ETA Consulting LLC

I'm a fan of flexibility with plan documents, but why would this ever be written into a plan. I cannot imagine a scenario where this would be advantageous to a plan sponsor. It's scary since there are still platforms where Financial Advisors complete the adoption agreements and arbitrarily check boxes since they seldom know what the implications are. But, point taken

Typically yes, but the answer is not as easy since it would require an additional analysis. Presumably, the new employer would've decided to take over the plan which would've kept employment, service, and compensation records for the plan in tact. Fact patterns are very important when answering these types of questions (and books have been written to account for each fact pattern). There are always contengencies that can change an answer.

Assuming the individual has met the accrual requirements for receiving a "Profit Sharing Contribution" then he'd receive the greater of two amounts: 1) the profit sharing contribution allocated under the plan's formula; or 2) the 3% TH minimum. In any instance, he's going to get at least 3% (because the TH minimum is invoked as soon as the plan falls outside the 401(k) Safe Harbor exemption from Top Heavy). The question here is does the participant meet the accrual requirements for receiving a Regular Profit Sharing. If not, then he receives the 3% TH minimum; and you're done. If so, then he gets the Profit Sharing. In the event that Profit Sharing falls below 3%, then he receives an additional amount to get him up to 3%; despite what anyone else under the plan receives. Good Luck! Sorry PensionPro, I didn't see your post; we were typing at the same time.

Correct. Notice that you said "the company" was sold as opposed to saying "the company sold it's assets". Anytime the company is sold (an equity or capital sale), then only the ownership changes but there is no severence of employment. (I know I stepped off topic a little). From your question, you merely had and ownership change during 2010, but the employer sponsoring the plan did not change; just the ownership of that employer. Good Luck!

A code of 1 would do nothing to make it appear as ineligible for rollover. Since the plan has to be made whole, "I" would issue a 1099-R for $1500 using the plan's EIN number and issue a 1099 MISC for $500 using the Employer's EIN. After the plan is made whole, there should be a need for only a $1500 1099R. There "may" be other approaches, but consistency between reporting and taxability should be maintained whenever possible. Good Luck!

I was wondering this, myself.

This is unchartered territory. We know that, at the very least, the plan should be tested under ADP. It would be a different fact pattern to suggest the plan failed to fund safe-harbor and failed the ADP test than the plan failed to fund safe harbor and passed the ADP test. If the test failed, then the most reasonable approach would be to issue corrective distributions of the excesses. Questions could linger as to at what point during the year did the employer realize they would not be able to fund the SHNEC; and why they failed to amend at that time (after the appropriate notice to employees). Not that you can un-ring a bell, but those are the types of missed opportunities that could've prevented a bad situation from being worse. The major question of "what next" would entail thoughts on both protecting the qualified status of the plan and enforcing the participants rights under the written terms of the plan. VCP "may" be an appropriate course, but would appear to do little to appease the DOL. Sorry, there's nothing more definitive given that this is unchartered territory. Good Luck!

I'm pushing the "like" button!

The obvious correction is to fund it. That's not intended to be sarcastic. In theory, each employee can sue in order to have their contribution made to the plan; since it was promised them. There are also some qualification issues with respect to failing the non-discrimination test since the safe harbor wasn't funded. There's no easy answer beyond making the contribution. Good Luck!

Not sure what exactly the employer is proposing. I would tend to agree with you. It sounds as if the employer is proposing to bill a participant (outside of the plan) for exercising his rights to a loan offered under the plan. I don't think that would fly. Obviously, a plan's operational expenses increase when it offers additional features (i.e. loans); And reasonable expenses may be passed to the participant involved in that transaction. But, who is receiving the fee when the employer proposes to withhold an amount from the particpant's payroll when a process is, presumably, in place to withhold amounts and remit them to the trust. I'd say of the employer doesn't want the additional headache of withholding payroll, then they shouldn't offer loans. I wouldn't do it. Wouldn't be surprised, however, to see it done. Good Luck!

I am not sure about that. Let's look at the calculation itself. Each partner's earned income is calculated by first deducting company expenses (which includes employer contributions for the common law employees). However, each Partner's income is calculated by reducing the employer contribution for that owner (and this happens after the reduction for self-employment taxes). How would you propose to actually calculate a per payroll compensation amount when you consider the existence of all these variables. Even the partner defers from a draw (which they are perfectly allowed to do), they run the risk of a 415 excess in the event they end up with zero compensation at year end. Attempting to do mid year calculations "may" create more harm than good. Just a thought. Good Luck!

Sure. That's called "going the extra mile". Good Luck!

This is your start. Your next approach (and it requires a strong attention to detail as it's like putting together a jigsaw puzzle) is to print off Section 1563 of the code and begin to identify your attribution points. For instance, you know there "shouldn't" be attribution between individuals B and G on company B since they are mother and son while neither owns "MORE THAN" 50% of the company. You also know that if any individual owns "AT LEAST" 5% of a coporation, then they are attributed ownership of what that corporation owns. So, the 60% of Company A should be attributed down to individuals in Company C (because a few owns at least 5%). You also have to keep an eye on "Spousal Attribution". It's not automatic, but there are some instances where the ownership of individuals M and G "MAY BE" attributed to each other. It could be the result of the level of passive income. You have the correct layout, you'd have to being plugging in the lines from here. Good Luck!

Identify each company with it's direct owners and their ownership percentages. Company As owners are? Company Bs owners are? Company Cs owners are? Next, how is each individual related? That should get you started. Don't use a grid. Good Luck!

I can appreciate what you're saying. Each financial professional has their own line. Some lines move a little further down the road without constituting advice. Eventually, it becomes an issue of training and comfort. In all instances, however, never hesitate to seek the opinion of others when you're not comfortable. Good Luck!

Stating a rule is not giving advice. Many people who are unaware of the rules will use "we don't give tax advice" as a cop out. You pay the 10% penalty "ONLY" on amounts that are "TAXABLE". Since the after-tax contribution basis is not "TAXABLE", there would be no 10% early withdrawal penalty. NOW, Keep in mind this is in reference to non-Roth after-tax employee contribution amounts. Good Luck!

Is their income exclusively from "self-employement"? If so, then the partner only receives compensation on the last day of the fiscal year; which means the deferral would've been contributed from a draw (which is fine). Also, the DOL (unlike the IRS) typically does not view owners as employees of the company. The entire notion of "separate assets withheld from employee pay from company assets" is an employee protection issue. With that mindset, I'd say no corrective action is necessary. There is some debate as to whether the answer would be different if the entity was incorporated (where the owners actually receive W-2). I tend to subscribe to the mindset that no fiduciary correction designed to protect the employees should be applied to the owners (especially when the correction is deposits of amounts). Believe it or not, the amounts deposited by the employer for such correction are deductible (they are just not deducted as contributions, but plan expenses). I understand and appreciate of the arguments to the contrary. Good Luck!

No. I'm saying that I don't know much about the PR Tax code. However, under the US Tax Code, PR residents are not taxed on income that is not from US Sources. So, if the PR resident contributes to a US plan with a trust in the United States, they will now be subject to US income tax that they would've not otherwise have been taxed on. Hence, PR employees typically take advantage of PR plans that set up specially for PR employees with trust in PR. The problem becomes when they take a distribution from a plan with a trust inside the US, they will become subject to US income tax. Good Luck!

I like this option since that appears to be what good-faith is. It would be different to say that we never completed the amendment. Instead, you're saying, we completed the amendment in good faith to keep our plan current until such time as the technically correct language could be vetted and approved; or something like that. Even if the IRS doesn't buy it, you'll at least have set up the situation to be sanctioned for an amount simular to what would've been paid under the VCP. You'd basically explain to the agent that "Had we known you were going to take this approach, then we would've filed under VCP". Contrary to popular belief, "SOME" IRS auditors are human. Good Luck!

You've always thought correctly. The SIMPLE IRA has an exclusive plan requirement that states it must be the only plan of the employer during the calendar year. Now that you've funded a 401(k) and a SIMPLE IRA, you would have disqualified the SIMPLE IRA for the year (and corrective measures should be taken to fix this). There really wouldn't be any impact to the 401(k). Good Luck!

I agree with you. Not sure of every parameter, but the compensation appears to be severance as it does not appear to be compensation he would've received had he continued to work. I'd verify this, but the compensation appears to be because he is not working (and appears to be severance). Good Luck!

Brain Cramp, Thank you for the correction. I am so embarrassed I wrote it, so I deleted it

A plan passes non-discrimination each year, typically exclusive of how it was tested in any previous year. If the plan allows flexibility in the compensation that is used for testing purposes, then you can test under various definitions that satisfy 414(s). You cannot, however, test NHCEs under one defintion while testing HCEs under another. Not sure if that is what you are asking. Good Luck!

Not going to happen. Good Luck!

Benefitslink really needs a "like" button. Remember, the actual "election" has to be made before the last day of the year. That is assuming that Fiscal Year of the LLC is the 12/31 just like the plan year. It is that "election" to defer that gives the extention of time for the actual "Earned Income from Self Employment" to be calculated. And yes, it's a moot point if the S-Corp election is made, but it's apparent the organization is not taxed as a corporation. Good Luck!