) in the plan that is above their 415 limits. If their benefit is limited, the thought  is to have the plan buy each of them an annuity with a X% surrender charge.  This would make the taxable distribution effectively identical to the 415 limit.  The annuity would be transferred to them for conversion to an IRA after IRS approval was received.  We would offer this identical distribution to the other participants.

Any thoughts on this? 

Does anyone know what the relevant comparison is for applying the 5% rule to the merger of defined benefit plans in the current year?  Under the regulations, a merger has a "material effect" if it results or is projected to result in an increase or decrease of at least 5% in the value of assets or liabilities form the valuation date of the notice year.  I expect that most mergers would increase 5% of the value of both the assets and liabilities, and therefore require an explanation.  But where the plan's funding level is not changed before and after the merger (for example, the merger is between two similarly funded plans), is an explanation still required? 

Company A is owned 50/50 by John and Jim, who are unrelated to each other.  It is a manufacturing firm and John and Jim are also the primary salesmen for the company, they also generate sales thru a couple of independent manufacturers reps who are paid strictly on commission.  Company A employs about 50 people.

Suppose John and Jim decide to set up a separate company B to be another manufacturers rep.  Company B will be owned 100% by John, so it is not a CG with company B.  The only two employees of Company B are John and Jim.  Company A pays  Company B, which then pays John and Jim and generous commission for the sales they generate.  

Company A and B are both incorporated.  John and Jim manage company A and continue to draw a salary from A for their employment there. A, as a manufacturer, is clearly not a service organization.  Company B is in sales, not typically considered a service org and clearly not a professional corp.   So no A-Org ASG is possible.  No B-Org ASG without a service org.  Principal business of B is sales, not management of A, so no management services ASG.

John and Jim set up a cash balance plan in company B that covers the two of them.

Seems too easy, but absent some required aggregation of A and B, it seems to work.  What am I missing?

Cash Balance Plan with in-service distributions at NRA allowed. Owner is going to start taking an annuity form, then convert to a lump sum when the plan terminates. While they are taking this annuity, are they able to take the full yearly amount once per year to satisfy? Or do they have to take monthly payments? 

Do participants get a year of service when they reach 1,000 hours or at the end of the vesting computation period in which they were credited with 1,000 hours.  For example, assume a DC plan has a 5-year graded vesting schedule (20% each year), using actual hours and YOVS = 1,000 hours during calendar year.  On 12/31/2017 the employee had 4 years of vesting service.  The employee terminates on March 31, 2018 with a 1,000 hours, and takes an immediate distribution.  The Plan has the cash-out rules that provide a forfeiture upon a distribution.  I think in this example the participant would have five years of service and be 100% vested.  The participant does not have to wait until December 31, 2018 to be credited with the fifth year of service before taking a distribution in order to receive 100% vesting.  

18" of new snow as of 4:00 AM, and still snowing...sheesh.

Interesting scenario, appreciate any insight:

Facts:

• 401(a) profit-sharing plan (ER contribution only) has 6/30 fiscal year end.  Plan terminated 6/30/2017.
• Participant balances were rolled or distributed by prior record-keeper by 12/29/2017
• March 2018, it was determined that the contribution for plan years ended 6/30/15, 16, 17 may have been understated due to an error in the definition of compensation used.

Questions:

• Generally - how does this get unscrambled?  The prior accounts have been closed, the prior plan has been terminated, however, prior participants may be eligible for additional contribution.
• Does the corrective contribution need to go through old plan record-keeper?  Can they participants receive the contribution via check?  If check - would this be considered cash distribution 
• Any looming deadlines for the contribution to be made?

Any and all thoughts welcomed.

A local church sponsors a 403(b)(9) plan offered by the pension board of the denomination. The Plan meets the definition of a church plan for ERISA and IRC purposes.

Adoption agreement states that all employees working 20 hours or more per week are eligible to participate. Church did not realize this and has only been allowing employees working 40 hours per week to participate.

Can this be corrected by adopting a retroactive amendment changing eligibility to 40 hours per week?

IRS fix-it guide says that a failure to operate a 403(b) plan according to the terms of the written plan can be corrected by adopting a retroactive amendment conforming the plan to its operation, but I am unclear whether this would apply to the situation at hand.   It just seems too simple....

Got a question from an accountant who has a client that is the 100% owner of a single member LLC taxed as a sole proprietorship.  The LLC is the sponsor of a solo-401k plan and files Form 5500-EZ.

The owner of the LLC now sits on a board of directors, and the board of directors will only pay director fees to the individual, not his LLC.  So the director fees are going to be reported on a separate schedule C.

My instinct tells me that his sole proprietorship should become a participating employer to the plan if he wants to use the director fees as the basis for contributions. 

If he does have the sole proprietorship become a participating employer, does that somehow ruin the ability to file a Form 5500-EZ?  It's the same person, just with two separate business entities that he is the 100% owner of, so I can't imagine that it would, but I can't find anything that specifically addresses this.

Thanks!

When you have a single transaction that is over 5% and there were other purchases/sales of the investment during the year do you report the single transaction and then include in the series of transactions also?

I've seen this a number of times in all sorts of contexts, and can never quite bring myself to accept that it works. 

Say an employer has a 401(k) plan that defines "compensation" as W-2 wages with no exclusions. They also have some other type of plan (call it incentive compensation; long-term performance plan; performance-based bonuses; employment contract giving an executive a bonus as a percentage of division's profit; etc.) that gives employees what are essentially cash bonuses, however labeled, that are clearly W-2 wages in the year paid. The other plan or agreement in the boilerplate then says something along the lines of "any amount paid under this plan/agreement shall not be included for any other purpose, including any pension plan, etc..."

Is there any reasonable argument to be made that you can exclude the payment for purposes of the 401(k) compensation? 

Hello,

Two entities (A & B), controlled group, each entity has its own plan.  Entity A provides SH 3% + PS, entity B provides PS only.

Entity A calculates SH and PS based on entity A's compensation only.  Entity B calculates PS based on entity B's compensation only.

Each plan passes coverage on its own.

Each plan passes 401(a)(4) based on 415 compensation (combined comp from both entities).  Gateway and TH are calculated based on 415 comp.

My question is... do I need to do the 414(s) compensation ratio test for the Safe Harbor contribution type for entity A, because the Safe Harbor allocation is not based on 414(s) compensation?

I thought... since 415 compensation is used for the 401(a)(4) test, which tests both SH and PS, I did not have to do a separate 414(s) compensation test....... But maybe that's the reason why I have to do the 414(s) compensation test, because testing both SH and PS cannot be used to prove that the Safe Harbor (alone) is calculated based on 414s compensation?

If so, what happens if the 414(s) compensation test fails?  Increase SH to meet 3% of the 415 compensation?  I guess increasing SH will reduce PS anyway, so the outcome is the same for the 401(a)(4) test....

Thank you very much!