Dougsbpc

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!

Does anyone know of a sample good faith CARES amendment? It sure would be much easier if we could document something. Then the plan sponsor could choose the language that would apply to the CARES provisions they wish to offer.

Sure out document allows for some flexibility with the age but not on salary deferrals. Are there any documents that allow for in-service withdrawals of salary deferrals prior to age 59 1/2?

We took over the administration of a 20 participant 401(k) plan about 6 months ago. The plan uses one of the popular investment platforms. It works very well for the 401(k) plan. Apparently, over the past 3 years up to 10 participants (all under age 59 1/2) have taken in-service distributions of all sources (including salary deferrals). They claim they all wanted to move the accounts to their IRAs that are invested only in no load funds and have no fees. We did notice two participants took lump sums and did not directly transfer to IRAs. Could this be corrected under VCP? If all just transferred to IRAs perhaps the fix would have been moving the amounts back to the plan (with earnings/losses). However, the lump sums pose a problem. Any thoughts? Thanks.

Suppose you have a 100% shareholder of a corporation with 20 employees. The business sold as an asset sale. In other words the buyer did not purchase the corporation but instead paid $ xxxxxxxx for the business. The seller, who will maintain the corporation wishes to establish a defined benefit plan that would only cover him. I seem to remember reading something about how this type of thing may require covering former employees. I could see how this may be considered an affiliated service group if the buyer were purchasing stock of the corporation over time, but would that be the case with an asset sale? I know this is a legal question. Just wondering if anyone ran into the article I read about this a number of years ago that I cannot seem to find?

A small non-PBGC traditional defined benefit plan terminated 3 1/2 years ago without applying for a DL. I know, all assets need to be distributed within one year. However, they did have significant problems with one private investment in the plan. All is recovered now and they are ready to distribute. Question: Can they make a deductible contribution now (so very late in the game) to make plan whole? Otherwise the owner employee will need to take a reduction in his benefit. Thanks.

Can a business owner maintain a solo 401(k) plan if the business would be considered an affiliated service group with another company? The other company only has greater than 5% owners. What if the other company had employees with no ownership who would be eligible for the solo 401(k) plan? Thanks.

Is there ever a disadvantage in having a safe harbor match pan based on compensation from the date of entry? Thanks.

$19,000. Knowing he was over the limit, the plan refunded $500 to him. Question: Does he get a safe harbor match for the $500 contributed in the 7/1/18-6/30/19 year?

Correction: I meant that he funded $18,500 from 7/1/17-6/30/18 but then also funded an additional $500 on 7/15/18 (he forgot to tell the payroll company to stop on 6/30/18.