John Feldt ERPA CPC QPA

No. The design itself matters more. If you have a small employer and the owners hope to maximize their own benefits/contributions and minimize all others, the top paid group election can change non-owner HCEs into NHCEs. The NHCEs generally have minumum gateway requirements that can cost much more than a mere top-heavy minimum that they would get as an HCE. Applying the TPG election here could add a lot of non-owner benefit costs and/or cause the employer to not adopt the plan at all. However, other design scenarios might benefit when the TPG election is applied. Such as a 401(k) plan that is not providing safe harbor and has some highly paid employees deferring at a high rate. In that case, changing those non-owner HCEs into NHCEs can result in a higher ADP for the NHCE group. So look at the census (usually TPG is irrelevant), review the employer goals, run the design, and that should help with how the election should be made. Also, pretty sure the HCE definition must be the same if they have multiple plans. So if a new plan is to be established now for 2022 for an employer that already had a plan in place for 2022, then they have no choice; they cannot just default the TPG election. It must be the same as the TPG election in that existing plan.

No. The 11(g) amendment must also pass by itself regarding the benefits that it provides without regard to any existing benefits. I didn’t see the part about giving the NHCEs anything.

Just be careful that it’s earned income. For example, my understanding is that when a cattle farmer sells cattle, that is usually a capital gain, not subject to SE tax, so not earned income. Getting their CPA involved is a good recommendation.

You know the ACP test, run that as usual. The rate of match itself is a BRF (benefit, right, or feature). See Treasury Regulation 1.401(a)(4)-4. The plan’s BRFs pass 401(a)(4) if they are available to nondiscriminatory groups. There’s both current availability and effective availability to satisfy. To satisfy current availability, look at the ratio of NHCEs available to receive that rate of match (or better) divided by all NHCEs who can get any match, regardless of what they deferred. Do the same for the HCEs at that same rate of match. Now divide the NHCE fraction by the HCE fraction. Look up the safe harbor percent that would apply from 1.410(b)-4 (don’t worry about the average benefits test for BRF testing, that does not apply here). Now do it again for the next rate of match for the HCEs and NHCEs. For example, suppose all the HCEs have over ten years of service so the higher rate is available to all of them, whether they defer or not. The HCE ratio is 100%. Suppose only 1 of ten of the NHCEs have ten years so their fraction at this rate of match is only 10%. You have a test result of 10%/100%, or 10%. There is no safe harbor rate under 20.75% under 1.410(b)-4, so the higher match rate fails. If you’re within 9.5 months after the plan year end, look at 1.401(a)(4)-11(g)(3)(vi) and (vii) to fix the failure. For effective availability, subjectively decide if you think it’s nondiscriminatory and if the IRS would agree with you. No test of numbers. Good luck there. Alright, alright, if you pass current availability for multiple rates of match, then I would say it sure points us to a passing effective availability result as well. Hopefully that helps.

Right, you’d have to modify the plan’s written terms to do it this way. After doing that, you should submit the plan document to the IRS for a determination letter.

Why not try out the idea first with a small plan of your own? A test run where no one else is at risk? When audited, explain that no RMD was needed because you intended to contribute, etc., etc. Then post the results here once the audit is closed to let us know how much billable time was spent, if the arguments were successful, how much excise tax was paid and any interest and/or penalties. Maybe it would be worth it?

Yes, agree.

And if self-employed, take a look at what code section 404(e) says about the deduction. Also discussed in the EOB.

Okay. Then I’m confident there is no deadline spelled out. But, using a deadline of 12 months after the end of the year as the latest “deadline” is probably a good practice, or using a deadline that is no later than 30 days after the tax return deadline (to count 415 limit purposes) is perhaps a better practice? And allocating after 12 months maybe should include missed earnings.

I agree with 12/31/2024, but where is that deadline in the regs?

Aren't you working with an actuary on this? It is not likely that your suggestion works. It depends on the present value of the cash balance plan accruals for the NHCEs when those amounts are converted using the required factors. The cash balance credits are not equal to the values that get counted toward the gateway. The amounts must be converted to their actuarial value. See 1.401(a)(4)-9(b)(2)(v)(D)(3) if you want to average this for the NHCEs. Also, if you are trying to avoid the combined pan deduction limit by keeping the DC plan's employer contributions at 6% or less, then you must count all match and all PS toward that 6% limit. And all employer contributions to the DC plan are counted to trigger the combined plan deduction limit, so if the match is about 2% of eligible pay and the PS is 5% of eligible pay, then the DB plan has a very low deduction limit because the overall employer contributions to the DC plan are over 6% and that triggers IRC 404(a)(7), limiting the DB plan deduction. Of course, we are assuming the cash balance plan is not subject to PBGC coverage. edit: typo

Once you reach the 6% limit, and if it is still not passing, you could consider increasing the DB accruals or CB credits for the NHCEs. If you’re looking at 2022, then that would be a retroactive increase under 1.401(a)(4)-11(g).

Since employer contributions could be treated as Roth, do you think they count against the deduction limit when made as Roth now? I think they do.

I really like profit sharing only plans, even more now than ever. Nice to pair up with a cash balance plan. And why bother with participant-directed investments. Ah, life is easy.

Suppose they only have defined contribution plans. If the three plans have the same benefits, rights, and features, and when all three are tested together they pass coverage and nondiscrimination, then that’s fine. Why have three identical plans? Well, the two doctors’ plans covering only the 100% owner doctors can file 5500-EZ, which is not open to the public and not subject to ERISA. Only the employees’ plan files 5500-SF and is available to view on the DOL site.

As long as there are deferrals for at least 3 months in the plan year, it can be safe harbor. For the initial starting of deferrals and safe harbor match, an additional requirement is that employees must receive a notice by the time deferrals begin for that plan year. So in your case, as long as the deferrals and safe harbor started together, and the safe harbor notice was provided by the date deferrals began, and assuming the plan document was executed by that same date, then the timing requirements appear to have been met to allow the plan to be safe harbor.

If you ran the test with everyone in, without using the otherwise excusable employee rule, then the gateway applies to them. But, as Corey described, if you run the test using two groups, one group that is over the 21/1YOS cutoff and another that is under the 21/1 cutoff, then it is common that you may be able to avoid the gateway minimum for the group under the 21/1YOS cutoff (the OEE rule). If the group under 21/1 has no HCEs or that group does need to cross-test for that group to pass, then that group is not required to receive the gateway.

Wasn’t January 30, 2022 the deadline to contribute the after-tax contribution for a plan year that ended December 31, 2021?

https://www.ssa.gov/news/press/releases/2022/#10-2022-2 And the taxable wage base for 2023 will be $160,200 (this number is official from the site above).

The CPI-U for September 2022 was published with a value of 296.808. Based on Tom Poje's spreadsheet, the dollar limits for 2023 are projected to be: ALL Increased (NOT Official yet, of course): Deferral limit: $22,500 (up from $20,500) Catchup: $7,500 (up from $6,500) Compensation Limit: $330,000 (up from $305,000) Annual Addition Limit: $66,000 (up from $61,000) DB Limit: $265,000 (up from $245,000) HCE: $150,000 (up from $135,000) Key Employee: $215,000 (up from $200,000) Just for reference, the unrounded figures are: Catchup: $7,528.50 Deferral limit: $22,586.50 Compensation Limit: $333,500 Annual Addition Limit: $66,700 DB Limit: $266,800 HCE: $150,688 Key Employee: $216,775

Warming up this old thread and getting ready to fire up Tom's old spreadsheet next week Thursday. The CPI-U for July 2022 was 296.276 and August was 296.171 (July and August of 2021 were 273.003 and 273.567). So we have two of the three months needed to determine the 2023 limits. September is scheduled to be published on October 13 at 8:30 A.M. Eastern Time. The sum of the three CPI-U's from last year, July through September of 2021, was 820.880, for an average of about 273.627. So we're looking at about 8.25% as an increase if the 2022 September CPI-U is also 296.171 (unchanged from August). Once the September CPI-U is released, the expected limits for 2023 will be posted here, all based on Tom's spreadsheet (not official limits). Current ESTIMATED LIMITS, assuming the September CPI-U is the same as the August CPI-U, are: Deferral limit: $22,500 (up from $20,500) Catchup: $7,500 (up from $6,500) Compensation Limit: $330,000 (up from $305,000) Annual Addition Limit: $66,000 (up from $61,000) DB Limit: $265,000 (up from $245,000) HCE: $150,000 (up from $135,000) Key Employee: $215,000 (up from $200,000)

Agree.

You can always ask in the VCP application and be prepared to negotiate, but don’t set any expectations with the plan sponsor that the IRS will just accept that as the solution.

What does the plan document say? It likely says the spouse at the time of death is the 100% beneficiary unless such spouse has provided written, witnessed consent to waive that right. Meaning, the remarriage likely makes the new spouse the 100% beneficiary regardless of the prior designation. However, you need to check the terms of the plan document.

The adoption of the solo-k makes the SIMPLE invalid for the years where they overlap. The multiple SIMPLEs are also a problem. A SIMPLE is required to cover all employers of a controlled group and all employees. No other SIMPLE is allowed for that same group of employers.