BeanCounterBlues

I have a similar situation, and understand that EZ is the correct current filing. The child will eventually become plan-eligible (about two years from now). The form of entity is an LLC, that has elected to be taxed as an s-corp (a common situation), and sponsors a 401k plan ("Plan X"). Is the child attributed by IRC 318 and therefore is considered a "partner" for purposes of 5500 EZ vs 5500 SF? Assume that Plan X is sponsored by a sole member LLC, with no employees, other than the owner who receives a W-2 due to form of taxation, and the child (also receiving a W-2). My understanding is that attribution doesn't apply for 5500 determination (EZ vs SF) purposes, to LLC's, taxed as either a disregarded entity Schedule C (sole member LLC) or taxed as a partnership. For example, an LLC not electing s-corp tax treatment, with Mom 100% owning the LLC, and son being a W-2 employee and plan-eligible, requires a Form 5500 SF. Does this change when the form of taxation is s-corp? Does Plan X, which formerly would have filed an EZ, still file an EZ after the child becomes plan-eligible, or have to file an SF after the child becomes plan-eligible? Meaning, does the legal form of entity (LLC) take precedence, or does the method of taxation (s-corp) take precedence, in the determination of whether EZ is required vs SF?

I had this same situation occur about three years ago with a client (one owner, three employees, safe harbor 401k plan). Plan terminated, and one remaining filing year existed, with only the owner's assets. I had the same concern, "which 5500 version to file." I conversed with a technical agent at DOL EBSA, but I had first come to the conclusion stated by RatherBeGolfing. The agent, however, said that the client must file an SF, not an EZ. I realize that an agent is not a reliable substitute for research, but since I saw this post and had the exact same situation arise, thought I would add to the conversation.

If an LLC, that has elected to be taxed as an s-corp (a common situation), sponsors a 401k plan, and hires their 15 year old child for administrative work (bona fide employment), is the child attributed by IRC 318 and therefore is considered "partner" for purposes of 5500 EZ vs 5500 SF? Assume that a Plan is sponsored by a sole member LLC (which had filed IRS Form 2553 (s-corp election) and was approved by IRS to be taxed as s-corp), with no employees, other than the owner who receives a W-2 due to form of taxation, and the 15 year old child (also receiving a W-2). The Plan has immediate eligibility with essentially no age and service conditions. Does this Plan which formerly would have filed an EZ, still file an EZ after the hiring of the child, or have to file an SF post - child hire? Meaning, does the legal form of entity (LLC) take precedence, or does the method of taxation (s-corp) take precedence?

Thank you all, I appreciate the thoughtful suggestions!

I am assisting a new hire for a 401k client (my firm serves as third party administrator). The Plan Sponsor's owner (small company) would like me to train this new employee both with respect to an overview of the IRS, DOL, etc requirements for 401k plans, and also issues that are specific to this plan, which I'm glad to do for the this long time client. I also think it might be beneficial for this employee, to take a course taught by a professional educator, that introduces someone who does not have previous job experience that involved the day to day operation of a 401k plan. Can anyone recommend an online (day-long, for example) course for this employee? Specific websites, company names are appreciated. I've searched my local CPA society offerings and done some basic web searching, and of course I'm aware that that there are hundreds of options for specific issues within the 401k world ("EPCRS update" for example), but I'm not having much luck finding a "401k for beginners" overview course. Appreciate any suggestions.

That's an interesting idea. I'm not "overly" concerned, but as the owner of my CPA firm, I prefer to not deal w/ a client incurring a fine because I provided less than stellar advice or ignored a requirement. Appreciate all the comments, thank you again.

My question(s) stems from an issue that has never been resolved my mind. FIS Relius published a technical update on 8/26/2013 stating that the Code imposes a penalty for failing to file a notification of a change in the status of the plan, such as a plan termination (publicly available on the FIS Relius website). The penalty is $1 / day up to $1,000. I've always been concerned that an observant IRS agent could impose this penalty where the plan's termination was not conveyed to IRS via Form 8955 SSA. I agree that the 8955 SSA IRS' published instructions specifically state to not file the Form if there is noone required by the instructions to be reported. I asked Janice Wegesin about this once at a conference, and her advice was to file a blank Form 8955 SSA with a typed notation across the top "plan terminated." This works fine as long as FIRE is not required. If FIRE is required, then typing a notation across the top of the Form doesn't work, because the typed notation won't be included in the electronic file. I appreciate everyone's comments.

PPP funds granted were loans. I don't believe loan proceeds (whether PPP or not) are ever taxable income, unless debt forgiveness rules apply in the case of loan proceeds not repaid by the borrower. Congress specifically exempted forgiven PPP loans from the debt forgiveness income inclusion rules if I recall correctly. If the funds are not includable in income, then the receipt of the funds does not give rise to net earnings from self employment. My opinion isn't authoritative (I'm a CPA and simply stating how I would handle a client in the same situation).

Continuing this thread - a Plan terminates in 2021. Due to diligence on the part of the Plan Sponsor, no participant was ever required to be reported under Code A on Form 8955 SSA (the Plan has never filed a Form 8955 SSA, nor was it required to). Is 2021 Form 8955 SSA required (assume there are no participants required to be reported in 2021)? If yes, does one simply type across the top of the Form "final plan year" and mail it to the IRS, since there is no "final year" check box on the Form? What if FIRE is required because the Plan Sponsor otherwise meets the electronic filing requirement threshold? How does one indicate that the Form is "final" when electronically filing via FIRE? Thank you for any assistance.

Facts: Small 401k plan. Assume that all employees voluntarily choose to not salary defer for 2018 so there are no contributions for 2018 ("no deferral" situation will not be persisting into the next year). Former employee withdraws and forfeits unvested match during 2018. Plan document states that unvested match forfeiture will be used to reduce the employer's matching contribution. Plan document allocation formula for matching contributions is "either a percent of deferrals or a flat amount per participant to be allocated in a non discriminatory manner." The provision does not state that the employee has to actually salary defer to receive a match (although I would assume that is implied?). The match is discretionary, and optional per plan document provisions. Question: for 2018 can the employer declare a match in the amount of the forfeiture by way of board resolution, and then allocate it as flat amount per plan-eligible participant? Something seems wrong w/ this, however, the client would rather dispose of the match forfeiture as a 2018 allocation to the employees than amend the document to allow the match forfeiture to be used to pay plan fees (a feasible option w/in the plan document). ***** Appreciate any comments.......

Thank you all for your thoughtful replies, I greatly appreciate. A few more facts and comments. Company had bad experience w/ local bank (taking months of time to process conduit IRA rollovers out, to deposit to this new plan, poor communication, etc). Company not interested in using a bank to temporarily park funds. I know that doesn't change the law. Company very excited to start new 401k plan Oct 1. Every intention to get the investments going, and get the employees enrolled. Very close knit group of about 10, who had known each other for years. Two owners, started a contracting business, which thankfully thus far has been very successful despite the short duration of the Company. Employees well aware that the investments need to be set up, prior to salary deferring (so that there is place to deposit the deferrals). So it was kind of a "rah rah" beginning, and then it took the Company quite some time to decide on the investment house they wanted to use, get everyone in-house for enrollment meetings, wait for 404a5 notices to be distributed, etc etc. By the time this all finally came to fruition, it was early December, They then decided, "since there's only a few payrolls left in the year," let's just wait until January 1 to start the salary deferrals. I was not made aware of this until late January. The employees were informed every step of the way, and noone had any issues. They could have salary deferred in December, they chose not to (I'm not sure why they made this choice, as there really wasn't any reason to), but they did. Salary deferrals began w/ the first paycheck of January, everyone's happy, and all is well. No one is disgruntled about anything. This is a case of the employer having unreasonable expectations about how quickly everything could come together, amidst running the day-to-day business. I appreciate the comments about the possibility of QNEC's, but right now I'm trying to figure out if the document needs to be amended to change the testing method to current year. I appreciate the 5 year comment, I'm unfortunately aware of that. W/ proper planning, they can be kept informed about the owner's annual ability to defer until the prior year method can be utilized. Would rather not have the Company incur the expense of the plan document revision if it can be avoided. Thank you again - if this changes anyone's opinion, I'd be curious to hear, also any additional comments regarding the current year testing are appreciated.

Non-safe harbor 401k plan legally began 10/1/2016 (plan document shows that as the effective date). Due to issues w/ getting the investments going, no salary deferrals were withheld during 2016 from any paychecks. No employer contributions planned for 2016. Company plans to file a short year first plan year 5500, showing no contributions or assets, for 2016. Salary deferrals were begun during 2017. Question: the Plan was set up for prior year ADP testing. For ADP testing, is 2016, or 2017 considered the first plan year? It seems that 2016 would be the "first" year, thus causing the prior year deferral % for 2017 too be zero, which would mean the HCE's could not salary defer. Remedy would be to recommend amending the plan document for current year testing, to allow the HCE's to contribute. Any better ideas? Would prefer that 2017 be the "first" year, but not sure there is an legal basis for doing so under the circumstances. Thanks for any assistance.

Yes trust, sorry for the nomenclature issue. I used the term "client plans" loosely in my OP.

I've applied for several EIN's for client plans that don't have one, in anticipation of it being required on a future year's 5500. In all cases, except for one, the standard nine digit number has been issued by the IRS. I have one plan, that received a letter from the IRS stating that an EIN was already issued. The letter reiterates the number, and it happens to be the number of the plan sponsor, w/ a "P" on the end. Has anyone seen this? I've been told: 1) The IRS won't accept the employer's ID# in the plan EIN# spec on the Form 5500 2) The software vendor I use has told me that they won't accept 10 digit ID#'s What would you do? Write back to the IRS and ask them for a nine digit number? That seems like a rabbit hole. If anyone has experienced this same thing I would be interested in hearing your concerns and / or what you did about it. Am I worrying over nothing? I'm trying to be proactive and not find myself next year without the necessary information to file the 5500. Thanks for any help.

Thanks for my daily chuckle, and everyone's thoughts. Your commentary was actually very helpful (in my making a decision).

Thank you both for your input, I've read the code, and the regs (and numerous other sources). At the risk of splitting hairs, I'm looking to verify that "more than 1%" does not include 1.0%.

I'm aware that for Key Employee determination purposes, a 1% owner with greater than $150,000 of compensation is considered Key. My research tells me that 1% doesn't mean 1%, but means greater than 1%. An online IRS examination manual states that 5% is "greater than 5%" but that 1% is just 1%. I'm guessing that the manual just doesn't expand on the point, that 1% means greater than 1% for this purpose, but a strict read would say otherwise. I work with a plan that will become top heavy if a 1% owner pops over $150,000 (he's close). He owns exactly 1.00%. Given the cost to the employer of becoming top heavy........ He does not become key, unless he owns 1.0000000000001% (exaggerated to make a point), and earns >%150,000 - am I correct? Thank you for any assistance.

Thank you both for your thoughtful responses. I had also thought of the reciprocal referral situation, which does happen. And, like Belgarath, I receive revenue sharing, but don't keep it (always offset it against whatever the consulting bill is). That aspect also made me a bit concerned. I agree we all have to come to our own conclusions; it was good to get the temperature on this from other professionals who have the same concerns. Thank you again for your replies.

In the past I have routinely provided a list of 3 - 4 advisors, ones that I work w/, and know to have their clients' best interests at heart, when asked for a referral. I always provide a list, because ultimately it is my client's decision (not mine) as to they work with. I don't receive any compensation for the referral, I do it simply to help out people who ask. I am a CPA, that worked for a retirement consulting firm for many years, and I currently have my own practice which consists of small tax clients, and a block of small 401k retirement plans for which I provide traditional TPA consulting services. I do not sell or recommend any product, I am strictly fee based for consulting and tax preparation services. Probably more info than what was needed - but here are my questions / comments. I've done quite a bit of reading on the new fiduciary rules, and my understanding is I do not become a fiduciary by pointing a plan to say, American Funds, or Voya, etc. Usually I'm referred by the advisor, but that is not always the case, and I do have investment companies I prefer administratively, and would recommend (not necessarily the ones mentioned here). However it's unclear to me if I become a fiduciary by continuing to provide referral sources for advisors. I continue to read however, that if I recommend an advisor (or group of advisors) under these new rules, that will possibly make me a fiduciary, something I absolutely want to avoid. Does anyone have any thoughts on this latter point? Appreciate any help.

Thank you Tom, i was making it far more complex than I needed to. Appreciate your help.

"Active participants" - does this mean those who are deferring? Those who are receiving any kind of contribution? Those who are simply still employed (vs a terminated employee w/ account balance)? Thank you for any assistance.

Plan has last day rule for profit sharing allocation (plan is 401k w/ match, normally deposits profit sharing annually). 2011 census termination dates were omitted by client who completed census for TPA. TPA inquired as to existence of missing termination dates from 2011 census at the time the 2011 work was being processed, and was adivsed by client that there were none (eg TPA did ask the question). Client is relatively small group w/ little turnover from year-to-year. I really don't think this omission was deliberate on the part of the client, the person who completed the census is very diligent but has been dealing w/ some medical issues and seems to overlook minute details (eg lack the capacity to handle) sometimes (thus the TPA goes the extra mile and asks lots of questions, but this still got missed). This is probably irrelevant but I wanted to point out that the issue was not a result of carelessness. 2011 profit sharing contribution was timely allocated, and client deposited to plan. Note that the allocation was a percentage of pay, and not a flat dollar amount allocated amongst elig participants. In other words, the allocation to the participants who really were supposed to receive a 2011 allocation are not affected. Fast forward to 2012 plan year. Three individuals that should have had 2012 compensation and hours based on 2011 census data, did not. TPA inquires. TPA learns that those individuals terminated before the end of the 2011 plan year. Therefore, those three should not have gotten 2011 profi sharing contributions. Two of the three were NHCE's; one of the three is HCE. Does anyone have any suggestions as to how to correct this? My inclination is to leave the two NHCE contributions alone, and suggest that the client distribute the contribution that was made to the HCE. TPA has seen errors like this (eg ones that TPA couldn't have known about through reasonable procedures) get caught on IRS audit, but never one where there has been favor to an HCE. In the cases where the error was immaterial to plan testing (eg this problem doesn't create a 2011 410b failure etc) and the contribution error was in favor of the NHCE, the IRS has allowed the money to stay in the plan even though the terms of the plan were technically not followed. TPA is not trying to suggest that these kinds of failures are "okay." Trying to find a cost effective way of fixing the problem without ticking off NHCE's by pulling $ out of their account, etc. and also one that would be likely to be acceptable to IRS. Does anyone have experience w/ this type of problem? Thanks for any help.

Thanks Mike - I'll try that.

The 401k loan in my example would be for $25,000 (I'm uncertain as to why a prior poster stated the loan limits would be exceeded). That would not violate the $50,000 limit (nor the 50% rule in this case). The loan disclosure has various checkboxes for "reasons for allowing loans" such as "any" and "hardship reasons only" etc. The "hardship reasons only" is the box that is checked. No more specific details are provided in the loan disclosure. The plan permits hardship withdrawals for hte 6 safe harbor reasons. Downpayment is a term I was using, not something that was in the plan document.

Thanks everyone for your thoughtful responses. The participant wants to consider taking a loan. No hardship w/d is being requested. Example: Partic buying house, cost to be $200,000. Partic is pre qualified for a mortgage, lender is requesting 20% down, $40,000. This is hypothetical, but mirrors the participant's situation. Partic has $175,000 in liquid cash. Partic intends to apply $175K to home purchase. Partic would like to borrow $25K from his 401k account. His desire is to pay cash for the house. He has other reasons he does not want to have a mortgage. ****** Plan does not permit loans, except for the 6 safe harbor hardship reasons. The crux of the issue (in my mind) is, can the participant borrow the $25K from his account under the circumstances - exactly what is the definition of "down payment." I say "no" we cannot give him the loan, because he has enough money for the down payment ($40K). He has the ability to secure a traditional mortgage. He does not need the plan loan for the sole act of buying the house. But he does need the plan loan to satisfy his "other" need to not have a mortgage. So is $200,000 a valid down payment on this house - and therefore "meets" the safe harbor for a distribution (were it a distribution, but again, to be clear, this is a loan). Or are we limited to what a lender will require $40K. I realize if loans were allowed for any reason, this would not be an isuse. We'd grant him the loan. But he must have a hardship in order for us to grant the loan. And I'm not sure we have that, in this case. If the hardship rules do not define "down payment" (please forgive me for not advance researching that) then what would preclude this participant from asserting that the down payment is in fact $200,000. If anyone has any further thoughts I'd be grateful. Thank you.