Bri

If nothing else, they really gotta get rid of the 10% penalty tax. Wasn't this in place because refunds used to be taxable for the year of the contribution rather than the distribution, so you had to give the employee enough time after March 15 to complete his taxes?

This can be a bit of a hassle when the PS plan has gateway issues to work through, too.

Yeah, the plan sponsor can change the eligibility and delay the participation. They're not plan participants yet, so it's not like this would be a cutback.

Client has had a DB plan for his self-employment venture he's run since 2015. And a 401(k) plan. Now he's hired some employees for the first time as of 12-1-2018. Under the plan's current adoption agreement, employees would be eligible for both plans as of 1-1-2020. (Standard 1 year, age 21, dual entry.) But there may be a request by these new employees to see if the 401(k) eligibility can be accelerated to something less than a year. We're also thinking about changing the DB eligibility, too, to 2-year at some point during 2019. Just want to make sure I don't have any weird issues. If we do change to a two year wait, then I'd surmise (and let me know if I've messed up here, please): a. 401(a)(26) is fine for 2019 and 2020, because nobody else has met the DB eligibility requirements. b. For 2019, the staff employees are otherwise excludable. So they can be tested for their DC benefits separately against the otherwise excludable HCEs (none), while the statutory employee test only consists of one HCE. So they both pass. Staff might only need a 3% THM depending on what other employer contributions are in play. c. For 2020, the staff are no longer "otherwise excludable" even though they're still out of the DB plan. So they may need substantial DC allocations to pass 401(a)(4) against the accruals for the owner in the DB plan. I'm not missing anything, am I? Thanks! -Bri

I was at Relius's Advanced Pension Conference last year in Chicago, and we had a discussion on -11g amendments to retroactively increase benefits. The opinion of the presenter was that any new contributions created by the amendment wouldn't be deductible for the prior year. The argument was that the tax deduction rules only let you consider the compensation for those covered under the plan as of the actual 12/31 date as it's occurring, and that there's no retroactive fix for that. Obviously I'm not doing a great job of summarizing it here, but perhaps someone else can speak to it more fully. Since it would seem to work against you getting the outcome you're hoping for.

I'd make sure the vesting definition spells out that the vesting for each match is considered separately, so that you're not running the risk of introducing a class vesting situation on new benefits. The document might already inadvertently be counting all years even though the source "feels" new.

(And of course, if you're netting deferrals, you're netting ALL deferrals, including stuff like 125 plan amounts, if you want to remain a safe harbor comp. definition)

So that's not something EFAST's filters wouldn't have caught upon the filing being submitted? Or does it fall back to perhaps the 5500 software's vendor in its data-check/validation procedures?

Does the other employee have more match coming to him/her as of the end of the year? Could this be an erroneous match allocation to the wrong particpant's account?

I'm amused because Boris Badenov himself seems to have started the prior discussion. (I know...."I always have fiendish plan!!")

Hmm, that might be it, indeed. Of course, then you run the chance of the "number of participants with account balances as of the end of the plan year" exceeding the total of the subcategories (6a2, 6b, 6c, 6e) that a rollover-only person doesn't actually fit in any of.

Actually, I don't think they count as a participant on the 5500, either. But I can't find a cite to that currently....Does anyone else remember a cite from either a Janice Wegesin or Steve Forbes 5500 manual that addresses this? They're "limited participants" and for some reason I recall reading not to include them. (Willing to be proven wrong here, though....)

I would go for the EPCRS rules for Overpayments from a DC plan.

And if it's a brand new company, too, then all the non-HCEs are carved out of the ADP test, leaving you with just the owners/spouses, possibly, to square off against the zero NHCEs in the ADP arena.

They probably do, although we're not privy to the details. We're just local to this one business that eventually got swallowed up the merger/acquisition ladder years ago - US headquarters are hundreds of miles away. Assets are fine, they just now had their first minimum due in years. (Only about 125,000 in assets, annuities have run around 20-25k each when retirees do hit 65.) So they shouldn't have to worry about having leftover funds.

I've got a plan that's been frozen "forever" - the plan sponsor was taken over by a multinational corporation long after the plan was frozen. Everyone's been terminated since the late 1980s, I believe. The plan has no lump sum feature, and payouts (commercial annuities purchased from trust assets) start at NRA of age 65. Or, early retirement (.5% reduction per month) starting at 55. At this point the last 5 folks are all in their late 50s / early 60s and could elect to begin payments if they want. Unless the plan sponsor elects to terminate the plan sooner, they could potentially keep the plan open until the last person turns 65 in a few years. If they wait, what's the typical reaction of the PBGC when you file to terminate a plan with 0 participants left? Will they want to see X number of previous payments to participants not connected to the plan termination? Or are they more likely to figure with no participants or assets, and the final premium payment in good order, that their file would quickly and easily be closed with the plan just going away after the final 5500? Thanks....

I'm just here waiting for Larry's tone when he just tells you to get a payroll provider who will accommodate both! ?

I think excess GTL (gym, tan, laundry?) is the usual "obvious" difference between 3401(a) and W-2 wages. If your plan's using 3401(a) I'd suspect you exclude it then.

1. For all reasonable purposes, yeah - if the balance is less than 100,000 then the 50,000 loan maximum isn't going to apply. 2. The IRS had a minor announcement last year that either way is acceptable to calculate it. Since the Plan Administrator gets the final call as to what's permitted, then they need to tell the recordkeeper that the plan will use the "highest loan balance on any one day in the last 365" method.

The plan shouldn't care what the employee is doing with the distributed funds (other than trying to roll them over). My hunch is this is gonna be okay, but I'll see how others chime in. The yellow highlighted text references the next sentence about not worrying whether or not there's any basis in the RMD payment. Even though it's not a basis issue, the plan is paying what it needs to. (Does the 1099-R even go and reflect nontaxability? The nontaxability of it comes outside the norm.)

Not for nothing, but the RMD delay might be the only reason I'd see setting up an owner-only plan with a vesting schedule at all. I mean, when he terminates the plan it's going to make him fully vested anyway if he hadn't hit 100% by then.

Ah, indeed that's not so obvious from the instructions. I would probably enter 0000000 to try to get around any validation issues, but that's nothing I'd stand behind as "correct" certainly.

It's last year's number they want, though, right? Like, for my 2017 Form 5500s I'm using the PBGC number for the 2017 filing that was due 10-15-2017, not the one due this Monday.

Yeah - it's the VFCP that gets you out of the penalty tax.

I took a quick peek at my Sal Tripodi books, and there's an argument made (in the section on safe harbor plan document requirements) that this simply expands the coverage of an already-existing safe harbor plan, and that this might be interpreted as being similar to a case where a bunch of employees suddenly have a December 1 plan entry date through a plan amendment, for instance. (This was the 2012 version, though.)