I have a client who has dropped down to 57 1/2% on the top heavy test and is so happy he doesn't have to do the top heavy minimum for the 2016 plan year. He is now the sole owner, and his son also works there, but doesn't defer into the plan. The former co-owner sold his shares to the current sole owner in July 2014. Is he still counted as key for 5 years (2014 thru 2018) for determining Top Heavy?

My client is trying to do some planning to see if his son can defer, and someone I talked to thought this had changed...the number of years a non-key is counted in the test. Note the former co-owner still works there and still has assets in the plan.

For a new endorsement split dollar plan, to be effective in 2016 how does one determine if the economic benefit may be valued by the insurance carrier’s one-year term rates? I see that the rates must be (1) generally known to persons who apply for term coverage; and (2) regularly sold by the insurer.

The illustrations from the insurance carriers (Pacific Life, John Hancock) all show economic benefit based on their lower term rates, but then in the footnotes say that “we don’t give tax/legal advice etc.”

Are plan sponsors using these lower economic benefit amounts? What kind of due diligence can be done?

For a new endorsement split dollar plan, to be effective in 2016 how does one determine if the economic benefit may be valued by the insurance carrier’s one-year term rates? I see that the rates must be (1) generally known to persons who apply for term coverage; and (2) regularly sold by the insurer.

The illustrations from the insurance carriers (Pacific Life, John Hancock) all show economic benefit based on their lower term rates, but then in the footnotes state that “we don’t give tax/legal advice etc.”

Are plan sponsors using these lower economic benefit amounts? What kind of due diligence can be done?

Accountant posed this question and could not find anything definitive as to an answer.

One-participant Defined Contribution Plan with life insurance and participant over age 70-1/2. For simplicity let's say:

12/31/15 account balance: $100,000 (including cash value of life insurance)

Payout factor: 22.9

PS58 cost: $200

2016 RMD $4,367 ($100,000 / 22.9)

Does the participant need to get a check for $4,367 during 2016 or $4,167 with the other $200 covered by the PS58 cost?

We have a former client who sponsored a 401(k) plan for more than 12 years. They left us for an insurance company about 3 years ago. We received a letter firing us 3 years ago.

The plan was always clean so its doubtful that anything is wrong with the plan.

A former employee is suing the plan sponsor. As part of that, we received a subpoena for plan all plan records. All 12 years and all records.

Question: For all the years we handled the plan, we provided the plan sponsor with excellent very detailed reports and plan documents. Can we bill the client for our time? It will involve a considerable amount of it when we are talking about 12 years of all records. That would be 5 years from when the employee became a participant and 7 years before she became a participant.

That plaintiff's attorney mentioned that they already enclosed the $15 check payable to us and that will be all we get.

We would not be looking to make money, just cover our costs.

Let's say employer X creates trust T to fund medical and disability benefits. If the benefits are partly insured, some of the assets of T may be used to pay for premiums under the medical and disability plans. The IRS instructions to Form 1041 say that a K-1 has to be issued to each beneficiary in the year in which a trust makes a potentially deductible distribution from its assets. In this scenario, assuming all of X's active employees (let's say, a nice round number, like 10,000) were covered by its medical and disability plans, would a Schedule K-1 have to be issued to each employee participating in X's medical and disability plans based on the payment of premiums by T, the payment of benefits by T, or at some other time? This reporting requirement appears to be sufficiently onerous as to make a non-exempt trust a definite non-starter for any employer who is considering one. If issued in connection with the payment of premiums, would a K-1 be issued to each employee for which T paid premiums showing a $0 taxable amount, based on excludable health and accident coverage? Thoughts, anyone?

Plan permits a participant to make salary deferral contributions immediately after hire but may only receive an employer discretionary contribution after a year of service based on compensated earned after being eligible for the employer discretionary contribution. Assume a person is hired on April 1, 2014, and is first eligible to receive the discretionary contribution on and after April 1, 2015. In testing the compensation used for the employer discretionary contribution for discrimination under 414(s), do I use the person's total compensation from January 1, 2015 or April 1, 2015?

I understand that pre-participation compensation can be excluded, but can I treat eligibility for the discretionary contribution separately, or does the fact that the employee was eligible to make salary deferrals for all of 2015 prevent me from doing so?

CB plan terminated 12/31/14. Sponsor was a C-corp medical group with 12 Dr participants, all shareholders. No NHCEs employed at all. Sponsor ceased all operations 12/31/14 as the practice was merged into a larger group (corporation itself was not merged).

Sponsor funded the 12/31/14 contribution and submitted the plan for a DL in 2015. During the DL review, IRS asked sponsor to sign a statement that said "if the assets are not sufficient as of the distribution date, I will contribute any amount necessary to satisfy all benefit liabilities". Plan is NOT PBGC covered.

Sponsor signed the statement not understanding that this could require a contribution beyond the 2014 contribution. DL was issued recently, now ready to start distributions, plan is about 5% underfunded. They can't fund the 5% because the sponsoring corp has no money and no revenue coming in. They asked about contributing to the plan from the their current employer but that entity is not a plan sponsor so that's not a good option.

Has anyone ever seen IRS require such a statement? It is not required for plan qualification. Plan document has standard "vested to the extent funded" language that mirrors 411(d)(3). I've terminated plenty of non-PBGC plans over the years that were distributed only to the extent funded.

This statement was not an amendment to the plan, and the DL makes no reference to it. Seems to me the best course of action for the sponsor is to distribute to the extent funded. Trying to get other funds into the plan at this point could create qualification issues. Paying to the extent funded does not create qualification issues.

Appreciate any thoughts.

I'm aware that for Key Employee determination purposes, a 1% owner with greater than $150,000 of compensation is considered Key.

My research tells me that 1% doesn't mean 1%, but means greater than 1%. An online IRS examination manual states that 5% is "greater than 5%" but that 1% is just 1%. I'm guessing that the manual just doesn't expand on the point, that 1% means greater than 1% for this purpose, but a strict read would say otherwise.

I work with a plan that will become top heavy if a 1% owner pops over $150,000 (he's close). He owns exactly 1.00%. Given the cost to the employer of becoming top heavy........

He does not become key, unless he owns 1.0000000000001% (exaggerated to make a point), and earns >%150,000 - am I correct?

Thank you for any assistance.

We recently took over the work for a controlled group of employers that have a separate 401(k) plan for each employer. Deferral and match only, no profit sharing. All the plans pass the ratio percent test for coverage except for two plans - so the average benefits percentage is applied to test these last two plans for coverage.

One of these two plans is a safe harbor 401(k) plan. The employer has no other safe harbor plan, thus it cannot be permissively aggregated with any other plan for coverage testing, correct?

The final plan happens to be their only 401(k) plan that uses current year testing for ADP/ACP, so I don't think it can be aggregated with the other plans either.

The question is regarding the terms 'testing group' and "taken into account" from the 410(b) regulations.

In 1.410(b)-5(b), the average benefit percentage for a plan is the ratio of the NHCEs actual benefit percentage in plans in the testing group over the HCEs actual benefit percentage in plans in the testing group.

In 1.410(b)-5©, the actual benefit percentage is the average of the employee benefit percentages in the group with all nonexcludables of the employer taken into account, even if not benefiting under any plan taken into account.

In 1.410(b)-5(d)(3), the testing group is defined in 1.410(b)-7(e)(1) which states that the testing group is the plan being tested (obviously) plus all other plans of the employer that could be permissively aggregated with the plan being tested.

So, when reviewing the prior firm’s coverage testing, they ran the average benefits test for the safe harbor plan by showing zeros for all the hundreds of nonexcludables (those are the employees in the controlled group covered by other plans but not covered by the safe harbor plan), then averaging the results. The averaging takes into account all of those zeros.

However, for the current year tested plan, they ran the average benefits test by including allocations for all employees in all plans, including the allocations made in the safe harbor plan, then they averaged those results.

So, for the average benefits test for coverage, the "testing group" is only the plan being tested. So does that mean the average for that test include all the zeros for the nonexcludables covered by other plans because they are to be "taken into account"?

Or, are all the average benefits provided under the other plans also calculated for purposes of determining the average benefits.

It seems like the prior firm did this both ways. Why would the safe harbor plan and the sole current year testing plan be done differently for these tests?

Man, that's a long question. Sorry about that.

Plan year end is 3/31. Eligibility is age 20-1/2 and 1 YOS with quarterly entry dates. Eligibility changes to the plan year after the first year. Employee hires in 2009 with a DOB of 1/1/1995. He turned 20-1/2 on 7/1/2015. He has 2 YOS. Does he enter on the date he turns age 21 (7/1/2015) or at the start of the next plan year 4/1/2016?

One person plans (in this case, for a S-corp) are not subject to parts of ERISA. Are they covered by the seven business day safe harbor for depositing 401(k) deferrals? Thx!

Plan excludes HCE's

Employer paid bonuses to participating employees that pushed total pay over the threshold to be an HCE.

At 1/1/16, employer did not communicate to the HCE employees that they were not permitted to contribute.

As opposed to refunding the elective and forfeiting match, can the employer adopt a corrective amendment to permit the HCE's to contribute ongoing. It is the employer's intention going forward to allow HCE's to contribute.

Is this a VCP issue requiring VCP filing and payment to use the VCP program?

Thanks

I'm surprised this hasn't been brought up...if we have a safe harbor non-elective plan, which does not exclude HCEs from the SH, can we amend it to exclude HCEs at the time we say "definitely" later in the year?

Or maybe we always could...? Because we are actually amending the plan to provide the SH? Raises the Q of whether the original "maybe" notice said "...we might make a 3% contribution for all participants..." or whether it dropped the word "all."

Hi,

Does a Puerto Rico plan that has its trust in Puerto Rico need to complete form 5330 to report non deductible contributions for return of excess (ROE) contributions after the ROE deadline has passed? If so, is the ROE deadline for the form 5330 that of the US plans, e.g., 2 1/2 months or 6 months (for a plan with a EACA) or is the deadline the Puerto Rico plan deadline, i.e., tax filing deadline.

Thanks

Client with a LDP for match. They sold a few locations during the year. The client considered the sale date to be the late day of employment for those effected ppts, and matched those ppts.

Is this proper treatment to consider the last day of a participating employer's participating in the plan to satisfy the last day provision when that date does not coincide with the documents definition of plan year?

So an auditor is accusing a plan sponsor of late amendments from 2006/2007. So it occurred to me, wow, we have a statute of limiations for crimes, but we're looking over our shoulders forever with amendments.

I found this on a webpage, it's a listing of statutes of limitations for crimes I consider far more egregious than a missed Final 401k amendment:

Federal tax evasion (U.S. Code 26 Section 7201) – 6 years
Failure to file a tax return with the I.R.S. (U.S. Code 26 Section 7203) – 6 years
Major fraud involving at least $1 million against the federal government (U.S. Code 18 Section 1031) – 7 years
Non-violent violations of federal terrorism laws (U.S. Code 18 Section 3286(a)) – 8 years
Arson (U.S. Code 18 Section 3295) – 10 years
Embezzling funds from a federal financial institution (U.S. Code 18 Section 657) – 10 years
Using false or fraudulent citizenship papers (U.S. Code 18 Section 1423) – 10 years

Failure to amend in a timely manner for EGTRRA, or TRA 86: 100 million bazillion years.

Do I have a point or what??

Co. A is a for profit service org.

Co. B is a not-for-profit service org.

The owners of Co. A are the directors of Co. B

Co. A and Co. B perform the same type of service just for different clients

Co. A and Co. B share office space and a handful of employees.

I'm trying to determine whether this a controlled group. It smells like one, but I'm not sure that I see it by the definitions.

Not an A-Org. because there is no ownership interest in an FSO.

Not a B-Org. because there are no services provided for an FSO or A-org.

Not sure yet how the directors are appointed to Co. B, but unless they are appointed or controlled by another 501©(3) I don't see a controlled group.

Am I missing anything

Thanks for any guidance.

Corps A & B owned 100% by Mr. Big. Mr. Big sells Corp B in a stock sale to Mr. Little. Corp B is now officially not part of the controlled group.

Mr. Little has no interest in any sort of spinoff, etc., and does not want to sponsor a plan.

So, Corp B. has to be removed as a participating employer. 2 questions:

1. Assuming the numbers are over 20%, is this a partial plan termination?

2. Since a stock sale and not an asset sale, is this treated as a severance of employment for purposes of permitting a current distribution?

I believe the answer is yes to both questions, just curious if others agree.