Lou S.

Using a 3% non-elective safe harbor as a base is quite common as it guarantees no ADP testing failures but it's not generally enough to satisfy TH minimum or gateway on it's own. If you have no ADP testing concerns you don't necessarily need the safe harbor. Remember that the 3% SH can't have any hours or last day requirement so having it can often trigger an additional gateway contribution for people who terminate but are eligible for the SHNE. You typically need an additional profit sharing contribution to satisfy one or more of top-heavy minimum benefit, gateway contributions, and or §401(a)(4) nondiscrimination requirements. That's where you as consultant need to understand the plan demographics, client objectives, and be able to explain the pros and cons of what they will be adding and the likely contribution ranges for various employees they will be seeing going forward and that some of them may be guaranteed because of how the IRS rules work on various nondiscrimination tests whether they like or not in the future.

And chance they are parting on reasonably good terms and keeping the terms of the individual plans and coverage the same through the end of the year? Can you take advantage of 410(b)(6) transition rule and and continue to test them together through the end of the 2022 plan year?

One way to pass top heavy in a DB-DC combo plan is to increase to the 3% TH minimum in the DC plan to 5%. That is the significance of 5%. The maximum gate-way for cross testing a DB/DC combo is 7.5% (though it can be less depending on highest HCE allocation rate). That is the significance of 7.5%. Neither 5% nor 7.5% is a guarantee that the combined plan testing will pass 401(a)(4) but often it is depending on the demographics.

Why not have the new entity be an adopting employer than remove the old entity after it shuts down?

Yes that makes sense. Just be careful if some of those are HCEs (like owner's family just hired).

Do you really have no participants or do you have participants with a $0 balance?

My experience with them has been mostly positive. The pros are they are responsive and they give you a lot of leeway to correct client mistakes without giving you much grief to do so. The cons are they typically expect you to do more than some other custodians with respect to supporting the client and processing information. But overall I wouldn't have a problem recommending them. As a side note though it does seem they have tried to price themselves out of the really small plan market with their most recent pricing model so your target market might have an impact on how you view Nationwide v other providers.

Thank you both. That's very helpful. Basically the client is going to be screwed either way for 2022 premium based on the current rates since the 430(h)(2)(C) rates are driving a high enough FT as it is and it won't make a material impact on the overall premium with the downside of locking them into the alternative rate rate for 5 years. I guess it's just the large disconnect between the stabilization funding rates under ARP getting one funding target number and the PBGC rates for determining UVB getting another larger number.

Anyone have a decent primer on this they could share? What needs to be in the election by the Plan Sponsor to opt into this method instead of the standard method? Is there a summary of the 24 month average rates? Is that a single rate or are they segmented, that is 3 separate 24 month rates. When you chose a specific look back month for the 24 month average does that same month have to be used for each of the next 4 years you are required to use the alternative method? The standard method is pretty straight forward and verifying rates seems easy on the PBGC site. The alternative method I feel should be somewhat straight forward too but for some reason it's eluding me This feels like something I should know but I don't do a lot of PBGC plans and most of them are under 25 where it's simply cheaper and easier to pay the small plan cap. I have a plan that's got for them a significant VRP this year due to the very low PBGC rates and trying to see if the alternative method can reduce that substantially even though I know it means using the alternate method for at least 5 years.

I'm aware the IRS sometimes makes up rules, often because they have to when it's not clear from the code or regulations. At other times they seem to take positions because they can whether or not they are supported by the rules spelled out in the code and regulations. I mean who a key employee is and when they are a key employee is pretty well defined in the code and regs, and non-key employees must benefit under 416 in TH plans. It seems like the IRS EOB is taking a position that a key employee is not a key employee for benefit purposes in the year they become a key employee for some reason that I can't really fathom. I don't think I've had a plan that fits that specific fact pattern where the client didn't want to give key employees at least the T-H minimum and a person also became a key employee that year. I don't think the IRS position would hold up under court, but I don't think I'd want to be the test case for it either.

I'm of the mind that the code says she's a key employee for 2021 and is key-employees are excluded from TH minimum benefits she is not entitled to TH minimum for 2021. Though I have seen the other position taken, I'm just not sure it's supported by the actual 416 code.

Calendar year plan? Mary is a Key employee and HCE for the 2021 year as she owned more than 5% at any time in the 2021 calendar year. For determining the TH ratio for 2022 Mary is a considered a key employee as of the determination date.

If they are active and not yet the older of age 62 or the Plan's Normal Retirement Age I don't think there is a way to force them out. As ESOP guy suggests you might be able to have an in-service window crafted to encourage people to voluntarily take a distribution.

The Plan covered a non-owner employee for part of the year so you can't file the EZ for the year he was paid out. You need SF or 5500. The year following the payout you can switch to EZ assuming owner is only one covered for the year.

Your question intrigued me and I went down a rabbit hole. I'm not sure if this is still accurate but an article on Benefits Link from 2002 (man this place has been a great resource for a long time) came up https://benefitslink.com/articles/tarpley020313.html It seems to hinge on §402(h) and §404(h). I don't know if those sections have been updated since 2002, I honestly can't tell from the current code sections and I haven't dug into the regulations. But that appears to be where the 25% cap is coming from. Both the 5305A-SEP (Rev June 2006) the latest version I've been able to find and the FAQs on the IRS website both reference the overall 25% limit. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-sarseps Honestly I thought they mirrored the qualified plan rules in many ways and "assumed" the 100% 415 limit and 25% employer limit were applicable but it appears at least at one point, and possibly still that the limit is 25% of pay limited for each employee and included both employer and employee contributions. It seems a kind of nutty result but not much nuttier than ending SARSEPs in 1996 but grandfathering existing ones. Personally I haven't come across one in quite some time but maybe this will get you where you need to be and can figure out if it's been updated since that article.

I'm confused. The seller is selling their assets but continuing it's business? Who will the employees of the seller be after the sale? Whether selling corp and acquiring corp are a controlled group after the sale will be determined by both companies ownership structure. If they are a controlled group after the sale and selling corp adopts acquiring corp plan you have a single employer controlled group plan. If they are not a controlled group and selling corp adopts acquiring corp plan you have a multiple employer plan. What are the goals in terminating the plan? Typically the terminations are done effective the day of or day before the asset sale, often contingent on the sale happening. Does the seller still have a plan? Is the compensation for services to the seller? But like Bill I'm confused as to what the goals are in both the original and and clarifying post. If, how, and when seller plan is terminated would likely determined what distribution options participants in seller's plan may or may not have. Also if seller is terminating plan and it's a 401(k) plan that might affects it's ability to adopt acquires plan for 12 months after final distribution under the successor plan rules. A lot to unpack here.

My thoughts (and not a lawyer) is leave the SFs that have been filed as is. File EZ going forward. And Bri brings up a good point, until recently you could file SF-1partcipant plan. Though my memory is bad on just how recently.

I've had a few plans that used to have common law employee and became owner only and switched to EZ without issue. I don't know if it was always supposed to be EZ but was filed as SF if you'd have an issue which is your case and different set of facts. I'm pretty sure if you switched to the correct form the current filing year you won't have a problem with that particular filing. The question is what about the prior filings? I don't know what the correct answer is on the prior filings and I think I've seen some conflicting guidance in posts on this site related to similar issue. A few options - -File the old EZ under the IRS late flier program under the theory that a valid return hasn't been previously filed. -File amended EZs for the years that SFs were originally filed under the theory that the returns were timely filed but on the wrong form. -leave the SFs alone under the theory that information returns contained all the correct information and were timely filed but are open to public inspection as an SF and would not have been had an EZ been filed. Again I don't know what the correct answer is but those are the most reasonable choices as I see them. Good luck with whatever decision you chose.

Neither. It's a failure to follow the terms of the document (unless the excess is catch-up eligible in which case you are fine).

Yeah 200% of the first 6% SH match satisfies the enhanced safe harbor match formula for ADP/ACP 100% of the first 7% SH match satisfies and enhanced safe harbor match with respect to ADP, but not ACP. Though there are a couple ways you can run the ACP test as I understand it. I've never actually had to worry about in the practice though.

Not 100% sure but I think we were required to use whole percentages for the contingent beneficiary on my wife's plan that is record kept by fidelity so they were set up 34/33/33 for the kids. I'm pretty sure fidelity is still the record keeper but if not my apologies to fidelity.

You have deferrals with no plan. Amend the W-2 to show no 401(k). File an amended tax return for 2021. If they filed by April 15, too late to set up PS plan for 2021. If they were on valid extension but filed after 4/15 you could put in PS plan under secure with up to 25% employer contribution. Assuming their W-2 pay was at least $82,000 you could cover the $20,500 as employer contribution and the tax implications would be a wash (I think but I'm not CPA). Make sure he adopts a 2022 401(k) Plan (or amendment to SECURE adopted doc if you can do it) before he makes 2022 401(k) contributions.

You can file an SS4 on line and get EIN almost immediately.

That would depend on whether or not there are any key employees covered by the second plan.

The Prevailing Wage contribution will removed your "deemed not Top-Heavy" exemption.