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.

We are the plan administrator for a client that sponsors a 401(k) plan with about 30 participants. We do not administer cafeteria plans or anything outside of qualified plans. I know it is popular for an employer to have a high deductible insurance plan for employees and then also offer HSA to all employees. Is it possible for just one employee to establish and maintain their own HSA? The employer will not be providing HSAs to employees. Question: Is this possible? If so, I would think the employee would need to meet the requirements (be covered by an insurance plan that qualifies as a high deductible policy).

We have a law firm client with 5 equity partners, 5 non-equity attorneys and about 50 employees. They sponsor a 401(k) Plan. One of the 5 non-equity attorneys who was not even an HCE has now become an equity partner owning 20% of the firm. He incorporated so now his corporation is the 20% equity partner in the law firm. Apparently at about the same time his corporation adopted a SEP. We believe there is an affiliated service group between his corporation in which he is the 100% shareholder and the Law Firm of which he has a 20% equity interest in. We believe his SEP will need to consider all employees of the law firm to meet coverage under 410(b). This would mean his SEP would need to cover about 20 employees of the law firm. Anyone agree or disagree with this? Thanks.

We administer a 20 participant 401(k) plan that restricts salary deferrals to no more than 25% of W-2 Salary. The plan made a mistake and allowed a participant to have salary deferrals of more than 25% of W-2 salary. I would think that this needs to be corrected by refunding the amount over 25% back to the participant as it is a violation of the terms of the document. In other words, the amount over 25% of W-2 salary should not have been contributed to or been in the plan in the first place. Would this extra amount of salary deferrals be counted in the 401(a)4 test? I would think not since it does not belong in the plan per the terms of the document. Anyone agree or disagree? Thank you.

Suppose you have a small 401(k) plan that has been in place for 10 years. There is an employee who has worked about 700 hours per year for 4 years now and has never been eligible because of the one year / 1,000 hour requirement. My understanding is that the plan does not need to provide employer contributions but does need to offer the employee the ability to fund salary deferral contributions. Question: Can the employer fund 3% of salary contributions to LTPT employees if it wants to? If so, would those employer contributions be subject to the gateway and rate group tests of 401(a)4? Employer contribution test of 410b? I would think not because those contributions are not mandatory to begin with. Does anyone agree / disagree? Thanks!

Suppose you have a one participant DB where the participant is 77 and has been taking RMDs all along. His first RMD was taken on March 15 a number of years ago and since his RMD is calculated as an annual annuity payment, every March 15 he has taken his RMD. As of December 31 2024 the plan terminated. The plan has obtained his benefit elections and he wants all assets distributed by January 31, 2025. Actually, not a problem as we have everything ready to go. Question: is it acceptable that his RMD (usually taken on March 15, which would be March 15, 2025) will now be taken on January 31, 2025? Thanks!

We read where the penalty on a missed RMD is 10% rather than 25% as long as the missed RMD is paid from the plan within two years. Is this a Self Correction or (if the plan were audited) would the IRS automatically just assess the 10% if they saw it was corrected within two years. Thanks.

Good point on the conforming amendments. We will make sure to have those in the new amendment terminating the plan. Even if the prior termination amendment is re-done now, I would would think that the freeze part of the initial amendment would still be effective for the 2024 plan year. No problem completing another valuation. Probably no contribution as this particular plan is over-funded.

A defined benefit plan existed for over 10 years. The only participants were the two shareholders. Each owned 50%. An amendment was executed that froze all benefit accruals and terminated the plan effective December 31, 2023. It is now past December 31, 2024. I know that unless there were reasons for the delay, all assets needed to be distributed by December 31, 2024. In this case, there were no reasons and it is now after December 31, 2024. Question: I would think that as of now (January 15, 2025) we would have an active plan with benefits frozen as of December 31, 2023. Does anyone disagree? agree? Thanks.

What happens with the accounts in a SIMPLE IRA when it ends? Does each participant then just have their own IRA that they maintain indefinitely? I believe they can roll over that IRA to a qualified plan but not until 2 years after the SIMPLE IRA ended. Also, is there a standard form that needs to be presented to participants of a SEP IRA before the SEP IRA ends? Is there anything else the plan sponsor needs to execute. For example, when we terminate a qualified plan, an amendment needs to be executed before hand and if it is a pension plan then participants need to receive 204(h) notices before hand. Thanks.

We administer a small traditional defined benefit plan that covers the company owner and his spouse. He is now of the age that he needs to take an RMD. I know there are many different ways to make the RMD as low as possible but in this case he is not looking for that. Suppose he wants to take the RMD calculated as an annual annuity and take his first RMD on 11/15/2024 (He could wait until 4/1/2025 but does not want to). Suppose the pre and post interest rate in the document is 5%. Furthermore, his monthly accrued benefit is $15,000. 1. Is it acceptable to calculate the annual RMD as follows? $15,000 X 12.05 = $180,750? 2. Suppose he takes his first RMD on 11/15/2024. Suppose they terminate the plan 3/1/2025 and all assets are distributed 5/15/2025. Since one year from 11/15/2024 would be 11/15/2025, must he take an RMD when all assets are paid from the plan on 5/15/2025? Thanks!