stephen

This would not work if this is a 401(k) plan with deferrals. There cannot be salary deferrals before the plan is adopted.

I agree with both of the above comments. The plan document requires the SHNE contribution to be made therefore it must be made whether anyone deferred or not. There would not be a SH Match in such a situation but that's not the situation at hand.

Since such an amendment would be a retroactive amendment a VCP filing would be required.

Just in case someone wants to read the SSA press release about the 2018 SS TWB: https://www.ssa.gov/news/press/releases/#/post/10-2017-1

1.) does testing (ADP, ACP, and Top Heavy) have to be done for a Safe Harbor plan that terminated mid-year? IT DEPENDS. For short plan years created by the termination of a safe harbor plan, the plan sponsor may operate the plan during its final year in one of the following ways: Cease safe harbor contributions as of the date of termination and apply ADP/ACP tests to the plan for its final year using the current year testing method; or The plan may continue to be a safe harbor plan for the final plan year if the safe harbor requirements are met through the date of termination, and: The plan’s termination is in connection with certain business transactions described in Code section 410(b)(6)(C) (e.g., change in employer’s related group), OR The employer incurs a substantial business hardship, as described by Code section 412(c)(2). (from https://www.ftwilliam.com/Docs/Safe_Harbor_Webinar_10282015.pdf - slide #53) 2.) Also, does it matter what the reason is for termination? For instance, does it matter if the plan simply terminated or if it terminated due to a merger into another plan? Yes. See answer #1 above.

The document may provide that ESOP dividends are allocated based on compensation. We had a plan that was doing that but amended to provide for dividends to be allocated based on shares.

SPOT ON.

I am not certain but I also found the information below. https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-termination The IRS 401(k) Plan Termination page includes the following: Generally, the process of terminating a 401(k) plan includes amending the plan document, distributing all assets, notifying employees, filing a final 5500-series form and possibly filing a Form 5310, Application for Determination for Terminating Plan, to ask the IRS to make a determination on the plan's qualification status at the plan termination date. https://www.irs.gov/retirement-plans/terminating-a-retirement-plan The IRS Retirement Plan Termination page includes the following: 2. Notify all plan participants and beneficiaries about the plan termination;

I thought it was prudent but not required to provide participants of notice the plan was terminating. However, today I found the following on the IRS website. Did I miss a change? https://www.irs.gov/retirement-plans/retirement-plan-participant-notices-when-a-plan-is-to-be-terminated Page last reviewed/updated August 3, 2017. When a plan is to be terminated, participants should receive a written notice of the company’s intention to terminate the plan and a notice of plan benefits. See Terminating a Retirement Plan. Notice of intent to terminate the plan Description: Written notification that the plan sponsor intends to terminate the plan or cease benefit accruals. What it should contain: The notice should contain sufficient information to notify the participant of the termination of the plan. The notice might include identifying information such as: the plan name and number; the proposed termination date; a statement concerning the cessation of accruals (benefit accruals are ceasing); and a statement that there are sufficient plan assets to meet the accruals provided under the plan. Timing: The notice must be provided to all affected plan participants and/or beneficiaries at least 60 days and no more than 90 days before the proposed date of termination. Who is responsible for sending it: The administrator of the plan. Notice of benefits upon termination of the plan Description: A notice to each affected participant or beneficiary that specifies the amount of the participant’s benefit as of the proposed termination date. What it should contain: The notice should identify the amount and form of each participant’s benefit including any personal data used in determining the amount of the benefit, including lump sum conversions, mortality and interest rates used to compute the benefit. Timing: Promptly to any affected participant or beneficiary after the proposed termination date and on or before the distribution date. Who is responsible for sending it: The administrator of the plan.

I'll chime in to suggest you look closely at the 2008 IRS Memo: First the IRS uses the acronym RollOvers as Business Startups. (ROBS) - thus it seems to me the IRS has a negative opinion of ROBS plans. Amongst other comments the memo includes the following: "Current Examination ContactsWe have examined a number of these plans - having opened a specific examination project on them based off referrals from our determination letter program - and found significant disqualifying operational defects in most. For example, employees in some arrangements have not been notified of the existence of the plan, do not enter the plan or receive contributions or allocable shares of employer stock. Additionally, we have identified that plan assets are either not valued or are valued with threadbare appraisals. Required annual reports for some plans have not been filed. In several situations, we have also found that the business entity created from the ROBS exchange has either not survived, or used the resultant assets on personal, non-business purchases." AND "CONCLUSIONROBS transactions may violate law in several regards. First, this scheme might create a prohibited transaction between the plan and its sponsor. At the time of the exchange between plan assets and newly-minted employer stock, the value of the capitalization of the entity is equivalent to the value of all plan assets, when in reality, the entity may be valueless and asset-less for an indefinite period of time. Additionally, this scheme may not satisfy the benefits, rights and features requirement of the Regulations. The primary utility of the arrangement may only be available the business's principal individual." Thus it seems to me they are reiterating their opinion on ROBS.

Creating small balances due to allocating a small forfeiture balance could be an issue - though it doesn't seem to be the case here.

I'm guessing the participants would not prefer to be eligible to be paid their insurance benefit this way.

Ditto

I agree with Mike. You cannot deem him as her spouse to have worked more than 1,000 hours as there is no basis to do so.

Agreed. Also note, they do not make sure you are using the correct definition of compensation for all aspects of your plan... that too is on you.

What he said

It seems to me the forms were filed timely so there is no need to file VCP (IRS Correction program (which is not appropriate here) nor file DFVCP (DoL 5500 correction program for late filings). Rather amended returns can be filed for all affected plan years.

While we do not know both sides of the story based on the information provided I agree with ESOP guy and MoJo. The DoL may be very interested in looking into this company.

I advise on the conservative side of things. Thus, I suggested you confirm with the ERISA Attorney for the plan (or in house attorney if applicable) as they would be defending the position should the plan be audited upon plan termination.

I suggest you check with the attorney for the document. To me that language says the loan is due and payable as of the termination of the plan on 12/31.

austin I am not willing to make the same blanket statement that "small business gets royally screwed by the top-heavy rules." The impact depends on each plan's circumstances. The top heavy minimum contribution will not be fully vested (unlike the Safe Harbor Contributions) and therefore may not cost as much as the safe harbor contribution would cost as it is expected some of that contribution would be forfeited before becoming 100% vested. If the plan has Safe Harbor Match, it depends on how much greater the top heavy min is than the Safe Harbor match. The proposed regulations give ALL businesses with a safe harbor non-elective contribution another option to consider other than plan termination when they can no longer afford to make the contribution.

Congrats and good luck!

No.

I was able to find the cite below as supporting evidence. Thank You, Stephen §1.402(a)-1. Taxability of beneficiary under a trust which meets the requirements of section 401(a) (a) In general. (6) (ii) The term “total distributions payable” means the balance to the credit of an employee which becomes payable to a distributee on account of the employee's death or other separation from the service or on account of his death after separation from the service. Thus, distributions made before a total distribution (for example, annuity payments received by the employee after retirement), will not defeat application of the capital gains treatment with respect to the total distributions received by a beneficiary upon the death of the employee after retirement. However, a distribution on separation from service will not receive capital gains treatment unless it constitutes the total amount in the employee's account at the time of his separation from service. If the total amount in the employee's account at the time of his death or other separation from the service or death after separation from the service is paid or includible in the gross income of the distributee within one taxable year of the distributee, such amount is entitled to the capital gains treatment notwithstanding that in a later taxable year an additional amount, attributable to the last year of service, is credited to the account of the employee and distributed. (iv) If the “total distributions payable” are paid or includible in the gross income of several distributees within one taxable year on account of the employee's death or other separation from the service or on account of his death after separation from the service, the capital gains treatment is applicable. The total distributions payable are paid within one taxable year of the distributees when, for example, a portion of such total is distributed in cash to one distributee and the balance is used to purchase an annuity contract which is distributed to the other distributee. However, if the share of any distributee is not paid or includible in his gross income within the same taxable year in which the shares of the other distributees are paid or includible in their gross income, none of the distributees is entitled to the capital gains treatment, since the total distributions payable are not paid or includible in the distributees' gross income within one taxable year. For example, if the total distributions payable are made available to each of two distributees and one elects to receive his share in cash while the other makes a timely election under section 72(h) to receive his share in installment payments from the trust, the capital gains treatment does not apply to either distributee.

Terminated participant takes a lump sum, all stock distribution from ESOP in 2007 and elects NUA. In 2008 a small allocation of stock takes place. Does the fact that an additional allocation after the year in which the participant took a lump sum preclude the NUA treatment for both the original and the follow-up distribution? Lump Sum says full account balance with-in one taxable year. How does that apply in this case? Is he forced out of NUA by small allocation in 2008?