Hi 

Thank you, as usual, for all the insights.

A traditional DB plan is being audited by the IRS.

1. It appears from the questions being asked on the IDR, that the one asking the questions is not well versed in traditional DB plans or in DB plans in general. 

As they ask ...that the FT shown in the val report on the maximum contribution page is 1,846,234 is different  than the FT shown on the SB of $1,345,367. 

The answer is that the SB shows the FT for the minimum funding requirements, while the FT on the val report in the  maximum contribution section of the val report is based on the 404(0) rates for the maximum allowable contribution.

There is indeed, a section in the val report that shows the FT for the minimum funding and it properly matches the FT shown in the SB.

 

2. They ask to provide a demonstration  of how the plan provides meaningful benefits required by 401(a)(26).

In a memo for EP determinations  on 7/17/2007 (and Paul Shultz?) The IRS confirms that a benefit accrual of 0.5% per year of participation or service is meaningful...thus...a traditional DB plan that has a benefit formula of 0.5% of average compensation times credited service has a “meaningful benefit”. 

This plan under audit has a benefit a formula of 3% of avg. comp per year of year of service limited to 10 years. 

Question: Since the formula is 3% per year of service  shouldn't this mean that the plan provides meaningful benefits?

3. They ask how the plan satisfies the nondiscrimination in amount requirements of 401(a)(4).

A DB plan that uses a safe harbor formula satisfies 401(a)(4).

This pla uses a SH formula...

As it is the same formula for all employees, calculated based on the same number of service, and does not exceed 100% of comp.

It uses a uniform accrual formula..benefits accrued at a consistent rate for all.. ...3%per year of service.

Question: Therefore based on this, doesn't this plan meet the 401(a)(4) non discrimination in amount by design, and does not need annual testing?

Thank you very much for any insights on this.

Hi All,

A DB Plan sponsored by a corporation has the following provisions:

 

1. No in service distributions allowed, even if attained NRA.  

2. However, if working less than 40 hours a month, then if attained NRA, allowed to start taking benefits.

What if the corp has two owners (50/50). One of the owners wants to cut back on his work schedule and salary etc and work less than 40 hours monthly. 

Can this owner, who has reached, NRA, start to take monthly benefits from the plan, since he works less than 40 hours monthly or does this 40 hour rulr not apply to owners?

 

Thank you

Perhaps I was derelict in not researching this further or fully understanding it, but I had thought I could self-report ERPA CE credits to the IRS. During renewal, they ask you to enter credits per year (separated by ethics). When I added all the classes I had taken, I received an email from the IRS stating that I was one credit short based on what they had been reported to them directly, and that I needed to contact my CE vendors if there was an error (there wasn't).

Furthermore, many of the classes I took did not appear to be eligible for ERPA and, therefore, were not reported. I was one credit short. And, of course, I didn’t learn about this until after the cycle was over, when it was too late to make it up. That’s on me for not fully understanding the rules.

In any event, I replied to the IRS explaining that I had over 100 hours of ASPPA credit (albeit not ERPA) and asked if there is any possible flexibility. I’m waiting to hear back.

A few questions:

1. Has anyone experienced this before? What did you do, and what was the outcome?
2. Besides John Hancock and ERISApedia, who else offers free ERPA CE credits?
3. Is there a web-based platform where I can take multiple classes (paid is fine) to quickly accumulate credits?
4. I know ASPPA and NIPA offer certificates, credentials, conferences, and other paid options. For example, ASPPA charges about $72 for a 1-credit on-demand webcast. Are there more efficient options?

Thank you in advance for any insight.

A theoretical (but coming up) question as I never had to deal with it before.

Client has a straight PS plan, no other provisions.

Initial set up was pooled account. A few years later, they wanted to have a participant directed account (because they heard it was better thru the grapevine).

Thay asked my opinion and knowing this client, I told them it will complicate their lives but I cannot provide any recommendations on switching.

Lo behold, they switched 2 years ago and now they may want to switch to pooled account because too complicated for them to deal with. Hmmm (not saying I told you so).

They want to close up the participant directions and transfer all to pooled account.

One way to do is leave the participant directed account as is and put in all future contributions into a pooled account but they will prefer dealing with a pooled account only.

What issues are they facing, if any? Any BRF issues? Anything else?

Thanks

 

Plan states that if a participant's vested balance is >$1,000 but <$5,000 and the term'd participant has not attained the later of age 55 or the NRA under the plan on the termination date, then the balance is cashed out and rolled to an IRA absent a contrary election. Mandatory cash-out doesn't apply to anyone else regardless of vested balance.

The plan utilizes a pre-approved plan document. Nothing in the adoption agreement or BPD (relius doc) speaks to applying an age criteria other than age 62 or NRA in the plan.  

Besides being an operational failure (failure to operate the plan according to its terms), are there NDT issues here?  Any other flies in the ointment you can see?

Any feedback is greatly appreciated.  

A married couple were divorced and had agreed that the participant's spouse would share in a portion of benefits otherwise payable to the employee. A QDRO was drafted but was intensely litigated. In the interim, the employee retired and began receiving the agreed upon portion of pension benefits in the form of a straight life annuity. Ten years later, a draft QDRO which appears to be acceptable to both parties to the former marriage was submitted to the plan. If the plan determines that the proposed order is qualified, can payments to the ex-spouse be made retroactively to the annuity starting date? Please note: that there is no issue of a reannuitization here based on the DOL Regulations at 29 CFR Section 2530.206 because it is being paid as an annuity for the life of the employee only. Therefore, when the employee dies, all payments (even to the former spouse who survives the employee) cease.

for 401K Safe (Remote)

View the full text of this job opportunity

for Employee Benefits Security Administration [EBSA] (Atlanta GA / Covington KY / Pasadena CA / Philadelphia PA / Silver Spring MD / Boston MA / Dallas TX / Fort Lauderdale FL / San Francisco CA / Chicago IL / Kansas City MO / New York NY / Seattle WA / Hybrid)

View the full text of this job opportunity

for Employee Benefits Security Administration [EBSA] (Fort Wright KY / Hybrid)

View the full text of this job opportunity

for Western & Southern Financial Group (Cincinnati OH)

View the full text of this job opportunity

for FuturePlan, by Ascensus (Remote / NJ)

View the full text of this job opportunity

I have a question I could not find a clear answer to.

We have a Single Employer Cash Balance Plan paired with a Profit Sharing Plan (effective 2025) as they now have eligible employees to help pass testing. The employer now is looking to join an Open MEP as a Safe Harbor Matching 401K Plan to allow 401k contributions for the HCEs and employees, the MEP provider pairs with their benefits makes all contributions, provides fiduciary services etc. So they are looking to ease their admin burden for regular contributions.

My question is can we do any or either of the below scenarios:

- Cross test the clients portion of the MEP with the Cash Balance plan just as we did for 2025. Then just provide what is needed to pass any requisite  testing.

- Keep the 2 plans active as we did for 2025, and allow the employer to also enter the MEP as a 3rd plan under their control. Pass the testing of the PSP and CB plan together and allow the 3rd Safe Harbor Match 401k Plan to operate in the MEP separately. Are there additional considerations with this outside of the added cost to the employer and ABPT?

for Compensation Strategies Group, Ltd. (Remote)

View the full text of this job opportunity

Employees hire on 05/21/2022 and terminated on 10/25/2022 and has hours of 550 and rehire on 3/17/2024 and 2024 hours is 1023. Plan eligibility condition is 6 month of service with 500 hours consecutive or else, one year of service. Entry Cycle is monthly. Additionally, Rule of parity is not applies. 

What is the entry date for this employee? Whether we have calculated 6 mos from rehire date and entry date as 10/01/2024 or else need to consider his prior service and determine the shift to plan year and entry date as 01/01/2025. Can you provide explanation if possible. Also, is there any documents which explains this to refer.

Hello,

Typically cross testing is beneficial and needed for our client’s plans, however, I’m looking at a prospective client whose situation is unique (for us) so I wanted to double check my understanding with the Experts.  The company has very young owners (2 of 3 in their early 20’s) with an older employee population.  Assume this is a 401k plan with:

1. A discretionary PS contribution that uses an Integrated allocation formula and
2. A Safe Harbor Non-elective contribution of 3% (allowing owners to maximize deferrals and avoid ADP/ACP). 

 

The discretionary PS contribution has a last day of employment and 1,000 hours requirement. The SH Non-elective obviously does not impose those same requirements.  As a result, testing reports reflect a failed minimum gateway (because some employees only receive the 3% non-elective which is not at least 1/3 of what the HCE’s are receiving after PS).  However, 401(a )(4) passes because we are using an integrated formula which meets the broadly available allocation rates exception. Am I correct in my understanding that, because we are not cross‑testing, the gateway requirement does not apply, and therefore the “failed gateway” testing report can be disregarded? (We use DATAIR and I’m not accustomed to accepting a failed gateway so I wanted to be sure my interpretation is correct)

This is my first time posting on this forum, but I’ve been in this space for several years. The insights and resource references shared here have been extremely helpful—thank you all for your willingness to share your knowledge and experience.

 

Issue with ERISA Attorney Auditor and TPA

Eligibility is 1 year of service

Initial determination is date of hire to date of hire

Date of Entry 1/1 and 7/1 Timing of entry is Coincident with or next following the date eligibility requirements are met

Employee is hired 7/1/2024 and completes 1,000 hours

 

Is his DOE 7/1/2025 or 1/1/2026??

A medical professional worked for a hospital but had non-hospital income so she set herself up as a sole prop and started a solo plan for herself with the outside income used as a basis for contributions in the solo plan.

She has since left the hospital and started her own small practice.  She wants to have a 401k plan for the practice while keeping her solo going with the ongoing outside income.

Even though the income for the solo is different source than that for the new practice, these would be related businesses, am I correct?  She was doing after-tax in the solo.  Assuming the few employees in the new practice would not, then her after-tax would now be zero?

Thank you

 

We have an CPA firm - an LLC taxed as a partnership with about 80 participants.

I've been informed that they are selling an equity interest in the the company to a private equity firm.  It's a practice referred to as an Alternate Practice Structure "APS".

I've asked a lot of questions and a lot of the answers don't make sense to me.  I've never dealt with this before, so I don't know what I don't know.

I'm guessing they need an ERISA attorney, but I wanted to see if anyone here can shed some light for me so I at least know the right questions to ask.

"As part of the APS a new legal entity will be formed to separate our attest and advisory functions.  Our current named insured will be the "attest firm" owned by the current partner CPAs. and a newly formed entity will be the non attest entity.  There will be a management agreement between these two entities that explains how the non attest entity will provide administrative services such as back-office staff, IT, insurance, employee benefits and office space for the attest firm.  All individuals employed by the company today, CPAs and non CPAs will be employees of the attest entity."

They confused me by later saying both the existing firm and the new "Attest" firm will be a subsidiary of a holding company.  They have yet to tell me who owns the holding company and it doesn't make sense if they partners are still owners yet they are a subsidiary. 

On a follow up they told me:

"Present day

• All employees are employed by current LLC.

• The 401k arrangement is tied to current LLC.

• New Advisory firm is an entity that currently exists today. New Advisory does not have any employees.

• Current LLC and New Advisory are subsidiaries of the same holding company.

 At transaction close, Current LLC will move to an Alternative Practice Structure. The APS model is a well-established framework in the industry and enables external investment from private equity into CPA firms. It will look something like this:

• Current LLC and New Advisory will continue to exist with the same names and EINs.

• Current LLC will move out from under the holding company and become a standalone entity. 

• Over time, the employees will migrate from current LLC to new Advisory. It could happen all at once, but we aren't sure.

• Current LLC will have some CPAs as employees, but those individuals will also be employed and paid by New Advisory.

• We do not expect a change to the census / participation as a result of this change.

• There will be a management agreement between Current LLC and New Advisory whereas new Advisory will be responsible for obtaining and managing the employee benefits for all employees.

 As I mentioned yesterday, we would like the 401k plan to continue through the transaction with no disruption to the employees."

Finally they are telling me that other TPAs simply make New Advisory and adopting employer with Current LLC as a controlled group and move on.

I don't know if I'm making it more complicated than it is, but something doesn't seem right.

Any insights on this would be helpful as I've obviously a novice to this.

Can a Self Employed Sole Owner with negative Net Income, still make a 401 (k) deferral and Catch-Up of $31,000 for 2025

Thanking everyone in advance for your response.

DPSRich

I think employer Roth is irrelevant since Roth conversion is available but regardless, a client is asking.  I asked ChatGPT which came up with a completely different reporting/taxable answer than what I was expecting and I was very clear and detailed in what I was asking. 

So I saw published pieces from 2024, post IRS Notice 2024-02, from two very reputable industry sources who you all would recognize.  They indicate what makes sense to me - the employer contribution is deductible, and the contribution is taxable to the employee when allocated and reported on a 1099-R. Interestingly ChatGPT said the complete opposite on both.  I realize "employer" Roth can sometimes be construed as the employer paying the Roth amount withheld from an employee's pay.  But I couldn't have been more clear in my question to ChatGPT.

My question here is I want to make sure nothing has changed since the 2024-02 notice; Roth Employer contributions are deductible to the employer and the taxable to the employee when allocated.  Makes perfect sense to me.  

Thank you

Tom