Lou S.

If there are excess assets or other amendments that increase the owner's benefit you could have a discriminatory increase in the owners benefit with respect to timing if they all go to the owner. Annually for 401(a)(4) and 401(a)(26) you are fine with the owner as the only employee.

I think it depends on the individual situation. If they have a good relationship and aren't planning a divorce it can be handy to have both as Trustee in case one dies to be able to act on behalf of the Plan.

I'm confused? Did the client have separate ESOP and a 401(k) Plans and are trying to merge one into the other?

Correct.

Well once you make any employer contribution to the DC plan that is out side safe harbor rules you blow your "get out of top-heavy free card" so he needs to get a top-heavy minimum since you are clearly going to have to make an employer contribution to make the CB plan work. Though you can probably limit the HCE to a 3% Th minimum in the DC plan if you exclude him from the CB plan and your TH coordinating language is right. If they are trying to go with lowest cost they might consider switching from SH match to SH non-elective next for next year.

I don't know the facts. Maybe they contemplate hiring employees sometime in the future, maybe not. But assuming the have dual entry plan and plan on hiring employees before 7/1/2022 I would say the plan design is problematic.

Is this an individually directed Plan or Pooled? Assuming it's an individually directed plan and the life insurance policy is part of his account, then if he purchaces the policy from the Plan, the funds would go to his individual account just like if the policy was surrendered for Cash Value.

It only becomes discriminatory if they hire an NHCE during the new 1 year waiting period where you've effectively allowed immediate eligibility HCEs and a 1 year wait for NHCEs.

Yes, but if they want to roll over the balance now that would accelerate their 2021 RMD to time of the rollover. And if they do defer their distribution to first quarter of 2022, they will need to take the 2021 and 2022 RMDs in 2022 (prior to any rollover)

Yes they have a service level that includes payroll.

We use a Corbel (I guess now FIS) document and it specifically uses the terms "with wear-away", "without wear-away" and "with extended wear-away". It parenthetically explains each term.

That's a good point. Maybe it got inadvertently dropped in a restatement.

They are talking about making the change prospectively for the 2022 year and forward with fresh start date of 12/31/2021.

You'll probably need an attorney to answer these questions. My guess is the IRS would come for the retired owners who were the Plan Sponsor. What claims they may or may not have against the TPA, I won't speculate.

I would suggest talking to an ERISA attorney. There appears to be a Plan Qualification defect discovered on Plan Audit from the information you have provided. That can get expensive beyond just funding the the missing benefits if the IRS wishes to play hardball. It sounds likely you are looking at some sort of EPCRS correction with the IRS under audit-CAP. I'm guessing the Retired Owners were likely the Plan Sponsor and Trustee of the Plan?

Do they have a resolution, amendment, SPD and/or SMM that shows the NHCEs are excluded? If not they were participants who were supposed to receive benefits whether or not they passed the testing.

I think you should talk to an estate planning attorney and/or financial planner versed in the nuances. But overall yes your idea can work if she has need to access the funds prior to age 59.5 without the 10% penalty. One thing with respect to the Spousal Inherited IRA, she does not need to drain it 10 years. The ability to do a "stretch IRA" as the term was used prior to SECURE is still available for spousal inherited IRAs.

It's part of his balance right? Of course it's included in the calculation.

That sounds correct. It looks like you are using a fresh start date of 12/31/2021 and a formula without wear-away (sum of the frozen as of fresh start plus benefits accrued after the fresh start).

Terminating the Plan, Reverting the assets to the Plan Sponsor (which at this point may be the same thing as the estate I am not a lawyer), and Paying the Excise tax is certainly one way and possibly the easiest way to end this. To reduce the impact, suggest having all fees paid from the trust to reduce the reversion. As for selling the Plan I'm not sure, someone with some direct experience in doing this may be able to chime in. I thought how that worked is you sold the business along with the DB Plan or merged with a company and plan with an underfunded plan. I'm not sure there is any business to sell in this case but maybe I misunderstand the mechanics.

If you don't use any catch-up for calendar year 2021 in the 10/31/2021 PY, they any deferrals that are over the 402(g) limit in the 11/1/21-12/31/21 period of the 10/31/22 Plan year are catch-up contributions since they are deferrals about the applicable limit. I have to looks up the rules every time on a non-calendar year plan when these things come into play because it can be a bit confusing when you can recharaterize and when you can't as timing becomes important.

Close if is total allocation is $64,500 for PYE 10/31/21 then you've used up 100% of the 2021 catch-up limit for 2021 when you recharaterize for exceeding 415 limit. If he defers another $4K from 11/1/21 - 12/31/21 (which he can) that can't be recharacterized at all in the 10/31/2022 Plan year. That is those deferrals will count against his 415 limit in the 11/1/2021 - 10/31/2022 Plan year with no ability to treat them as catch-up because the catch-up was used as of 10/31/2021.

If you are thinking of a 401(k) Plan with elective deferrals only where they choose to defer 0%, they are still participants, they just have a $0.00 balance. They still need to get a SPD.

I agree, assuming the repayments are made timely which would mean very quickly the loan is not the only asset. However, in t his case it does not sound like repayments have in the past or will in the future be made timely. I also agree that whether or not they are still in the cure period and when that cure period ended is important.

I think I'd recommend the following course of action but you do what you want. 1 - suggest they terminate the plan 2 - get paid in advance 3 - if possible, treat the distribution of the loan as a qualified plan offset (gives her till next October to come up with funds to pay off loan as rollover). you can probably only do this if the plan is terminated before the cure period expires. 4 - resign if they want to keep the plan going without repaying the loan on the loan schedule.