A client set up a 401(k) in 2017 for her LLC which is taxed as a sole proprietor. She has 6 full-time employees and has set up the 401(k) so there will be no employer contributions, only employee contributions.

Two questions:

1) What date does she have to fund her "employee" portion for 2017? By December 31, 2017?

2) Because there will be no employer contributions to the plan,  the plan must be set up as a traditional 401(k).  That means she must have it tested to be sure it is not top heavy. Is that testing typically done on a projected basis so she does not overfund her contribution before December 31?

Took out a loan on 10/19/16 of 26,900

If I pay that off, will I be able to get a loan of the lesser of $50,000 or 50% the next day?  (assume 200k vested)

Is the 12 month restriction on when you take out the loan or when you repay?

Thanks!

 A law firm sponsors two plans,  one if for the Associate attorneys, deferral only, and the other is for the Partners and Staff, deferrals and a new comp profit sharing.   The plans have always passed coverage testing.    

Can the Partners and Staff plan add a non-elective safe harbor?  

Let me state at the outset that ERISA counsel will be involved. That having been said, curious as to thoughts on the following from those who deal with ESOPS.

So, you have a C-corp that is partially owned (about 24%) by an ESOP (no outstanding loan). The owners have an idea that they want to sell their remaining stock to the ESOP, which will own 100% now, and a new unrelated buyer will then purchase 100% of the corporation from the ESOP. Apparently they envision this being sort of one immediate transaction such that the ESOP will not need to borrow any funds to purchase their stock. They are also, by the way, current participants in the ESOP.

First, is such a transaction possible/reasonable? I'd typically expect that the ESOP would actually have to borrow the funds, then pay off the lender as soon as the shares are sold to the new buyer and the ESOP is now all cash. But maybe what they envision is a common transaction - sort of "circular" for lack of a better term?

Also, even assuming such a transaction is otherwise viable, how the heck could you ALLOCATE that much money? It doesn't seem reasonable that this could all be simply classified as "gain."

Also, (not being an ESOP expert, by any stretch!) I have a faint memory that IF a Section 1042 "rollover" is contemplated, that the selling shareholders (who are also participants) cannot receive any allocation attributable to the employer securities that were just sold to the ESOP? That this would be "double dipping" - and that therefore all such sale proceeds could only be allocated to OTHER participants?

Any other special pitfalls, or thoughts about this?

Former partner (or employee for that matter) in a firm now is an independent consultant for the same organization and receives a 1099.  He wants to start a DB plan and deduct away his 1099 income.  Can he consider the prior firm a predecessor employer and use that compensation in his 3-year average?  In describing imputed comp, 414(s) says "prior employer comp for an employer...maintaining the plan"  So this is obviously a reg that is addressing a more traditional migration of employment from one company to another.  I think my client needs to start fresh like a new sole prop but I'm hanging this out there for any creative ideas.

My title kind of asks my question:  If we have a cross-tested safe harbor plan (3% SH).  We want the owner to receive 15% of pay total ER contribution (3% SH + 12% PS) and everyone else to receive 5% (3% SH + 2% PS).  Does the PS portion of the contribution have to be 100% vested?  

Thanks

When QNECs are used in the ADP test, I understand that they have to pass 401(a)(4) general testing both alone, and combined with profit sharing (and apparently 410(b) is tested only with them combined).

If you have QNECs allocated that exceed the amount used in the ADP test, do those amounts need to then be carved out and combined with profit sharing for separate 401(a)(4) test (that excludes ADP-tested contributions)? For example, for a Prevailing Wage plan with the P-W contributions classified as QNECs, the amounts exceeding the 10% "disproportionate amount" P-W limit (or the amount needed to make the ADP test pass, if less)? This would be the preferable option, as we are allocating profit sharing to maximize HCEs, so need allocations to NHCEs in the test.

(Assume the plan is using current-year ADP testing, and document seem to have no language addressing this situation, other than P-W contributions up to 10% "can be" used in the ADP test.)

It seems pretty obvious that you would test the "excess" P-W QNECs combined with profit sharing, but this is a rather unusual situation and I'd like to confirm.

Thanks.

New cliuent for us where we discovered that there are 3 versions of a 2015 5500 that were filed, none as amended.  They all have different ackID's and are all listed.  Anyone know how to delete those?  

That 2015 filing needed to be amended, and I'm considering amending all 3 filings that are out there.  Long story short, the previous provider included auditor information other than the financial statements that I would prefer to pull off the DOL's site.

Another wonderful one-participant 401k situation, only this time aided and abetted by a CPA.

An S-Corp individual's CPA advised them to make a $10K employer contribution in January (like an IRA). This was on anticipated net business income (excluding wages and payroll taxes) of $40K. I don't know where the CPA expected the $10K for the employer contribution to come from.

When it became apparent that there would only be $30K in net business income, the CPA advised the individual to pay himself another $10K in wages. I have a hunch that there was no actual payroll just the filing of the appropriate Form 940/941 and their payments.

I believe if the individual properly loaned the $20K to the S-Corp. This would provide the $20K in basis to actually deduct the loss on the individuals Form 1040. Although, I have a hunch based on the overall fact pattern that similar to payroll situation, the $10K in employer contributions were not routed through the S-Corp's accounts and came from personal funds.

So back to the original question, would it be proper to make the entire year's employer contributions, before any compensation that contribution was based on, had been received.

What corrective action would/could be taken at this point in time. What would be the consequences, except for a well deserved smack upside the head of the CPA.

I am not an expert in the controlled group world and would appreciate any input on whether this scenario falls under a brother /sister controlled group

Company A - sole proprietor - Dave 100%

Company B - S-Corp  - Dave an employee - Dad owns 100%

Company C - Dave owns 15%, Dad owns 50% and various family members own 35%

None of the companies are related or have any business relations with each other.

As the family attribution rules apply, I am not sure if Company A & B would be considered a controlled group.

Thanks

To take advantage of the Net Unrealized Appreciation (NUA) tax rules for shares distributed from an ESOP, the IRS requires a Lump Sum distribution from all of the employer's qualified plans of the same type (that is, all pension plans, all profit-sharing plans, or all stock bonus plans).

If the employer has a 401k plan and a separate ESOP,  do employees have to take a Lump Sum distribution of both the 401k and the ESOP to take advantage of the NUA?

I've read different opinions on this.

Town DB plan with employer pickup contributions (yes - formal action was taken when implemented).  Town is amending plan to retroactively include position that was previously excluded.  Employee will need to make up contributions for period of credited service she will be granted (and she will start contributing prospectively for future service as well).  Do the contributions for the period of past service need to be made on an after-tax basis or is there some way to draft the plan so that these contributions are picked up by the employer as they would have been  if she had been included all along.  I know she can't be given a choice, but can the plan specify that payment of the past contributions will be paid over a certain period and will be picked up by the employer? 

I have the same question for making up contributions after returning from a leave of absence.  If the plan bridges service and requires the participant to contribute for period of leave, can these be picked up?

I'm requesting input from the daily plan administration community.  We are trying to minimize risk and not tak on too much fiduciary responsibility in our actions.   In our practice as a daily record keeper we direct the trade orders.   Some in our firm would like a client affirmation prior to processing ADP corrective returns.  Others know practically, involving the client or participants in this process is a frustrating process that only creates anxiety and has its own monetary risks and service problems.    What are others doing? Processing without approval?  Explaining the process upfront and not asking approval at the time of processing?  Asking for approval and processing after a # of days regardless? Asking for approval and not processing until approval is received even at the risk at missing the corrective distribution deadline?

The text of the House Bill has been released.  Let the fun begin.

https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf

The proposal would be to subject NQ plans to income inclusion upon the lapse of a substantial risk of forfeiture (later of contribution or vesting) and existing deferrals would need to be subject to taxation no later than 12/31/2025. 

SEC. 3801. NONQUALIFIED DEFERRED COMPENSATION.

(a) IN GENERAL.—Subpart A of part I of subchapter13 D of chapter 1 is amended by adding at the end the following new section:

SEC. 409B. NONQUALIFIED DEFERRED COMPENSATION.

(a) IN GENERAL.—Any compensation which is deferred under a nonqualified deferred compensation plan shall be includible in the gross income of the person who performed the services to which such compensation relates when there is no substantial risk of forfeiture of the rights of such person to such compensation.

I have a controlled group, 2 companies.    They have passed coverage separately  in prior years with sometimes combining for a better result in the ADP test/ACP test.    Company B wants to increase their match but also exclude bonuses from compensation.     Will this effect Company A for any reason?   

A ERISA plan that we don't maintain the document for is transitioning from one platform/recordkeeper to another.  When it was set up with the recordkeeper that they are leaving (~10 years ago), spousal consent was necessary for distributions and loans.  In 2015, the plan was amended to remove the QJ&SA rules, but it doesn't seem that the recordkeeper was notified - or if they were, they never updated their records.

Now the new recordkeeper is asking who they should follow - the plan doc or the old contract.  My instinct says "plan doc" since it is an ERISA plan and the plan sponsor has the authority to make those changes to the plan.  Any reason that wouldn't be OK?

We prepared a preliminary adp test for a client since their test failed last year. Based on this test, the HCE has contributed about $4000 too much. Can this amount be sent back to the employer then have the HCE's pay corrected on the payroll end? 

Can you tell that I work for a payroll company?

I know that advertising is not permitted in these forums, but I'm asking for assistance in finding a source for ESOP record keepers - whether you could point me to a list or just let me know if you company handles recordkeeping for ESOPs.  Prefer a firm with experienced advisors on hand that would identify if we are doing anything incorrectly with our ESOP.

Thanks in advance.

A small non-profit (no HCEs) has a simple IRA that they have been contributing to all year.  They are considering a 401(k) and want to know if it is possible this late in the year to start the 401(k) and submit the simple IRA under VCP.

Is this even possible this late in the year?  I know the VCP process for correcting simples is more streamlined, but I had always thought that the later you get into the year the less likely the IRS would approve.

Thanks.

We have a physician group "A" that split into two groups B and C effective January 1, 2017.  They continued to maintain the existing 401(k) plan for 2017 to date.  They will each adopt their own plan effective January 1, 2018.  In my mind this will be handled as a spin off from Plan A with the assets transferred to B and C.  The participants would not have incurred a severance of employment.

The national retirement plan Company who currently has the A plan is holding firm that the participants will have to elect distribution.  Their basis I think is that Plan A is terminating.

Seems simple enough to me that Plans B and C represent successor employers  and the retirement plans are replacement plans and would not allow for distributions.  

Any thoughts would be appreciated.