JRN

I think Lou S. offers the correct analysis. If the attorney is getting a K-1 or W-2, he is still employed and does not need to take the RMD. If he is getting a 1099, then he has term'd employment and does need to take the RMD.

This is great. Very helpful to have all of these numbers in one place. Thanks for posting.

G8Rs -- Just to clarify, I'm not suggesting that certain fringe benefits might be taxable or non-taxable. That's not the question here. I'm asking about excluding fringe benefits from the definition of Compensation under the Section 414(s) safe harbor definition. CuseFan might have a useable bright line test, i.e., if the fringe benefit is payable in cash, include it. If it's not payable in cash, exclude it.

"Fringe benefits" may be excluded to determine 414(s) compensation. My question is what types of compensation can reasonably be treated by the employer as being "fringe benefits"? I don't see that the IRS has a clear definition of "fringe benefits”. For example, Pub 15-B, which provides guidance on how certain fringe benefits are taxed, simply states, "A fringe benefit is a form of pay for the performance of services." "Fringe benefits" seems to be a business term. Thus, it would seem that almost any form of wages other than regular pay can arguably be considered by an employer as a "fringe benefit" in interpreting their 401(k) plan document. Take "paid leave" for example. Can the employer adopt a written policy regarding whether to include “paid leave” as compensation under the Plan or exclude “paid leave” as “fringe benefits”. The issue can go either way. But adopt a policy and then be consistent in how you apply the policy. Thoughts? Thank you.

Because the plan has automatic contribution features, I think the special safe harbor correction method would apply. The term "Employee Elective Deferral Failure" is defined simply as "a failure to implement elective deferrals correctly". I don't see that a different rule applies if the failure occurs after the initial enrollment.

Right to match is a BRF that must also pass (a)(4) testing.

https://benefitslink.com/boards/topic/55013-cp-220-notice/ Here's a link to prior discussions on this topic.

EBCatty, thanks for correcting me.

What you have "always thought" is not correct. Assuming your S corp has a calendar year fiscal year. You need to have taken action on or before 12/31/2023 to adopt the written ESOP plan documents. The effective date can be retroactive to Jan 1, 2023. Whether the company is on a cash- or accrual-basis has nothing to do with the requirement to adopt on or before fiscal year end. You have until due date for federal income tax return to make contributions and deduct for fiscal year end 12/31/2023.

Distinguishing between ADP and ACP safe harbors. I agree that Nic's enhanced match formula satisfies ADP safe harbor.

Nic, Clarify whether you are proposing that the match satisfy the ADP safe harbor or the ACP safe harbor. My initial thought was that you are talking about the ADP safe harbor using an enhanced match formula. The match would then be 100% vested and subject to distribution restrictions. But, your reference to "the max comp for Safe harbor is 6%" confused because that is an ACP safe harbor requirement. Your proposed match formula would satisfy ADP. But, would not satisfy ACP safe harbor if that is what you're trying to do here (i.e., match subject to vesting schedule) because the match is more than 4% of compensation. And, remember -- you can't use the ACP safe harbor unless you are also satisfying ADP safe harbor (e.g., with 3% non-elective employer contribution).

Employers are not required to make non-elective or matching contributions on behalf of participants who are eligible to participate solely by reason of the LTPT rules. If the plan sponsor removes the “hours of service” exclusion, then part-time employees become eligible without regard to the LTPT rules. My concern is that the non-discrimination (and top-heavy) rules would now apply to this otherwise excludable classification.

Here’s my understanding: SECURE Act 2.0 amended IRC section 403(b)(12(A) to make the universal availability rule subject to new ERISA Section 202(c). This means that 403(b) plans can still exclude students and employees who normally work 20 hours per week. But, once an employee who is expected to work less than 20 hours per week meets the definition of LTPT, that employee must be permitted to make salary deferral contributions under the Plan. Because the “student” employee exclusion is not based on service, that classification is not impacted by the LTPT rules. The issue where further guidance is needed is how does IRC Section 410(b)(4) impact this. Under IRC Section 410(b)(4), the “20 hours per week” exclusion cannot be used unless all employees within that exclusion category are excluded. Does this mean that if one “20 hours per week” employee later meets the LTPT requirements, then all “20 hours per week” employees must be covered? I think it probably does. I do not think 403(b) plan sponsors that are excluding “20 hours per week” employees should necessarily amend their plan to remove the “20 hours per week” exclusion. Here’s why: Employers are not required to make non-elective or matching contributions on behalf of participants who are eligible to participate solely by reason of the LTPT rules. If the plan sponsor removes the “20 hours per week” exclusion, then part-time employees become eligible without regard to the LTPT rules. My concern is that the non-discrimination (and top-heavy) rules would now apply to this otherwise excludable classification. Agree, disagree? Thanks.

The IRS does not have a clear definition of "fringe benefits”. Rather, "fringe benefits" is a business term. Almost any form of wages other than regular pay can arguably be considered by an employer as a "fringe benefit" in interpreting their 401(k) plan document. The Employer should adopt a written policy regarding whether to include "jury duty pay” as compensation under the Plan or exclude the pay” as a “fringe benefit”. You can go either way. But adopt a policy and then be consistent in how you apply the policy.

Corrective contributions are required to be made with respect to a current or former participant, without regard to the amount of the corrective contributions. See Rev. Proc. 2021-30 Page 33 of 140.

Under the 401(k) regs, a sole proprietor’s compensation is not currently available until the last day of the individual’s taxable year.

Current law provides that plan amendments must generally be adopted by the last day of the plan year in which the amendment is effective. This precludes an employer from adding plan provisions after the end of the plan year, even though the provisions may be beneficial to participants. Section 316 of SECURE Act 2.0 allows discretionary amendments that increase participants’ benefits to be adopted by the due date of the employer’s tax return. But that section is not effective until plan years beginning after December 31, 2023.

Auto enrollment is, of course, a good thing in that it helps get eligible employees enrolled and participation rates go up. But, if participation rates go up, so too does the cost of the Employer match. So, yes . . . requiring auto enrollment could affect small employers' willingness to start new plans.

By "business tax return", are you referring to the partnership's tax return? I don't the partner's contribution is deducted on the partnership return; it is deducted on the partner's individual 1040.

Thanks Luke.

Company A and Company B are related employers (part of a controlled group). Company A sponsors non-safe harbor 401(k) plan. Company B is a participating employer under Company A plan. Company A and Company B can pass 410(b) coverage, separately. Can Company A and Company B be disaggregated for purposes of ADP/ACP testing? Can Company B adopt safe harbor 401(k) plan provisions with respect to Company B employees only? I think this is permissible if Company A and Company B sponsor separate plans. Can we get to the same conclusion if there is only one plan? Thanks.

CuseFan is correct. Also, the Employer can make an S corp distribution of earnings to the ESOP (akin to a dividend). The distribution of earnings is not a contribution nor a Sec 415 annual addition, The distribution of earnings is generally allocated to participants based on shares, not compensation. Based on the accountant's explanation that the company is not treating the "contribution" as a "contribution'", this may in fact be what is happening.

And, this is not a "distributable event" for Corp A employees who transition and become Corp B employees.

Partnership sponsors safe-harbor 401(k) plan -- non-elective 3% Employer contribution. Partnership is dissolving effective 02/28/2021. What is the maximum amount that can be contributed to the Plan for a partner for 2021? Is the answer simply the pro-rated 415(c) limit (i.e., $58,000 x 2/12 = $9,667) plus $6,500 catch up if age 50 or older? Total = $16,167 (assuming partner's Earned Income for the 2-month short plan year is at least $16,167). Does the Plan termination date necessarily have to be 02/28/2021? Although the partnership will dissolve on 02/28/2021, the partnership will still exist in some form after that date to collect account receivables, pay bills, etc.

Payments to employees for paid sick leave due to the COVID-19 pandemic should be included when determining compensation under a plan, unless that plan’s provisions specifically exclude this compensation from the definition, e.g., specifically excluding compensation related to sick leave and/or family and medical leave.