A non-publicly traded company that is owned 30% by the ESOP and 70% by the founder is being sold. According to the Plan, Participants are entitled to direct the Trustee to vote their share of company stock in the case of a sale of substantially all assets of the business, so it would seem that the sale must be disclosed sooner rather than later.  What does that disclosure consist of? At this stage, we are reluctant to provide more detail than we need to. 

A plan sponsor starts a plan and makes contributions which turn out to be non-deductible because they turn out to have no earned income.  This goes on for two years.

Year three and four, they have earned income and can deduct part of the contributions made.

IRS audit of personal and business returns results in denial of deduction for years one and two.  The letter arrives in year five. 

How do you determine the refunds, given that the non-deductible amounts have now earned substantial investment returns in the trust?  Do you attribute interest to the non-deductible funds?  How and where would that interest be reflected?

a. One theory is that the funds were invested in a trust that was not tax exempt during the first two years, so the trust should file taxes for that period only.

b. Another theory is that the trust was tax exempt in intent and did hold tax-deferred assets.  So the non-deductible contributions are the only amounts refunded.

c. Another theory is that the refund includes income attributed to the non-deductible portion and should be refunded as well, and treated as taxable investment return.

Since the IRS denial of deduction letter does not instruct how this is to be treated, I look for opinions and precedents.

How do you advise clients to design their CB formula when they don't know their earnings until after year end?  I am looking particularly at clients that are not corporations, such as partnerships and LLCs taxed as partnerships.  It is a problem because they need to adopt their plan or amend their formula by the end of the year, but they don't really know their earnings until after year end. 

I'm looking at an S-corp ESOP and a 401(k) - two separate plans, handled by two separate TPA's. The ESOP TPA is saying that there's a 415 violation, and refunds of "X" must be made.

I think it is partially true, but I want to make sure I'm not all wet. The allocations under the ESOP, for 415 purposes, are showing as (pick a number - say $800,000) but the repayment of principal and interest on the loan, which is the total contribution, is, say, $700,000. As I read 1.415(c)-1(f)(2), for 415 purposes only, the allocations under the ESOP should be based on the $700,000, not the $800,000. This would reduce, but not eliminate, the 415 violations.

As an aside, share prices are higher than before, so can't use the special exception for using devalued shares.

Am I missing anything on this?

Consideration of a payout by May 31, 18 or delay until June.

Looking for the April 2018 published rates for 417(e), to see if there is interest rate arbitrage issues.

Does anyone know the published April 2018 rates?

For a S Corp owner making $300k per year, what is his best option in saving money for himself and getting a tax advantage?  Is it a qualified plan that involves profit sharing or can there be a NQ plan that gets funded thru a bonus he gives himself?  I am looking for answers that include examples using numbers.

This subject always gives me fits. Suppose a plan is utilizing a basic safe harbor match, and in addition wants to provide a discretionary 100%  match on deferrals in excess of 5% up to no more than 8%. So 8% deferral gets you a 7% match.

Since deferrals in excess of 6% are being matched, it blows the ACP safe harbor. But do you have to test the ENTIRE match for ACP, or just the match in excess of 4%? I've heard and read different opinions, and it seems that 1.401(m)-2(a)(5)(iv) allows you to choose? The subject ain't as clear as I would like. Would be interested in any opinions. Thanks. (P.S. - this is actually a 403(b) plan, but I put this question in the 401(k) forum, since this is where it always seems to come up)

When I do a search, it comes up with a bunch of results. So I click on one of those results, and read it. When I'm done, how do I get back to the search results? When I hit the "back" button it takes me all the way back to the Forum, and I have to re-enter the search parameter. I'm sure there is a simpler way! Thanks.

I need some ideas...

Have a lawyer practice 401k plan that is starting to have retirees.  I think the ownership group would like to NOT give the safe harbor and profit sharing to the retirees.  It sounds like the retirees will be doing some work, just not a lot of work and will be paid via the Employer in normal fashion.  I suggested maybe considering the retirees as 1099 employees. But, ER is not sure.

I am just starting the brain storm stage.

Any ideas? 

Can the plan exclude the retirees the plan year after "retiring"?  I hate to use the word termination, because they are not terminated, they just work way less now.

I don't think the plan could exclude by name... could be wrong.  I don't see where a class would work, but maybe....

Thanks

Can a 412e3 plan be terminated and the annuity contract distributed to the participant without giving that participant any other distribution option available under the plan?  The advisor is saying the contract has all the distribution options built into it and the participant can just take a distribution later.  This is a PBGC cover plan and will fill for termination with them. 

I have a plan that currently has a basic safe harbor match.  Deferrals and SH have same eligibility of age 21 & 1 year w/1000 hours.  They want to change deferral eligibility to immediate upon date of hire, but leave the SHM eligibility as is.  Is this allowed?  If so, can this be changed mid-year or must it be effective 1/1/2019?

I had an ESOP paid the final benefits in April of 2018.  So the final 2018 5500 is due 11/30/2018.  We obviously don't have the 2018 forms.  Something in the back of my mind says you can use the 2017 forms.  I guess I can extend and by early 2019 we will have the forms but since the company was purchased no one wants to hang around to sign the forms almost a year from now. 

I just can't seem to find it in the 5500 instructions saying we can use the 2017 forms in this case. 

Is my memory faulty or does someone know where it is written saying we can use a 2017 form?

Thanks

Are PBGC plans exempt from an ERISA bond? 

Specifically asking about small DB plans that typically would not be subject to audit if the bond requirement is met. 

Does anyone have a citation for an answer? 

Takeover of an existing 401(k) plan on a vol sub document. The plan has 500 hours but no last day requirement for its discretionary pro-rata profit sharing formula. The owner's spouse has a business with no employees, just self-employed, but is not a participating employer in the plan. They are a group under common control, they do not meet the spousal exception.

They want to add the spouse's business to the plan as a participating employer, but want the profit sharing allocation under that business to be a different percentage. Meaning the plan sponsor can allocate X% but the newly added employer could allocate Y%.

Issues?

Employer allows union employees to donate unused PTO to a bank from which other union employees can apply for a withdrawal from the bank if they have exhausted their own PTO and have a medical event causing the  need for time off.  Union has a committee that reviews/ approves/disapproves requests which must be supported by a Dr.'s opinion of the length of leave that is needed.

Is this type of plan considered an ERISA plan?  Employer wants to know as a result of the new regs. re: procedures required when an employee of the company makes the determination re: who is disabled.

Plan allows for rollovers in for employees expected to become a participant but who haven't met the requirements yet.

Are these people "Participants" when it comes to the availability of a Participant loan?

Definition of a participant is:

Quote

Any current Employee who met the applicable eligibility requirements and reached his or her Entry Date and, where the context so requires, pursuant to the terms of the Plan, any living former Employee on whose behalf an Account is maintained or former Employee who has met the eligibility requirements.

To me, neither of this conditions have been met.

Maybe another one of the "old-timers" will know this; I am drawing a blank.  Many DC plans have a requirement that an otherwise eligible plan participant must complete a minimum hours of service during the plan year to receive an employer contribution, but IRS LRMs say that it can't be more than 1,000 hours, which is what I always assumed is the limit.  Does anyone know what the source of the 1,000-hour ceiling is (a Rev. Rul. or a regulation)?  Is it based on 410(a)?  If it is based on 410(a), does that mean all of the hour-counting service-crediting rules applicable to eligibility would apply for the annual contribution requirement (e.g., you must count hours not worked for which you are paid up to 501 hours)?    

Employer has an NQDC plan in the form of "appreciation units."  Executive wants any payments under the plan to be paid to a trust, of which he and his wife are the trustees, instead of to him directly.  My understanding is this does not avoid taxation for him, but he wants the trust to hold all of his assets.  Plan currently does not permit the assignment of rights under the plan.

My question is this: 

Does amending the plan to allow a participant to assign his/her right to payment to a trust present problems under 409A?  Any right to payment is still subject to forfeiture.

Any thoughts on this would be much appreciated.

DOL wrote a letter to one of my client (large-audited plan sponsor) to consider applying for the VFC program to formalize the late contribution violation correction.

The 2nd half of 2015 and the 1st half of 2016 plan years contribution transmission were late because the plan sponsor switched payroll service company.

When the annual account valuation was performed the following year, the late contribution violation was discovered, corrected and reported on the Form 5500. The lost earnings was calculated using DOL calculator and each participant portion of the lost earnings were deposited in to participants' accounts.

Question:

1) Does the prohibited transaction exemption 2002-51 in which the deferral deposit is not more than 180 day late applies to the principal? Or does it include the date the lost earning deposit into participants' deferral accounts?

2)Is this permissible to use the VFC program, section 5(e) - de-minimus exception to amounts less than $20, and not to write a check for former plan participants who were already paid out but allocated lost earnings as small as $0.10 at a later time?

3)How does the plan allocate the excise tax paid to the plan  on the lost earnings to fully correct this prohibited transaction? How about the de-minimus amount for prior paid plan participants reallocated? Do the excise tax and de-minimus amounts sit in the plan suspense account to be reallocated as employer contribution to all current plan participants?

Any help to any part of my questions are highly appreciated.

We have a small business w 10 employees and the business offers health insurance.  So the QSEHRA is not available.  Two employees have chosen Medicare instead of the employer health plan.  The employer pays 75% of the health insurance premium and employee 25%.  The employer wishes to reimburse the Medicare-covered employees 75% of the Medicare premium they incur.  There appears to have been a pronouncement in 2015 which allows for this provided certain conditions have been met which they have in this case.  So it appears to be allowable.

Questions: Is this still an allowable benefit?  Does there need to be a written plan?  If so I suppose it would be an HRA.  Can the HRA only address and cover the Medicare reimbursement issue?  I assume the reimbursement would be non-taxable.  

Comments? Thanks