Dougsbpc

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.

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).