shERPA

First pre-ERISA thing that comes to mind, shared employees, Rev Rul 67-101 and 73-447. I don't think this proposed weeding of obsolete stuff addresses old RRs, notices, etc. does it?

It is PR's IRS.

A plan sponsor has been acquiring a number of companies over the last few years, most of which already had 401(k) plans in existence. To date they have continued the separate plans though they do want to consolidate them by the end of 2018 if possible. One of the companies they acquired has a 401(k) on the standardized adoption agreement from a payroll company. As expected, the plan document extends the plan to all employees of all affiliated entities (relevant plan language pasted below). There are 4 entities with plans, all a parent-sub controlled group. The other 3 plans have 400 participants and $8 million. The one offending standardized plan has 2 participants and $90K. They are well beyond 410(b)(6)(c) now. I've recommended amending that plan with a non-standardized or volume submitter plan ASAP to fix the issue going forward. It's an operational failure in that the plan operations don't follow the terms of the document, but there is no way to conform plan operations to the document. I've suggested a VCP application to allow a retroactive correction of the plan document to exclude the related entities. The client wants their plans compliant but realistically this is a tiny plan and its failure does not put the other plans at risk. Anyone here have any experience with this issue in VCP or other ways to resolve? Thanks. ______________________________________________________________________________________ Document language: 10.7.5 Notwithstanding Sections 10.7.1 through 10.7.4, with respect to a Company that utilizes the Standardized Adoption Agreement, all Affiliates must participate, and the express written consent of the Company shall not be required, unless an election is made under the Adoption Agreement to utilize the Code §410(b)(6)(C) transitional rule. An Affiliate is defined in the plan as follows: 1.1.5 Affiliate: (a) Any corporation which is a member of a “controlled group of corporations” (as defined in Code §414(b)) which includes the Company; (b) any trade or business under common control” (as defined in Code §414(c)) with the Company; (c) any organization which is a member of an “affiliated service group” (as defined in Code §414(m)) which includes the Company; (d) any other entity required to be aggregated with the Company pursuant to regulations promulgated by the Secretary of the Treasury under Code §414(o); or (e) for entities that are not trades or businesses, in accordance with IRS guidelines as published from time to time.

A owns 100% of the stock of corporation Z. A, B and C are equal 1/3 partners in partnership X. Under these attribution rules does partnership X indirectly own A'z stock in Z? 267(c)(1) and the regs thereunder state that stock owned "directly or indirectly" by a partnership is deemed to be owned proportionately by the partners. 267(c)(3) says and individual who is a partner and who owns directly or indirectly through application of (c)(1) stock in a corporation is deemed to own any stock held by his partners. In Who's the Employer 6th Edition, Q 17:7 Example 17.7.2 describes a case where Mike owns 100% of a corporation, Sam owns 100% of another corporation, Sam and Mike are partners in a separate partnership, so Sam is deemed to own Mike's stock in his corporation. So in this example Sam has no direct ownership of Mike's stock, so he can't be deemed to own it under (c)(3) unless he is deemed to own it indirectly through the partnership. But I don't see where 267 says that a partnership is deemed to own the stock owned by its partners. It appears to be assumed in the example. Appreciate any insight.

No, just 3 partners are HCEs in 2017. But there will be HCE associates in 2018.

Top 20 is a good thought, thanks. It's a new firm that started this year and frankly the partners' K-1 earnings may be less than some of the associates W-2s this first year. Won't know this til next year when the tax work is done, but need to get the SH provisions nailed down now.

Law firm wants two 401(k) plans, one for equity partners and non-attorney staff, the other for associate attorneys, to avoid top heavy minimums for associates. They also want to offer a SH match in the partner plan (TH for associates is still an issue as they also expect to do PS contributions). I've advised that the associate plan will also need SH match as the associate plan needs to aggregate with the partner plan for its CODA to pass coverage since most associates are HCEs and cannot aggregate SH and non-SH CODAs. So, can the partner plan offer the SH match to all participants, HCEs and NHCEs alike, while the associate plan offers SH match just to NHCE associates should there be any? Seems like this should work.

Honestly, that's the participant's problem, not the plan's or plan sponsor's. Maybe that sounds harsh, but it's still more or less a free country and people are free to make their own choices and decisions, even if they are not necessarily the "best" choices. And who's role is it to determine what is "best" for a given participant in a specific situation? Maybe he or she really needs money NOW for something important and is willing to deal with the consequences later. IRS offers payment plans and in more extreme cases OIC.

If you want to enforce it, go ahead. Maybe the employee will not object, loan payments will continue and life is good. OTOH if the employee objects, what do you do, keep withholding and lawyer up to fight it? Hardly worth the bother. Only consequence of complying with the participant request to stop withholding is taxation to the participant. @My 2 cents - once you start applying some sort of cosmic justice standard to what laws "should" say, you're going to spend a lot of time tilting at windmills. Best go into politics if you want to write laws. But running on a platform of changing the law to prohibit employees from stopping payroll withholding of 401(k) loans is not going to get a lot of traction.

Doesn't TH depend on which way the aggregation runs? Typically the partner/non-attorney staff plan will pass everything on its own as it excludes associates and non-equity partners, many/most of whom are HCEs. This plan has the key employee participants, and is usually TH. Unless it relies on the associate plan to pass some test, the associate plan would not be included in the TH RAG with the partner plan. So the associate plan (with no key ee participants) would not be TH and no minimum required. Sometimes the associate plan needs to aggregate with the partner plan to pass coverage (again because many/most are HCEs). But aggregation running this direction does not trigger a RAG. 416 regs Q&A T-6. Aggregation is aggravating!

I've also had this come up a few times over the year. Here in California, I agree with Mike Preston and FBJ.

Professional Corporations A & B are partners in an LLP. These 3 entities comprise an A-Org affiliated service group. They sponsor a 401(k) plan for the PCs and the LLP. All employees are covered and both PCs and the LLP are adopting sponsors of the plan. They decide to merge practices with another firm. The assets of the LLP are first distributed to the two partner PCs, then the two PCs are merged into Professional Corporation C. A and B's shares are exchanged for shares in C. PCs A&B cease to exist. PC C has its own 401(k) plan. A&B's 401(k) plan was not terminated prior to the merger. C would like to terminate it now and distribute the assets to participants. Is C's 401(k) plan a successor plan for purposes of 401(k)(10)? What complicates this is, except for the sole shareholders of A & B, all the other employees were employed by the A&B LLP. The LLP terminated them, and C hired them as of the date of the merger. So the employees terminated employment from the A&B plan sponsor. IMO C's plan could very well be a successor plan. By the merger of the corporations, A&B, who co-sponsored their plan, are effectively part of C now, and C is effectively the sponsor of A&B's plan, and A, B and C are essentially one Employer. The employees who were employed by the AB LLP and participated in the AB plan are now employed by C, who has (perhaps unintentionally) taken over sponsorship of the A&B plan. So terminating that plan now, C's plan precludes in-service distribution to employees under 59-1/2 who are not otherwise eligible for a distribution. Does anyone see this differently. I've read the merger agreements and believe this accurately describes the merger transaction.

I had this come up years and years ago. I don't recall the specifics now but I told them the QDRO could not define the tax treatment. They took that out, I don't remember if they changed the AP amount to adjust for it.

The existing (k) plan might very well be a "ROBS" plan in that it probably has standard PS plan language that allows the plan to purchase employer securities. That's just the beginning of the hoop jumping, however. The corp has to issue new shares, they have to meet an SEC registration exemption, the corporation must be a C corp, the appropriate offering price has to be determined, if there are other participants, how or do they participate in this (pooled plan, or self directed?). Fiduciary has to decide this the an appropriate investment for the plan, what's the unwind strategy, how will FMV be determined initially and ongoing? All the issues the IRS memo raises. Lot of work and issues just to avoid taxation on a defaulted loan. Questionable as to whether it is worthwhile to do so.

Yes I've read about the IRS tying the contribution to what is reflected on the Schedule B. I've also seen opinions by a couple of reputable actuaries that disagree with IRS on this - for good reason. 404(a)(6) says the contribution must be "on account of such taxable year", referring to the employer's tax year, not the plan year. While the two years may actually coincide they are still different years for different purposes. If the employer makes the contribution by 10/15 and deducts it on the 2016 1120, then the employer is designating the contribution to be on account of the 2016 taxable year.

An accountant called me, has a calendar year 2016 C-corp client with a DB plan. Because C-corps 1120 deadline now extends to 10/15, client just funded the 2016 DB contribution this week, after 9/15. So there will be a 10% excise tax on the minimum required contribution, but because the 2016 contribution was made within the filing time for the 1120 including extensions, do they still get the DB plan deduction for 2016? IRC 404(a)(6) hasn't changed, still says "a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)."

Yes if purchased out of the plan by participants the price is FMV. But since RP 2005-25 CSV is not automatically FMV. IRS provided a safe harbor for FMV, the PERC amount, but other valuation methods might be appropriate.

Short answer - No. Box 7 of 1099-Misc is labeled "non-employee compensation". IRC Section 401(a) [emphasis added]: (a)Requirements for qualification A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section— Independent contractor 1099 persons are not employees. Only way for them to participate in the plan would be to become an adopting co-sponsor of the plan. The classification/misclassification of the person as an independent contractor is a separate (but also essential) issue.

When you're a small firm you have little choice but to have soup-to-nuts administrators. As you grow IMO it really makes more sense to consolidate certain services that are peripheral to the ongoing admin cycle. Functions such as trust accounting, loan and distribution processing, onboarding and plan documents are all tasks that lend themselves to being segregated. We evolved this way over 25 years. It is really difficult to find administrators who are experts at everything, and the really good ones are expensive. Training them to do documents, assemble pdf packages, deal with mundane tasks like withholding is not a good use of their time and about the most expensive way a firm can handle these functions. Creating separate functions creates a career path for new hires who find they like the business and want to learn more. As you get bigger it is more and more difficult to find well trained experienced administrators. Separating functions and creating processes improves the client experience and makes it more predictable regardless of who is handling the plan. I know firms where some administrators are still using the Datair DOS system and others are using the Win system. When a firm has multiple clients with an advisor or CPA this creates confusion when they see vastly different reports. Quality control. With separate functions the people in the separate departments can be really good at handling TA, loans, distributions or documents. This makes them faster and more accurate. Also a firm with separate silos very vulnerable when an administrator leaves, is on vacation, etc. Onboarding should absolutely be separated from regular admin in any firm that really wants to grow. Having a predictable, repeatable and scalable new business process is essential to create trust with referral sources and keep business development people focused on opportunities rather than getting involved in the minutiae of a takeover. And administrators with caseloads are on a treadmill with deadlines 2x per month and their own clients to whom they've made their own promises and commitments. Dropping new business on them disrupts them and they often get shuffled to the bottom of the pile. Renee Connor at PensionPro published a very good article on this a couple months ago. Just my opinion.

Yes, what Mike and Larry say.

Agree - the Bird is the word!

Often the existing financial advisor leads the RFP process, and therefore he/she/they are never put on the chopping block. Only the recordkeeping and TPA services get the privilege.

OP didn't say the dentist was providing dental services, which it sounds like you're referring to. Even so, I wouldn't call telling someone about a late procedure to to take an X-Ray to be management, it's part and parcel of providing dental services to patients. OTOH, if the dentist is running the show at a location that could very well be management services or at best a gray area. But 414(m)(5) also says management has to be the principal activity, so the rare and occasional lapse wouldn't create an ASG. Independent contractor medical, dental and legal professionals are often engaged to provide professional services, and without ownership they wouldn't be an ASG unless you invoke the long gone proposed reg that deemed professional services to be management services. IC vs employee - that issue exists in every IC arrangement. Not my issue as a TPA other than to point out that an improperly classified IC could change the plan results.

No common ownership, no management services. Doesn't sound like an ASG to me.

the process was probably created by a committee - and either there was no actuary on the committee or the actuary missed the meeting the day this was decided. So the actuary ended up with the monkey on his or her back.