Belgarath

Curious as to what approach you take. A sole prop has Schedule C from two different businesses. One has income of $100,000, one has a loss of $50,000. Defined contribution plan. Do you A. calculate based on $100,000? B. Calculate on $50,000? C. Give your opinion (mine is that you do not net the two, so $100,000) to the CPA/Client and let them choose?

Say you have a sole prop with one employee. Sole prop's Schedule C is low enough so that taking into account the contribution for the employee, and the earned income reduction, the sole prop's net "plan" income is, say, $25,500. Sole prop is catch-up eligible, and deferred $26,000. Now, under IRC 414(v)(2)(A)(ii) the sole prop deferral can't exceed $25,500. So I assume the excess $500 is considered a 415 violation? I don't see what else it could be - not a 402(g) violation nor an ADP failure...

No idea whatsoever, but I offer the following: https://www.songfacts.com/facts/the-beatles/when-im-64

The following is just some general blathering as random thoughts occur to me. What recourse might you be talking about? Unless I'm misunderstanding, the participants just have to pay what they are otherwise required to pay, right? Granted that they might not be EXPECTING it at this time and it may be inconvenient, etc. - but they received the full distribution, so the state withholding that they WANTED withheld is still in their pockets, or is part of their new living room set that they are sitting on, etc. They probably don't owe any interest, but if they did ('cause they didn't make any quarterly estimated payments if required by the State, or something like that) then perhaps they would have an argument, and I suppose other scenarios could be created. But I suspect that any recourse requiring legal action would likely be either unwarranted or far more expensive than the "damages."

I've found conflicting opinions. Some say yes, others say that you fail the 25% Key employee test. Seems to me the latter is correct based on a literal reading, but maybe I'm missing something, or perhaps the IRS has opined informally on this, etc...

Thanks!

Way more information is needed. Don't assume anything at this point. For example, has this ownership been the same for all years, including 2017? Was company B acquired in a 410(b)(6)(C) transaction, so that a transition period might apply? Are all of the employees ELIGIBLE employees? Perfectly ok to exclude some or all employees of a Controlled group IF you can pass coverage testing. Based upon the ownership you give above, it would appear to be a controlled group now.

Ok, thanks!

I'm a little confused by this. So let's say you have a plan with a Health FSA, that has a rollover provision, but NOT a grace period. It does have a 30 day "runout" period to submit claims for prior year. Now assume they executed a CARES amendment, which states, to paraphrase, that the plan's claims procedures and other statutory deadlines are temporarily extended by the "outbreak period" , and the outbreak period extends until 60 days after the end of the National Emergency, etc... We of course are not past the end of the National Emergency. So, would you interpret this as allowing the 30 day "runout" period to be extended, for submission of 2020 claims?

Agreed. IRS Notice 2009-65 sample amendment for a non-EACA doesn't include any limitations either. https://www.irs.gov/pub/irs-drop/n-09-65.pdf

Hi Luke - thanks. By the way, how did you find 94-101? I couldn't find a link to the blasted thing anywhere - obviously looking in the wrong places!

Hi Luke - I know there was something, but darned if I can find it. Could have been made obsolete by later guidance, etc. The issue is discussed in the IRS audit procedures, but not in great detail. I tried to see if the EOB has anything on it, and there is an extensive discussion, and there is reference to an an IRS Announcement 94-101, but I can't find that. At any rate, I agree that it is a thorny issue requiring careful consideration!

In the "old days" we used to call this a "waiver of compensation" and it was used a lot. As mentioned above, this largely went away with the CODA concern. I seem to recall, without further research, that this is a real problem - maybe even automatic - for unincorporated partners/sole props, but not necessarily a problem (facts and circumstances) for, say, a corporation. There was some sort of Revenue Ruling/Announcement/whatever back in the 90's on this issue.

Personally, I would never want to go down this rabbit hole. We do qualified plan administration, not investment counseling. Could you do something like this? I'm certain you could. I just wouldn't want to - at least up front, I can't see that it would add enough "value" to our services (by the time you have disclosed and CYA to the nth degree) to ever make it worth it. If you do, have fun!

Thank you. This is actually precisely what we decided on Friday as the "best" course of action, taking into account all factors.

Thanks for the responses.

Just had an interesting question presented to me - real life case. 401(k) plan with several hundred participants had an ADP failure. Small failure - between $1,000 and $1,500 had to be distributed to 1 HCE. This was done timely in March of 2020 - BUT, 3 days after the deadline, the custodian reversed the distribution - due to some BS paperwork question. They never notified anyone of this, and the distribution was never reprocessed. Fast forward to now, when it was just discovered. Of course it can be corrected by a QNEC (prohibitively expensive) or the "one to one" correction method. Problem with one-to-one is that the amounts are so small that it amounts to a QNEC of just a few cents for many eligible NHCE's. Anyone have brilliant creative thoughts? VCP is prohibitively expensive, and any solution under SCP, while possible, carries no guarantees. Many fixes, while "reasonable" by ordinary standards, might not stand up under audit. However, short of an "approved" fix, then some risk must be assumed. Thanks for any thoughts.

Tried to post this before, but I think I botched it. Spirit - you may find this post helpful:

Good for you! Your participation will be missed. Enjoy every minute! I'm reminded of a quote I read a LONG, LONG time ago - rather corny, but the point of the message has always stuck with me. Lost between sunrise and sunset. One golden hour, set with sixty diamond minutes. No reward is offered, for it is gone forever.

Great, thank you. As I said, I just wanted to make sure I wasn't missing anything.

I haven't really, but my inclination is that as long as they can elect to be covered under the 401(k), then not to worry about it. If there isn't a 401(k) and the CBA excludes them from the 403(b), I think there's a problem. Turns out that the 403(b) plan document allows the union employees to CHOOSE whether to participate in the employer's 403(b) plan, or the union 401(k) plan, so they aren't excluded under the 403(b) plan after all. But, if questionable, I'd tell them to get an opinion from their ERISA attorney.

Thanks. Haven't seen the wrap document, so I don't know what it says...

Suppose an employer has been filing several 5500 forms - one for each plan - Dental, Disability, whatever. Has not been filing for certain plans due to less than 100 participants - say, Vision plan has only 40 participants. Now they institute a "wrap" plan. Are they required to include the Vision participants, or can they still exclude them? Do they have the option to include or not include, and still file multiple 5500 forms, or must it be one form? I'd assume they want to file just one form, and must all sub-plans then be included?

Thanks, but I want to make sure I am properly understanding what you are saying. When I said he "terminates" employment with A, he does in fact terminate employment with corporation A. I was trying to show the chain of events. I do understand that for qualified plan/controlled group purposes, this isn't a termination from the employer group. So, are you saying that vesting in Plan A does continue to increase while he is employed by corporation B, or are you saying that it does not increase? Thanks again!

Corporation A and B are a controlled group. They have identical separate plans. Participant is partially vested in Corp A plan, then terminates employment with A and moves to B. Account balance remains in the A plan. Since all service with all members of the CG is counted for Years of Service, then as long as participant works for B with 1,000 hours each year, the vesting under the A plan will continue to increase, even though participant is no longer working there. Is there any dispensation that I'm missing that would allow vesting in A plan to remain frozen?