Lou S.
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Everything posted by Lou S.
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That's an excellent question and I'm not sure I have the answer as everything I've seen references vesting and accrual service and I have not seen the term eligibility service. However it seems the intent of USERRA is to put rehired employees in a similar position they would have been in had they not been called to active duty so my gut feeling is that they would have a retro active entry date of the date they would have entered had they not been called up.
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Unless the Plan excludes them somehow, I don't see why they would not be an eligible employee if they were rehired as a W-2 employee. Now if you are wondering about what compensation is eligible for Plan benefits, again that would be defined in the Plan document.
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I have never filed an 8955-SSA for an owner only plan. Hopefully it's not required. SAR is not required for EZ.
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You can use statutory exclusions of 21 & 1 with dual entry for testing if that's what you are asking.
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A business (sole prop, partnership, corp, etc.) must be the sponsor of a qualified plan such as a 401(k) Plan. If the plan never has contributions other than the initial rollover, the IRS could challenge the position that the plan was intended to be a permanent retirement plan from it's onset. Now if they are expecting earned income in the future to make contributions to the plan and are establishing the plan now to accept rollovers with the expectation of future contributions, keep good business notes to show the plan was intended to have contributions because plan permanency is a facts and circumstances gray area sometimes. But if they are just expecting passive income going forward, then this probably won't pass the smell test.
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Combo plans - testing+top heavy
Lou S. replied to Jakyasar's topic in Defined Benefit Plans, Including Cash Balance
It needs to be spelled out in the Plan Documents. And I believe in a manner that does not allow for discretion. -
That's what I see on based on IRS guidance as an approved correction. You can try other solutions using VCP or refer them to an ERISA attorney who may have other solutions. You might also check the IRS guidance to see if there is a de minimus amount that doesn't doesn't need to be allocated. Like if the QNEC for an NCE is under $X you can allocate to other NHCEs? But I don't know if that's a thing or not, just spitballing some ideas for you.
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I think your answer is found in this similar thread just started. I think you will need 3 things - #1 Refunds with earnings. #2 Form 5330 #3 1:1 QNEC equal to the total refunds allocated to eligible NHCEs
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It does seem counter intuitive, but it wouldn't be the first time there is an odd result by following the regs. based on real life facts. Sorry I can't be of more help on this one.
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I don't see how the 3% ownership is deemed 100% in this case because the qualified plan owns 97% but I'll defer to those who are experts on ERISA law WRT GCs. To my non-lawyer eyes it looks like you have 3% common and 3% identical control and thus no CG. My limited understanding is the that you don't pass the 1% ownership Joe has in the Plan and add it to 3% he has.
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He has no income, he has no deferral. Seems like one course of correction could be a 415 refund along with earnings.
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Employer subsidy for stable value penalty
Lou S. replied to gc@chimentowebb.com's topic in 401(k) Plans
I think this has come up previously in the case of surrender charges (which are similar but not the same). I believe if the restorative payment was to forestall an actual or potential fiduciary lawsuit then it would not be counted as a contribution to the plan subject to all the conditions of an employer contribution. But I do not have any specific cases I can point you to (perhaps someone in the investment arena on the legal side can provide some for you to look at) and do not know if it extends from the surrender charge to MVA analogy. -
I think you would have an unusual situation where you have a Key employee who is not also an HCE. Since all 5% owners direct and indirect are both Key and HCE it seems like the family members will likely be all the Key employees in the Plan and HCEs. Since you can always discriminate against HCEs you can probably draft language to do what you want. I think to have non-HCE key employee you would either need an officer earning over $220K but is not an HCE because of application of TPG group or because look backs on Key/HCE compensation might be different or a 1% owner who is somehow a Key but not an HCE for similar reasons. Again both could happen but are unlikely in a small closely held corporation. So you could set the limit on employees who are both Key Employees and HCEs equal to zero until the prior year TH test is complete. In the event that the Plan is TH you would keep the $0 dollar limit and in years you are not TH you amend out the restriction and let KEYs defer. I sounds like the kind of provision a small closely held employer and their payroll is likely to mess up but it seems like in theory it would do what you want. You could extend it to $0 for all Key employees and then test to see if you pass coverage on the off chance that you do have non HCE Key employees. Essentially you are trying to exclude all the key employees from any allocation including 401(k) in any year the plan is top heavy which comes down to plan language (which might require custom document because I'm not sure your exclusion fits in a pre-approved document but may you could make an argument for putting it in some "Other field"), coordinating the deferral stop on the first few payrolls of each year until you can run the TH tests, communicating to employees (probably just the family members) why they can't make deferrals, getting new elections when you then allow them again unless your have some special language in the election form, then getting payroll to properly stop/start deferrals if/when they are/aren't suppose to happen. Also if the Plan allows catchups, make sure you're following the universal availability rules. So in theory yes your approach might work, in practice it seems like a VCP submission waiting to happen.
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Oh a lot of people think the rules are unfair and an over reaction by congress back in the early 80s but there are multiple plan designs that that don't have a TH surprise taht have been expanded over the years but most require some level of ER commitment. Salary deduction IRA Simple IRA Simple 401(k) (at least I think this one does I don't work with them) Safe Harbor 401(k)
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And the non-discrimination rules like the top heavy rules came about due to abuses in the retirement system. Maybe you're too young to recall "excess only plans". They were a little before my time but my boss used to talk fondly of them as a small plan actuary.
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Sole Prop Contributions to DB plan
Lou S. replied to TPApril's topic in Defined Benefit Plans, Including Cash Balance
The required contribution might be more than the Schedule C income, but deduction is limited by the Sch C. Normally you'd have a non-deductible contribution subject to the excise tax but the excise tax is waived for a Sole Prop whose MRC would drive his income negative but you still have a non-deductible contribution to the Plan. -
You do know they were written because small closely held business setup plans that gave generous benefits to owners with no benefit to rank and file prior to the advent of §416. If they don't want to make any employer contribution ever I believe they could set up salary deferral IRAs and not have to worry about the TH rules.
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I'm a little confused if the distribution is still in his individual account didn't he get the gain/(loss) by the funds remaining in his account? Or were the funds liquidated but he never got the check which may or may not have been sent to him? If it's the former then I don't see that he has much of a claim, if it's the later the fund house is likely to simply stop payment on the original check and reissue likely without earnings.
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I thought the IRS clarified (in a notice perhaps?) that post year end 401(k) adoption with first year look back elective deferral was OK for self employed. No?
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Yes. Presumably the plan is tracking its elections (on RMD treatment and other provisions) to incorporate into an eventual amendment by the deadline if it has not already adopted one.
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And particularly if this is a small employer I would encourage you to look at the problems that can arise from irrevocable opt outs, especially in the area of coverage failure that may be difficult or impossible to correct via amendment depending on your demographics which may or may not be applicable to this particular situation. Just don't want to see you tripped up by unintended consequence sometime in the future.
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I think what he is getting at is the change to the testing method generally needs to be done before year end which is why he is suggesting VCP to get the IRS blessing to change the testing method for last year after the year end. I think this falls under an VCP situation and not SCP situation. Though with expanded SCP, may it does fall under SCP but I would probably want an ERISA attorney to opine on that before proceeding under SCP instead of VCP. I have no direct experience with a case like this but I do think your approach is reasonable and one the IRS would be likely to approve. Again that's just my opinion, the IRS may have a different view. Yes agree that the IRS could require demonstration showing compliance with BRF.
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Accrued To-Date Testing
Lou S. replied to truphao's topic in Defined Benefit Plans, Including Cash Balance
That has more options that what's in the Corbel Document. You have "other checked" but it doesn't say what "Other" is. It looks like if you are using B.3. or B.4 you could make a great case for accrued to date based on those included years. -
Accrued To-Date Testing
Lou S. replied to truphao's topic in Defined Benefit Plans, Including Cash Balance
How did you define the opening balance? If it was something like $Y x (past service not to exceed 5 years) than I would argue you could use up to the past service grant in the accrued to date testing. But I don't know if that would pass muster with an IRS agent, though I could see making a good argument for it. -
Early Inclusion of Otherwise Eligible Employee Failures
Lou S. replied to ValerieG11's topic in 401(k) Plans
I think it would depend on how you drafted the amendment for their eligibility and whether or not you pass testing.