Dougsbpc

Year 6 of a one participant DB had no AFTAP done. Therefore benefit accruals are frozen as of the end of year 5. That means no benefit increase for year 6 until a subsequent AFTAP is done and is high enough such that prior year's benefit accruals are restored. My understanding though is that for funding purposes, that is not an issue for year 6. In other words freeze the benefits because of no AFTAP but go back and assume a benefit accrual for funding purposes. In other words, benefits are frozen but not considered frozen for funding purposes. Does anyone agree / disagree? Thanks!

Have a 401(k) plan that is a safe harbor plan with salary deferrals, non-elective safe harbor and profit sharing. Would there be any problems or additional testing requirements if the plan had the following eligibility requirements: Salary Deferrals - immediate entry after working 100 hours. Safe Harbor Nonelective - immediate entry after working 1,000 hours. Profit Sharing - immediate entry after working 1,000 hours. In other words, they want almost all employees to be able to fund salary deferrals soon after being hired but only want to provide employer contributions to those who who are full time and almost full time. Thanks.

Have a scenario where a county employed judge has a private business. As a county employee she has a government provided pension plan. Her private company is very profitable and will be for at least another 8 - 10 years. Can her private company (an S-corp) sponsor a defined benefit plan for her as the only employee? Would her government provided pension plan benefits she accrued factor into what could be done with the private plan? Thanks.

We might take over a 1 participant DB plan. The plan is in its ninth year. The plan has adequate assets to pay all benefit liabilities. Looks like it always has. The problem is that no AFTAP was ever done. So benefit accruals are frozen for years 6,7 and 8. If we get the current AFTAP timely signed, it is at 122%. If this is done, are all prior benefit accruals (from years 6,7 and 8 automatically restored? Thanks.

In the past, a terminated participant with a vested benefit payable from a pension plan had to be provided with annuity options (actually, the normal form of benefit) if the lump sum value of their benefit exceeded $5,000. In other words, terminees with a vested lump sum value of less than $5,000 could simply be paid a cash lump sum. Did this threshold go up to $7,000 with the SECURE Act? If so, then I would think a terminee with a vested lump sum value of less than $7,000 could just be paid a cash lump sum for plan years beginning in 2025. Does anyone disagree with this? Thanks!

Information update: the asset purchase will take place over 10 years (approx. $170k per year). I think above I mentioned that the defined benefit plan will be made active for one year. It will actually be active for about 5 years then terminate and distribute. A's corporation still exists. The income from the sale to practice B is paid to practice A's corporation. This amount per year will represent about 90% of practice A's revenue each year for the next 10 years. What would happen if the $170k per year is paid directly to the 100% shareholder of Practice A each year instead of the practice A corporation? Thanks.

Thank you CauseFan What if this had been an asset sale? Other than a management group, I believe there must be some common ownership in each entity for an ASG to exist. If ABC company is purchasing the assets of DEF company, does purchasing the assets equate to having an ownership interest in DEF company?

Many of us have probably run into this scenario: We administer a small defined benefit plan for an attorney. He has no employees and gets most (if not all of his paralegal work) done by a firm that provides contractors. The plan has been in place for 7 years and is currently frozen. The idea was that it will soon be terminated and distributed. The attorney is now selling his law practice through a stock sale. Each year the buyer will receive 20% of the corporation's stock until 100% is owned after the fifth year. The seller wants to unfreeze the plan and make substantial contributions for one year of about $300,000 then terminate the plan. Question: when this sale is taking place, does an affiliated service group exist? And if so, I would think the buyer and his 3 employees and the seller (only him) would need to be aggregated for all testing in the now unfrozen defined benefit plan. It turns out the seller does not want to cover anyone but him. If an affiliated service group exists I would think we would have 5 to consider. Just for 401(a)26 he would then need to cover (5 x 40% = 2). Just out of curiosity, would an affiliated service group exist if this were an asset sale (for example a sale price of $1.5M with the buyer paying 20% of $1.5M each year for 5 years)? Thanks.

Thanks for all the good opinions. In this case, there is no controlled group or affiliated service group with respect to company A and company B. So if company A sponsors the ESOP and also sponsors a 401(k) plan, I would think company B could become a participating employer in the 401(k) if it wanted to. Then, as mentioned, the 401(k) plan becomes a multiple employer plan. Company B would not participate in Company A's ESOP and since they are not related entities, I would think theier would be no testing issues involved. It seems to be mentioned that company B might need to register under the securities act. If it is not a related employer, I would not think this would be a requirement. Does this mean that just because company B becomes a non-related employer participating employer in company A's 401(k) plan, that the registration would be required? Thanks again.

Have a 401(k) plan that has been co-sponsored by two related entities for many years (company A and company B). Each entity has about 20 - 30 employees. Effective 1/1/2026, one of the entities will also sponsor an ESOP. No controlled group or affiliated service group issues. They will be slowly funding the ESOP with stock over time but eventually the employees of company A will own 100% of company A. Does this create any any problems with company A continuing to co-sponsor a 401(k) plan along with company B? Thanks.

In this case, 2023 was the only year in which a mistaken 5500-EZ was filed. As was mentioned, they might receive love letters but I cant imagine that you cannot amend a filing after a mistake was uncovered.

We don't administer very many plans that have insurance but this particular plan is a one participant traditional defined benefit plan that we inherited. When the plan was established, the proper amount of insurance was purchased (no more than 100x the projected benefit). Is this 100x rule effective just for the year the insurance was put in place? I would think so for the following reasons: 1. The company could have an unexpected downturn in business resulting in smaller average compensation and therefore a smaller benefit than anticipated. 2. The plan could be frozen at some point for a few years or so and then the participant might end up with a smaller benefit than what the original projected benefit was. Thanks.

We administer a 3 participant 401(k) plan. It had always been communicated that all 3 were 33/1/3% partners. For the 2023 plan year (12/31/2023) we prepared and filed a Form 5500-EZ. However, we subsequently found out one of the "partners" was actually an unrelated employee during the 2023 year. We are thinking of filing an amended Form 5500-SF for the 2023 year, the way it should have been filed. Does anyone think there will be trouble doing this? In other words maybe the IRS will come back and indicate that the original filing did not qualify for an EZ, therefore the amended return (the 5500-SF) is considered late for about 8 months? Thanks.

We administer a 70 participant 401(k) plan that does allow for participant loans. The plan loan policy restricts loans to a few categories of need. To pay past due taxes, To use to purchase a principal residence, for moving expenses etc. They had a participant who they later found that lied on his plan loan application and the loan proceeds were not used for the purpose he stated. The loan has been in place for about 6 months and he is current on all loan repayments. Because he lied on his application, the plan sponsor wants to demand full repayment of the loan by year end and if that does not happen, they want the balance of his loan to be offset and become a taxable distribution to him. The plan document allows for an offset that becomes a taxable distribution to the participant in cases of non-repayment or delinquent repayments of the loan. However, the document does not seem to allow for a loan offset / taxable distribution just because he was not truthful on what the loan was going to be used for. We think that they cannot just offset the loan so it becomes a taxable distribution even if the participant lied about what he was going to use the proceeds for. Does anyone agree? Disagree? Thanks.

We have pre-approved non-standardized documents. All defined benefit plans had to be restated for Cycle 3 by March 31, 2025. Even though about 90 plan sponsors did adopt the restated documents by March 31, 2025, we had 4 clients who did not. Our understanding is that the restatements can be done through self-correction as long as they are adopted within two years of March 31, 2025. In addition, we believe the plans would need to adopt all amendments between the last restatement (PPA) and now (Cycle 3) to properly do this through self-correction. This as if the plan were an individual design. Question: Is there a list somewhere of all the required amendments between the PPA restatement and the current Cycle 3 restatement? If so, could you let us know? Thank you.