Bird

Us too. And I will "admit" that when all else fails, we have run a payment to a participant thru that account, as Larry suggests, but I'd rather not for the reason you mention.

Agreed

We have a release built into our forms that says something to the effect of "pending payment...I release everyone from all claims." Then it says that's not meant to deny anyone their rights. So it's probably meaningless. I think once someone objected and I said "so don't sign it" and we moved on. It's left over from ages ago and probably should be deleted (although interestingly, the form is called "Release Agreement" so I'd have to rename it and that would be too much thought). Anyway, I don't think I'd ask just one person to sign a release if it is not SOP.

Kevin, I have the utmost respect for your opinions, to the point that I hesitate to disagree. (And I don't know that I am disagreeing because I don't get where you are coming from here.) What does the document providers' interim amendment have to do with this? As you note, all plans have to be amended one way or another. Even if whatever the sponsor wants is the default and doesn't need to be signed, it's still an amendment. So I think the bottom line isn't what the doc provider offers, it is what the sponsor wants. If the sponsor wants to to not withhold (now), then the plan has to be amended (by 2022) to allow CRDs. Is there anything incorrect about that?

An accountant just explained it to me - as Luke says, if he has earned income for the year, he can get a contribution and take a deduction. But if he uses his prior losses to offset profits in the current year, then he would not have earned income. So it depends on how the prior losses are used, if at all. It actually makes perfect sense. The original question said "... if he has net earned income for the year" and the answer is clearly yes...if that clause is correct. But if he had profits that were offset by prior losses then he would not have earned income for the year. It seems that either 1) the question wasn't asked properly, or 2) the accountant is wrong. As is almost always the case, ask "what income is s/he paying self-employment tax on?" and use that number as a starting point.

I think I'd amend currently and move on. I don't see a self-correcting fix for this and am not sure what is accomplished by a VCP submission; I mean, ok you can pay a price for a clean bill of health but is that price less than the price if it is "caught?" I guess I am agreeing with Luke Bailey; just read that post more carefully.

I would think "no problem" but I'm not an accountant. But...accountants are wrong on pension issues an awful lot.

I think that is speculation, perhaps valid, from observers and not from the DOL. IMO the risks in this area are not from the DOL bringing some kind of enforcement action, but from lawsuits. And unless the plan has big bucks, that risk is small to nonexistent. That doesn't at all mean that a sponsor shouldn't care or do their best to follow the rules, but it does mean that when an overzealous consultant or salesperson says "oooh, you can't do XYZ" that they are oversimplifying and perhaps outright lying.

P.S. I may have missed the gist of the question - generally, partners pay for their own (employer) contributions. They could actually write a check from their own personal account, but I think typically it comes from the partnership and then how it is handled depends on whether profits have been distributed or not. It's all flowing through as income, but that income is already included in SE income and therefore does not "add" to income. With the caveat already noted. All of this is really out of my area as it relates to accounting but I'm putting together different pieces that I have seen.

I was speculating a bit. If you have an administrator, they should be telling you whether the 3% "match" is actually required for the partners; it may or may not be. (I'm guessing it is not in fact a match; 3% would be the wrong amount, but accountants are constantly calling employer contributions matches whether they are or not.) Also whether the profit sharing is required for both partners, in same proportion, or totally optional. The TPA absolutely should be providing this information; if it is a large payroll or investment company then you may have a problem getting this information. That's yours and the client's problem. As far as "employer" contributions for partners, they come out of each partner's profits (typically). So if your majority partner has $200K of income before contributions, and $25K is deferral (with catchup) then $37K is employer - it might be all profit sharing, or some PS and some safe harbor, and/or match. As the accountant you don't need to care about that. It all ($62K) comes out of his $200K and is deducted on the Schedule 1. (As a side note, some states, or at least NJ, do not allow the deduction for the $37K employer contribution.) I think you can see that it is not additional income. Ditto for the minority partner; same accounting...unless, somehow and some way, the majority partner is actually paying for the minority partner's plan contributions, at least the employer part, in which case I believe there would be adjustments to guaranteed payments. But that's a question for the accountant (you), isn't it? (You said you are the accountant but "the CPA" is telling you things...is the CPA in your firm or some other firm?)

You're asking a lot of questions that are best answered by a ("the") third party administrator for the plan. It sounds like you don't have one, which raises a red flag as to whether anything/everything is being handled properly. I understand the "I 'just' want to know..." and have been there, but if I answer the "just" part of the question it ignores the likelihood that there are problems lurking. e.g.: "The partnership does have employees, but they are all part-time and do not have to be included in the plan." They are either in or they aren't. "do not have to be included" is, at best, poor phrasing. Do they/did they ever have 1000 hours in a 12 months period? "the plan is a safe harbor 401K." If there are in fact no employees, then you don't need the safe harbor. It may or may not hurt to have it, but my guess is that somebody took a document off the shelf and it is likely that each partner must get a 3% SH contribution (or a specific match). Somehow I'm not sure about that being calc'd properly. Again, guessing that this plan is off-the-shelf, it is likely that each partner must get the same profit sharing contribution %. You're asking if the partnership "can" make a profit sharing contribution for the lesser partner. Odds are that it must, and it is linked to the what the other partner is getting as profit sharing. It's not clear to me when you say "401k contribution" whether you literally mean just the 401k part of the total contribution or total contribution including 401k, profit sharing and/or match. They are all deducted on the Schedule 1 but they should be tracked separately and impact calcs differently. I'll try to answer the basic question by explaining how we do the calcs: We get preliminary profits from the accountant. Sometimes this is difficult to ID so we ask "what is the number that you would pay SE taxes on, if there were no retirement plan?" From there, we would subtract contributions for the employees, which are deducted on the partnership return (or Schedule C). This may involve some circular calcs with subsequent steps. Next, (ignoring some other potential adjustments) we subtract 1/2 the SE tax. From here, we subtract the partner's (or sole proprietor's) own contributions (again, a circular calc) to get net taxable income. If you are trying to get to $62K then this must be at least $148K (148 X .25 = 37; 37+25 = 62). (And this isn't 100% accurate because the 25% limit is for the employer, not each employee, but let's ignore that.) I'm not sure what you mean by "additional income" to the partner if a profit sharing contribution is made. Again, we would be starting with preliminary self employment income, which generally flows through to the personal return, and then deductions are taken on the Schedule 1. Employer contributions for a partner are either taken, or not, on the Schedule 1 so it's not impacting anything done on the partnership return or the K-1 (unless somehow guaranteed payments are affected, but they shouldn't be, but I'm not an accountant so I'm not 100% sure about those forms). I'm afraid to ask but who prepared the plan document?

I'm not sure about how all of this goes on the schedules; I leave that to the accountants. And I generally don't rely on the IRS pubs. But yes, the first step is to reduce profits by 1/2 of SE tax. There is in fact a footnote to Step 1 of Pub 560 which says this, although it's not a separate step: * Reduce this amount by any amount reported on Schedule SE (Form 1040 or 1040-SR), line 1b It may not matter but it's doubtful these are "matching" contributions. It's a pet peeve. Also I'm pretty sure that all of the contributions are subject to SE tax, so the CPA is wrong here. Also I am wondering if there are other partners (and employees?) and whether the 401k amounts have been properly elected, and whether the profit sharing (or unlikely match) is being properly allocated. What is your role?

Personally, I would discourage this - how important is it, really, to bring people in as soon as they have 1000 hours instead of waiting 12 months? It's a big deal for a few months and then it is not an issue. Anyway, our VS/prototype format document (FTW) does have simply reaching 1000 hours as an option, so I think you are safe with an "other" in this case. But that's not what you are describing. You just want 1000 hours (but within a 12 month period). Maybe that's what you meant but be careful when you write it. Here is the language in ours: [ ] Completion of Hours of Service (not to exceed 1,000) within a twelve month period. The service requirement shall be deemed met at the time the specified number of Hours of Service are completed.

And if I might ask, when did the plan cross the $250K threshhold for one man filing?

I get how it could happen but unless either the plan is written poorly, with less than 1 year (or 2; we don't know what kind it is) eligibility, or they have employees working a year, entering the plan, then leaving, then doing the same with someone else, I don't see it likely to be switching back and forth. Just sayin'.

Not to drag it out but... "It is the value of the payout that determines if the money goes to an IRA." (Literally, the payout is net of fees.) "So, if the VAB (in some of the adoption agreements) is over $1,000 you cannot initiate the washout even if the resulting distribution is under $1,000." (But the value of the payout is "the resulting distribution" so the first quote says you can process the payout.)

I can't think of a normal scenario where this would happen. Either the part-timers are in the plan or they are not. Does anyone other than an owner(s) have a balance? Are the others "participants" or are they "employees?"

Those two statements are contradictory. I think a reasonable interpretation of "vested account balance" is what you are entitled to. I think the question is "who is stopping you?" If it is yourself I'd re-think.

Depends. Sometimes they don't even ask the reason. Sometimes they ask more than needed and create confusion.

It depends. If we feel a vendor form is inadequate or confusing, and we or the sponsor can process distributions without a participant signature, then we'll use our form. Otherwise we'd use the vendor form. I think there might be a plan or two where for various reasons, we have to get two forms signed, but I try to avoid that redundancy and irritation to the participant.

Not at all; my "crazy" description is just regarding the idea that a payment due, say, April 1, 2020 is postponed a year, but a Jan 1, 2021 payment is still due then, and the complications arising from all that. I choose not to make things difficult and will just reamortize loans when payments restart, not later than Jan 1 2021. It's not that big of a deal; sometimes clarity is worth more than some additional leniency. And you can ask the IRS and Congress to clarify all you want, then you're in limbo again waiting for the to answer (or not, which seems more likely). I repeat, it's not that big of a deal...

I pretty much agree with ESOP guy. Assuming it's a small plan, you don't get to say all assets are eligible unless they are held by a bank, B-D, etc. and have a readily determinable FMV. So, this is certainly held in a brokerage account, but trading is suspended (Altaba Inc is the former Yahoo, right?) so no FMV to read off of a statement. Sigh...if I can get someone, anyone, e.g. the broker, to give some kind of value that is not totally unreasonable, I'm going to let the client tell me that that is indeed FMV (if the facts are as understood, basically a small part of the assets...it helps if I know that no one is getting a distribution based on the value since that will self-adjust when and if it is liquidated or otherwise closed out)...and take my chances, or more accurately, let them take their chances after discussing it. Sorry to all the sticklers out there.

As I said, I know the red flag but not the details of the rules. My advice to my client would be words to the effect of "based on what you told me this is not a prohibited transaction, but that doesn't mean it doesn't have a lot of downsides that make it not doable for practical purposes. If you want me to research it further and provide more details, I can do that, and charge you, or you can go straight to an ERISA attorney who would charge you more, and either way you're going to get an answer that says you almost certainly shouldn't do it." QDROphile raises different but valid issues.

But were those assets included in the total value of assets when determining minimum/maximum contributions?

Good grief. Is it a match or NE? I'd give a copy of the notice and state that it was handed out. I wouldn't be too worried about it; can't imagine what they would do. I mean, I guess if you have a SH match and it's not being used then maybe there would be concern. If they called the employees then why do they need proof? Or did the employees say "no?"