rocknrolls2

One additional point to the earliest responses is that you have to provide for the money purchase portion only that the joint and survivor annuity and spousal consent requirements are satisfied. In response to your question on whether any post PPA amendments need to be added to the MP portion, look at the required amendment lists with respect to laws enacted since PPA. There may also be some optional provisions that the client might want to add, especially those that make the money purchase portion more readily available (such as the ability to take in-service distributions at age 59 1/2 (added by the same law containing the SECURE Act (but in a different division of that law).

Building on what Peter has said, in addition, you need to pay particular attention both to what the order says involving distribution as well as the terms of the plan document in determining whether and when an alternate payee may receive a plan distribution.

Further along the vein of what ESOP Guy was alluding to, never accept the label that your potential client slaps on a worker as being correct unless a more thorough inquiry is made by you or a legal professional on what the worker's true status (employee or independent contractor) is likely to be. Only after determining that a worker has been vetted through the worker classification test and determined to be either employee or independent contractor can one confidently say whether the label will or will not be accepted by the IRS or a court. Anyone can slap a label onto any workerr. Blindly accepting the label without more will subject yourself and your client to untold trouble and liability from which you may never recover. As David Rigby so aptly put it, RUN!!!!!

Another issue which no one seems to have picked up on is whether the art work were acquired by a participant's self-directed account. If it were, then the value of the art work is considered a distribution and taxable under Code Section 408(m). It appears to be taxable at least in the year in which the work of art is acquired. I know that there is a recent case decided by the US Tax Court on this. Perhaps the IRS takes the position that as long as the asset is retained by the plan, it is considered a taxxable distribution in each year in which it continues to be so held.

In addition to the excellent insights from Lou, I wanted to add that this is something that is also covered by the DOL's Voluntary Fiduciary Correction program ("VCP"). Although it is extremely dated and the DOL has it on its regulatory agenda to update it, the existing program is what it is. You have two routes to go here: (1) use the VCP program, do the filing, pay the amount of the excise tax to the participant's account balance and get a no-action letter from the DOL or file and pay the excise tax on a form 5330 and then self-correct the error under EPCRS. I recall that the Rev Proc for EPCRS provides, at least as applied to delinquent remittance of employee contributions, that the correction is made through VFC first. It may also be the case as applied to a loan that is not timely repaid primarily due to the error on the part of the recordkeeper to initiate loan repayments via payroll deduction.

I looked into this further and found the answer to my question. The answer is that the repayment cannot be taken as a deduction. According to IRS Notice 2020-50, 1.D, ""recontribution will be treated as having been made in a trustee-to-trustee transfer to that eligible retirement plan." Because of this treatment, it cannot be treated as an elective deferral to a 401(k) plan nor as an employer nonelective contribution to such plan.

Participant A was a participant in the C 401(k) Plan until she terminated employment in 2020. A takes a Coronavirus-related distribution during 2020 and elects to have the tax spread out over 3 years. During late 2021, A starts a business as a sole proprietor and sets up a solo 401(k) plan. If A repays the full amount of the one-third of the 2020 distribution that would otherwise be taxable to her in 2021, and contributes that amount to the solo 401(k) plan, can A deduct the amount of the 2021 repayment on her 2021 tax return? Assume that the total amount contributed to the solo 401(k) plan, including the amount repaid of the repaid Coronavirus-related distribution, does not exceed the 402(g) limit on elective deferrals or the deduction limit under Code Section 404(a).

Another possible thought is that because the match was discretionary, the employer's announcement to the employees for 2021 did not constitute a plan amendment but a guarantee that the minimum discretionary match for 2021 would be equal to at least 2%. I agree that a true-up would be advisable for 2021 which could be made up to the due date of the sponsor of Plan B's tax return. While it would be belt and suspenders to amend Plan B to provide for a minimum 2% match with discretion to make a higher percentage match, I do not think it is strictly necessary in this context. Think of this in this manner: what if the plans had not merged and B's sponsor did not do as well economically for 2022? B's sponsor could decide not to continue the 2% approach in 2022 and make a match (or not) at the end of 2022. Why tie the employer's hands if it is not strictly necessary?

My recollection was that Section 457 was initially intended to permit a non-qualified retirement plan for governmental entities. The reason for this was because private employers can immediately deduct contributions to qualified plans but cannot deduct contributions to non-qualified plans until the participant has to include the contribution into his/her income. For governments, there is no deduction permitted because they are tax-exempt. The 1986 Tax Reform Act extended 457s to non-governmental tax-exempt entities. Because only rabbi trusts, the assets of which must be subject to the claims of the employer's general creditors, were then allowed. In the 1990s, the bankruptcy or insolvency of a governmental entity prompted Congress to enact legislation providing for the imposition of a trust requirement for governmental eligible employers (I think it might have been the City of Long Branch, CA). See Public Law 104-188, Section 1448(a)

There are a few things that are involved in order to be able to handle this question with a correct response. First of all, if we were referencing a new plan that became effective during 2021, the plan document would need to be signed, as a result of the SECURE Act amendment, by the due date of the employer's tax return for the 2021 tax year. This overrides the previous rule that a new plan document had to be adopted by the end of the plan year in which it was made effective for it to be a valid plan. Since the question is dealing with amendments and restatements, we reference the remedial amendment period of Code Section 401(b) and any further extension provided by legislation making revisions to the qualification requirements. Remember, that for the SECURE Act, to the extent we are discussing mandatory provisions versus discretionary provisions, the rule is that the plan document needs to be adopted by the close of the 2022 as a general rule (with exceptions for collectively bargained plans and as otherwise provided in the SECURE Act). To the extent that the client has amended the plan to make a provision concerning a discretionary change that was made by legislation, the rule is that it has to be adopted by the close of the plan year in which the change has been made effective. To provide you with the correct answer, I would need to know whether the amendment and the restatement involve discretionary changes to the qualification rules or mandatory changes, based on the rules outlined above.

I did want to make one clarification that might make this easier to swallow. Remember, we are talking about a plan that either has immediate eligibility or requires that the employee have attained an age lower than 21 and/or have completed less than one year of service to participate. All participants who have not attained age 21 and who have less than one year of service are tested separately from the group of those who have attained at least age 21 and/or completed at least one year of service. For non-owners who are HCEs, remember that the determination of whether an employee has exceeded the HCE compensation threshold is determined on a look-back basis. Therefore, there will be very few HCEs of this type who have less than one year of service with the employer.

For the most part, this is not an issue because there is an exception for a participant's election of a later date. Many plans deem the participant to have elected a later date which is not later than the required beginning date for RMD purposes unless the participant affirmatively elects to commence benefits sooner. See IRS Reg. Section 1.401(a)-14(a) and (b). Alternatively, subsection (d) allows for a retroactive payment to be made if the amount of the payment required to commence on the date cannot be ascertained by such date, if the payment to be made retroactively to the date it was required to be paid is made no later than 50 days after the earliest date on which the amount of such payment can be ascertained under the plan.

I happen to have some more experience dealing with full-time life insurance salespersons who are classified as statutory employees. In weighing the factors for classifying workers as employees versus independent contractors, full-time life insurance salespersons who are statutory employees must satisfy many of the factors leaning toward independent contractor status, except that the service contract contemplates that substantially all of such services are to be performed personally by the contract for such insurance company and such individual does not have a substantial investment in facilities used in the performance of such services. As expected, Peter has accurately quoted the relevant sections of the Code subjecting such individuals to FICA and permitting such workers to be covered as an employee under certain employee benefit plans. Basically, such an individual is a hybrid between a common law employee and an independent contractor with respect to the entity hiring him or her. I am also in agreement with Peter's conclusoin that such individuals do not need to be covered under a plan

For the year of the participant's death, you should make the check payable in the name of the participant. The executor/administrator of the estate would then have to endorse the check in his/her representative capacity and deposit it into the Estate of Participant checking account. The reason I am taking this position is that the payment was required to be made to the participant and the after-death RMD rules do not become effective until the calendar year following the calendar year of the participant's death. Also the RMD regs allow the beneficiary to be determined as of the September 30 of the year following the year of the participant's death. In this way, if there was a beneficiary whose life expectancy (or under the 10-year rule) would result in adverse bunching of income taxation in the years the benefit would otherwise be payable to him/her, it would be possible to do some after-death tax planning if such beneficiary timely signed a disclaimer of all interest in the participant's account. As for future years, I agree with the others that you would have to make arrangements with the contingent beneficiaries, if any, or the person or persons entitled to receive the participant's account balance under the terms of the plan document if there is no living named beneficiary at the time of the participant's death.

Since the change in required beginning date is not a mandatory qualification requirement change, I would say that the current preapproved document package does not reflect amendments for the SECURE Act. Even if the preapproved plan sponsor is within the remedial amendment period, it would also be pivotal to see how the employer is operationally applying the required beginning date. To bolster the employer's position that it intends to use age 72 (and not age 70 1/2), it would be quite helpful to know how the employer has communicated the change to plan participants and to see whether the employer has actually implemented the change from an operational standpoint.

While the 402(g) limit is an individual calendar year limit, Code Section 401(a)(30) applies that limit to the qualified 401(k) plan as well, so it is not a complete answer as to whether the limit would be pro-rated by a plan termination or short plan year. I would err on the side of caution and pro rate the limit for purposes of Code Section 401(a)(30).

Now that the basis the numbers for the COLA amounts have been released and we can accurately project them, what is keeping the IRS from making it official?

Alternatively, the HCE could waive participation in the CB plan and continue to elect 0% deferrals in the 401(k).

In my view, the better and safest course is to apply the new eligibility requirements to those employees hired on or after January 1, 2022. Although slightly more aggressive, you might also be able to get away with applying the new eligibility requirements to those hired on or after November 15, 2021. The IRS issued tons of revenue rulings in the 1970s and 1980s and they discussed things like this. If the more aggressive position passes muster after considering the published guidance, then apply it!

I am an attorney but I am not familiar with the Maryland law of trusts. I am admitted to the bar of two states in a part of the country close to Maryland that would like take similar positions in matters of trust law as Maryland. For the most part, trusts were initially created under a state's judge-made law. Over time, state legislatures drafted statutes that directly or indirectly superseded some of this judge-made law. You should hire an attorney who is admitted to the Maryland bar and ask him/her to assist you in this matter. It is possible that Maryland has a statute that provides for the manner in which successor trustees are appointed and who is eligible to be named as a successor trustee if any or all of the trustees named in the trust document die before the trust has fulfilled its purposes. If the statutory provision, if any, is not helpful, it is likely that the probate court or other court in the county where the decedent died will appoint a successor trustee. If faced with this situation, a prospective successor trustee or one of the beneficiaries would apply to the court to have a successor trustee appointed. If there is no other beneficiary but the child who survives the decedent's other children who were designated as trustees, and the surviving child is not incapable of managing his/her own financial affairs, one possibility is to ask the court to declare that the trust has satisfied its intended purposes, terminate the trust and allow the surviving child to receive the remaining corpus and income of the trust outright.

Now that the Bureau of Labor Statistics has announced that the CPI-U through September 2021 was 5.4%, has anyone plugged this in to arrive at a more accurate estimate of what the applicable 2022 amounts will be?

The Bureau of Labor Statistics has announced that the city average for CPI-U from September 2020 to September 2021 is 5.4%. Now that we have the number that is the basis for figuring the IRS COLA adjustments for 2022, I will defer to the actuaries reading this to tell us what they believe the 2022 amounts will be. See the following link from the Bureau of Labor Statistics for the basis for this number. https://www.bls.gov/news.release/cpi.t04.htm

Thank you everyone for your responses! There are so many numbers and permutations, that it is making my head spin. Apart from that, I happened to look at IRS Publication 560. On page 24, there is an excellent worksheet for the self-employed, which includes elective deferrals and catch-up contributions. This substantially makes things much clearer and really puts them into perspective.

Bird and Lou S., Thank you for your responses. At the least, I owe you an answer to Bird's question. At this point, I am simply trying to establish what is potentially available to elect as an elective deferral, from $0 to the 402(g) limit. That's all. Then the solo will elect and contribute an amount somewhere in between the two.

The IRS recently issued a TE/GE Issue Snapshot entitled "Calculation of Plan Compensation for Sole Proprietorships." This Issue Snapshot involved the calculation of earned income with respect to nonelective contributions to a defined contribution plan in the situation where the self-employed individual has made no elective deferrals and the nonelective contribution is fully deductible under Section 404. My question is, assuming that the proprietor's net income from self-employment is equal to $100,000 for 2021 and s/he has established a solo 401(k) for 2021, how do you calculate the elective deferrals? I know that for the common law employee, elective deferrals are subject to FICA withholding. By extension to the self-employed individual, I would assume that the elective deferral would also be subject to the self-employment tax on earned income. If that is the case, do you simply multiply the earned income amount by the 0.9235 (which is the amount you would multiply self-employment income to arrive at the amount which is subject to self-employment tax and then multiply that by 15.3%, leaving the balance as potentially available elective deferrals? I would appreciate anyone's thoughts on this issue.