cpc0506

We have been told by our internal ERISA Legal department that if the corporate tax return was already filed, you could not amend that return to allow for the adoption of a plan for the prior year. I would like to hear others take on this.

The safe harbor is a 3% Non-elective. This is getting even better. The 'first' plan of the client, let's call it Plan A, was effective January 1, 2019 and is currently still on a PPA document. The 'second' plan of the client, let's call Plan B was effective January 1, 2022 with deferrals effective September 1, 2022 and safe harbor for full plan year. In reviewing the provisions of Plan A and Plan B, there are a number of protected benefits in Plan A that are not part of Plan B. We can easily amend Plan B to include the protected benefits that are in Plan A. And I agree, we can merge the plans, but I think that Plan A would need to be restated for Cycle 3 (late amender) before I would suggest merging the plans. Note: The same employees are covered by both Plans. We are still trying to determine how the deferrals are being handled since there are 2 plans. More to come.

New client comes to us and asks us the establish a 401(k) SH plan for them. We generated the documents, safe harbor effective January 1, 2022 and client executed the document. We just learned that advisor aware that the client already has a 401k plan, which is not safe harbor. What options do we have now? Can a client sponsor two 401k plans in the same year ( one safe harbor and one non-safe harbor)?

I have now learned that Client A is an LLC and his wife's company is an LLC. Still waiting for word, but I am guessing both are LLC taxed as sole-props. Does this change any of your responses?

Hello, Client A, a sole proprietor, has his own 401k plan. His wife just established her own sole proprietorship. Client A wants to add his wife's company as a Participating Employer to his plan. Would this be considered a Control Group with an adopting employer or a MEP with an adopting employer?

Client has a calendar year QACA plan with QACA statutory minimum schedule. They would like to change to schedule of QACA provisions to 6% auto-enroll with no escalation and would like to do it effective 10/1/22. Is this allowed mid year? And to whom do the new provisions apply? In other word, if employee A was auto-enrolled under prior schedule at 3% and is now at 5% deferral rate, does he need to be increased to 6% effective with amendment change or can he stay on the old schedule and just auto-increase at next increase date? Thanks in advance for your reply.

Do you see the 3 year repayment period as possibly discriminatory to NHCEs since they have less time to pay back so have a larger loan payment amount and because they make less than a HCE, the payment might be onerous? Or could this argument apply for a loan that is 5 years long?

Client has requested an amendment to reduce the maximum allowable loan amount to 50% of vested balance, but not to exceed $25,000. Client also wants to reduce loan repayment period to 3 years. Can these elections be made and the loan still satisfy 72(p)? Any guidance you can provide would be greatly appreciated.

Can I add my two cents here? If I am understanding the issue, I think it needs to be clear that the SH 3% is used to satisfy the ADP safe harbor. Plan now has ACP testing since voluntary deferrals are included in the ACP test. So an additional QMAC contribution would need to be made to pass the ACP test . You cannot count the SH twice.

We have a new client who wants to establish a Profit Sharing Plan for 2021. The client (12/31 FYE) tells us that they already filed their 2021 taxes (and did not put their return on extension.) My gut response is 'it is no late' since filing deadline as passed. Now what is the client filed an extension (deadline now 10/15), but still has already filed their corporate return last week. Does this change my response? I am thinking so, since the corporate return was extended. Do you agree? If anyone can provide documentation to support or refute my answers, please provide. Thanks.

Some background: 1. Client currently has a safe harbor match plan (Plan 001) that was restated for Cycle 3 effective January 1, 2022. Document was executed December 2021. I am not aware that this plan has been frozen any time in 2022. 2. Client has decided to add a Cash Balance Plan for 2021 but determined that the profit sharing formula in the current 401(k) Plan for 2021 would not work. 3. Initially, the client requested a new profit sharing only plan (Plan 002) effective for 2021. 4. They have now come back and ask that we add deferrals to Plan 002 effective October 1, 2022 and add safe harbor nonelective at the same time. My observations: 1. I agree that the client can establish a profit sharing only plan effective January 1, 2021 so long as the document is executed by the due date of the client's extended corporate tax return. 2. Client is an S-corporation, so document would need to be signed by 9/15/22. 3. I know that it is allowable to add safe harbor to a current PS only plan so long as you allow for 3 months of deferrals. So, under normal circumstances, deferrals and safe harbor could be added no later than October 1st and would need to be executed by 10/1/2022, which is not an issue since the document for Plan 002 will need to be signed by 9/15. 4. My concern is the existence of Plan 001 and that the same employees would be covered under both plans in the same plan year. Can a client sponsor both a safe harbor match plan (Plan 001) and a safer harbor nonelective plan (Plan 002) in the same plan year? Any guidance and support you can provide would be greatly appreciated. Thanks.

Client is looking to add after-tax (voluntary) contributions to their current safe harbor match plan. I understand the ACP testing and top heavy issues that arise with after-tax contributions, but I am trying to determine if the client is required to provide the Safe harbor match to the after-tax contributions. Can anyone provide some guidance? Thanks.

would your response be the same if both entities or sole-props and not corporations?

We have a long standing client who sponsors a soloK plan. His wife just established her business and he would like add her company to his plan as a Participating Employer PE. This may or may not be a Control Group. This will need to be determined. Aside from that issue, is a plan still a soloK plan if there are PEs? Would your answer be the same if this is a GG, or if adding the PE makes this a MEP. Thanks for your guidance.

Hello. Client is looking to remove a fixed non-safe harbor match of 100% of deferrals up to 6% comp(pay period determination period) from its plan. The plan also has a safe harbor match., so this is a safe harbor plan. Can we removed the fixed match so long as it is done prospectively (say 8/1/21) with no SH notice provided by July 1. Is this change a permissible mid-year change to a SH plan? Please advise.

Ok. Can you clarify two points? So, ignoring the entry date requirements, are you saying that the only time that the SHNEC can be less than 12 months is if the initial plan year is less than 12 months? If so, when can you have a short year SHNEC plan?

I want to ask another question: If compensation had been participation compensation, would you answer be the same?

Yes, the intent is just to cover the former Company B employees. Yes, the client provided the document for the Company B plan and asked that the provisions mirror that plan. QSLOB rules would not apply as both companies are in the same line of business.

Company B was acquired by Company A in an asset sale. During the acquisition, Company A created a new Company, named it Company C (different and distinct EIN from company A) and this is the company now paying the former employees of Company B. Company B previously sponsored a plan and intends to terminate it. Company C would like to establish a new plan for its employees only and want to rely on 410(b)(6)(C) transition relief. All the documents I have read on this issue talk about the current existence of a Plan and that Plan having met coverage prior to the transaction, thus the ability to reply on the 410(b)(6(c) rules. But no plan existed for this new company. So I don't think that the client can rely on the 410(b)(6)(C) transition relief. Is my logic correct? Any guidance that can be provided would be greatly appreciated.

We have a new client who has come to us to establish a 401(k) plan. The entity is a Community Land Trust. I have not encountered this type of entity before. Can they establish a plan? Thanks in advance for your input.

We have a plan that wants to terminate in October. The Consultant has requested that the amendment include language that the Limitation Year for 415 purposes be the calendar year. They want to be sure that compensation of $285,000 and maximum allocation of $57,000 will be permitted for the 2020 plan year. It is our understanding (of the Relius document) that the Plan Year that includes the Effective Date of Plan Termination ends on the Effective Date of Plan Termination. This provision applies for all plan administration purposes, including the application of the Top-Heavy requirements under Code §416, the limitation year under Code §415 and any allocation conditions imposed by the Plan, in essence creating a short Limitation Year. And in a short Limitation Year, the limits are prorated. The "maximum permissible amount" will not exceed the "defined contribution dollar limitation multiplied by a fraction, the numerator of which is the number of months in the short Limitation Year and the denominator of which is twelve (12). I was hoping that someone else has encountered this issue and can provide some guidance.

Can a client remove Roth from a safe harbor plan mid-year? I don't see any rules precluding this. Only 30 days notice as Annual Contribution notice is affected. Your thoughts?

Hello, Employer A owned 100% of 3 other companies. Employer A sponsors a 401(k) plan in which the 3 companies signed Participating Employer Agreements. I found out today that Employer A sold the 3 companies a few years through an Asset sale. Can I amend plan now to indicate that a controlled group no longer exists? Should cessation agreements have been generated for each Particpating Employer? Or does the type of sale negate the PEA?

We are in the process of restating a 403(b) plan for PPA. It is a Church plan. Prior AA had language that read: In order to share in non-elective and matching contribution, the Employees who normally work more than 30 hours per week are eligible for all Employer Contributions and Forfeitures Is this allowable? I understand that Church plans are not subject to discrimination testing, but are they allowed to exceed the 1,000 hours requirement to receive an allocation?

If plan allows for Loans, can an employee who is on active duty (and has been 3 years) take a loan? Plan does allow for distribution for deemed severance of employment, but client wants to give loan option to employee if allowed. Thanks.