Dougsbpc

I know many of you must have run into this. You have a physician client who's practice sponsors a qualified plan. One problem though. The physician has a 10% interest in a Dialysis Center. Oh yes, and he is a Kidney specialist. ASG? Certainly seems like one. They would not want to consider an additional 15 employees for their plan. However, there is doubt (in this case) that his office together with the Dialysis Center provides services for the public. Even though he refers some of his patients there, he also refers some to the other center in town of which he has no ownership interest. Has anyone run into this type of sticky situation? Thanks.

The answer was that if you have a controlled group, you aggregate all compensation for all employees of all entities. However, if you do not have a CG but have an ASG then only the compensation for each entity is considered for deduction purposes. An exception to this is if your plan was established before 1989 and the employer did not elect under IRC 413(c)(4)(B) to have IRC 412 funding requirements computed separately. Then there is a single 404(a) limit that is shared between all the group members. In this case we lucked out because the plan we were working on was established before 1989 and no IRC 413(c)(4)(B) election was made.

I found the answer in "Who's the Employer"

A Partnership sponsors a 401(k) plan. There are 3 physicians who are partners and they have about 10 employees who are also participants. There is a new physician who is also now a partner, except rather than him, his partnership interest is owned by his S-Corporation. His S-Corporation is now a participating employer in the plan. The 404(a) deduction for employer contributions to the plan is 25% of the compensation of all eligible participants. Question: Is the S-corporation subject to its own 404(a) deduction limit of 25% of its employees? In other words, suppose the new physician is the only S-corporation employee and he has W-2 salary of $100,000. Is his deduction limited to $100,000 X 25% = $25,000 or is his $100,000 salary added with all other participants of the plan and that total is subject to the 25% limit? Thanks.

A plan participant has 3% stock ownership in the company sponsoring the plan. If you add the stock he is entitled to under their ESOP he would have just over 5%. Would stock ownership under an ESOP be considered in determining who is a greater than 5% owner for purposes of having to take an RMD? Thanks.

Suppose a plan has all non-liquid assets. If a participant selects a lump sum distribution and receives it in the form of non-liquidate investments, is the plan required to withhold 20% federal on the distribution? Thank you.

My understanding is that assets under a qualified ERISA plan are protected from creditors. I also understand that benefits transferred to an IRA from an ERISA plan retain their asset protection

Suppose you have two related companies where a controlled group exists. Each of these companies sponsor a profit sharing plan that provides a uniform contribution which is the same for each plan. No testing issues. Now they want both plans to be cross-tested. Since they have a controlled group, both companies will need to be tested as one. It actually looks like the plans will pass the general test. One problem. One company and plan have a 12/31 year end and the other company and plan have a 10/31 year end. How is the cross-testing done with two plans that have different year ends? Have never run into this issue in all these years. Thanks.

Suppose you have a small 401(k) plan that provides for a safe harbor NEC. There are 4 business owners (25% each) and 10 employees (all non-key nhces). The plan only provides the safe harbor NEC to non-keys. For the past 4 years, 1 owner and 3 of the 10 nhce employees have been excluded. They have a December 31 year end. The company wants to amend the plan effective November 1 to remove the exclusion for all (i.e. they want everyone to be eligible). Question: if this is done now, will the 3 nhces that have been excluded be entitled to the safe harbor NECs even though they will have only had 2 months to make salary deferral contributions for this year? Would we be able to include them as benefiting for the salary deferral part of the 410b coverage test? Thanks.

Are there any notice requirements to participants? I would think maybe a black out notice would need to be provided to participants 30 days prior.

Suppose you have the typical medical practice partnership with about 20 employees. The partnership sponsors a 401(k) plan. This medical practice partnership is owned 25% by each of the physicians corporations. The physicians are each 100% shareholders of their corporations. So the 401(k) plan is sponsored by the partnership and each physician corporation adopts the plan as a participating employer. In this case the Participating Employer Adoption page makes it clear that each participating employer will abide by the same plan rules and provisions as the sponsoring employer. There was an employee of the partnership that terminated employment about 2 years ago and was an eligible participant in the 401(k) plan. She was paid her full distribution last year. Last week, one of the physician corporations hired her on a very part time basis. Generally, when a former eligible employee like this terminates employment and returns within a few years, they immediately participate in the plan. Since the partnership and corporations are all related employers, I would think she participates in the plan immediately, even though she is re-hired by a different (albeit related) employer. Anyone disagree with this? Thanks.

A single employer has sponsored two 401(k) plans for many years. One covered employees hired prior to a specific date and the other covered employees hired after a specific date. All 30 employees of the company are covered by one plan or the other depending on when they were hired. Both plans are now much the same. The employer now wants to just maintain one 401(k) plan and cover all employees under one plan. There has not been any company sale or acquisition here. Are there a number of special rules involved in merging plans like these?

As of now (in the 2021 year) he is a 4.5% owner and will be as of 12/31/2021. His birthday is 3/16/1950. So he will be age 72 on 3/16/2022 (in the 2022 calendar year). So before he turns age 72 in 2022 he is a less than 5% owner (on 12/31/2021).

Suppose you have a former 25% partner in a firm that has sponsored a 401(k) plan for many years. The partner has been winding down and will have less than a 5% capital and profits interest in the firm before his required beginning date in 2022. He eventually just plans on being an employee indefinitely with great work hour flexibility. Since his interest went below 5% in the year before the year he would normally begin taking RMDs (and will stay below 5%), I would think he would qualify for the RMD exception. Anyone agree or disagree?

Suppose a small non-covered DB plan terminates with excess assets. The plan document contains a maximum benefit of $3,500 payable at normal retirement age. No participant is close to their 415 limit. However, one participant has accrued a $3,500 benefit prior to the plan termination date. The plan has excess assets of $21k. Normally, we would simply allocate the excess to all participants (3 in this case) in a non-discriminatory manner. I would think (but am not sure) that the one participant at the $3,500 maximum could not be allocated any of the excess. Does anyone agree / disagree? Thanks.

I think there might have been other relief after Notice 2020-50 that may have extended repayments further.

Not exactly your case but we had a client who missed loan repayments to the point of where it should have been a deemed loan. We explained that it may be correctable under SCP or VCP but warned him that he was in complete control of his loan repayments and because of that, the outcome may not be 100% certain. He then countered by telling us he was a big boy and that he will deal with the consequences of his actions (or mis-actions). He then promptly repaid the $50,000 plus interest. Three months later his plan was audited and I had a few discussions with the auditor and his supervisor. The supervisor told me that unless the participant is an employee where the employee is relying on the company payroll department, there is no possibility of correcting the loan. The client then called me and explained that the year of the taxable distribution was a very low tax year and that he did not mind having a non-taxable basis in exchange for the taxable event and a relatively small penalty. So after that, we just gave in to the IRS.

As many probably remember, initially it was indicated that a participant could take up to a $100,000 participant loan through the Cares Act. It was also described that the repayment could be deferred for up to a year. Then after reviewing closer, the year was to be no later than January 1, 2021. In any event, there was confusion on this. I thought I read something about how a repayment will be considered timely if it was made on or prior to February 28, 2021. Did anyone else remember this? I cannot seem to find anything on it. Thanks!

A 401(k) plan mistakenly allowed one of their ineligible employees to enter the plan and fund salary deferrals. We know the correction for this under SCP is a retroactive amendment allowing just that NHCE to be eligible to make salary deferrals when they did, just for that year. If this is done, does it automatically then make this otherwise ineligible employee entitled to employer contributions or safe harbor contributions? It would seem that the intent of a corrective amendment is to only correct the plan with respect to what was violated. Anyone agree or disagree? Thanks.

Since Relius is no longer offering software to produce 1099-Rs and 945's, what are others using? What do others recommend? Thanks.

Suppose you had a small DB and PSP (each covers 5 participants). Suppose both of these plans have been in place for 8 years and the plans are expected to be active for 2 more years. The business owner is 60 and assume all employees are nhces age 30. For 8 years all participants in the DB have received a benefit of 3% of average compensation. All employees have gotten a 7.5% contribution in the PSP for 8 years and the business owner has gotten $0. There has been light turnover in the past 8 years. Now the business has experienced a windfall and will this year and next year. Clearly the business owner has received less than employees for the past 8 years. Could the DB plan be amended to provide 15% of average pay for shareholders with the same 3% of average salary to remain for all non-shareholders? A fresh start would be used of course. Then, is it possible to use accrued-to-date testing under this scenario? The idea is that the business owner has not accrued that much on an average basis. Thank you!

I am looking at a proposal for a cash balance plan that is offset by employer contributions to a 401(k) plan. It looks like there are 20 eligible employees but only the two shareholders have net contribution credits of more than $280K in the cash balance plan. They are both in their late 50s and the plan has a NRA of 65. I seem to recall that for purposes of 401(a)26, only the benefits after offset can be considered if they are meaningful (.5% of pay or greater) when a cash balance plan is part of a floor offset arrangement. Whereas benefits before offset are allowed when a traditional defined benefit plan is part of a floor offset arrangement (provided the DC plan has uniform allocations, QJSA etc.) and benefits before offset are meaningful. Anyone agree / disagree?

Have a takeover plan that failed 401(a)4 for 2018 and 2019 and no corrective amendment was done. Our understanding is the only way it can be corrected is with a VCP submission at the shocking new fee of $3,000. Must we pay $3,000 to correct 2018 and $3,000 to correct 2019? Or can they both be corrected at one time for one $3,000 fee?

The document indicates that the terminated participant shall be paid as soon as administratively feasible. This is a self-directed account plan and all contributions have been funded. Even though it appears as though they will have a partial plan termination now, we really will not know until after plan year end.

I know there are discussions about this. Have an employer who terminated 35% of participants. If this coronavirus situation improves by November, they may hire half of the terminees back. Apparently there is no special coronavirus exception to the partial plan termination rules. This is a plan year determination so we really do not need to determine whether a partial plan termination has occurred until after 12/31/2020 in this case.The employees where all laid off on March 28. Since these days most former employees want their distributions immediately, how are others handling this? My thought is if someone is 40% vested, they get paid their vested benefit now and if it is later determined that a partial plan termination has taken place, they subsequently get paid their remaining 60%. Does this seem reasonable? What if it is later determined a partial plan termination has occurred and their remaining 60% was worth $20,000 when they received their distribution, but it turned into $10,000 by the time they received their subsequent distribution due to plan investment losses. )? Thanks!