I’ve been impressed with the guidance on this site, so I'm sharing my story.

My wife signed a letter of intent for her job as a family medicine doctor a decade ago, which specifically stated the benefit of a retirement plan as part of her employment package. After ten years without receiving any retirement benefits, she was promised part ownership of her medical practice. We were ecstatic. We both signed agreements under the assurance that this was risk-free and would benefit us from the eventual sale of the practice. She was verbally promised frequent dividends to pay down her ownership loan.

However, we later discovered that the medical practice was only profitable because it failed to repay federal COVID loans, and the company had actually been incurring debt. We have received no dividends. Now, my wife is part owner of a massive debt, nearly more than the equity of our home. If she leaves her job, we lose everything—our home, our two young children’s college funds. Staying has resulted in the realities of mismanagement: significant pay cuts, additional responsibilities, and denied earned paid time off to offset company debt. Her salary, along with another owner's, has been cut by 20%, while two new doctors, just out of residency, have been hired at double her salary.

She is increasingly burdened with more tasks because she cannot resign under the threat of having to pay off the debt, while work conditions worsen. Between the empty promise of retirement benefits and the reduced salary, her ownership loan accrues interest without any of the promised dividends or reliable salary to pay it down. Our family is getting deeper and deeper in debt with absolutely nothing to show for it. It seems we have been conned into supporting something her boss owns, and possibly their lifestyle, from which we derive no tangible benefit. I cannot fathom that we owe $200K+ on something we cannot touch, experience, or benefit from.

I was frugal in my early years, planning for our children’s college fund and early retirement as an engineer, but all of this fiscally responsible planning is being wiped out due to her current employer's mismanagement. What can we do? We fear bankruptcy and worse. Any guidance is greatly appreciated.

Thank you!

-Desperate in Denver

Hi

Plan terminated 12/31/2023 with force out at $1,000 (i/o $5,000). No SECURE amendment was made to increase to $7,000.

I was not an issue as the participant with 1.5k balance was eager to get the monies but now not returning the distribution paperwork.

Can the plan be amended now to increase the force out to 5k so that this participant can get paid the lump sum?

Thanks

Being new to the DC 401k industry, what educational material would you all recommend for me to read and or certifications? Any suggestions would be helpful. I'm going through the QKA material from ASPPA -thanks 

Hi. We currently offer simple IRA to employees. Offered to 5 employees in 2022, all (30) in 2023. However, only 3 took it - most didn’t even realize we have this plan.

we are looking to terminate simple ira and start safe harbor 401k with profit sharing. We will be offering to all employees. Would we be eligible to receive secure 2.0 act tax credits?

can we say these plans are “not substantially same” and hence claim tax credit?

thanks 

Our company was acquired earlier this year.  New company has a 401k plan design that stops employees from contributing once they hit the $345,000 compensation limit (even if they are below the 23,000 contribution limit). While not common, I believe this is permissible.

The new company defines Eligible Wages as "base pay, annual bonus, sales bonuses, overtime and shift differentials and merit payments, as applicable."

Old company was acquired in March of this year and 401k deferrals continued through the close date in March.  From March - June, employees were paid on old payroll system and not eligible to contribute to either 401k plan.

Starting in July, employees are being paid on new company payroll and are eligible for new company 401k.  The problem - several employees are not able to contribute to the new 401k because they are showing as hitting the $345,000 compensation limit?

Not sure how or why earnings that occurred under the old 401k plan and earnings that weren't eligible for any 401k contribution at all, are being considered towards the compensation limit under the new 401k plan....I think this might be an error by the new company.  The old 401k plan is being shut down (not merging or being acquired by the new company/plan), and will have its own independent testing and 5500.

Under these circumstances, is it proper to have earnings from previous payroll be considered as compensation under the new 401k plan?  Anyone experience something similar?

Thanks if advance.

We have a participant who passed away in 2024. He has both Traditional and Roth balances in the 401(k) plan. In the past, he has been taking RMDs from the Roth source.

For 2024, which balance would we use for RMD calculation (just the 12/31/2023 Traditional Balance or 12/31/2023 Total Balance - that includes the Roth) and can the RMD for 2024 be distributed from the Roth source to the beneficiary? The reason I ask is because I know that for Roth IRAs, the RMDs are required after the person's death, but is that the case for deceased 401(k) participants with Roth balances?

According to this link from the IRS, it seems like only the Roth IRAs have RMDs for deceased participants: https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs#:~:text=Roth IRAs do not require,required from designated Roth accounts.

In my opinion, only the participant's 12/31/2023 Traditional Balance would be considered for RMD calculations and the RMD must be taken from the Traditional source. Would you agree?

I have 4 missing participants with the following balances:

$95.76     $52.07     $14.90     $39.56

We use Penchecks to process our 1099-Rs  and we also pull the distribution fee that we charge from the participant's distribution.  After all distribution expenses are deducted each of these payouts will have a negative balance. 

Can I zero these accounts out with expenses? or do I need to open missing person IRAs and get the expenses somewhere else?

We file one 5500 for a 403(b) plan.  It is long frozen.  I asked for their IRS Opinion letter.  They provided me one with an approval date of 8/7/2017.  This does not seem current.  Does anyone know?  I requested this from the plan sponsor.  But I believe I need to tell them to contact TIAA to make sure this is the most recent.

Thank you,

Tom

Got a call today from an eye doc who owns 100% of his practice (which will be an LLC taxed as a sole prop starting in 2024; previously it was an S-corp where he owned 100%), looking to put in a new plan.  He also owns ~21% of a surgery center where he performs all his surgeries (so I would say that, yes, he refers his business there).  This immediately made me think of ASG.

Doc is convinced that this isn't a problem.  "The other doctors/owners of the surgery center have plans that cover only their practices and not the surgery center employees, so I'm sure it's fine."  Without meaning to disparage any other potential TPAs working on those plans, I think I'll look at it with fresh eyes...

So, we don't have a management ASG.  Good.

For a B-Org, I don't know the relative revenue numbers, but I'll assume that if my doc owns 20%+, it means his revenue is at least 10% of the practice.  I suppose you could argue if the surgery center employees perform services that were 'historically' done by a doctor's office; I might argue they were historically done at a hospital.

I think the A-Org argument is even stronger, as they are definitely 'regularly associated'.

Oh - and of course doc owns his building as a R/E LLC... and his brother owns a lens shop in the building.  "I don't specifically refer people there; they can go anywhere... but I tell them it's easy to go right across the hall to get their prescription filled."  I think that is separated enough to not be a problem.

I know that the best answer is "consult with an ERISA attorney", and that will be my ultimate recommendation.  But I want to at least see if it can be ruled out so we don't waste our efforts and resources going down that direction if it's clearly NOT one.  Is that what I've got here?

Thanks.
 

I have a plan that has terminated.  The owner retired and sold the business.

Preparing the final 5500. 

Do we need to change the address on the 5500 to the home address of the plan sponsor or leave as is (which is the company address)?

Thoughts?  Thank you!

Hello,

One year in practice ERISA attorney here, so please, go easy on me.

FACTS

In the financial services industry, three individuals, A, B and C each maintain their own entity in which the individual has 100% ownership.

• A's LLC - maintains no plans. 
• B'S LLC - maintains a SIMPLE 401K in which only B participates
• C's Corp. - maintains a SEP in which C and spouse participate. 

Each entity has a 33% interest in the Main LLC. A, B, and C, through their entities, provide financial advice to clients of the Main LLC. Main LLC then pays A, B and C's entities 1099 income. Main LLC has five employees, none of which are A, B or C or their spouses. The employees of Main LLC have never been given the opportunity to participate in either the SIMPLE or the SEP.

CONCLUSIONS 

I've concluded that under the ASG rules, Main LLC is a FSO and A, B & C entity's are A-Orgs. Thus, Main LLC and A, B & C's entities are an affiliated service group. 

Client is the Main LLC, and its goal is to provide a retainment plan for the Main LLC and its employees. Potentially later adding in a health plan. 

My conclusion is that B LLC's SIMPLE 401(K) AND C Corp's SEP have both made significant errors and must make a VCP submission. However, how can they correct with the improperly excluded employees?

ERRORS

SIMPLE 401(k)

1. Maintained during the same year as another retirement plan. Contributions must stop immediately. 
2. Main LLC employees improperly excluded. Make corrective contributions to employees.

SEP

1. Main LLC employees improperly excluded. Make corrective contributions. 

How can both Plans be corrected? Do you undo the SIMPLE contributions/correct deferral deductions then terminate the Plan? 

Immediate Eligibility - plan excludes seasonal employees

In the "good ole" days, employer only had to worry about enrolling these employees if they worked 1,000 hours now they have to contend with the 500 rule. The problem is seasonal employees leave and come back on a regular basis

Hired 5/1/2023 

1. Need to look at hours worked from 5/1/2023 - 4/30/2024. Participant worked a total of 650 hours. However he left and came back twice during this period

2. Plan switches to plan year  - The plan then measures hours from 1/1/2024  to 12/31/2024 - assume during this period he works 650 hours.

Participant would be eligible to enter 1/1/2025.

Am I looking at this correctly?

The fact the employee left and came back during the initial 12 month period, does his hours pre termination count towards the 500,or does the counting start all over?

I thought I read LTPTE rules do not include the break-in service rules or concept.

Thanks

Suppose you have no common law employees and 3 unequal partners, and the theoretical "cost" for each of the partners is $50,000, $75,000, and $150,000. I'm not a DB person, but I seem to remember from a VERY distant past that the "default" is that the total cost is allocated to each partner in proportion the her/his partnership interest, but that this can be modified if there is a special allocation formula in the partnership agreement that provides a different result.

Is that still true (if indeed it was ever true)? And if true, can it be modified each year as necessary due to changing demographics?

Muchas Gracias.

Hi Everyone,

I have a client who offers an enhanced SH Match ($1 for $1 on the first 4%).  They then stack a discretionary match on top of that ($1 for $1 on the next 2%).  It almost works like a two-tiered match, but it's the same $1 for $1 formula.  Ascensus is now telling them they can't do that.  Ascensus is saying that the discretionary match must be made on the first 2% of deferrals, meaning if someone defers 1%, they get the 1% SH match and 1% discretionary match.

Here's what we've been told:  The 4 and the 2 are not added together. If an employee defers 4%, they get the full 4% Safe Harbor Match and the 2% Employer Match. If an employee defers 1%, they get 1% Safe Harbor Match and 1% Employer Match. If an employee contributes 6% they get the 4% Safe Harbor Match and the 2% Employer Match. If they defer 7% or above, they get the 4% Safe Harbor Match and the 2% Employer Match.

Is that right?  The plan sponsor is not allowed to choose to match percents 5 and 6 only on a discretionary basis?

Any help is appreciated!

Company has to give people "retro pay" going back to 2022.  Do they need to take deferrals from those?  Do they need to include that income for the 2022 and/or 2023 ER contributions?

It's a 403(b) Plan, and the document excludes all post-severance compensation.

But it this post severance pay?  It should have been paid way back when.  It's not like a trailing commission or a bonus that was genuinely paid post-severance.

Your thoughts are apprciated.

Has anyone heard of the IRS's new "Retirement Plan Burden Survey" sent to randomly selected Plan Sponsors?

https://www.irs.gov/statistics/rpbsurvey

I haven't ever encountered an actual question on this. Most of the pre-approved documents I've seen contain a provision that "Reclassified employees" are excluded for employer contributions (but not for deferrals unless it is a Church) UNLESS the employer elects, either in the AA or in an Appendix, to INCLUDE one or more categories of "Reclassified employees." My assumption is that such employees are excluded, but not EXCLUDABLE for coverage testing, etc. 

Agree/disagree?

I have some vague memory that these provisions were instituted due to Microsoft or similar situations, where employees who were treated as independent contractors subsequently were determined to be common law employees.

We have a client looking to purchase 100% of the equity interests of an LLC that is currently disregarded for tax purposes. In the course of diligence, we discovered that the LLC is party to two agreements under which it provides deferred compensation to each of two employees. The agreements were not drafted with 409A in mind and so are neither structured to be exempt from or clearly compliant with 409A. We are currently evaluating the extent to which we can argue that the agreements are operationally compliant with 409A. Based on the language of the agreements, we cannot take advantage of any 409A exemption.

The agreements include a change in control as a payment trigger. We understand that, even though the 409A change in control rules (payment trigger and permissible termination rules) are only explicitly written to apply to corporations, the IRS has indicated that these rules apply by analogy to entities taxed as partnerships. See, e.g., Notice 2005-1, Q/A 7; 70 Fed. Reg. 57,930, 57,948, Proposed Preamble VI(E). Is it permissible to apply these rules by analogy to a disregarded entity as well? That is, is it permissible to take the position that a 409A-compliant change in control is triggered when 100% of the equity interests of a disregarded entity are sold (to a non-related entity)? Or, to be compliant with 409A change in control rules, must the change in control be triggered with respect to an entity that is taxed as a corporation or partnership?

Any thoughts are appreciated - thanks!

One person solo 401k was terminated  and assets were rolled over middle of Dec 2023. At the end of December, a small  dividend was posted. It was rolled over to IRA on Jan 2nd 2024. This was for a business that was closed. 

I understand a final form 5500 ez needs to be filed for 2024 selecting short year plan. Answering questions regarding number of participants and asset totals at the beginning and end of the years, not sure what to select. At the beginning of Jan 2024,  balance that was on the account was only the small dividend that posted on Dec 29th.

Total plan assets -  is the beginning of year total the amount that was first rolled over in Dec 2023 plus dividend? Or is it the dividend from January? I know ending balance is zero. 

Was the participant still an active participant at the beginning of the 2024? Since plan was terminated in 2023, what would be the correct answer? 
When answering Contributions received from employer and participant - are these amounts for the entire time the plan existed? 

Thank you for any feedback. Hoping to get clarification soon since the form is due today. I would appreciate any comments. 

One person solo 401k was terminated  and assets were rolled over middle of Dec 2023. At the end of December, a small  dividend was posted. It was rolled over to IRA on Jan 2nd 2024. This was for a business that was closed. 

I understand a final form 5500 ez needs to be filed for 2024 selecting short year plan. Answering questions regarding number of participants and asset totals at the beginning and end of the years, not sure what to select. At the beginning of Jan 2024,  balance that was on the account was only the small dividend that posted on Dec 29th.

Total plan assets -  is the beginning of year total the amount that was first rolled over in Dec 2023 plus dividend? Or is it the dividend from January? I know ending balance is zero. 

Was the participant still an active participant at the beginning of the 2024? Since plan was terminated in 2023, what would be the correct answer? 
When answering Contributions received from employer and participant - are these amounts for the entire time the plan existed? 

Thank you for any feedback. Hoping to get some advice since it’s due today.