shERPA

I Am Not An Attorney. Also frequently written as IANAL (Lawyer). 🙂

I'd agree with you that logically if a standardized plan covers all members of a CG even with the action taken by just one member, that that sponsoring member should be able to amend the plan to fix it. HOWEVER, IANAA, but I've never been comfortable with the concept of a standardized plan automatically covering all members of a CG. I remember meeting a prospective client in California, a subsidiary of a Japanese parent company. I had a fairly extensive fact finder, such that they had to send it to someone in the parent company to get some of the information needed. Turns out this parent company had another subsidiary on the east coast, in a completely different industry, and neither subsidiary company knew of the other one. One of them already had a 4k plan with a payroll company. Fortunately it was a non-standardized document, but it could easily have been standardized. Then what? Can the omitted employees sue for benefits? Their employing entity never signed up for the plan, how can they be obligated? The parent? The other subsidiary? Seems like the corporate veil would likely protect them. Standardized is just a creation of the IRS for administrative purposes of approving plan documents. I've always wondered what would happen in court and how such a provision would be enforced. And if it can't be enforced, is it a plan at all?

Yes, I suppose so. There is clear authority to adopt a plan retroactively without even invoking -11(g). There is no question adopting a new plan is permissible, the question is whether B adopting A's plan comes under this new authority. Ideally if -11(g) was being drafted or amended post-SECURE, it would address this. Section 201 of SECURE says "the employer may elect to treat the plan as having been adopted as of the last day of the taxable year." Who is the "employer" in this regard, each separate entity or the aggregated CG employer? Either way you consider "employer", adopting a new plan retroactively works. OTOH if you consider the "employer" to be the aggregated entity, it already sponsors the existing plan, which could imply that adding B is more of an amendment than an adoption. Of course if it is an amendment then why can it be done under authority of -11(g) (except maybe the deductibility is not retroactive?). But then if each entity is filing separate tax returns then maybe B adopting A's plan is an amendment for -11(g) purposes, but then B as a separate taxpayer can invoke 401(b) as amended and elects to treat its adoption as being done as of the last day of the year for deductibility. IMO it should work per my second paragraph, but it might need to be defended under exam, and if an employer has to fight the IRS on this they've already "lost" in terms of dollar cost, anxiety and distraction. So I'd advise a client in this situation to adopt a separate plan now to avoid the issue. But if I came across a client that did it the other way I wouldn't tell them it's wrong, I'd just explain there's no guidance, if you put the pieces together it should be OK, but the pieces came out at different times and IRS may not agree.

Even better if they’re eligible to use it.

Seems to me it should work, the SECURE Act language just says adopt “a plan”, not “a new plan”. But AFAIK there is no guidance. Another option would be for B to simply adopt its own PS plan and then permissively aggregate the plans for testing.

If I mention it, the question back is typically "how much do I pay them?" I explain that I can tell them the impact on plan contributions for various levels of pay but I recommend they consult with their CPA regarding the "reasonableness" of compensation, since they want to deduct it on the business return. I also tell them if the IRS disallows the deduction for the kids' wages it will then disallow their related plan contributions as well, and this can lead to all sorts of unpleasantness. I will usually end this part of the discussion pointing out the 15.3% payroll tax they incur and remind them that "pigs get fat, hogs get slaughtered. Don't be a hog."

Well, as a TPA it's not my place, but whenever we are discussing wages to family members I tell them the pay has to be reasonable for the services rendered. Now, as an employer who did this myself with 4 kids, one year I actually got a letter from the SSA questioning the wages to my youngest daughter based on her age. The kids did come into the office at least a couple of times a month to fold, stuff and mail billing statements and the occasional mass mailing (I'm old - snailmail BITD). I was paying them more than minimum wage, but not excessively so, at least not IMO. IIRC I kept them under the 1040 filing threshold. Absent use of likeness, I'd not be comfortable with $24K for a 6 year old, that's for sure. I generally discourage letting really young kids into the plan, even if there are no NHCEs. One reason is the reasonableness issue, the other is I'm a big fan of having the parents gift the kids enough money every year for a Roth IRA contribution assuming the kids have earned income.

More importantly, get paid up front!

No.

Sounds good to me!

I agree with @Gadgetfreak.

What @Lou S.says. This was a much bigger deal BITD when we had to send hard copies. I've always liked to maintain good working relationships with other TPAs, so I will cooperate and email unless there are outstanding fees.

No options.

Quite right. And as a TPA in situations where a client absolutely insisted on a distribution after the drop dead date but by 12/31, we would tell them they need to do it themselves and not use the paying agent. If there is no withholding then it's just a matter of a manual 1099-R. If there is withholding, well, fuggedaboutit. Sometimes clients would do it anyway and ignore the withholding requirement. Their choice, we just tell 'em the rules and the consequences.

A paying agent is just that, an "agent", and significantly, an agent of the plan, not the participant. As such funds held by the paying agent still belong to the plan until properly disbursed to a participant. So the paying agent is likely correct. But paying agents typically have a time-lag, they need to insure they've received good funds before disbursement, plus you throw in the holidays and the normal year-end crush to get plans distributed and paying agents are very busy in December. They will usually communicate a cut-off date for distributions to be made by 12/31. I would imagine their cut-off date was well before 12/26. And given that 12/26 was a Saturday, wire transfers normally don't occur on weekends and bank holidays, so that would make it 12/28. So it really comes down to communication. Did the paying agent represent that it could be paid out by 12/31? Did the paying agent advise its cut-off date for year end distributions? Did the plan or TPA communicate to the paying agent the need to rush this one thru by 12/31? Did the plan communicate any sort of timing deadline for requesting a CRD? Seems to me the paying agent turned this around really quickly given that 1/4 was only the 4th banking day after 12/28. It really comes down to what was communicated such that all parties would have proper expectations and be able to plan accordingly.

Update, today in the mail I received the big flat envelope with my new enrollment card at the bottom, as it has come in prior years. I also received the same thing in a standard envelope printed on regular paper, mailed separately. They show the "Issue Date" as 10/1/21. Go figure.

I renewed in 2018 and never received anything. I had the pay.gov receipt, followed up with them, they said it got lost cause it was in “the old system”. I think I had to follow up again, and eventually it showed up something in 2019. Just sent my 2021 renewal in a few weeks ago, haven’t received anything so far.

Thanks @Luke Bailey, that's sort of where I'm at too. I've read certain articles and Q&As that state unequivocally that the withdrawal cannot occur after the purchase, but that's not what the code says. I think it comes down to whether or not the funds are used to pay "qualified acquisition costs". If a buyer gets a swing loan that is expressly written to identify its purpose, the term coincides with when the IRA funds are available, it's pretty easy to argue that the paying it off is part of the acquisition transaction. Since the total distribution amount is limited to $10K, the exposure is $1,000, so it's not a huge deal either way.

An individual is a first time homebuyer. His IRA is in an 18 month CD that will mature in October. He expects to close on a home approximately July 31. He wants to take a $10K IRA distribution for the home purchase, but the CD won't mature until after the closing. He can borrow $10K from a family member for the gap period from closing until October. Can he still withdraw from the IRA after-the-fact and count it as a home purchase distribution exempt from the premature distribution tax? If so, is there a time limit? I would assume so. All I can find states that the purchase must occur no later than 120 after the withdrawal, but nothing I've found addresses a withdrawal after the purchase. thanks.

I did not know about Lou, thanks for posting. I first met him when he was working for Brian Demsey + Associates. RIP.

Or maybe the doc has an ownership interest in the surgery center too? That NEVER happens, right? And then you scratch the ASG scab........... 😱

Yes. TH and dual eligibility are a bad combination.

At the end of the day, ALL qualified plan contributions are a CODA for the owners of closely held businesses. Where else does the "C"ash come from?

Love it! 😀

Yeah, I read that, but then it seems they contradict it at the end. Or they give it back? The next year? Seems like it would be simpler to just delay from Sept - January 22 and get a 2.67% increase in the monthly benefit. Thanks.