shERPA

Yes, you'r right, there is an exemption for plans that cover NHCEs only. I'm so used to dealing with CB/DB plans for owners that this doesn't come up too often.

Do the plans have to aggregate under 410(b) for the deduction limit to apply to both plans combined? Section 404(a)(3)(A)(iv) provides: (iv)2 or more trusts treated as 1 trust If the contributions are made to 2 or more stock bonus or profit-sharing trusts, such trusts shall be considered a single trust for purposes of applying the limitations in this subparagraph. The 401(k) with SH match is a "profit-sharing trust". The 25% deduction limitation applies to compensation of employees "benefiting". Assuming at least a handful of employees receive match (ignoring that they are all "benefiting" in the match if they are eligible for it but just don't defer) it's hard to imagine that between the two plans there is not room for this $53K PS contribution. And 404 doesn't say anything about requiring aggregation under 410(b), it has its own stand-alone aggregation for the deduction limit.

The profit sharing contribution should work, assuming the plan document language supports this sort of allocation. It is common to credit prior service with a selling entity for employee eligibility and vesting in the buyer's plan, so nothing unusual there. Assuming they are buying the assets from the seller's corporation, the seller won't have ownership in the buyer and the selling entity is not contracted to provide management services then the seller should be an NHCE. Cash balance won't work as they have to meet 401(a)(26) participation requirement. If the current safe harbor matching 401(k) would be top heavy but for the SH exemption, adding a profit sharing contribution to the plan would blow this exemption, so TH minimums could then be triggered due to deferrals and match received by key employees in that plan. You could avoid this with a separate PS plan that covers only the seller. Since he is an NHCE and non-key, and the 401(k) does not rely on the PS plan to pass coverage or non-discrimination the two plans would not be a RAG under 416 and the SH plan could maintain its TH exemption.

Not sure there will be much more information forthcoming to update. I appreciate the comments as they help validate what I am telling my client. My firm did not handle this CB plan or the 5310 submission so I don't know the details of how this played out. I understand that for most practitioners it is often most expedient to give the IRS what they want in order to get a DL, and so long as the client is not harmed, why not? I've certainly done this, usually in the form of proposed amendment language that IMO is not necessary but doesn't actually change anything. Faster and less expensive to give in. I am guessing the person interacting between the client and the IRS didn't necessarily understand that there would be no future source of funds available, or they might have pushed back when the IRS requested this. I know these folks and they are experienced and knowledgeable. I don't know if this is something that originated in the local IRS office or something from higher up. Frankly I don't have that many clients who want the delay of getting a DL on plan termination. This was submitted since it is a CB plan, and really the only issue was getting reliance for the plan document. All HCE participants, no other employees, no coverage or discrimination issues. Once we have approved volume CB plans I imagine there will be even fewer 5310 filings.

CB plan terminated 12/31/14. Sponsor was a C-corp medical group with 12 Dr participants, all shareholders. No NHCEs employed at all. Sponsor ceased all operations 12/31/14 as the practice was merged into a larger group (corporation itself was not merged). Sponsor funded the 12/31/14 contribution and submitted the plan for a DL in 2015. During the DL review, IRS asked sponsor to sign a statement that said "if the assets are not sufficient as of the distribution date, I will contribute any amount necessary to satisfy all benefit liabilities". Plan is NOT PBGC covered. Sponsor signed the statement not understanding that this could require a contribution beyond the 2014 contribution. DL was issued recently, now ready to start distributions, plan is about 5% underfunded. They can't fund the 5% because the sponsoring corp has no money and no revenue coming in. They asked about contributing to the plan from the their current employer but that entity is not a plan sponsor so that's not a good option. Has anyone ever seen IRS require such a statement? It is not required for plan qualification. Plan document has standard "vested to the extent funded" language that mirrors 411(d)(3). I've terminated plenty of non-PBGC plans over the years that were distributed only to the extent funded. This statement was not an amendment to the plan, and the DL makes no reference to it. Seems to me the best course of action for the sponsor is to distribute to the extent funded. Trying to get other funds into the plan at this point could create qualification issues. Paying to the extent funded does not create qualification issues. Appreciate any thoughts.

Did this "someone" also say the DB plans "must" include life insurance?

I'd say you can't force out the over $5K participants. The fact that the one member of the controlled group folded is irrelevant IMO. The "employer" is the controlled group of entities, the employer did not terminate the plan, some of the employees were let go is all. Now ask the question about the same situation in a multiple employer plan.........

Good reason not to have such a provision in the plan, what purpose does it serve other than a trap? I think you can amend the plan by 12/31/15 to remove this requirement retroactive to 1/1/15. For prior years I don't know that there is anything that can reasonably be done about it. Could probably get the IRS to agree to a retroactive correction via plan amendment via EPCRS if the sponsor would want to submit it via that process.

Last time I looked, Datair's documents had fully insured provisions.

Agreed, it doesn't preclude it him also being a sole prop.

I think sole prop prior service counts. In this case there is no prior sole prop, he was a W-2 employee prior to starting his own corp and practice.

Your answer reminds me of our PIX days! It's actually what I did, but I still wonder if pre-DOI service counts!

I agree with @52626, most likely these are common law employees of the employer, therefore they are not "leased employees" because leased employees first and foremost are not employees of the recipient. More info here: http://benefitslink.com/m/qa.cgi?db=qa_who_is_employer&n=251

Your maximum contribution under a 401(k) or any other DC plan is $53,000, you're too young to bother with a defined benefit plan. To get to $53,000, you'll need to increase your W-2 wages, most likely to at least $140K depending on how much is contributed for the one eligible NHCE working 25 hrs per week and how much s/he earns. More wages to you is better, up to $265K. You will have to contribute for the eligible NHCE if you want maximum contributions for yourself. You can use a vesting schedule on profit sharing contributions to get some of it back in forfeitures should the employee leave with less than 6 years. A safe harbor option for your 401(k) is almost certainly going to be helpful, but you've missed the October 1 cutoff to use this for 2015. Recommend you work with a retirement plan consultant/administration firm to design the plan you want. Yes it will cost you some fees but you can get what you are looking for with proper design. The wrong plan design usually ends up being the most expensive option.

IMO X, Y and Z comprise a single employer for purposes of plan coverage, participation, non-disrimination, reporting, etc. More info here: http://benefitslink.com/m/qa.cgi?db=qa_who_is_employer&n=229

A physician left a large group in 2014 and set up his own corporation which he owns 100%. He also hired another physician from the same group (as an employee). The entity was incorporated 11/1/14 and operations began in December 2014. Question - for purposes of the shareholder Dr's date of hire, when did he first perform an hour of service. He said he was working on the organization of the new practice and corporation for at least 6 months. If the DOH is the date an employee first performs an hour of service, can this date be prior to the date the entity was formed? If so this would be in May of 2014. The Dr would like to establish a DB plan this year, but the employee Dr. is an NHCE this year because she is not a shareholder and her 2014 earnings were below the HCE threshold. But this year her earnings are over $265K, and she is 4 years older than the shareholder, making a DB plan problematic. Next year she'll be an HCE and the problem goes away. For 2015, if the shareholder Dr's DOH is prior to 7/1/14, we can get him in a DB this year and the employee Dr is not yet eligible.

Where does this stuff come from? That's creative, to say the least.

There is something about working for big awesome recordkeepers that engenders flawed thinking.

If company A did an asset purchase of company B, then company A did not buy the stock of company B, so A and B are not a controlled group. If, with the asset purchase company A hired company B's employees, they are all employees of company A and they would be eligible for A's SEP based the SEP's eligibility criteria. Company B would still have its 401(k) plan unless Company A adopted it. Clarify what sort of acquisition it was.

Yes the S-corp can make a contribution in excess of the profit. Yes, this creates a loss that passes thru to the shareholder(s). This loss can reduce the shareholders taxable income from other sources, but is limited to their basis in their stock of the corporation. If the loss is greater than the basis, the loss is deducted to the extent of the basis and the rest of loss is carried forward and can offset future taxable profit from the S corp.

I read it as just $500.

New plan for 2014. Effective date of plan per the adoption agreement is 1/1/14, however the plan was not adopted until 5/5/14 and deferrals started after this date. Can we use compensation from 5/5 or must it be from 1/1 for the ADP test? Here is the document language from the ADP testing section of the plan: The amount of Compensation taken into account for an Employee who is an Eligible Participant at any time during the Plan Year, including the first Plan Year, equals the total Compensation received by the Employee for the Plan Year (whether or not the Participant was an Eligible Participant for the entire Plan Year). Notwithstanding the foregoing, if the Administrative Committee has elected to have Compensation calculated only for the portion of the Plan Year that the Employee was a Participant in the Plan, then such definition shall be applied hereunder. So what does it mean to be a "Participant"? Their entry dates are 1/1, but the plan (and particularly the CODA) did not exist until 5/5/14. Thanks.

The DB relies on the DC contributions to pass non-discrimination, the DB benefits on their own would be discriminatory, right? So it then follows, if each participant gets an ancillary death benefit in the DB plan of 50x the monthly benefit, then the death benefit will also be discriminatory because it is based on discriminatory benefit amounts. The death benefit cannot be made non-discriminatory by simply offering additional insurance in the DC plan (whether or not the employees waive it) because the insured death benefit is paid for by participants in the DC plan, whereas it is employer-paid in a DB plan. Stated another way, providing the insured death benefit in a DB does not reduce a participant's eventual retirement benefit. However purchasing insurance in a DC plan does reduce the eventual retirement benefit because the premium is charged against the account balance of each participant. There is at least one firm out there designing combo plans with insured death benefits where they say they provide additional employer-paid contribution to the DC plan to pay for the insurance necessary to make the death benefit non-discriminatory. If there is a right way to design such plans this is probably it. Personally I choose not to go there and do not design or administer combo plans with insured death benefits. As far as any supposed legal advice from the insurance company, I agree with the other comments. If the agent brings it up, ask for an opinion in writing and that the insurance company indemnify the client - you won't get either.

What K2retire said. The employee is a participant on their entry date based on the plan provisions and eligibility, regardless of their electing to defer. So turning in an election form now is merely submitting a change in the election, not enrolling in the plan. Does the plan document actually have hard-coded language that says participant may change their election only twice a year? This is unusual (though not unheard of) in my experience.

So assume a plan uses an enhanced 100%/4% SH match. It excludes HCEs from the SH match, and further provides for a discretionary match and excludes NHCEs from this discretionary match. Then as long as the HCE match is at some rate not greater than 100%, and further assuming HCE deferrals matched are capped at some level not to exceed 4%, this should comply with the regs, and in doing so the plan keeps its top heavy exemption? And the HCE match could be subject to vesting? Does the document itself have to limit the HCE match not to exceed 100%/4%? Doesn't appear the reg requires such.