cheersmate

Thank you, C B Zeller. Question, regarding RMD -- if use cash basis I understand his 2021 will be zero because 12/31/2020 bal is zero cash basis (also happens to be 0% vested). He will definitely have a balance 12/31/2021 even if does not defer and it will be 20% vested, because the 2020 deposit will be in the account. Based on this, is 2022 his 1st RMD therefore due by 4/1/2023 or must it be paid in 2022? The owner started the business as Self-Employed 2 mos prior to his 70th birthday - would it matter if never showed a profit till 2020? FYI, he formed LLC in 2018... elected tax as S-Corp 2020. Thank you, Mike. He is zero vested 2020 Plan Year, but would be 20% vested in 2021 Plan Year.

New Plan Effective 1/1/2020 to be adopted by due date of business return, as per SECURE Act. For 2020 it will be a cross tested Profit Sharing with individual allocation rates; 2021 will include 401k with Safe Harbor in addition to the Profit Sharing. NRA is 65+5 Participation, The Plan will exclude service prior to its Effective Date for Vesting credit purposes (actual hours credited basis). Owner wants to waive the eligibility waiting period as of the Plan's effective date (1/1/2020) for any employees actively employed on that date to enable his son to be a Participant (otherwise eligible 1/1/2021). This will make for three (3) HCEs for 2020. In doing so, there are four (4) NHCEs who will also be eligible as a result of this provision (note 1 of the 4 would otherwise be eligible as of 7/1/2020). Concerns are as follows: The owner is 79 years old and will of course be subject to Required Minimum Distributions. Though the entire contribution is receivable for 2020, would the owner be required to receive a 2021 Minimum Distribution based on his "12/31/2020 valance" including the receivables (up to his vested account balance, note NRA is 65+5P to avoid 100% vesting)? The owner is able to maximize his Profit Sharing allocation (allocation rate is 100% of eligible pay) with a 5% Gateway to all NHCE staff. This same 5% Gateway to all NHCE staff affords the son a PS allocation rate of about 18% and the third HCE (unrelated) a PS allocation rate of 3%. Total PS contribution is well within the deduction limitation, all rate groups and Average Benefits Test pass. Concern here is two (2) of the four (4) NHCEs that come in under the "eligibility waiver" are terminated during the 2020 Plan Year - since the Plan excludes service prior to the Plan Effective Date all Participants are zero vested. Is this a concern, or not since all receiving same 5% allocation rate? One of the two who terminated is counted in the owner's and his son's Rate Group testing -does this impact the answer? Both, of course, are in the ABT. Finally, I will add, even if past service is counted (actual hours 2019 and 2018), the referenced two who terminated would still be zero vested due to short service/insufficient hours. Thank you.

Thank you! CuseFan

A retirement plan, Calendar Year Plan Year with 2/20 Vesting, defines its "Normal Retirement Age" as the later of age 65 and 5 Years of Plan Participation, and, hired the following Eligible Employee: Hire 3/1/2020 Birth 4/1/1957 (age 62, 11 mos at hire) Eligible 6/1/2020 NRA based on the above definition is 1/1/2025 (1st day of plan year of 5th anniversary of participation) Assuming works 1000+ hours in every year and is actively employed: Q 1: this employee would not be 100% vested on his 65th birthday (4/1/2022) because he has not yet satisfied the definition of Normal Retirement Age, correct? Q 2: on 12/31/2024 this employee is 80% vested; on 1/1/2025, this employee's vesting would be accelerated to 100% Vesting upon reaching Normal Retirement Age, correct? Thank you!

Thank you. I agree, too, hence my asking in this forum. Thank you everyone for your input.

Agreed...it is the way it is reflected on the election form generated by a national document vendor.

For 2020, a Participant elected $1,625.00 401k plus 541.66 catch-up withheld per pay. December 29, 2020, Participant completed another election form electing $19,500 annual 401k plus $6,500 annual catch-up withheld (proportionately from each pay). The employer provides 24 payrolls per year, therefore the 2021 per pay withholding should change to $812.50 + $270.83 respectively. Unfortunately, it was not changed and for both of January 2021's payrolls the previous election stood. Both of January 2021's 401k deferrals have been remitted over to the plan (same day as pay dates) making this not only a payroll issue but a plan correction issue. How best is this corrected? Should the employee be provided a special paycheck equal to the over contributions with taxes withheld (recognizing FICA will be overpaid)? And then to correct the Plan, should the contributions to the Participant's account be removed and placed in a forfeiture account? The employer realized the error and spoke with the Participant who is okay with what happened, does not want a correction, and simply wants to skip 401k deferrals for the month of Feb and restart again in March (plan does permit this frequency for changes) - is this acceptable? Thank you.

Everyone who was in the terminated DB and continues to be a participant will share in its allocation Thank you shERPA Thank you everyone! Very much appreciated.

Forfeitures do not offset 404 deduction limit - I am hoping same logic applies with respect to the DB Surplus release amount.

Question: In a Defined Contribution Plan, can the transferred Defined Benefit surplus assets being released for 2020 Plan Year (received into it on account of prior DB termination), be allocated in addition to the employer's contribution equal to the 25% of eligible pay or must the 25% deduction limitation be reduced by the amount of DB surplus being allocated? Example: DB Surplus Suspense Account must release at least $35,000 for 2020 Total Eligible Payroll $500,000 therefore 25% Deduction Limitation is $125,000. There are multiple participants. It is understood the maximum any one participant may receive in annual additions is $57,000 (+ catch-up if any). Can the Employer contribute and deduct the full $125,000? This would mean a total of $160,000 ($35,000 DB surplus released plus $125,000 employer contribution) will be allocated for 2020. OR, must the employer's contribution and deduction be reduced to $90,000 (the $125,000 deduction limit reduced by the $35,000 DB surplus to be released and allocated this year)? Thank you.

I am very sorry, you are right and it was certainly not my intention. Yes, the gateway is being satisfied prior to restructuring, 5% minimum covered by 3% Safe Harbor Non-Elective Contribution + 2% Profit Sharing

Having a brain freeze... 4 participant plan - 2 HCEs (father, son) and 2 NHCEs (1 young, 1 older) Plan provides 401k, 3%SHNEC and discretionary PS by rate group (ea ppt is in own) The Gateway is 5% QUESTION: I would like to restructure for (a)4 testing: 1 HCE (father) and 1NHCE (younger) based on cross-testing and 1 HCE (son) and 1 NHCE (older) based on allocation rate testing. Each will pass coverage at 100%. Provided the C/T group passes (and it does) and the the Allocation Rate based group passes (proposed same % for HCE as NHCE), the Plan passes, correct? Am I forgetting anything? Thank you.

I agree, and believe this to be the issue for the term ppt. Based on all of the above, is it correct to say a Terminated Participant is permitted to request a CRD and be sure the Amendment is modified if necessary to permit it?

Mikes seems to me to be saying CARES Act provides distributions that would otherwise be precluded. In this case the term ppt can elect to receive a termination distribution... however would like it to be a CRD and I imagine it is to avoid tax withholding at the point of distribution.

Mike, the terminated participant is eligible to receive a distribution. Are you saying the CRD is not an option because of this? Exactly what I was thinking both in terms of the Amendment and the "work-around" with an IRA. I would imagine the Amendment will not preclude them if CARES Act does not, at least not the snap on at the sponsor level. I thought in one of the many, many webcasts on CARES, I thought someone addressed this -- CRD and term ppts -- however I can not put my finger on it. I am fairly certain the term ppt wants the CRD to avoid tax withholding at the point of distribution.

A Terminated Participant would like to request a CRD in lieu of the Terminated Participant Distribution, I suppose to waive tax withholding. The Plan permits CRDs. Are Terminated Participants who terminated prior to 2020 permitted to request a CRD? Thank you

To clarify, this not an amendment situation wrt to allocations. All ppts are in their own RG. Having said that, my concern is whether the Plan sh be amended to provide some level of vesting given the illustrated PS allocations especially since some of the ppts are 0% vested and the plan does have a 'short service' waiting period to enter the plan, which in application permits PT employees to enter. There are no last day, no min hrs requirements for allocation purposes. Given these f+c should the plan be amended to provide some level of vesting starting at zero Years of Vesting Service, say 10% or 20%, or even switch vesting service to an elapsed time crediting basis, to avoid being interpreted as abusive in practice as per the "IRS comments memo" referenced earlier in this thread?

Hello Larry - As a matter of follow up to your comment "vesting is not an issue at that point" - when is vesting an issue? Allow me to illustrate my concern with a similarly situated plan for the 2019 plan year who is trying to finalize figures now- SHM401kPSP where 2019 is Plan Year #2 for this case, so at most, ppts are 20% vested. In addition to the ADP SHM, the Employer has elected to contribute an ACP SHM - the 1 HCE and 2 NHCEs benefit 7 ppts: 1 HCE, 6 NHCEs (2 of whom terminated in 2019, 1 is vested 20%, 1 is not vested). Plan Sponsor is considering depositing 9% PS for the owner, who is relatively young Staff is mixed PT and FT, elig is 2 mos wait/no min age To pass RG testing 3% to the NHCEs is sufficient however not passing ABT, so to pass the RG at 70%, the PS allocation rates have been increased via "cherry picking" per person to amounts needed for 3 of the 6 NHCE ppts. NHCEs 1, 2, 3 are at 3% PS; NHCE 4 is 6% PS and NHCEs 5, 6 are at 5.1% PS Question is related to this and the vesting issue... 1 of the 3 who are increased over the 3%PS was terminated in 2019 w zero vesting (PT never converted to FT prior to terminating) and another of the 3 increased has since terminated in 2020 due to COVID - was FT - but zero vested at term... is this a problem w the above "cherry picking" PS allocation rates? And if it is problematic (1) would the vesting issue be negated if the employer increases all 6 NHCEs to the highest allocation rate provided to any 1 of the 6 HCEs, i.e. 6%? and/or (2) could the employer adopt a Plan Amendment to provide 10% vesting to all participants w vesting service = 0 <2Years (to elim this now and in future as well)?

Thank you. I thought so but because it was a Hardship taken, not a CARES Act distribution, I wanted to be certain.

A Participant in a 401k Plan received a Hardship Distribution in 2020. He is now a "Qualified Individual" under the expanded definition under CARES Act (the spouse of...). He intends to make the election to pay the taxes over the next 3 years as permitted as a Qualified Individual under CARES, exemption from 10% penalty. QUESTION: is he permitted to return the distribution the Plan or an IRA if he is able to do so within 3 Years of the distribution date? Thank you

Spiritrider - to bring this full circle and to make sure the finer nuance of my inquiry is covered in your comments, the Participant is active in Plan A (unrelated plan sponsor). The Participant has partnered with his wife to buy an office (not certain if it stands alone or condo). The intention of that purchase was to rent the location to his wife's dental practice. All of this happened prior to Covid. Covid hit, the wife's practice is practically at a standstill, consequently she has not moved her practice to take occupancy of the newly purchased office space. Since the Participant is part owner of this office space that he now is not collecting rents on... do you think he could qualify? I believe you do not but just to be sure I am following you, please confirm. Again, thank you everyone.

I have none also... and have warned this particular employer about the flood gates. He has his concerns. If the plan doesn't adopt CRDs, on what basis can the participant who is actively employed request a distribution? Thank you again Larry.

Thank you for the quick reply! Have you heard anything suggesting when the IRS will address this formally or even informally? Again, thank you so much!

Larry - Has there been any announcements or comments by the IRS yet? Are you advising clients to accept certifications made on the spouse being terminated qualification? I suddenly having this come up time and time again. I have the following similar situation but the Participant would prefer to "know" he is a Qualified Individual... Participant's spouse has her own dental practice. Due to Covid, her dental practice is extremely limited. The Participant and the spouse purchased another dental office space and were about to lease it to the spouse's dental practice when Covid hit. Now, the practice is not moving into the new space. By owning the new space with his spouse, which is now not income producing, would the Participant be a Qualified Individual but virtue of the "adverse financial consequences due to a closing or reduction in hours of a business that you own or operate due to Covid" qualification? Thank you so much. Stay safe and be well.

Thank you all - it is very much appreciated as always!