cpc0506

We have a client who requested a plan termination due to acquisition effective December 18, 2017. Plan Year end is 9/30 and is a safe harbor plan. Termination paperwork has been signed. We informed the client that the plan can still be safe harbor for a short final plan year if the plan termination is in connection with a 410(b)(6)(C ) transaction. Yesterday we hear from the client that the acquisition date has been pushed back to March 2018 due to insurance issues and that employees will continue to be paid by the current plan sponsor until then. Our concern is that the termination date is earlier than the acquisition date and that the plan is now subject to ADP Testing and Top Heavy. What are your thoughts regarding this? Do we need to change the termination date of the plan to March in order to satisfy the acquisition exception?

Yes, there is a control group that would exist for 2017. Business Y closed its doors in 2017. They are listed as the sponsor of plan Y. If Business Y closes, then I would have thought that Y can no longer sponsor a plan.

We have a solo-k plan with plan sponsor Y. Sole-proprietor decided to end his business, Y, this year and establishes a new business Z in the same year. Sole-proprietor would like to establish a plan for business Z. Is this ok? In my gut, I say 'yes', as an owner of multiple companies can sponsor plans for each company if they want within the regulations. It is the sole-proprietor that is throwing me.

That is exactly it. He works for another company and his 1040 line 7 - wages, etc. exceeds 118,5000. Thanks.

Hello. I am working through the calculation of earned income for a sole proprietor for 2016. He is 70.5 years old in 2016. And the amount on his 2016 Schedule C line 31 is $13,870. The accountant has reflected his deductible Self Employment tax on line 27 of his Form 1040 an amount that equals just Medicare tax of 1.45% and no FICA deduction. So our calculation of his allowable contribution is different than the accountant's number. Can anyone tell me if there is an amount of income earned that is not subject to FICA due to age?

I agree that the late RMD should be reported. That is how we have always handled this. My question still remains: would you report on the 2016 Form 5500 or 2017 Form 5500? The first RMD due by 4/1/17 was the 2016 RMD.

First RMD was due for a participant by April 1, 2017. The RMD was not processed timely. Participant did not receive the RMD until just last week. Would you report this 'failure to provide a benefit when due on the 2016 Form 5500-SF line 10f or the 2017 Form 5500-SF line 10f?

Section 401(m)-2(c)(2) states: "For purposes of this paragraph (c)(2), the first plan year of any plan is the first year in which the plan provides for employee contributions or matching contributions.". There have been prior years in which Salary deferral contributions were made. Does this not dictate that as the first plan year for the plan for all purposes?

Tom, I think the issue that you overlooked, is that the plan uses prior year testing. If I understand you correctly, I would have to shift 2015 numbers to get the ACP test for the HCEs to pass for 2016.

Not sure it is worth the cost of filing (fees and consulting time) when the 2016 ACP return is less than $400.

Client failed the ADP test, but monies were reclassified as 'catch-up' so the plan was deemed to pass. So, no, we cannot shift match.

I have a plan that uses prior year testing method for deferrals and match. Client did not make a matching contribution in 2015. So, is it correct to say that the match percentage applied to the HCEs for the 2016 year is 0%, so that any HCE who receives a match in 2016, must forfeit the entire match amount?

We have a client that has allowed participants into the match portion of the plan earlier than the document allows. We are doing a corrective amendment for 2016, but can we also do a corrective amendment NOW for 2017? My concern is that I thought that a corrective amendment was only available after the plan year ended. Client has changed the entry conditions for match to tie to those of the deferral with an amendment effective August 1, 2017. But there is still the issue of the period from 1/1/17 to the date of amendment.

Participant A participates in DC plan Z. Participant A dies. During year end valuation work we learn that her assets in the plan are just transferred to her beneficiary (her spouse) and kept in the plan. But the beneficiary is not an employee of the company sponsoring Plan Z. We don't believe the Alliance handed the distribution correctly. The funds should have been distributed. Do you agee?

Hello. We have a client - 2 person (solo-k husband and wife) with a DC plan . Each deferred 18,000 and at the same time client contributed $5,000 match to their accounts. Well, we come to find that their gross compensation for 2016 was 19,500 each. So we have 2 limit issues. Each has excess annual additions but the client also exceeded their maximum allowable deduction of 25% of eligible compensation by $250. Which problem is taken care of first? Do we forfeit $125 of match from each participant's match account and then determine the excess annual additions? Or the other way around? We are so somewhat lucky as wife is over 50 so we can reclassify her excess as 'catch-up ', but not so for the husband. My sense is you fix the deduction limit first, but I thought that once the employer funds are assets of the plan they cannot be removed. Please advise.

The employer changed his business entity status in 2016 to S-corp. And added an ESOP plan to its mix of plans. The form allows for the applicant to provide a statement of reason to allow the change. Since the short plan year ended December 31, 2016, (which was the filing deadline for the Form), the client is rather surprised that he has not received any notification yet.

Hello. We filed a Form 5308 (request to change plan year) for a client for a 401(k) plan that was originally a calendar year plan, then changed to an off-calendar year plan 2 years ago and has now change back to a calendar year plan. The form was submitted in October 2016. Do anyone know how long the turnaround time is usually for the Internal Revenue Service, Commissioner, TE/GE to acknowledge receipt of form. Or, do you know who the client might be able to call to get an update on the status of the request.

Then someone please explain to me why the IRS website says: The annual additions paid to a participant’s account cannot exceed the lesser of: 1. 100% of the participant's compensation, or 2. $54,000 ($60,000 including catch-up contributions) for 2017; $53,000 ($59,000 including catchup contributions) for 2016. I read this to mean that he is always bound by his compensation if less than the lmits.

Can you cite some regulations. Even the IRS website only mentions the lesser of: $53,000 or 100% of compensation Yes, the only employees in the plan are HCEs so we automatically pass all compliance testing.

Employee/Owner A made $53,000 last year. He deferred $24,000 (he was catch up eligible for 2016). Employer makes a safe harbor match contribution of 100% of deferrals up to 4%. So his calculated safe harbor match is $2,120. Employee/Owner would like to maximize his contribution. There is enough non-owner compensation that we do not need to worry about the company's 25% deductible limit. I have calculated his profit sharing as $26,880. Another colleague is saying he can receive 32,880 in profit sharing since he is catch up eligible and his limit is actually $59,000 and not $53,000. But I did not think that he could receive more than 100% of his compensation. Who is correct?

Client was in the process of being purchased and did not want employees to be able to defer into the plan after the purchase date but was not ready to terminate the plan. They wanted participants to be able to continue to make loan repayments to the plan and get the loans paid off. Employees started deferring into new employer's plan on 1/1/17. The client has now requested that we terminate the plan effective 6/30/17.

Client opted to freeze its 401k plan effective 12/31/16. I understand that there are no more benefit accruals after that point. The plan year ending is 6/30. So we have period in the plan year that runs from 7/1/16 to 6/30/17 that the plan was frozen. What compensation is used for testing purposes for the 2016 plan year?

A client offered a Simple IRA to his employees. Now he is offering a regular 401k plan. I know that there are specific distribution rules for Simples, but if the participant has met the 2 year participation requirement and decides to roll his money to the 401k plan, are these assets considered related or unrelated rollover funds?

Client thought employee Y was not eligible to participate in plan because they considered her a part-time employee. Entry is immediate for deferrals (and 1 YOS for match with semi-annual entry dates) but Plan does have a part-time employee exclusion, but that exclusion no longer applies once an employee works 1000 hours in the computation period. Employee Y was hired on 2/11/11 as a part-time employee. At the end of the 2011 plan year, we learned that she had worked 1000 hours. What would you consider her entry date into the plan? Since the plan has an automatic 2% contribution rate, should we be calculating the missed deferral opportunity at 2% or do we rely on the ADP test results and use the average rate of the NHECs? Please advise.

We are instructing our new solo k clients that they should file a Form 5500-SF instead of the Form 5500-EZ. Do the same rules apply for the asset level that requires a filing? In order words, is it correct that even a Form 5500-SF is not required for a solo k until the assets exceed $250,000?