ETA Consulting LLC

AKconsult for President!!! LOL

On the surface, he'd lose all of his retirement savings. This could open up and entire world of possibilities. If I have $1 Million in a company 401(k) plan and wanted to devise a scheme to gain income tax fee access to these funds, then I could start of ROBS and drive the company in the group with high expenses (e.g. lucrative travel for business meetings). After the company fails from high expenses and zero revenues, I file bankruptcy. The net effect is that I've exhausted all these funds on my personal spending spree (which could be targeted by the IRS as a tax avoidance scheme). But, until that happens, he merely lost all his retirement savings on a 'bad' investment. Good Luck!

Then, you can see where the forfeiture pays the match and profit sharing totaling $2,882.38 and a reduction for deferrals and loan repayments of $1728.01 (which IS a problem). You "may" look at the option of correcting this as if it were late deposit of deferrals and loan repayments where the $1,728.01 (along with earnings) are deposited back into the forfeiture account. Each participant's account is whole, since they received exactly what they were entitled to receive when they were entitled to receive it. The forfeiture account is short. This would appear to be a reasonable method of correction. Good Luck!

I agree with MoJo that it is a very tight line. Employer Contributions are paid directly from the company. So are employee salaries. So, you're basically saying that the employer is making a decision to pay more in employer contributions and less in salary to the participant. The key is the elimination of "choice" by the participant; which is exactly what MoJo said. Good Luck!

You must actually be eligible to defer in order to be included in the ADP test. Good Luck!

When you post a question like this, it would help to differentiate the amount of Profit Sharing and Match that was funded on this payroll. The scale of "problem" would be measured by the amount in which the offset exceeded the match and profit sharing; or the amount of actual deferrals and loan payments that were offset my forfeitures. The fact that the payroll included deferrals and loan repayments doesn't necessarily constitute a problem. Good Luck!

Well, maybe. This would appear to be the case if she sold her interest "in the partnership" while maintaining her ownership in "her own company". If she actually sold her interest in her company to go and start another one, then you may have the "severance of employment" needed for those distributions. The reason that I'm restricted with the answers is that by not knowing the fact pattern, there may be a 'severance of employment' that I'm not seeing. I am tending to agree, because I'm not seeing the severance of employment, "either deemed or actual" to justify a distribution. That's not saying that it's not there, but the key is to actually identify that event. There is a rule that says when a company purchases another company and decides not to take over their plan, then this is treated as a severance of employment for distribution purposes. This situation doesn't even appear to be close to that situation. When I was in corporate, I used to tell my employees that 'there is no such thing as a right or wrong answer, there's just a right or wrong approach. Obviously, this can be challenged as sometimes you just get the wrong answer. But, my goal was to get them to justify their reasoning and knowing how to think and approach an issue. In that event, I can see where they got off track and lead them through it. With that said, I'm not trying to talk in circles, but merely trying to explain how I would approach this. Good Luck!

Question for you. Was her company an adopting employer to the plan that was operated by the affiliated service group? Or, was she merely a partner in a partnership that sponsored a plan? Maybe the answer is there, but I'm having an issue following the fact pattern. This would be my approach to it: If she was merely a partner in a partnership and sold her interest to the other partners and took some of their employees in order to start a new business, then there would be an argument that a severance of employment took place for her and those departed employees. However, if her entity was a co-sponsoring adopter to a plan maintained by the partnership, then it would seem that a spinoff would be appropriate since the only change is that she no longer wishes to be a part of that plan (which would become a Multiple Employer Plan since they are no longer part of a related employer group). My answer would likely change as more information become available, but this would be my first inclination. Good Luck!

Just another thought. I hate to lecture, but consultants must typically identify ways to get things done instead of reasons why they can't be done. In this case, your only deadline (November 30th) was the deemed reasonable notice deadline for issuing the safe harbor notice. You really had up to December 31st to actually amend the plan. Many practitioners would present a argument that it is possible to provide a 'reasonable notice' that is done after November 30th. At any rate, distributing the notice reflecting the safe harbor contribution that 'WILL BE' in effect on January 1st is the goal. So, you did have the option of distributing that notice and then taking the two-weeks need for preparing and actual amendment. My contention is that there is more that could've been done for the client. Apparently, the client spoke to an industry consultant that recommended preparing the amendment and notice to their liking and distribute the notice; which gives them time to get the plan formally amended. I just cannot fathom that the only way a client can get their safe harbor formula for the upcoming year changed on November 30th is to work through a vendor that refuses to prepare the amendment. I'm not arguing for the immediate turn around for amendments. I'm just saying that there are typically several paths to getting the same goals accomplished. Good Luck!

I would disagree. I've seen amendments through board resolutions that would effectively amend the plan's provisions immediately with the understanding that the plan document would be subsequently amended to reflect the change. This may very well fall within those same guidelines. A major point of contention that occurs when doing this type of amendment is ensuring that you do not amend the plan out of prototype status. I cannot see where merely selecting one provision over another effective a month from now would cross that line. Honestly, I would wonder why that client is still with the vendor. Even when I worked in an assembly line process when it would take 2 weeks to process a simple amendment, the amendment by resolution technique was an effective way to get the plan's provisions changed until the document could be formally amended. The client is looking to get something done. Instead of looking for ways to meet the client's needs while remaining within the framework of the rules, it appears as if the client is being presented with a 'too bad for you'. I may sound a little too critical, but this has been something I've been working around for at least 15 years now. Good Luck!

On what grounds would the vendor not 'honor' an amendment by the Plan Sponsor? Are they saying they are refusing to accept these changes merely because they are hand-written? I'm not aware of any rule that would invalidate a plan amendment merely because it was hand-written. Good Luck!

I do. But, I wouldn't let it stop me from issuing the distribution if I'm up against the deadline. Everything that is legal is not necessarily administratively feasible. It's important to actually know the withholding rules outlined in IRC Section 3405 and how they apply. In this case, it's a non-periodic distribution that is not eligible for rollover. Good Luck!

No :-) Good Luck!

In house recordkeeping for plans with individual brokerage accounts is, certainly, something to consider. Given these prices, it would be easy to compete for plans with 5 or fewer participants. Something I'm pondering myself :-) Good Luck!

I agree with you. It appears as if your software is not recognizing the participant as being catchup eligible for whatever reason. Just to ensure we're on the same page semantically, you're saying the owner's net earn income immediately before being reduced by employer contributions to his own account is $23589.75. If this is the case, then an employer contribution of $4717.95 would then reduce his earned income from self employment to $18,871.80. That $4717.95 is fully deductible since it's 25% of $18,871.80. Normally, a deferral of $14,153.85 would put him at 100% of Compensation, but the fact he is catchup eligible would increase that limit. Good Luck!

I agree with you. I generally review each situation against the written rules as they come up; since there are potentially unlimited circumstances (e.g. medical payments exceeding 7.5% of AGI, but that would require an adjustment on the tax return and not the Form 1099R). But, I agree with everything you're saying. Good Luck!

You have a dual employer in a PEO. One entity (The PEO) is the employer for tax purposes and the other (the Company) is the common-law employer responsible for hiring and firing and controlling the work-flow of the employees. So, the Common-Law employer is still the employer after leaving the PEO. Otherwise, you could suggest this: Let's say Company A has a plan with $3million in assets. Let's suppose Company A joins a PEO and merges this plan into the MEP sponsored by the PEO. Now, Company A can merely walk away and function as if it has no involvement whatsoever in their portion of the plan? I don't think that is how is works. They are still the employer; and merely joining a PEO doesn't diminish their roll as Employer. So, without something to get around being an Alternative Defined Contribution plan or something to effectively create a severance of employment, then Company A is always going to be part of that portion of the plan. Good Luck!

One more. If the deposit was actually made in 2017 (after the 2016 year), then why not use the excess as a contribution funded for 2017? Wouldn't that work as well? Good Luck!

I was merely pointing out that an alternative defined contribution plan is a plan that exists any time during the date of plan termination and 12 months following the distribution of plan assets. Hence, merely terminating a plan before the sale doesn't prevent it from becoming an alternative DC plan. I did not consider there being a 'severance of employment' where one company purchases another but does not agree to have any involvement in their plan. Was that what you were getting at?

I agree. One more thing to consider. There is a 12 month window with respect to determining whether an alternative Defined Contribution plan exists. So, it's not an issue of merely doing everything before the sale. In practice, it would have to be terminated and fully distributed at least 12 months before the sale. Good Luck!

This is consistent, because even when you retroactively amend under VCP, the items on the VCP Application would be filled out stating that you're not filing for a Favorable Determination Letter and the reason is that you're written to a Preapproved Document. Good Luck!

No, you shouldn't have to submit to a determination letter. That wasn't the thinking when that was written. Here's how I have it pieced together. Technically, Having a determination letter was never a condition for plan qualification. It WAS and IS always prudent to have one because one thing you forego without a determination letter is the ability to Self Correct (even the most insignificant) errors. With that said, the idea of not having a favorable determination letter was never considered an option; even though you could (technically) have a qualified plan without one. So, the rule is basically saying if you use SCP to retroactively amend a plan to reflect the early entry of several employees, then not having a favorable determination letter is not an option; so you would need to submit for it. If you're already on a pre-approved plan, it's a non-issue altogether. This is how I frame it. Good Luck!

Probably just prepare the plan documents as they should've been prepared back during the change in plan sponsors and file under VCP to corrects similar to a non-amender. Good Luck!

I have seen plans that have brought casual employees (e.g. 2 hours per week) in using the elapsed time method. So, the suggestion that PT employees would eventually come in is not necessarily true. It is something you have to project out when looking at the census. Part of plan design is anticipating and avoiding the pitfalls upfront with the census analysis while continuing to monitor the trends after the plan is in place. Avoiding the 100 participant count at the beginning of year 1 (and then 120 limit in subsequent years) is an important plan design function. When you fail to project and implement approaches to avoid it, then you've failed your client. Maybe that's just me being a hard-ass :-) I've seen plans that made the 121 participant count and became large plan while they had tens of terminated participants with balances less than $1000 that were never forced out. Heck, after that, you should be prepared to implement an auto rollover provision to force out balances up to $5K to avoid the limit. BUT, never let your client get blindsided with a audit fee that they never saw coming. Good Luck!

I think that would be pushing it. I see what you're saying, but the idea of double dipping on the same dollar of compensation would seem to undermine that. If you earn $10K and your CBA calls for $500 in retirement benefits while the employer turns around and gives an additional $500 in benefits; this would equate to a 10% benefit (of which 5% was due under the CBA). Now, the plan becomes Top Heavy (and CBA employees are excluded). You have created an anomaly because the same $10K in compensation is both union and nonunion. How would this compensation be tested under ADP (or ACP) given the mandatory disaggregation rules? Wouldn't you have $10K of union compensation included in the test? I throw these out there as examples of why this approach would be like splitting hairs. I believe that as of any date, your benefits are either subject to good faith bargaining or they're not. Just a few thoughts. Good Luck!