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Lou S.

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Everything posted by Lou S.

  1. For allocable earnings I always took that to mean the earnings while in the Plan. So if the guy rolled over say $100,000 in June but was due a refund of $5,000 after testing and the earnings from BOY to date of distribution was say 5% the earnings would be $250.00. The Plan presumably sent him a 1099-R in January for $100,000 showing code G rollover. Now you would send him two amended 1099-Rs one showing $94,750 and code G and one for $5,250 with whatever the code for refund is (8 maybe?) I'd have to look at instructions) and presumably a letter explaining why that amount is not eligible for rollover is includable in his income in the year of distribution and needs to be removed from his IRA as an excess IRA contribution before the due date of his tax return with extension to avoid the 6% excise tax each year it remains in the IRA. The participant would be responsible getting the funds from the IRA as a return of excess IRA contribution along with any earnings while in the IRA. Most IRA custodians I would assume have such a form or procedures in place. The trick is to use the correct language that it's a return of excess IRA contributions and not a regular IRA distribution. From the Plan standpoint, correcting the 1099-R is what is required at a minimum.
  2. They are one employee. If their Company B wages are excluded you will have a 414(s) tests on compensation I believe. No? I haven't run into this particular situation but it looks like you have 3 groups of employees when running your tests. (1)The employees of ONLY A - who are fully benefiting. (2)The employees of BOTH A & B - who are partially benefiting. (3)The employees of ONLY B - who are not benefiting. Are there any HCEs who are in (2)?
  3. Not quite to this extent but I have had clients deposit to the wrong account in the past. We had them transfer the amount plus earnings to the correct plan account as soon as discovered and had them document the error in case of IRS audit. It's probably not the technical correct answer but it's what we did and it was years ago. The additional problem of plan termination and subsequent rollover I have not had to deal with. Could you self correct by having the individual do a "retro-active" distribution from the 401(k) plan to the IRA if in-service allowed? Your 1099-R by plan won't match up but the total amounts that were taxable as RMD and non-taxable rollover to IRA should all match with what happened. Maybe not the best solution but it seems like it would put the participant in the same position as if the error did not occur. I mean you still have the issue of deposits going to the wrong accounts but from a tax standpoint the participant should still be where he's supposed to be. Not sure if this is something that would fall under the new expanded SCP or would require VCP if you want IRS blessing on the fix.
  4. I don't think the SB makes a distinction between deductible or non-deductible. I believe you would report them as contributions, assuming they are in the Plan Year and not post year end which could be dealt with in the following plan year. Then you either have carry forward balances to maintain or a plan that likely has a very small MRC until you eat up the excess in future years. Then you would report the nondeductible contributions on Form 5330.
  5. I guess if you want to pick nits you could say the TH minimum of the highest allocation rate of any key employee is "required" but if the key employee highest allocation rate is 0% than the required TH minimum contribution is also 0%. Though the plan TH vesting requirements would still kick in for a TH plan, even if no contribution was required.
  6. Yeah the rollout of their new platform has been less than stellar to be kind about it.
  7. If they have no money in the plan, you don't really "need" an SSN. But you can feel free to charge them for the extra work you have to do to create unique employee identifiers in your system and the trouble you'll need to go through should they start deferring or receive an employer allocation in straightening out the data when you invariably wind up with two nearly identical sets of data for Joe Smith hire 1/1/2020 with a birth date of 1/1/2000 and two different identification numbers.
  8. They were an employee for those month, so if they met the eligibility conditions they would be in the test. Compensation would be defined in the plan document but I'm guessing that yes the W-2 wages would be used. And they would probably be treated as terminated as an employee since they are now an IC but you can confirm that with the client.
  9. Other than the cost of spinning off the Plan into a new plan and then immediately terminating it, there is no real impediment. We are looking at options to avoid that as the wife's benefit is quite small in relation to the Husbands. The Wife honestly would not have had any DB plan except for the fact that they were a CG and it would not have passed 401(a)(26) without her participation since they are the only two employees of what was a CG prior to Secure 2.0. Since the wife's business is currently unprofitable as she has scaled way back, it's unclear if her corp would have the income to offset and deduct the cost of a new spun off DB plan and termination. Though ideally I think that is the cleanest and best way to proceed.
  10. Husband and Wife were considered control group under pre-secure 2.0 due to both minor child and community property state. They would meet the non-involvement in each others business and are no longer CG as of 1/1/2024. At least that is my understanding. They both sponsored a single DB through 12/31/2023. Wife would like to discontinue her participation in the Plan and execute a rollover distribution to IRA (with spousal consent). Wife will continue business, though income for 2023 was $0 and no W-2 was paid to wife's corp. Husband is sole employee of husband's sole-prop, Wife is sole employee of wife's corp and is 100% owner of wife's corp. Can she terminate participation in DB Plan and effect a rollover? Plan is well funded. Does she need to spin off to a new DB plan in wife corp name and then terminate? My understanding is she in not terminating service which would make things easier, the business is just currently not profitable. Wife is too young for in-service distribution and does not meet definition of NRA. Alternatively can her corp end participation in the DB Plan but she remain a terminated vested participant in the the Plan? If she remains a terminated vested participant in the Plan, would the Plan now require PBGC coverage? Has anyone reviewed how the 410(b) transition applies to plans dropping out of CG status due to secure 2.0 change?
  11. It says right in your highlighted section - "Individuals similarly situated will be treated the same." It may pull in more than you need, but it's what your document says and it will pass coverage after bringing them in.
  12. Hardships are not eligible for rollover so the 20% mandatory withholding does not apply to them but otherwise agree with justanotheradim. Also some plans allow in-service distribution of rollover accounts for any reason at any time and would not require a hardship event but could be used to satisfy one, but read the document as again that is an optional provision. Also that would be eligible for rollover and would be subject to 20% mandatory withholding.
  13. I thought if your plan allowed catchups it was mandatory but if your plan doesn't allow any catchup it was not. Do I recall that wrong?
  14. Did the amendment replace the current match with the safe harbor formula or did the amendment add a safe harbor match, on top of the existing formula? If it's the former as Towanda implies, then I would agree with their fix. If it's the later, I don't think you could removed the additional fixed match for 2024 without jeopardizing SH status since it would be a mid year reduction. If the communications to employees and company minutes all reflected the intention to switch from the current match to the new enhanced SH match, I think it's something that you could correct though VCP. Oh and I think you can clearly remove either match for 2024 prospectively, it's just that you will lose SH reliance for 2024 absent some IRS blessing which is where I think a VCP submission would work. Though the cost of VCP might be weighted against the cost of providing both matches for 2024 and amending out the fixed match for 2025. And losing SH status may or may not be a big deal for them in 2024 though since they just added SH, I'm guessing testing has been a issue in the past. Maybe others have different thoughts.
  15. I fixed match required by the document can exceed 4% of compensation and still satisfy ACP if it meets the other requirements in the code. It's a discretionary match that can't exceed 4% of compensation and still satisfy ACP.
  16. Most but not all plans will allow for in-service distribution at NRA and in many cases earlier (such as 59 1/2). But not all plans do, so as ratherbereading says - RTD
  17. Return the over payment to the participant.
  18. Yes for startups, I agree - that you're probably looking at the same min max with that interest rate projection for 1st year on a CB plan.
  19. Try IRS Notice 2024-2. IRS provided guidance for employer ROTH contributions and the reporting of such among other things in that Notice.
  20. I don't think you are missing anything. With the cushion, I don't think min and max will always be the same but yes you will have situations where the max deductible is driven by the minimum required. I haven't read the preambles to the regs, but I'd be surprised if there was much thought given to this directional change in interest rates back when they were issued.
  21. See the rules for testing age under 1.401(a)(4)-12.
  22. I'm sure there are some experts here who have a much better understanding of this than I do, but my understanding is the same as yours. That is finalize the divorce, or get the spousal consent if you want to remove the spouse as beneficiary before the divorce is final. It might also be possible to remove him via QDRO but that's above my pay grade.
  23. It sounds like you are TPA to the Doctor's plan, I would recommend the Doctor engage his own ERISA attorney to review the matter and see what needs to be done. Which may or may not involve a VCP filing for 2023 and or 2024 to get the IRS blessing on any fix that may be required.. I will say "I didn't read the document I signed and didn't understand what it does" is probably not going to be the best defense for Doctor A, but then I'm not attorney so don't construe this as legal advice.
  24. Sounds like ERISA counsel should be involved. As to 3, you have an ASG so the Plans are going to need to pass testing as group and that may or may not be problematic for Plan A, the Larger Plan, or both.
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