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The employer is a corporation. The owners gross W-2 compensation is $1,000,000+. So not worries with the SE income calc. Thanks for everyone's input.

We have a profit sharing plan (no 401(k)) that has 1 owner and 1 employee. The owner's compensation is $330,000. The employee's compensation is $200,000. Total compensation is $530,000. Maximum deductible contribution is $132,500. The Plan provisions state the profit sharing contribution is allocated on a pro-rata basis based on compensation. The owner wants to provide himself and the employee with the maximum annual addition of $66,000 or a total contribution of $132,000 or 24.90566% of payroll. In order to provide the employee with a total allocation of $66,000, the pro-rata allocation percentage must be 33% of compensation. However, providing the owner with an allocation of 33% of compensation or $108,900 will violate 415 for the owner. Can we limit the owner's allocation to $66,000 and still provide the employee with an allocation of $66,000 or 33% of compensation. I am concerned the IRS would say the terms of the Plan are not being followed because the ending allocation is not pro-rata based on compensation. The Plan states the following in the 415 limitation section: "If the Employer contribution that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed such maximum permissible amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the maximum permissible amount." This language seems to indicate we can reduce the allocation for the owner to $66,000 and still provide the employee with $66,000. Thoughts?

Thanks for your input CB Zeller. However, the definition of the Accrued Benefit under the Plan is the actuarial equivalent of the Hypothetical Account Balance. Under the situation above, if the Hypothetical Account Balance exceeds $71,779, then the Accrued Benefit (actuarial equivalent of the Acct Balance) exceeds the 415 maximum benefit at 12/31/2023. I agree that the Hypothetical Account Balance at 12/31/2023 does not need to be limited to the lump sum value of the 415 Maximum Benefit payable at 12/31/2023.

We are setting up a Cash Balance Plan with two participants. One participant is age 41 with an average annual compensation (3 year) of $49,263 at 12/31/2023 and she has 3 years of service with the employer. Interest credit rate = 5% and Actuarial Equivalence is 5% and '23 417 AMT. How do others calculate her maximum account balance at the end of the first year of the Plan? My process is: 415 Maximum Accrued Benefit as of 12/31/2023 payable at NRA (62) as a life annuity = the lesser of 1) Comp Limit = $49,263x(3/10) = $14,779 or 2) $ Limit = $265,000x(1/10) = 26,500. 415 Maximum Accrued Benefit = $14,779 payable as a life annuity at age 62 (NRA). Based on the 415 Maximum Accrued Benefit, her Account Balance as of 12/31/2023 must be limited to ($14,779 x a62) / 1.05^21 = $71,779. My understanding is that the Accrued Benefit under the plan is the actuarial equivalent of the Account Balance. The Accrued Benefit cannot exceed the 415 Maximum Accrued Benefit. I think this is pretty straight forward, but we took over a plan from a large TPA/Actuarial Firm who seemed to ignore this. Is there something I am missing?

A small law firm operates as an LLC and is taxed as a sole proprietor. The law firm sponsors a 401(k) profit sharing plan. The sole member of the LLC makes 401(k) deferrals. Which bank account should the LLC member use to pay his 401(k) deferrals into the Plan, personal account or the LLC's bank account? Does it matter?

Thanks everyone. That has been my understanding. Effen, thanks for the point on the document.

If a defined benefit plan offers lump sum distributions upon plan termination, does it also have to offer an immediate annuity under the J&S rules? For example, a participant is age 45 and not otherwise eligible for a distribution until age 65. Upon plan termination, the plan is amended to offer lump sums. Does the Plan also have to offer this participant an immediate annuity?

The wrong compensation was used in the allocation of the 2020 profit sharing allocation. The Plan Sponsor left off a bonus for 3 employees when they reported the compensation to the TPA. We have determined an additional $5,000 + investment earnings must be deposited to the Plan. For 2021, the earnings percentage was 11%. For 2022, the earnings percentage was -18%. Do you use the negative earnings for 2022?

We have a Profit Sharing Plan that was sponsored by a sole proprietor. The business he owns has employees who are participants in the Plan. The Sole Proprietor passed away. His will left his assets to a revocable trust. Does the revocable trust become the plan sponsor? Can a revocable trust be a plan sponsor? Has anyone had an issue like this?

We are in the process of distributing benefits from a small Cash Balance Plan that is covered by the PBGC. There are two participants with lump sum benefits less than $5,000 that cannot be located. The Plan allows for automatic rollover of small benefits. Can we rollover the lump sum to an IRA for the two participants that cannot be located or do we have to go through the missing participant program with the PBGC?

We are the actuary for a cash balance plan that uses the actual rate of return for plan assets as the annual interest credit. The interest credit percentage is limited to 6%. The Plan had an asset return of 21% for the 2020 plan year. As a result, the assets exceed the participant account balances by a considerable amount. Any suggestions on how to use these extra assets for the participants? Can we have an ad-hoc interest credit or pay credit to bring the account balances up to the assets? I want to make sure we do not violate the accrual rules or discrimination testing. Any suggestions would be appreciated.

Is it possible to amend a 401(k) Plan with a non-elective safe-harbor to add In-plan Roth Rollovers before the end of the year?

I have a prospective client that has income as a sole proprietor and he also has an LLC taxed as a partnership. He owns 99% and his wife owns 1% of the LLC. Is there any reason why he cannot adopt a DB Plan as a sole proprietor and have the LLC be an adopting related employer? Someone told the CPA he had to have two DB Plans, one for the Sole Proprietorship and one for the LLC.

Have a Profit Sharing Plan with three participants, Husband, Wife and Employee. Employee terminated and received a distribution. As a result of the distribution, there is a forfeiture of $5,000. Plan calls for forfeiture to reduce employer contribution. Plan Sponsor had bad year and received no compensation. What can we do with the forfeiture?

If the participant's average annual compensation is $3,000 per month, his age is 43, normal retirement age is 65 and testing assumptions are 8.5% pre, 8.5% post and 71 GAM-Male, the calculation of the Equivalent Contribution Rate is: .005 x $3,000 x 94.79854 x (1/1.085^22) / "Plan Compensation for Plan Year" = Equivalent Contribution Rate In calculating the Equivalent Contribution Rate, is it possible to use 3-year average compensation for the "Plan Compensation for Plan Year". Since average annual compensation is based on a 3-year average, it seems you should be able to.

Thanks John. I told them to either cover everyone in 2014 or get an opinion from an ERISA attorney.

An individual just sold the assets of his corporation to an unrelated corporation on April 30th. His five employees terminated employment with his corporation on April 30th and are now employed by the purchasing corporation. The purchasing corporation has agreed to pay the individual's corporation consulting fees for continuing to provide services for the purchasing corporation. The individual's corporation wants to establish a new defined benefit plan effective July 1. Questions: 1. Will the new defined benefit plan pass 410(b) coverage testing for the plan year beginning July 1? In performing the 410(b) coverage test, will the 5 former employees need to be considered in any way for the plan year beginning July 1? 2. Will the 5 former employees have to be considered in any way for testing under 401(a)(4) for the plan year beginning July 1? 3. Will the timing of adoption of the defined benefit plan be considered discriminatory since it is adopted after the termination of the 5 employees? Any insight or comments will be greatly appreciated!

There are two non-shareholders and they are adult children of the shareholders. All employees are HCEs. The adult children participating brings in the PBGC coverage.

The Plan Sponsor has decided to terminate their Cash Balance Plan in 2014. 2013 was a great year for the Plan Sponsor and they want to make the largest contribution possible for 2013 prior to the termination in 2014. Facts: 6 participant plan (all family members) Maximum tax-deductible contribution for 2013 is $2,000,000. Minimum required contribution is $250,000. Plan is covered by the PBGC. Total lump sum distributions at 8/31/2014 = $3,100,000 Sum of maximum 415 lump sum distributions is $4,200,000. Projected assets as of 8/31/2014 is $2,700,000. They will need to deposit $400,000 to fully fund distributions as required by the PBGC. Can anyone think of a reason they cannot deposit $1,300,000 for 2013???? The assets will increase to $4,000,000, creating assets in excess of the benefit liabilities. The excess assets will be allocated to each individual according to that individual's liability and the ratio to the total liability. No one will receive a distribution in excess of the IRC 415 maximum lump sum. Thanks for your opinion.

The portion of the lump sum distribution amount that is not eligible for rollover treatment is the RMD for the 2014 distribution calendar year. Under the annuity distribution method, the $60,000 distribution paid on 3/31/2014 was the distribution for the 2013 distribution calendar year. So, if the lump sum is $600,000 paid in May 2014, the RMD for the 2014 distribution calendar year is not eligible for rollover. Since the participant has elected a lump sum, the RMD for the 2014 distribution calendar year is calculated using the account balance method with the prior 12/31 account balance deemed to be the lump sum. Just my opinion. The ERISA Outline has a very good explanation.

Barbara owns 100% of Corporation X and 50% of Corporation Y. An unrelated person owns the remainder of Corporation Y. Is X and Y a controlled group?

The definition of years of service is based on a 1000 hour rule, no equivalency. Also, the definition of hours of service uses the standard DOL language referred to in Andy's reply. In my opinion, the owner was entitled to compensation for the hours he worked and he did work. Just curious if anyone has had an issue like this with the IRS?

We work on a plan that covers two 50% owners of a corporation, no other employees. One owner has not paid himself W-2 compensation in the last two years. In calculating the 415 compensation limit, should he receive credit for these two years of service in which he was not paid. He worked, but chose not to take compensation. In other words: 415 compensation limit = 10% x 3-year Average Comp x years of service Should years of service include the two years in which he did not receive compensation? Thanks!

We are working on a 401(k) plan. The plan is not safe-harbor and is top heavy. The two partners do not want to make nor can afford an employer contribution to the Plan. The plan will pass ADP testing, so the two partners may defer the maximum under the 401(k) provisions. However, if they defer it will trigger a top-heavy minimum contribution. Does anyone have a similar situation or know of anyway to allow the partners the ability to defer under the 401(k)? Another twist is that two partners retired in 2010 and 2011. They no longer have ownership interest in the employer. They left their money in the Plan. They occasionally comeback and work for short stints. When they come back and work, will they be considered key employees? Thanks for any advice or help!

An S-Corporation pays medical insurance premiums for the 100% shareholder. These premiums are included in the amount reported on his W-2 box 1 income. The Shareholder then deducts these premiums on his 1040. The plan document defines Plan Compensation as W-2 wages, including deferrals and does not exclude any type of compensation. Should these premium amounts be included in Plan Compensation used to determine allocations, testing and 415 limits?