Belgarath

So, I'm not a CPA, and I wondered if this statement from a client's CPA makes sense, where there are two or more Schedule k-1's, but not a CG/ASG, and there are no participating employers? To me it seems odd, but perhaps it is perfectly normal: The K-1 from that (other LLC) will have a substantial effect on his K-1 from (XXXX), but it won't change his earned income from (XXXX). His 2023 self-employment income from (XXXX) is expected to be ($$$$$) prior to employer contributions and reduction for self-employment taxes.

So, the wording in IRS Notice 2004-2, Q&A L-2, and similarly in Q&A L-9, seem to contemplate the taxable year when "allocated" in a different manner than the normal interpretation of "allocation" for valuation, deduction, and 415 purposes. In this case, "allocation" seems to be synonymous with "deposited" or "contributed." Which makes sense - since it has to be reported on a 1099, how could it be done otherwise if the employer went on extension, and the employer contribution wasn't made until September, for example? Any other thoughts on this? Q. L-2: If an employee designates a matching contribution or nonelective contribution as a Roth contribution, for which taxable year is that designated Roth matching contribution or designated Roth nonelective contribution includible in the individual’s gross income? A. L-2: A designated Roth matching contribution or designated Roth nonelective contribution is includible in an individual’s gross income for the taxable year in which the contribution is allocated to the individual’s account. The preceding sentence applies even if the designated Roth matching contribution or designated Roth nonelective contribution is deemed to have been made on the last day of the prior taxable year of the employer under section 404(a)(6) of the Code.

Ah, well said. Serves me right for being too lazy to look it up this morning. Mea Culpa.

I agree with Jeff. The distribution calendar year is 2025, yes, but the Required Beginning Date is April 1, 2026. I see that C.B. and I were typing at the same time.

I'm too lazy to look it up right now, but my memory agrees with Lou.

Thanks all. We did the first couple with the "a" but have since modified it. Update - we use FT William for our 5500 software. Their system instructions, (which for this question are taken from the 5500 form instructions) do NOT specify that the "a" must be used. Yes, when you enter the number Qxxxxxx, it flags it as red, and when you go out to edit check, it adds the "a" to the number on the form. We've sent a question to their support folks (who are outstanding) to ask about this. I will let you know what they respond. Also, in case it matters, we are talking about a 5500-SF. I don't know if similar issues arise on a Schedule R. 10:00 AM - excerpt from FT William response - there was a bit of back and forth - but they are our 5500 software provider, so we'll do what they say! "EFAST2 is programmed to only accept the input when formatted as Q123456a."

So, preapproved plan, you have to give the Opinion letter Serial #. Ours has the format Qxxxxxx with a small "a" after the 6 digits. The 5500 instructions do not appear to require inclusion of the "a" - has anyone heard otherwise? I always assumed the "a" meant "approved" so maybe it is meaningless in the context of filing 5500's at this point?

Yeah, I've resigned myself to that - I assume most, if not all, will have to be signed - this won't be a typical "cookie cutter" amendment. I am VERY thankful that we already did the CARES amendment, so we don't have to try to reconstruct all that garbage - going to be bad enough dealing with the SECURE/2.0 amendments. We might just require signatures on all of them for administrative consistency - no danger of missing one that way. And thanks to you and C.B. for the responses.

This subject has come up in discussion before, but since I've seen the new FIS plan termination amendment, I thought I'd bring it up again. We've been taking the conservative position (rightly or wrongly) that the jump to $7,000 only applies if the plan ALREADY has a $5,000 limit. A plan that has a $1,000 limit, we've been amending to $5,000, then operationally switching to $7,000. The FIS plan termination amendment, which of course isn't IRS approved language, does provide an option to jump directly from $1,000 to $7,000. But, this is a termination amendment, not an amendment for an ongoing plan. I believe in one of the webcasts quite a while ago, there was some musing that operationally jumping directly from $1,000 to $7,000 operationally, and catching up with the formal SECURE/2.0 amendments, would be acceptable, but that was REALLY unofficial - just some general discussion. Anyone have any new thoughts on this subject?

If you are looking for a great source, you should obtain (or get access to) Derrin Watson's "Who's the Employer." Derrin deals extensively with Controlled Group/Affiliated Service group issues, and has examples that may well shed light on the specific situation that you are dealing with.

What Bill said. Also, if you haven't already, check to see if the participants have been given the option to purchase the policies from the plan, rather than having them surrendered. Presumably the plan language would give them this option.

Thanks again. It confirms what I was thinking, but my question was very inaccurately worded. Pathetic, in fact, as I read it again!

I was actually referring to a plan that specifies, say, 3 month eligibility for deferrals, and 1 YOS for safe harbor. Probably should have worded it better! Such a plan loses its automatic TH exemption, right? I assume your word "not" is a typo? Ok, this is what I was thinking. Thank you for your response!!

Everyone's favorite subject...I just want to see if I'm understanding this correctly, with regard to safe harbor plans using Otherwise Excludable Employees exception. So, in a safe harbor plan that does NOT use the OEE provision, LTPT employees can be excluded from all employer contributions, and the plan does not automatically lose its top heavy exemption, assuming only contributions made are deferrals and safe harbor match or nonelective. However, the loss of top heavy exemption remains in place if the safe harbor plan uses the OEE exclusion, even though LTPT employees are still permitted to be excluded from safe harbor and top heavy if the plan is top heavy. Have I got that right? For some reason, I'm finding this very confusing.

I think this (paying back to the plan to avoid a taxable event so the entire amount could be rolled over) was more important before the QPLO rules. Since the participant terminated employment, it should be treated as a Qualified Plan Loan Offset (QPLO), and the employee has until extended tax filing deadline for the year of the offset to use other funds as a rollover. So, seems to me that there's nothing much to be gained from a tax perspective by depositing those funds back to the plan to repay the loan. Maybe easier administratively somehow by having it all directly rolled over in one lump sum, I suppose. Maybe I'm missing something here...

Very quick answer - distributions (including rollovers) from a plan are reported on a 1099. I suggest you go to the IRS website, and read the instructions for a 1099 - there are many different situations and reporting codes, and these boards are the wrong place to try to get detailed answers to a laundry list of all the potential situations. Once you have read and digested the instructions, then if you have a specific question on a situation, these boards are very helpful. Good luck!

So, suppose a calendar year plan is terminating in March. The plan must, of course, amend for SECURE and SECURE 2.0 - (CARES amendment was done way back). I believe that technically, since the amendment is ADOPTED in 2024, and there is a 210 day period following the end of the PLAN YEAR IN WHICH THE AMENDMENT IS ADOPTED (hence 210 days into 2025) that no SMM is required. Now, employees were previously notified if certain provisions applied - QBAD's, for instance, albeit not in a formal SMM. If I'm correct, this makes the plan termination process easier, because the SMM's can be wildly variable with the voluminous possible changes, and are a royal PIA. Thoughts?

Thanks for the info. Fortunately, in the situation I was working with, the final paycheck (which included the true "severance pay") was paid several days AFTER the severance from employment date, so I wasn't worried about excluding this from the eligible "post severance pay" category. But it got me to thinking about a situation where it was paid on the severance date.

Wow, we're dropping like flies! Congratulations, and best wishes for a great retirement!!

Thanks Bird. Appreciate your thoughts.

1/29/2024 update - it is now available.

Really stupid question here. Suppose a participant terminates employment on (X) date, and receives final paycheck 3 days later. Included in that final paycheck is a "severance" payment that would not otherwise qualify as "post severance" pay. Because the paycheck date is AFTER the severance date, this is considered under the post-severance rules, and is excluded. Now, suppose the final paycheck date is, in fact, the day before the actual severance date. Now it just falls under the regular rules, and if plan defines as W-2, then it would be included, right? You can't call it post-severance if it is pre-severance, agreed? Now for the real question. If paid ON the actual (X) severance date, would you classify as pre or post severance? Any "gray" on this - for example, if it was paid as a separate check instead of being included in one big, final check?

Just be careful to distinguish between the ADP safe harbor match, and the ACP safe harbor for discretionary matching.

Here is an excerpt from something by the CG/ASG Guru, Derrin Watson. I would recommend ERISA counsel if you have an actual situation: Code section 414(m)(5) also provides for management affiliated service groups. A "management affiliated service group" is a group consisting of [Code Section 414(m)(5)]: (A) an organization, the principal business of which is performing, on a regular and continuing basis, management functions for an organization or for an organization and other organizations related to the organization, and (B) the organization and related organizations for which such functions are so performed by the organization described in subparagraph (A). Note that unlike organizations affiliated under other provisions of section 414(m), 1) there is no requirement of common ownership of the managing and managed entities; and 2) is there is no requirement that any members of the group be a "Service Organization."

Great idea!