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Lou S.

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  1. Like
    Lou S. reacted to C. B. Zeller in Exclude HCE from 3% safe harbor nonelective   
    If the document says that HCEs get the safe harbor then HCEs have to get the safe harbor.
    If they want to change that, it will need a plan amendment. Whether you can do that mid-year for the current year or whether it will have to wait to take effect until the next plan year is circumstance-specific. Did the safe harbor notice say that the employer may reduce or eliminate the contribution mid-year? Is the employer operating at an economic loss?
    Regardless, you can't eliminate benefits that have already been accrued. The anti-cutback rules protect both HCEs and non-HCEs alike. 
  2. Like
    Lou S. reacted to John Feldt ERPA CPC QPA in Exclude HCE from 3% safe harbor nonelective   
    You must follow the terms of the written plan. Look at the notes or other parameters around the safe harbor and see if the employer has any discretion there. If not, follow the written plan provisions, as a plan must comply in operation with those terms to retain its tax friendly (tax qualified) status.
    The plan may be amended prospectively to exclude HCEs from safe harbor, of course. 
  3. Like
    Lou S. reacted to C. B. Zeller in Mandatory 20% withholding on hardship distribution not paid.   
    A hardship is not an eligible rollover distribution, so there is no mandatory withholding.
    There is 10% automatic withholding but that can be waived. I don't see a problem here.
  4. Like
    Lou S. got a reaction from CuseFan in RMD started in error?   
    §401(a)(9) sends you §416 which sends you to §318 for attribution which is used for RMDs. For purposes of the RMD rules he owns the stock of his children, just like HCE determination. It is different for Controlled Groups but be happy the RMDs were properly done and you don't have to go back for missed RMDs under VCP.
  5. Like
    Lou S. got a reaction from Bri in RMD started in error?   
    §401(a)(9) sends you §416 which sends you to §318 for attribution which is used for RMDs. For purposes of the RMD rules he owns the stock of his children, just like HCE determination. It is different for Controlled Groups but be happy the RMDs were properly done and you don't have to go back for missed RMDs under VCP.
  6. Like
    Lou S. got a reaction from Luke Bailey in Sole proprietor - Defined Benefit Plan   
    If he's already contributed $55,000 to the DC plan for 2023, you are going to have problems deducting a $140,000 contribution to a DB plan unless there are employees that would make this a PBGC plan due to the combined plan deduction limit. If he hasn't made any 2023 contribution and is on extension, limit the DC contribution (not including 401(k), if any) to 6% of pensionable pay.
    If you are setting up for 2024, talk to the plan actuary before making any contributions to either plan to make sure you don't get into nondeductible contribution issues.
     
  7. Like
    Lou S. got a reaction from James Shen in RMD started in error?   
    §401(a)(9) sends you §416 which sends you to §318 for attribution which is used for RMDs. For purposes of the RMD rules he owns the stock of his children, just like HCE determination. It is different for Controlled Groups but be happy the RMDs were properly done and you don't have to go back for missed RMDs under VCP.
  8. Like
    Lou S. got a reaction from Bill Presson in RMD started in error?   
    §401(a)(9) sends you §416 which sends you to §318 for attribution which is used for RMDs. For purposes of the RMD rules he owns the stock of his children, just like HCE determination. It is different for Controlled Groups but be happy the RMDs were properly done and you don't have to go back for missed RMDs under VCP.
  9. Like
    Lou S. got a reaction from Luke Bailey in May an employer design a plan with no payout until normal retirement age?   
    A plan can allow for no distribution prior to normal retirement age. Though I believe that's much more common in a DB plan with annuity only options. I don't see why you couldn't do it in a safe harbor 401(k) Plan, but I'm not sure you should do it.
  10. Like
    Lou S. got a reaction from Bill Presson in Plan Termination and one year rule   
    It's facts and circumstances. Document why it took longer then one year so you can address it with the IRS if they bring it up on audit but what actions are they likely to take? Unwind the termination and make you re-terminate? Where it might be an issue is where you drag out the term past some new required amendment dates but typically I've never seen the IRS challenge a term if it took "a little longer than a year" but if you terminated in 2023 and pay everyone out by the end of 2024 I can't see where the IRS would ever be likely to challenge  unless there were other issues with the Plan. That's not to say they couldn't be sticklers, I just think you'd have to have an auditor having a very bad day try to impose that rule which is a guideline as I understand it an not in the code. If they did do that you could always kick it up to a supervisor.
  11. Like
    Lou S. got a reaction from RatherBeGolfing in Plan Termination and one year rule   
    It's facts and circumstances. Document why it took longer then one year so you can address it with the IRS if they bring it up on audit but what actions are they likely to take? Unwind the termination and make you re-terminate? Where it might be an issue is where you drag out the term past some new required amendment dates but typically I've never seen the IRS challenge a term if it took "a little longer than a year" but if you terminated in 2023 and pay everyone out by the end of 2024 I can't see where the IRS would ever be likely to challenge  unless there were other issues with the Plan. That's not to say they couldn't be sticklers, I just think you'd have to have an auditor having a very bad day try to impose that rule which is a guideline as I understand it an not in the code. If they did do that you could always kick it up to a supervisor.
  12. Like
    Lou S. reacted to Peter Gulia in Settlement agreement calls for no company contribution   
    Consider whether the settlement agreement might be wholly or partly void, voidable (by one or more of its parties), legally enforceable, or unenforceable.
    Consider whether the settlement agreement might be effective or ineffective regarding the retirement plan.
    Consider whether the settlement agreement might be a plan amendment. (As one aspect of this, consider whether the settlement agreement’s signer also might have had authority under the plan’s governing documents to amend the plan.)
    Consider whether, if a safe-harbor contribution is not allocated to the participant’s account, a consequence might be that the plan loses whichever safe-harbor relief relates to that contribution.
    If you’re a service provider, consider how to get the plan administrator’s proper instruction that protects the service provider.
    This is not advice to anyone.
  13. Like
    Lou S. reacted to Paul I in Improperly Excluded Employee: Employee Does NOT Want a QNEC   
    @Benefits Plan you commented the employee was improperly excluded from participation.  Some additional details would be helpful. 
    When did the employee receive EACA Notice informing them of the terms of the EACA, and notifying them that they were eligible to make deferrals under the plan?  What was communicated to the employee about the timing of notifying the plan of an election not to participate, and procedure to opt out? Are there other auto-enrollment features in the plan (e.g. QACA) and, if so, what are they? How much time has passed between the date the employee should have been included and the date it was discovered that the employee was improperly excluded? Is there a match under the plan, and if so what are the provisions related to the match? Plans with automatic enrollment features have some very liberal rules for correcting a missed deferral opportunity that could allow a plan to avoid a QNEC for an MDO up to 9-1/2 months after the close of the plan year in which the employee could have started deferrals.
    It is possible that there is a path forward that not only satisfies the participant's desire not to have any balance in the plan, and that also could save the employer some of all the cost of the QNEC.
    Consider the correction methods available under IRS Notice 2024-02 section I.  The opening paragraph of this section reads:
    "Section 350(a) of the SECURE 2.0 Act adds new section 414(cc) to the Code. Section 414(cc) provides that, if certain conditions are satisfied, a plan or arrangement will not fail to be treated as described in section 401(a), 403(b), 408, or 457(b) solely by reason of a corrected reasonable administrative error made (1) in implementing an automatic enrollment or automatic escalation feature with respect to an eligible employee (or an affirmative election made by an eligible employee covered by such a feature), or (2) by failing to afford an eligible employee the opportunity to make an affirmative election because the employee was improperly excluded from the plan (implementation error). "
    The concept of an "implementation error" should now be considered when addressing MDOs in plans with automatic enrollment.
     
  14. Like
    Lou S. reacted to RatherBeGolfing in Improperly Excluded Employee: Employee Does NOT Want a QNEC   
    What rule/mechanism can you cite for a retroactive opt-out? 
    I honestly don't care about what the participant wants.  This is a plan issue, you correct and move on.  Do not make the situation worse by trying to do what they "want" instead of just doing what is right.
  15. Like
    Lou S. got a reaction from Mark G in Returning funds to traditional IRA   
    You can withdrawal funds from your IRA and roll them back tax free if you do it within 60 days of the withdrawal, but there is a limit of 1 rollover like this per year. And I forget it if it is once per calendar year, once in any 12 month period, or if both apply. I also don't recall if this rule aggregates all of the IRAs you many have or if each one is separate if you have multiple IRAs.
    I can't comment on whether or not this is a good strategy, just one that is available.
  16. Like
    Lou S. got a reaction from Luke Bailey in Our family's dairy farm is selling and we'd like to buy a lot and build a house - how do avoid capital gains   
    Definitely not my area of expertise but if the farm has been in the family for 200 years, wouldn't there have been some step-up in basis along the way as prior owners passed on and left their sharers or interest to future generations? It sounds like you need a good tax accountant who is well versed in family business transfer and sale and that's not really the focus of this board.  On the bright side, long term capital gains tax rates are much lower than ordinary income taxes, at least at the federal level, state taxation may vary from state to state quite a bit.
  17. Like
    Lou S. got a reaction from Luke Bailey in Statute of Limitation   
    I'm not sure I even understand what the question is here is or it's application to QDROs but wouldn't this be a question for an attorney who practices in the state in question and has some knowledge of ERISA if a QDRO might be applicable?
  18. Like
    Lou S. reacted to Bill Presson in Returning funds to traditional IRA   
    I recommend speaking with your CPA or financial planner. 
  19. Like
    Lou S. reacted to Paul I in Roth Distributions with no 5-Year Information   
    The conversion data had to have included a separate accounting for the Roth contributions (or you have to deal with an even bigger problem.)
    Ask the client for any plan reports from 4 or 5 plan years ago that show a participant's account balance by source (e.g., individual statements, registers, trial balances, vested balances...)  If a Roth account existed as of the beginning of the 4 year ago, then it is reasonable to assume that Roth deferrals were made before then to create a balance in the account and it has been at least 5 years since the start of the plan year in which the first Roth contribution was made.  Applying this method to the plan years since then will allow the plan to determine year in which the first Roth contribution was made. 
    Yes, we can come up with some combination of circumstances where this is not perfect, but those circumstances likely will be very rare.
  20. Like
    Lou S. reacted to CuseFan in Roth Distributions with no 5-Year Information   
    How is it that basic plan records from only 5 years ago have not been retained in any fashion by either the client or TPA (or a third-party RK)? Isn't that gross negligence?
  21. Haha
    Lou S. reacted to Gilmore in Alternative Investment   
    I wonder if divying up the horse when time comes for a distribution is where the term "quarter horse" comes from.
  22. Like
    Lou S. reacted to CuseFan in Alternative Investment   
    And as we often say is this forum, just because you CAN do something doesn't mean you SHOULD.
  23. Like
    Lou S. reacted to Peter Gulia in Alternative Investment   
    If an ERISA-governed plan’s trustee even considers holding the shares of the limited-liability company that owns a horse, pays the expenses of keeping the horse, and collects prizes and fees of the horse’s work:
    The plan’s administrator might warn the participant that incremental expenses the plan would not have incurred but for the nonqualifying asset—for example, premiums for extra fidelity-bond insurance or fees for an independent qualified public accountant’s audits, and lawyers’ fees (see next paragraph) are charged to the individual account of the participant who directs investment in the nonqualifying asset.
    The participant must engage her lawyer at her personal expense. And at least for the initial sets of transactions—forming the company and its LLC operating agreement, the company’s purchase of the horse, and the plan trustee’s purchase of its member interest in the LLC, the participant’s individual account is charged the fees and expenses of the plan’s trustee’s and administrator’s lawyers. (Other individuals should not bear expenses made necessary because of one participant’s directed investment.)
    Likewise, the plan trustee’s extra fees and expenses for reading the LLC’s financial statements and otherwise monitoring the plan’s investment are charged to the directing participant’s individual account.
    The plan’s administrator might require that the participant’s account always hold enough daily-redeemable investments so the administrator perpetually can pay all incremental plan-administration expenses without invading any other account.
    In my experience, a person who thinks about using her retirement plan account to buy an unusual investment considers that way because she lacks money. But many of those also lack an account balance that’s enough to both buy the nonqualifying asset and reserve for the plan’s incremental expenses.
    This is not advice to anyone.
  24. Like
    Lou S. got a reaction from Luke Bailey in Amendment Timing   
    And amendment can't be effective for the year if it has a prohibited cutback of benefits.
    Adding after-tax is an expansion of benefits so should be fine. Though it will be subject to ACP testing, just so you are aware in case you were not.
    The second part is a bit trickier if you can do it or not. If anyone is entitled to an allocation under the old formula you won't be able to change the formula until next year. However, if no one has yet earned the right to  the allocation formula then you could amend this year. generally speaking if your current plans has a last day requirement or an hours requirement that no one has yet met you could do  the amendment effective in the current year, provided it's adopted before anyone has accrued a right to the old formula.
    Safe harbor 401(k) plans have a few additional levels of hoops to satisfy where you might not be able to make the change even with a last day requirement, you'd have to double check on that one if that's you situation.
  25. Like
    Lou S. got a reaction from Luke Bailey in Beneficiary Designation   
    Yes 401(k) that offer annuities have always been subject to those rules.
    At one time you could not amend it out as the IRS viewed it as a 411 cutback, but now you can as some law changed it if you meet certain notice and timing requirements. I think the change was in the late 90s or early 00s but I forget which piece of legislation allowed you to remove the QJSA/QPSA from non-pension plans.
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