imchipbrown

Have a client who owns 100% of a C Corp and 100% of an S Corp. One employee in the C, 90 ees in the S Corp, a restaurant. Employee X, running the restaurant, gets 25% of profits through a handshake arrangement. Doesn't want stock because of capital gains? I've found Code Section 1563(e)(1), pertaining to options. If my guy gives this Employee X an option to buy 25% of the S Corp, I'm thinking I wouldn't have a controlled group.

I have a client who is coming up against the 404(a)(3) limits on deductible contributions to his 401(k) Plan. The "problem" is the NHCs really like the Plan, and all want to defer 15% of pay or more. As I understand it, "compensation" is net of 401(k) deferrals. In addition, though you are "benefiting" under the Plan for 410(b)if you are eligible to defer, 404(a)(3) requires you to be a beneficiary under the Plan to include your comp in the 15% calculation. Stop me if I'm wrong anywhere so far. We have one new employee who's eligible to defer, but doesn't want to. The Plan is to have her agree to defer $1.00. This would allow us to consider her compensation for 404. It doesn't foul up the ADP test too much. I guess the question I have is, next year, she'll still be a beneficiary of $1.01, so I would think, even if he/she makes no more deferrals, I can include the compensation in the 404 calculation. As for the excise tax on non-deductible contributions, assuming 415 limits are OK, if you make the deferrals required by an employee's election and the match required by the terms of the Plan, does anyone think they might the excess over the 404 limits could be deductible under 162? Just a thought...

Thornton, I believe its OK. Check out the Prohibited Transaction Class Exemption (don't have my references at home). Remember, once in the plan, there is annual "PS 58" imputed income to the participant.

Yes to both.

Calendar Client with Target Benefit has closed up shop and wants to terminate plan, say 9/30/99, but make a final contribution for the year. Question bugging me is, do I have to pro-rate the compensation limit of $160,000?

Calendar Client with Target Benefit has closed up shop and wants to terminate plan, say 9/30/99, but make a final contribution for the year. Question bugging me is, do I have to pro-rate the compensation limit of $160,000?

Pensions & Benefits Week, November 18, 1996. You probably think I have a great memory, but I just got asked for this 2 days ago and went digging.

I have a client who said the company would make a $50,000 contribution to its PS Plan. Benefit statements and 5500 C/R were prepared. Now, it's possible the company can't/won't come up with the money. I don't know if the 1120 and/or 5500 have been filed yet. I'm fairly sure the benefit statements have been distributed. Has the company irrevocably commited to the contribution?

To my knowledge, withholding is not required, so any amount you come up with should be fine.

That hour-of-service after the change seems to nail it, Erwin. That's the trouble with answering these questions from home!

Check your yellow pages under "Pension and Profit-Sharing Plans".

I guess my reasoning goes like this: It's known that when you merge an MP with a PS, leaving only the PS, the PS Plan must contain restrictions on withdrawing former MP money, and preserve bens, rights, features (BRFs). The money retains it's pension "Taint". Here, and in the C-Corp to S-Corp scenario, no actual distribution has taken place. When a person takes a total distribution, they've made their choices as to BRFs, and that's it. A Plan accepting a rollover of this distribution need not know the distributing plans benefit choices, nor type of plan. The "taint" is gone. So, I ask, why couldn't one borrow this Untainted money?

A participant is a participant until he's paid. He (or she) gets the new vesting. Being home, I don't have my cites, but check this out... Older plan documents didn't used to spell out what happened when someone left with 0% vesting. If a plan terminated within 5 years of someone who left with a zero % vested account balance, it would have to be restored, because a forfeitable event hadn't occurred (five years hadn't passed, or a distribution hadn't been made). More recent plan documents contain a Zero-Benefit Cash out clause... you are deemed to have received a check for $0.00 if you're not vested.

Let's talk about definetely (sp) determinable benefits. I always consel my clients that amending plan formulas more than once every three years or so is asking for trouble. In a Plan Audit, you're asked for a copy of the Plan and all amendments since the last DL. Two plans is the way to go. Administration should generally be 1 1/2 times a single plan, no?

I would imagine that you're looking at the wrong form. We usually include all the information you're referring to with the materials for Designating Beneficiaries. On termination, we give out the IRS boilerplate and an explanation of the Joint & Survivor annuity, as well as other options available.

Since the instructions don't make it clear, err on your side. I put the Opinion Letter Date in there for a few years, then figured that the Code on the front page indicating a Master/Prototype or Regional Prototype was enough. I agree, though, that it looks awfully bare in that section by answering " " and no.

Plan Participant, 5% shareholder in C-Corp, will be leaving Company A to become LLP Partner in Company B. Needs dough to fund his share of the new Company B. We plan on starting a new 401(k) Plan in Company B, which will accept rollovers (termination distributions). Since my guy will now be a partner in the LLP, is he barred from borrowing his rollover money? He can borrow it before-the-fact right now..... It would just be cleaner to borrow from the new plan vs. the old. Because it is rollover money, I don't think it's quite analguous (sp?) to the situation where a C-Corp stockholder becomes an S-Corp shareholder.

Plan Participant, 5% shareholder in C-Corp, will be leaving Company A to become LLP Partner in Company B. Needs dough to fund his share of the new Company B. We plan on starting a new 401(k) Plan in Company B, which will accept rollovers (termination distributions). Since my guy will now be a partner in the LLP, is he barred from borrowing his rollover money? He can borrow it before-the-fact right now..... It would just be cleaner to borrow from the new plan vs. the old. Because it is rollover money, I don't think it's quite analguous (sp?) to the situation where a C-Corp stockholder becomes an S-Corp shareholder.

Thank you all for the input. I still pass the tests with 2 HCEs, BTW. Liked Tom's comment about consistancy. Also, to add some fuel to this dying fire (and as I've mentioned elsewhere), IRS has no problem rounding down their COLAs! Then again, those regs are specific.

What are you doing with "fractional people"? I've got 8 employees. 20% of them is 1.6 people. Do I have 1 or two people making over $80k and Top 20%?

Except COLAs. The IRS always rounds down.

Agree with Carol, especially from the administrative point. I run 10 or so plans this way. With 20 participants, twelve months of statements means inputing 240 months of data. Imagine the December statements of a participant with 6 mutual funds. Each will fund usually throws off a ST Gain, LT gain and Div for reinvestment. Plus monthly contribution, maybe match, interest from money market... lot's of input. Enough gripes. The real plus is the freedom to choose from the vast array of mutual funds and individual stocks. No fund company has all the best funds in all catagories. The real minus. Until a participant defers a significant amount of money, he can't buy anything. Mutual funds have minimum initial investments of $500 - $5000. Stocks can be bought, but the commission puts you in a decent hole from the start. That leaves the Money Market account... fairly dismal right now (<5%). A profit-sharing contribution can help, as can matching.

Since we're naming names, I'm using the Datair Regional Prototype Defined Contribution Plan.

Thanks for the input. After tossing and turning, I came to work and read the "Distributions" section (6 pages, 6927 words of fine print). The FINAL paragraph (out of 126 paragraphs) does clearly state that a Participant, upon reaching NRD, may receive a distribution of all or any portion of his benefit. WHEW.

Bob, Only thing I can think of is that the return will not be completed until 10/99, and likely that the contribution (if any) has yet to be decided. I would also imaging you'll be entitled to a portion of the year's contribution if you worked 1000+ hours and employed on the last day of the year.