ETA Consulting LLC

I was hoping to receive additional comment on this. When reading IRS Publication 15-B, you can see where the IRS treating the 2% Shareholder as a Partner and would, therefore, not treat the fringe benefit as being given to an employee. One effect of this is that it would not be subject to employment taxes, but would be included on an information return (i.e. K-1); neither would it be considered a reduction of distributions to the shareholder. Honestly, I do not work on cafeteria plans or any other fringe benefit plans; so this sounds like a foreign language to me. At any rate, the notion of a shareholder in an S-Corp being treated as a Partner in a Partnership does appear to be very limited in scope. FWIW, I never saw the DOL coming in to enforce the rights of a 50% shareholder of an S-Corp under the auspices of protecting the employees. So, I share Lou. S's sentiment on that issue. It seems to defy logic. However, the plain language would seem to suggest that a plan comprised of only shareholders of a Corporation would be subject to ERISA, and therefore disallowed from using the Form 5500EZ. I would love to hear thoughts on this. Good Luck! Good Luck!

It does not. You must've worked at least one day within any three of the preceding 5 years. Good Luck!

The thing that gets me on this is that Section 1372(b) says that the term partner shall include those shareholders "for fringe benefit purposes". Are we comfortable using that narrow focus (Fringe Benefit) to imply that this covers qualified plans? I'm just asking... I would love to hear some thoughts on this.

This is a good question. I do not think you'd be eligible for the Form 5500 EZ since the LLC elected to be treated as a Corporation. The exemption for covering only partners in a partnership does not seem to be the case in this instance. Good Luck!

Off hand, I think there is a confusion (which may be nothing more than a matter of semantics). If you submitted a prepared (draft) to the Plan Administrator, then where is the actual Domestic Relations Order (DRO) from the court? I guess my question is what did that Plan Administrator "qualify". I'm trying to ascertain what an ex-spouse would be required to sign when a court has issued a Domestic Relations Order to the Plan Administrator. I would imagine that anything needing to be signed by the ex-spouse would've been signed by then. Good Luck!

The 60 day period may run concurrent with the establishment of the plan in this instance. So, you may make the 60 day notice on October 1st, Or you may have the 60 day notice end on September 30th, or any period in between. Good Luck!

You can also use a loan offset (taxable distribution of loan) to satisfy the RMD. This can work, even if you take the cash and use the proceeds to repay the loan. Good Luck!

It's based on the beginning. You should also familiarize yourself with the 80-120 rule. Basically, if you are already on a Small-Plan Form, then you won't be required to switch to a Large-Plan Form until your Beginning Count exceeds 120. Good Luck!

At the end of the day, "Matching contributions are not treated as forfeitable merely because the contributions to which they relate are excess employee contributions, excess aggregate contributions, or excess deferrals". You are not forfeiting match merely because of an ADP failure, but to correct a discriminatory rate of match after all corrective distributions have been made. The document "may" prescribe a forfeit of attributable match prior to the ACP test, but even that would not appear as an authority to forfeit on the first payrolls. So, to prove your case another way, I'd challenge them to show me where match is to be forfeited merely due to ADP failure. If that language isn't there, then they have no basis for forfeiting the match; as they would be hard-press to prove there remains a discriminatory rate of match after the ADP refund. Just more fuel for your fire :-) Good Luck!

I agree, 100%. There is a 410(b) issue. That issue actually jumps out on the first read. I was trying to determine whether or not there was another "hypothetical" issue that would question deductibility. The title of the original post mentioned 410(b), but the question when on to ask about making the maximum deductible contribution. The deductibility limit is going to increase from $25,000 to $30,000 when you implement the fail safe - or 11(g) amendment to bring the other participant into the 'benefiting' group. I was trying to address the deductiblity while admittedly ignoring the obvious 410(b) issue; which was more of a theoretical answer than a pragmatic approach to the issue. But, I agree with you 100%. Good Luck!

I "THINK" is understand what the question is, but is worded incorrectly. The answer to your question, as worded, is simply $25,000; but it's obvious that you will fail 410(b). The deductibility limit is 25% of aggregate compensation for those who are "eligible to benefit" during the year. Since the non-key employee terminated and was, therefore, not eligible to benefit during the year, then his salary would not be considered for the deductibility limit calculation (unless the plan has a 401(k) provision which would now put him back into the eligible group). What "I THINK YOU WANTED TO KNOW" is what would happen should the non-key employee who actually met initial eligibility under the plan but failed to work the 1000 hours necessary in order to receive an allocation during the year (but was employed on the last day). In instance, he would NOT be in the eligible group... That is UNTIL he actually entered due to the TH minimum requirement. In this case, even though he was otherwise not entitled to a contribution (and therefore excluded from the group), he would now be in the group because he is now eligible because of the need for a TH minimum. This still ignores the fact that you're still failing 410(b). When you incorporate the need to pass 410(b) into your equation, then you'll probably see why the question never came up. Generally, when you're working with an allocation group that passes 410(b), you won't have any deductibility issues. Good Luck!

You basically want to change the provision that says anyone employed on June 15th is eligible for the plan and subsequent hires must work a year. There is a provision in most adoption agreements to do that (e.g. provide a date for which all current employees become eligible). Amending the plan mid-year to accomplish this would seem doable with respect to the new IRS regulations on mid-year amendments. Some would argue that you could always do this. Good Luck!

Does the plan say "following" or "coincident or next following". That provision should answer your question. Good Luck!

We know the DOL's postion with respect to failing to timely separate amounts withheld from employees' pay from the company's assets. The problem here is that the employee is actually the owner. With that said, this isn't a situation where an employee need to be made whole; it's more of a situation where an owner received a tax deduction on amounts that were not contributed. The idea of providing a further upside in allowing him to treat this as a late deposit would appear to be more egregious than the first failure of not making the deposit. I would imagine that you "could" actually correct as the late deposit and, at the same time, it does nothing to appease the IRS. The IRS has MANY arguments of why these amounts were not deductible 2014. Just a few things to consider. Good Luck!

No problem. I'd do the amendment to add the SHNEC and the 401(k) as of 1/1 and then include the delayed date for actually making deferrals. It should map fairly easily on any Prototype document. Good Luck!

The first approach is the refer to the plan document and see if there is any language that addresses this scenario. Some documents are actually written with language prescribing you do just that [allocate on full compensation] in that scenario. But, you must yield to the language in the plan; it's a good chance that it's there. Good Luck!

No. Each owner will take a bigger loss for their "respective portion" of the contribution costs to employees. While the loss will send the 3 parts further below zero, their 415 limit will continue to be zero. Everything should be business as usual with respect to the way it's calculated. Good Luck!

This is a non-issue. So, you have a short plan year 1/1/2015 - 10/31/2015 and another 12 month plan year 11/1/2015 - 10/31/2016. You have two distinct plan 2015 plan years, but neither of them exceeds 12 months. As for the PPA restatement being effective 1/1/2016; it's another non-issue. The restatement effective date may fall within a plan year. Merely restating plan onto a new adoption agreement doesn't mean that you're changing any plan provisions at the time of restatement. You're merely drafting the current provisions onto an updated document. I don't see an issue :-) Good Luck!

The failure originated with the notion that the participant should be allowed any control of the policy. The participant is merely the insured. The plan is owner and beneficiary of the policy (I tend to use "plan" and "plan's trust" interchangeably). So, under what authority would the insurance company act per the instructions from someone who is not the owner. If the insurance company issued a check (from policy loan proceeds) to the participant, then that would be a taxable distribution from the plan to the participant. There is nothing (eg legally enforceable loan agreement, amortization schedule, etc.) that would invoke 72(p) to have that distribution treated as a loan. With that said, the failures appear evident. The approach used to correct is should be interesting:-) (I'm keying this from my smartphone, so please excuse the brevity) Good Luck!

You're right. There is a hole in the process. One thing that the IRS has allowed in the Top Heavy determination process is for you to use contributions to the SEP instead of account balances. This was apparently an attempt at pragmatism when considering what an employer must go through to obtain a balance from an account they do not control (beyond actually depositing the contribution to it). It would've been a perfect process had the IRS merely made the Regulation read "Contribution made to the SEP during the past 5 years for those individuals included in the Top Heavy Test". This would effectively treat each SEP contribution made as if it had been immediately withdrawn by the participant (regardless of whether or not that was the case). That would make it more easily determinable (as each SEP contribution would be treated similar to an immediate in-service distribution and tracked for the 5 years). As it stands now, you're left struggling with a bunch of unreasonable approaches; and I feel your pain :-) Good Luck!

It can be 3/1/15 or 3/1/16. Keep in mind that all you're doing is writing the exact same provisions onto a new document. You're not "amending" the plan. So, any date within the Remedial Amendment Period would suffice. Good Luck!

You may, but it'll take some crafty document work. If I were to do it, I'd restate the plan from a PS to a 401(k) effective January 1, 2017 (and include the eligibility provision effective then). This would prevent the open eligibility from being applied before January 1, 2017. Hence, it may take two separate adoption agreements (one initial and another a year later) to accomplish it. Good Luck!

Not likely. They are not considered as covered merely because they were "eligible to defer". Don't know full details from your fact pattern. Good Luck!

I don't think about it too much :-) Just kidding... I, honestly, would like to see a case where this becomes beneficial to a document sponsor or service provider. I imagine it would be some large scale operation where a provider is tasked with restating thousands of plans and may miss by 1000 or so. I cannot see it benefiting a boutique TPA firm. Just my thought. Good Luck!

It is allowed, but it wouldn't qualify as a uniform allocation formula. Hence, you'd have to test it; which can be done by imputing disparity in order to pass. Good Luck!