Dougsbpc

Suppose you have a Safe Harbor 401(k) Plan sponsored by a partnership with 12 partners and 6 employees. The plan has a December 31 year end. The plan provides a 3% Safe Harbor Non elective contribution to only non-key employees. Suppose a non-key employee becomes a 5.5% partner in December (i.e. they are only key for one month of the plan year). Would they be required to receive a 3% Safe Harbor contribution for that plan year? Thanks!

Administer a small defined benefit pension plan that is sponsored by a corporation. The first plan year was from 10/1/2022 - 9/30/2023. The first plan year valuation was done on end of year basis. Their CPA changed the corporation year to December 31, 2023 from September 30, 2023. It makes sense to keep the September 30 plan year. However, we would need to change to a beginning of year. Is there automatic approval when switching from end of year to beginning of year? Thanks.

Administer a DB Plan for a small law firm with 5 participants. Non-PBGC. Plan terminated 9/15/2022 and all benefits were paid by 10/15/2022. There remains about $5,000 which they will use to pay our fees for the termination and administration. The 100% shareholder took a $70,000 haircut to his benefits when distributions were paid. The 100% shareholder now wants to fund $65,000 from the company for 2022 only to himself in the terminated defined benefit plan and then take a distribution of the $65,000. This to make up for the haircut he took. Does anyone think there would be a problem with this? Thanks.

I wonder then. Since the employer funded contribution is not deductible (income tax is paid on the contribution) I would think that distributions to participants would be either tax free or only subject to income tax on earnings. Would this be the case?

Thank you Peter - very helpful Perhaps I am wrong but it then looks like an employer of domestic workers could have a SEP or SIMPLE 401(k) for the domestic workers but employer funded contributions are not deductible to the employer but are also not considered non deductible (for the extra § 4972(a) tax on them). So, for example, suppose an individual who happens to employ 5 domestic workers maintains a SEP for them. Suppose further that a 10% contribution was funded every year (approx. $25,000). The individual is not able to get a $25,000 deduction on his/her personal tax return correct? However, for purposes of section 4972(a) the $25,000 is not considered non-deductible and therefore not subject to penalties. Is this correct? Thanks again.

We have administered a profit sharing plan sponsored by a corporation for more than 20 years. The 100% shareholder owns a large home on many acres of land. The place is so special the upkeep (including horses) requires 5 full time employees. He wants to offer and cover these 5 employees in a profit sharing plan similar to the company (that he is the 100% shareholder of) plan. He made it clear that this needs to be a separate plan. Question: It seems like a plan can only be sponsored by an entity with earned income (sole proprietorship, partnership, LLC, LLP, corporation). In this case he is just an individual paying household employees. I don't believe an individual can sponsor a qualified plan. Does anyone agree? Disagree? if so why? Thanks.

We administer a small 401(k) plan with about 10 participants. The 100% owner of the company sponsoring the 401(k) plan died. In this particular plan, they had self directed accounts for salary deferrals and a pooled account for all employer contribution and rollover sources. The 100% owner never contributed salary deferrals and his account balance The 100% owner did roll over a large portion of his overall benefits from a defined benefit plan that terminated about 5 years ago. About 60% of the pooled account is comprised of private investments (trust deeds, partnerships etc.). I am a little worried about the timing requirements of death benefits being paid to his spouse as his primary beneficiary. We think it may take some time to unwind some of these private investments. The plan document does not seem to address when death benefits need to commence. The 100% owner just turned age 72 this year. In general, we have always heard of death benefits being paid by the end of the year of the participant's death. Is there specific timing on when benefits must be paid? Thanks.

Has anyone had trouble looking up a 5500-EZ filing? We filed electronically and received an acknowledgement number for a 2020 filing. It is easy to find 5500 and 5500-SF filings on the DOL website but we get nothing when looking for the electronically filed EZs.

The secure act 2.0 allows plans to fund matching and nonelective contributions as Roth. 1. I believe the participant must be 100% vested to do this correct? 2. What about safe harbor matching and nonelective contributions. Can they be funded as Roth? Thanks!

As many of you run into, we sometimes have on-going plans with former employee participants that cannot be located. I believe the rule is as follows: 1. For on-going plans - after a diligent search, the plan can distribute a former employee's vested benefit to a default IRA Custodian, but only if it is $5,000 or less. 2. For Terminated plans - (non pbgc plans) after a diligent search, the plan can distribute a participant's benefit to a default IRA custodian no matter how large the participant's benefit is. Anyone disagree with this? Thanks.

Apologies The SEP is not a non-model SEP it is a 5305 model SEP.

We may or may not take over the administration of this small defined benefit pension plan. I know this is somewhat common but do not know the solution. What happens when a company adopts and funds a non-model SEP on December 1, 2022 for the 2022 year and adopts a qualified Defined Benefit Pension Plan on January 15, 2023 effective for the 2022 year? Does this work like if a SIMPLE IRA were adopted in the same year as a qualified plan. I think in that case there is an exclusive plan rule where the SIMPLE would be invalidated and distributed under VCP. A non-model SEP and qualified plan cannot be maintained at the same time. Is the SEP or the qualified pension plan invalidated? Thanks.

We administer a 401(k) Plan with a safe harbor match. Turns out the employer allowed an employee who was not eligible, to make salary deferral contributions. Generally, this can be self corrected by having the plan execute a corrective amendment that would allow the ineligible participant to have funded salary deferral contributions. Since the plan does have a safe harbor match, must a safe harbor match be provided to this ineligible employee? Thanks.

I know this is not completely relevant to the case at hand as it has been explained that the plan sponsor is an S-corporation. We had a sole proprietor client covering only husband and wife and made the mistake of not considering the plan a covered plan. It turned out that if the plan sponsor was a sole proprietor, it was a covered plan. Not so if the plan sponsor was a corporation. The plan was only in existence about 5 years but the PBGC came after them with all guns blazing. We had to create and file all past premiums. Since it was our mistake, we paid for all the penalties and interest on the late premiums.

C.B. Zeller Thank you for your reply. Here is what we have: Wife Husband Identical Owner Med Practice Med Practice Ownership Husband 0.00% 50.00% 100.00% 0.00% 50.00% Wife 50.00% 0.00% 50.00% 0.00% 50.00% Non-Related Owner Wife 50.00% 0.00% 0.00% Non-Related OwnerHusb 0.00% 0.00% 0.00% Total 100.00% 100.00% 0.00%100% Since we are in a community property state the exception does not apply. - The same 5 or fewer own at least 80% of the stock of each corporation. Controlling Interest 1) The identical ownership of the husband is 50% since he is deemed to own his wife's stock. 2) The identical ownership of the wife is 50% since she is deemed to own her husband's stock. 3) #1 + #2 = $100% Effective Control It appears we have a controlled group when taking into account the deemed ownership of the husband and wife? Am I missing something here? Thanks again.

Have a physician that sponsors a defined benefit plan. His wife is also a physician who owns 50% of a separate medical practice. Since we are in a community property state I believe we have a controlled group. I know we need to test for 401(a)4 and 410(b) as though the two entities were one. I don't see where the defined benefit plan needs to consider all employees of both entities for 401(a)26. Does anyone believe this is correct / not correct? Thanks.

Facts: Suppose you have a husband and wife with no kids living in a community property state. Also, suppose he owns 82% of his corporation with no employees and is eligible for his companies' retirement plan. She also owns 82% of her corporation has 3 employees except she is not eligible for her corporation's plan. Question: A controlled group seems to exist here but would both plans need to be aggregated for testing when she is not eligible for either plan? Thanks.

Suppose you have an attorney (lets call him Steve) who was a 90% owner in a law firm from 2010 through 2020. The firm dissolves in late 2020 and Steve forms a new law firm as a 50% partner with another attorney on 1/1/2022. They will not have any employees. Question: If they start a defined benefit plan effective for 2022 could Steve's compensation and service from the prior law firm be counted in the new company defined benefit plan? Same question except suppose Steve was only a 10% partner in the prior law firm? Thanks.

a 50 participant 401(k) plan is sponsored by an LLP. There have been 4 individuals in the company who each have a 25% interest in the partnership for many years. It turns out in 2021 2 of the 4 partners incorporated and nothing was ever mentioned about it. Now the CPA is disallowing the contributions funded for the 2021 year for the two that incorporated because their corporations did not fund the contributions. Instead, the LLP did. Also, since nothing was mentioned about it, the two that incorporated have not adopted participating employer adoption pages to the plan document. Is this something that could be fixed under EPCRS? Thanks.

Thanks for your take Effen So for example, suppose you have a one participant plan where the business was started 5 years ago and the participant worked more than 1,000 hours every year since the start of the company. Now in the 6th year they started a DB plan. Suppose the participants' retirement age will be 74 and the dollar limit works out to be a first year accrued benefit of $3,800 / month. If we take the comp limit x YOS / 10 we would get $27,500 x 6 /10 = $16,500 in this case. It would appear in this example then that $3,800 / month would be acceptable.

We always thought post age 65 retirement 415 limit is based on the following: The lesser of: A) Maximum Average Compensation X all YOS (up to 10 Years) as of valuation date / 10 Years. Or B) Maximum dollar limit (age 62 - 65) X YOP as of valuation date (up to 10 Years) / 10 Years X dollar limit adjustment factor. The dollar limit adjustment factor can make the limit high especially if the participant is older. However, the APR for someone who is that much older will be low and besides, the comp limit under A will keep the limit in check. Have been told B needs to be capped / replaced with A but instead of all YOS as of the valuation date / 10, YOP as of valuation date / 10.

Have a December 31, 2021 cross-tested 10 participant 401(k) plan where they fund a 3% employer safe harbor contribution. The plan sponsor is an S-corporation that went on extension for 2021. In addition, they funded a profit sharing contribution of 2% of salary and there are no conditions on the contribution allocation. The employer funded the safe harbor and profit sharing contribution to all participants except one of the nonhighly compensated participants who terminated employment during 2021. It is now past September 15 when the mistake was discovered. I believe they have until December 31, 2022 to fund the 3% employer safe harbor. Could they correct this with an 11g amendment or must they correct through voluntary compliance? Could they correct with self correction? We know both the SH and PS allocation for this one participant will be deductible for the 2022 year rather than the 2021 year. Thanks.

After a plan termination, we have always provided benefit elections to participants and have required that all be executed and returned to us before the distribution of benefits. Then upon receiving all elections, we prepare a letter to the broker (signed by the trustee) to make the distributions all at one time and attach instructions and amounts for each participant. Must it be this way? I have heard others that just process the distributions as the benefit elections arrive. I think this could be a problem in a DC plan with pooled investments, but may be ok if the DC plan has all self-directed investments. What about a non-PBGC DB plan with insufficient assets to pay benefits? In this case, the business owner will waive a portion of his benefit to pay all other benefits. In this case the business owner will receive his distribution first and all others will receive theirs as the benefit elections come in? I don't think this should cause any discrimination issues as ultimately all remaining participants (all NHCEs) will receive their full benefits and the owner will already receive less than his full benefit. Anyone disagree or have any comments with this way of thinking? Thanks.

One of the requirements to be able pass coverage using the Average Benefits Percentage Test is to have a reasonable classification. We have a cross-tested profit sharing plan that does not pass 410(b) 67%. In terms of the allocation, the plan indicates that each participant is in his/her own group. Does that by itself mean that the plan does not have a reasonable classification and therefore cannot use the average benefits percentage test? Thanks!

Have a client who is a physician who is paid as an independent contractor by a hospital and two medical clinics. He has his own corporation that sponsors a defined benefit pension plan and he is the only participant. He just got hired as an employee at a VA Hospital. They have their own 401(k) plan. However, he will continue to do work for the two non-related medical clinics that pay his corporation. Since he has no ownership in the VA Hospital, no ownership in the medical clinics I would think no controlled group or affiliated service group exists and there should be no required aggregation for testing purposes. Does anyone disagree? Thank you.