Lou S.

I'm assuming this is a calendar year plan. Did you meet one of the exceptions to continue to be treated as a safe harbor plan in the year of termination since it is less than 12 months?

I could be wrong but I'm guessing the 2% PS is to make gateway because of the required 3% non-elective. In which case just make the contribution, credit earnings from when the original deposit was made to when this one is made, and deduct the contribution in the current year.

Is the plan top heavy, failing ADP testing, or both? Does making an election to use the top-paid group improve your testing results? You can change a vesting schedule but there are some complex rules to follow and you can't cut anyone's vested percentage below what they have already accrued. Amending in a 3% safe harbor non elective (on or before November 30 for calendar year plan) will let you pass the ADP testing and most likely top heavy too though there are some exceptions. You'll still need to pass ACP testing on the match this year but for next year if your match meets the requirements listed in the code and you timely distribute a safe harbor notice to employees (30 days before the start of the year) you are deemed to pass ACP well. Are you the admin, the sponsor, or a participant?

If a PBGC plan is terminating with a majority owner waiver with spousal consent (assume the waiver and consent meet PBGC conditions) how is Schedule EA-S completed with respect to assets and liabilities? Assume without the a waiver the liabilities are $500K and assets are $400K. COVID killed this business model and it has not recovered and prospects for recovery are grim. Very small Cash Balance Plan.

The Plan that merges disappears on 10/1 and has a short plan year, yes? If so 2.5 after months is the refund deadline. If the Plan terminates you may have had created a short testing year but unless you distribute all assets you haven't created a short plan year so 2.5 months after the plan year ends.

What does the Plan say about rollover in eligibility? If not addressed directly by the plan, what do the Administrative procedures say?

Those are some big jumps.

I would make sure the document is written to define compensation this way and you do need to run a 414(s) test on compensation as Bri points out.

It seems like yet another gray area. This link might get you in the right direction or it might get you deeper in the weeds. That is IRS guidance seems to be less than crystal clear. https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=106

If you are asking if they can be excluded from your testing and pretend like they don't exist the answer is no. If you are asking how to cover them, Peter has better guidance above.

My thoughts are adopt the conforming interim amendments now and be done with it, assuming you are talking about interim amendment deadlines that haven't already passed like SECURE and CARES here not say Hardship Interim amendments.

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.