ETA Consulting LLC

I think we've all been there

You could, likely, get this through during a VCP submission as a slight modification to the recommended approach. But to interpret "to the account balances" as meaning "to only those NHCEs who have account balances" would appear to undermine the correction principle. Good Luck!

Many plans are written to include a provision to allow a separate election for bonuses, which are typically paid at slower intervals (i.e. quarterly, semi-annually, or annually). Operationally, other amounts paid would fall under the general election that participants make at each payroll. So, at the end of the day, your question is not a legal one; but a document question. Out of the potentially unlimited possibilities of the document with respect to what Compensation is eligible for deferral, how often deferral elections may be made, and whether a separate deferral election is made on bonuses, the challenge for you becomes to read the document language and flowchart the operation. From the way it sounds (without having the document to read), it appears as if the document merely provides for a separate election for deferrals (which may be up to 100% despite the deferral limit on other deferrals; which would be odd). Good Luck!

Not to change the subject, but if the two companies are not longer related and the plan is written to a prototype, then you may want to visit whether there is reliance on the opinion letter. Good Luck!

How would the tax group find something of interest dealing with the plan without that being considered 'other Employee Plans examination'. I say this because the worst case scenario would be the penalty of perjury the client will be charged with from the statement being signed saying that they are not under examination. FWIW, it believe you're right based on 'plain language', but we've all seen these types of episodes play out in tax court (remember the 1 IRA rollover per year). Good Luck!

You may hold tight until the tax audit is done and then file VCP for non-amenders they may not choose to examine the plan under the current audit. I wouldn't attempt to argue that is not currently under examination when there is a tax audit on the company. The term 'or other Employee Plans examination' appears to be pretty vague. Good Luck!

The employer would merely contribute a QNEC for the missed deferral opportunity for that employee (and the matching contribution that would've been received). Rev. Proc. 2013-12 should be referenced to make the correction easy for you. Good Luck!

The mutual fund company is mistaken. The regulatory requirements for non-safeharbor 401(k) match are different that those from Safe Harbor 401(k) Match. The Safe Harbor Match is a qualified employer contribution (the same as a QNEC, QMAC, SHNEC) and required 100% vesting at the time of deposit. A regular discretionary match is different. If you were to look at any preapproved prototype document, you can see the difference between the two written with the plan terms. HOWEVER, if for some reason the practitioner actually completed the vesting for regular matching contributions as 100%, then you would be precluded from changing that schedule for any employee with at least 3 years of vesting service. On prototypes, there are no areas to select vesting for safe harbor contributions as the vesting is hardwritten in the plan's terms. Hence, the vesting section is for the non-safe harbor match. Good Luck!

I don't know why but I am still leery of this. I guess it is because it is "just" a PLR and the example is so vastly different than the one presented above. I guess the example above makes me wonder if this really is the same "concern" if not the same legal entity even though the two businesses might be in different industries. This is why I contend that it is not a controlled group issue. There is precedent that suggests that in order for a controlled group to exist, the companies must exist at the same time. The interpretation is that when a company doesn't exist, then ownership is zero. However, when you have a situation where a business operation merely changes its name to operate under a new identity, then that is a continuation of the same entity. Terminating a business and starting another one goes beyond merely changing the entity type or business's name. Good Luck!

You're both right! When performing a controlled group analysis, the companies must exist at the same time. I'm with Austin3515, but for different terminology. I don't believe it is a different company, but merely a continuation of the same company under a different entity type. For that reason, it appears to be a same employer. Good Luck!

You have to satisfy the definitely determinable formula. Typically, everyone would receive the same formula. On what authority could you: 1) decide a formula and 2) cherry pick those employees who receive it. You can see where under "1", you have the discretion to decide the formula, but "2" becomes your issue. To effectively place each participant in their own allocation group for a matching contribution 'may' be contrary to your plan's terms. Good Luck!

You have 6 in one hand and one half dozen in the other. You can easily suggest that a participant receive the adjustment through the current date, but that would fail to consider the fact that the participant was not available to receive the distribution at age 70 1/2. So, on what authority would they argue to be entitled to an increase through the current date when the delay was not attributable to any wrong-doing on the sponsors part. I don't believe there is a clear precedent, but could see how the actuary would reasonably conclude that the calculation be made to the point they attempted to pay the participant, but were unable to due to the participant not being available. The least you should do is make immediate payment for what you both agree on (the calculation through age 70 1/2) while you debate the necessity to pay through the current date. Good Luck!

Correct. They "ONLY" way you'd have a 'deemed' distribution is in the absence of a distributable event. This say nothing about taxation. So, when the loan fails to meet the requirements of 72(p), then it will become an actual distribution (e.g. no need to deem it until a distributable event because the participant is already eligible for a distribution.) Now that you've established that an actual distribution is taken, you must now determine taxation. This is where you look at the entire account (be sure to account for pre 87 and post-86 basis), to determine which part of a distribution of after-tax basis and which part is considered earnings. Good Luck!

I've always done it the way Bill Presson stated. The funds never left the plan because the life insurance policy is owned by the plan; so it shouldn't be reported as such. Good Luck!

Cannot emphasize this enough :-)

I showed the calculation as if the initial $94,249.16 was the Net Schedule C. Typically, "Net Schedule C" means Schedule C after it has been reduced by 1/2 of SE Tax. That's the way I've always interpreted it. So, coleboy, you'd need to ensure your fact pattern is correct. As for the deduction on the $16,900 deferral, it would be taken on the Form 1040 in the same line as the Safe Harbor Match. You don't deduct the contribution for self-employed owners on their Schedule C. All their 'personal' contributions are deducted on their Form 1040. Good Luck!

You know that the match will be 4% of salary after the salary is reduced by the Safe Harbor Matching Contribution. Hence, 94,249.16 will be 104% of the owner's final compensation. $94,249.16 divided by 1.04 is $90,624.19. The difference between these two is the match ($3,624.97). 3624.97 is 4% of $90,624.19. The match should be $3,624.97. You should verify other items to ensure your initial fact pattern is correct (e.g. this is the Net Schedule C after all other contributions have been made) Good Luck!

No. The Basic Plan Document will, typically, state that regardless of the selection made between W-2, Withholding, and 415 Safe Harbor, the compensation for a 'self-employed' individual is 'earned income from self-employment'. Okay, now you're like... Huh???.... The key here is that when you have an owner of a business that is not incorporated, and he is therefore not receiving a W-2, then his income is determined from the profits of the business (i.e. K-1, Net Schedule C). Good Luck!

I don't know if I would say "required", but would easily argue it to be the most reasonable. It's more of a "why not" issue. You could propose your alternative calculation under VCP. If it's not reasonable, I've learned that the IRS agent won't hesitate tell you that your method is 'not acceptable' It's a process. Good Luck!

I believe the fee should be charged against the participant's account and he would take a $50 distribution. That would leave him an additional $50 Roth Contribution basis in the plan. Good Luck!

You are correct. Look at it like this: Davis Bacon is primarily a DOL requirement in that you must show that for each hour of work under the contract, the employee receives the prevailing wage benefit. That benefit may be in the form of cash paid to the employee or some other form of benefit (i.e. contribution to a plan). The IRS's standard does not change. All the IRS wants is 1) for the plan to operate pursuant to its written terms; 2) contributions to be made pursuant to a definitely determinable allocation formula; and 3) for the contributions (or benefits) to pass non-discrimination. So, the key is to ensure the plan's language and operation would accommodate everything the DOL would require for the contributions to actually be considered as benefiting the employee under the prevailing wage rate. Remember, the DOL doesn't delve into non-discrimination, but employees' rights. So, from the IRS's perspective, they're just contributions like any other contributions. From the DOL's perspective, you want to ensure you meet every requirement (i.e. immediately eligibility, 100% vesting; etc...) to have the contributions treated as credit for prevailing wage benefit. When you do this, you merely cannot violate the terms of the plan. Now, there are some special rules by the IRS is determining how much may be used as a QNEC in the ADP/ACP test (e.g. 10% limit), but you'd generally want to appease the DOL while the IRS would just see another contribution. This is why you should always be careful before proving a Prevailing Wage Contribution to an HCE. Good Luck!

This is the most important point. ALWAYS. These plans are subject to a host of IRS (and in case of ERISA plans, DOL) rules. This goes far beyond delivering beautiful reports that will never be requested by the IRS (or DOL) during audit. In many instances, clients are inundated with reports while failing to meet regulatory requirements during audit. So, you have to align with a service provider to knows what is required and constantly keep you in compliance with respect to those standards. So, in this example, who is responsible for determining if, of when, filing is necessary is one of potentially unlimited issues that should be considered.

You must read the actual policy to determine whether the husband is the individual owner or if the policy is co-owned by his wife. "IF" the policy is not co-owned by the wife, then the wife would not have any rights. The key, in all instances, is to ensure you've read the contract and filled the application out correctly in order to avoid the surprises at the end. The insurance company is basically saying that the policy is not co-owned. "IF" it turns out that the policy is, indeed, co-owned, then the insurance company would not appear correct. Good Luck!

Some items are accrual sensitive (i.e. ADP/ACP testing) while others may clearly be done on a cash basis (i.e. Form 5500 reporting and top-heavy testing). I'm not following your scenario. Are you saying the prior TPA was performing work on a cash basis; and now you're having to reformat it to an accrual basis in order to complete the year end processing on your system? It helps to know the actual testing scenario in order to ensure your compliance software is performing the calculations correctly. In many instances, I would treat the balancing of payrolls to trust deposits as an entirely separate process, as trying to accomplish this through vendor software is difficult within itself. Could you elaborate a little?

Typically not. There must be a forfeiture event; a 5 year break or a cash-out distribution. Good Luck!