John Feldt ERPA CPC QPA

Yes, you’re rounding third now and almost home. The regulations do not require the RMD, but you now have to read the fabulous plan document. And also check to see if, perhaps, they started RMDs in a prior year already.

Is this non owner still working for the employer/plan sponsor? Are they an indirect owner through attribution?

And watch out for 403(b) there, as those accounts are considered owned by the employee, so if they own a side business and it has a plan, aggregation for 415 comes into play.

No. The SEP does not behave like a SIMPLE in this regard.

The 401(k) plan cannot count contributions made to the SEP when running the 401(a) tests for the 401(k) plan. Good: owner contributions in SEP aren’t in the test. Yay! But, too bad: employees allocations are also not in the test, not for helping with top heavy, they don’t count toward the minimum gateway, etc.

Or the notice itself. https://www.irs.gov/pub/irs-drop/n-21-61.pdf

Official numbers are out. Results are what was expected. https://www.irs.gov/pub/irs-drop/n-21-61.pdf

When taking into account all employees of the controlled group, does the plan pass coverage testing? Or is it a worse problem, like the plan document is “standardized”?

Unless the safe harbor top-heavy exemption applies, once they are eligible to defer and the plan is top-heavy, then the non-key employees must get a top-heavy minimum allocation, even if they are not yet eligible for profit sharing, match, and even if they don’t defer. Since the plan allows deferrals and can’t require more than a 1 YOS requirement for deferral eligibility, they have to provide the top-heavy before they’ve met the 2-year eligibility requirement for the PS portion of the plan.

And coverage testing becomes an important concern. You might be able to use the qualified separate lines of business rules to help with that.

https://data.bls.gov/cgi-bin/surveymost From the post in this Benefitslink thread above, on the previous page, from Wednesday: The CPI-U for September 2021 was published with a value of 274.310. Based on Tom Poje's spreadsheet, the dollar limits for 2022 are projected to be: Increased: Deferral limit: $20,500 (up from $19,500) Compensation Limit: $305,000 (up from $290,000) Annual Addition Limit: $61,000 (up from $58,000) DB Limit: $245,000 (up from $230,000) HCE: $135,000 (up from $130,000) Key Employee: $200,000 (up from $185,000) Unchanged: Catchup: $6,500 Just for reference, the unrounded figures are: Catchup: $6,949.50 Deferral limit: $20,848.50 Compensation Limit: $307,840 Annual Addition Limit: $61,568 DB Limit: $246,272 HCE: $139,104 Key Employee: $200,096

And the Social Security Taxable Wage Base for 2022 was actually released at ssa.gov to a nice even number: $147,000

The CPI-U for September 2021 was published moments ago with a value of 274.310. Based on Tom Poje's spreadsheet, the dollar limits for 2022 are projected to be: Increased: Deferral limit: $20,500 (up from $19,500) Compensation Limit: $305,000 (up from $290,000) Annual Addition Limit: $61,000 (up from $58,000) DB Limit: $245,000 (up from $230,000) HCE: $135,000 (up from $130,000) Key Employee: $200,000 (up from $185,000) Unchanged: Catchup: $6,500 Just for reference, the unrounded figures are: Catchup: $6,949.50 Deferral limit: $20,848.50 Compensation Limit: $307,840 Annual Addition Limit: $61,568 DB Limit: $246,272 HCE: $139,104 Key Employee: $200,096

If they have a bunch of non-key HCEs in the plan, look at doing a retroactive 4% safe harbor nonelective to only the NHCEs for 2020 and if you had no other contributions, the plan becomes exempt from top-heavy.

May set it up with a 2/1/2020 to 1/31/2021 plan year, and the minimum funding deadline is 10/15/2021? Then deal with an off calendar plan.

It may be that I am recalling how the courts deal with voluntary waivers of benefits. The 401(k) irrevocable election rule differs. I recall Derrin stating that in his experience, few waivers of benefits comply with the DOL rules.

I believe it is a 100% irrevocable waiver from all employer benefit plans now and forever. Assuming they have not already become eligible for any such plans. That includes all employer health and welfare plans, plans set up in the future, etc. A monk or nun, for example, someone who has a lifetime vow of poverty, would be a good example of this.

Thanks Tom. Appreciate your comment above, and very much appreciate all your comments and support over the years here providing a good mix of levity and guidance. Hey Carol, can you change the title of this post to remove the 2021? If not, that's okay, I'll just start another fresh post when the actual CPI-U for September gets released. The CPI-U for August was published this morning at 273.567, giving us two of the three months needed to determine the 2022 limits. (July was 273.003). September will be published on October 13. The sum of the three CPI-U's from last year, July through September of 2020, was 779.299, for an average of about 259.766. So we're looking at about a 5.24% increase if the 2021 September CPI-U is unchanged from August at 273.567. If that holds, the limits posted above (August 22) should be the 2022 limits. The closest one to change next is the key employee compensation threshold, which should go up to $200,000 if the CPI-U for September is 273.897 or more. Again, all based on Tom's spreadsheet.

30% QNEC? Wow. I guess it could have been worse, if you had an owner deferring 90% of pay on very low pay. I think a VCP application to negotiate something reasonable would be worthwhile. Describe what caused the plan sponsor to believe the employees weren’t eligible and offer a reasonable QNEC solution for the Service to consider (prepare to negotiate). Also, make sure there wasn’t any other operational failure here. I’ve seen some “solo-k” documents that say the plan automatically freezes contributions (no further deferrals) if an employee would become eligible (other than the 100% owner and spouse).

99.99% would be my estimate. Thousands of participants ago, I know of one terminated employee who took a Joint and 50% Survivor Annuity form of payment of about $45 per month instead of a lump sum (over $5,000) because they could not obtain spousal consent.

Well, it was nice while it lasted anyway! Since it was terminated, not merged, the safe harbor match remains as a receivable contribution for that old plan. They don’t get out of that obligation by terminating. Perhaps they have ERISA counsel telling them otherwise, that they can contribute the old plan’s obligation into the new employer’s plan even though the plans did not merge. Optimistic thinking again, I suppose.

If you are still within the same plan year, doesn’t 401(b) simply allow an amendment to adopt the provisions now, but effective retroactively to an earlier date within the same plan year? Or are you arguing that an increase in the cashout limit would violate participants rights?

And the courts would also agree.

Pretty sure it’s the SIMPLE that is invalid here and the 401(k) plan is okay. Employees certainly would have a case for a claim, but contributions cannot be made to the SIMPLE if the employer is contributing to another plan. Could be fixed favorably with a VCP filing.

We also have seen these for 2018. In the letter, which are much different that the post above from Belgarath. These letters state "You don't need to reply to this letter". FYI.