Dougsbpc

Suppose you have a sole proprietor who came up with an Engineering process and had significant schedule C profit for the first two years. The third year he spent all of his time making the idea / process better but had no income for that year and did not even file a Schedule C. In the fourth year, he adopts a defined benefit plan but has not been quite as successful as he was in years 1 and 2. Per the document, the plan can count past compensation if elected. Can the plan count his first 3 years as his average compensation even though he filed no schedule C the third year? He claims he worked harder and longer in year 3 than any other year. Thanks.

Suppose you have a company that sponsors a traditional DB plan and 401(k) plan with a December year end. 1. The DB terminated April 30, 2017 so no participant accrued a benefit for 2017. 2. The DB and 401(k) plans are top heavy as of 12/31/2016. 3. The plan documents indicate that a 5% top heavy minimum will be funded in the 401(k) plan instead of the 2% top heavy minimum in the DB plan. Question: Since the DB plan terminated in 2017 without any participants receiving a benefit, can just a 3% top heavy minimum be funded in the 401(k) plan for 2017 or must the 5% be funded? Thanks.

To clarify, The one 50% shareholder is actually now retired. He just wants his benefit earlier because he is moving. The corporation will soon be 100% owned by the remaining 50% shareholder. The termination amendment and corporate resolution contained language indicating that if assets are insufficient to pay benefits upon distribution of benefits, assets will be allocated in a non-discriminatory manner. A 4044 allocation except the remaining business owner decided he would waive a portion of his benefit and make sure all employees receive 100% of their benefits. This brings up another question. If the retiring shareholder did receive his benefit earlier and elected a rollover instead of annuity, would there be a requirement that the plan be funded 110% after his distribution. I would think not since the plan is terminated.

When it comes to plan terminations, we have always obtained all benefit elections and then instructed the trustee to distribute benefits all at one time. Is this really required? For example, we handle a 10 participant non-covered traditional DB plan that terminated November 30. Is there any problem distributing the benefits to one of the two 50% shareholders of the plan sponsor now and all remaining participants 6 months from now? All participants other than the one remaining 50% shareholder would receive their full benefits (including PVABs determined up to the distribution date). The one remaining shareholder will end up waiving about 10% of his benefit. Thanks.

At first I was thinking of how unfair this is given the fact that a company could maintain a DB and DC plan (non floor offset) and a participant could have much higher 415 limited benefits. However, I guess the best way to look at it is that the DC offset is considered part of the participant's pension benefit in a floor offset DB plan.

We administer a traditional defined benefit plan that is offset by participant's vested balances in a profit sharing plan. Our understanding is that the 415 limit applies to the gross benefit and not the net benefit under the floor offset plan. This does not seem right but apparently an IRS examination guide indicates that the “current approach is that the limit applies to the gross benefit (i.e. prior to offset).” There was a discussion between an actuary and Jim Holland a few years back on this issue. Rev. Rul. 76-259 was often cited in the discussion. I don't believe we have seen any further guidance on this issue, has anyone else? The actuary made some good points as to why the 415 limit should apply to the net benefit. In our case, our pre-approved document makes no reference to the 415 dollar limit applying to the benefit prior to offset. Any comments on this? Thanks.

We administer an 18 participant DB plan covered by PBGC. We are going through a standard termination and the company will fund any difference between assets and liabilities. Participants will likely be paid benefits in late March 2018. Exactly at that time a contribution will be funded. Given the plan termination, are there any restrictions on what year the deduction for the contribution can be taken? Must it be 2018 or could it be 2017 (assuming they went on extension) Thanks.

We have a 1 participant DB plan with the unusual scenario of the business owner being over age 70 when the plan was started. The NRA is 65 and 5 yrs partic. Vesting is 3 year cliff excluding yrs prior to effective date. He works one week per month. Suppose the plan had 500 hr. requirement to accrue a benefit but 1,000 hours for vesting purposes. Would think he would not need to take an RMD until his 5th year of participation. Anyone disagree with this? Thanks.

We have not run into any safe harbor plans that have wanted to suspend safe harbor contributions. An accountant stopped by the other day and mentioned he had a small client (about 8 participants) that did not make their 2016 safe harbor contribution and don't want to fund it. I explained that it was my understanding that if the company had financial problems and they could prove it, they may be able to provide a 30 day notice to participants and then not make any safe harbor contribution from that point (after the 30 days) to the end of the year. But I believe they are responsible for making the safe harbor contribution for the time up to that point. In addition, I think the plan then needs to provide top heavy minimums and run the ADP test for the year. He seemed to think that if the company could prove it had declining sales and business for the past few years, that they could simply not fund the safe harbor contribution. Has anyone heard of this? They are a going concern but has anyone heard of this for a company that was in very bad financial shape? Thanks.

Generally, a small defined benefit plan must be at least 110% funded after a lump sum distribution is paid to an HCE. Is this also the case for a cash balance plan? Thanks.

Have a small calendar year defined benefit plan that terminated and distributed all assets 2/28/2017. The final 5500 is due 9/30/2017. However, I don't believe the 2017 electronic forms are available yet. What do we do? Thanks

Congratulations Mike! you have been so helpful over the years.

If the participant worked 1,000 hours per year for each of the three years then the participant would have a vested accrued benefit before December 31, 2017. Wouldn't this require an RMD by December 31, 2017?

What I wish we could do is have the schedule SB certified now and submit it under the 5500-EZ delinquent filer program. Pay $500 and get a letter of acceptance that the entire 5500-EZ and Sch SB are considered to have been filed timely. I woke up from that good dream and realized that may not be possible so nothing is done. Two years go by and the plan is chosen for audit. The IRS notices the 5500-EZ was filed timely but the SB was not certified until a year later. I hear one of the following from the IRS: 1. No late penalties, after all your 5500-EZ was filed timely and we will just ignore that fact that the schedule SB was not signed until a year after the filing deadline. 2. It will cost you $1,000 for a late schedule SB. We go back to sleep as $1,000 is not great to deal with but not the end of the world. 3. It will cost you $9,125 in penalties because we consider the entire filing to be late up to the date the schedule SB was certified. We loose sleep for a few months. Which one do you think we will hear?

We would not file the SB, we would just hold on to it. However, by filing an amended 5500-EZ just after the SB was signed, we may establish a separate filing. You might ask why would you want to establish a separate filing? Our explanation would be that preparation and certification of the SB is an integral part of the 5500-EZ and that we discovered the first filing was incomplete because a schedule SB was not certified as of the initial filing. Therefore, we are now filing a complete late return hopefully eligible for the 5500-EZ late filer program.

All good points. The client knows he did a bad thing. I think he would be perfectly willing to file under the 5500-EZ delinquent filer program if it would help. I just don't want to run into a situation where they pay the $500, we file for them and the IRS rejects the submission because they "have a timely filed 5500-EZ" on record. The other option is just to have the schedule SB completed and signed now. If the plan were ever audited, the late signing would probably be caught. In this case, if the penalty were $1,000 it may not be the end of the world. But if the penalty were $15,000 that would be a problem. I suppose we could file an amended return just after the SB was signed and then go through the delinquent filer program.

Thanks Mike. Great explanation!

In this case the plans are being tested separately. Also, no employee participates in both plans. Must they be aggregated for the top heavy test? If top heavy, must a top heavy minimum be provided to participants of both plans? What if we were talking about two 401(k) plans? Must both plans be aggregated for the ADP test or could the tests be run separately for each plan? Thanks.

We administered a 1 participant defined benefit plan for a number of years. The plan had a 30% investment loss one year and the business owner got upset with us when we gave him the minimum contribution for the year. It was, of course, somewhat higher than in previous years. In any event, he left us. A year later he came back. It turned out he prepared and filed the 5500-EZ timely and the company funded the plan properly. The only problem is no schedule SB was prepared or filed for that year. So the 5500-EZ was filed on time but we will need our actuary to currently sign the schedule SB that should have been signed about a year ago. I would think if the plan were audited, we would get charged the $1,000 for a late schedule SB. Do you think that because the schedule SB is part of the 5500-EZ that we would also be charged $25 per day for a delinquent filing of the 5500-EZ? We could file under the delinquent 5500-EZ program, but the instructions indicate that they do not want the schedule SB included in the submission. This because it was not required to be filed in the first place.

Have a single participant DB that terminated 12/31/16. The one participant turned 70 1/2 today. If the plan did not terminate, he would take his first annual annuity installment on 4/1/2018. If the plan distributes assets in a few weeks, will he need to take his first RMD as part of his full distribution? If so, I guess I could have him elect to take his RMD in annual installments based on a 26 year certain with a 4.99% COLA and this would get him close to what it would be if it were in an IRA.

Suppose you have a small employer with 7 employees. All are full time and have been with the company for years. They sponsor a defined benefit plan and a profit sharing plan. The 100% owner and two other employees are covered under the DB. three other employees are covered under the profit sharing plan. The owners son is excluded from both plans. Therefore, no employee participates in both plans. The profit sharing plan has no HCEs benefiting. Therefore, it passes 401(b) and all of its participants receive the same profit sharing allocation so no other testing issues. The DB passes 410(b) but NHCEs receive slightly less than the business owner so they run 401(a)4 and it passes. In completing the 401(a)4 test, I believe the employees who are excluded need to be included in the test with $0's correct? And if so, don't those being excluded need to receive a minimum gateway? Thanks.

Suppose you have a sole proprietor who sponsors a DB and 401(k) plan. He is the only participant in both plans. Both plans have been in place for many years and he has been profitable for many years. He is now winding down and has schedule C profit of only $45,000. He has funded $24,000 salary deferrals to the 401(k) plan. The DB minimum is $0 but has room to fund $45,000 or more. Can he fund and deduct $45,000 - 1/2 SE tax to the DB? Generally, salary deferrals are not considered for deduction purposes. Thanks

Suppose you have a sole proprietor who adopts a regular non-prototype SEP (I believe form 5305 SEP). They have no employees. Now several years later he is also a 50% partner in another non-related entity. No controlled group, no affiliated service group. The partnership provides him with a K-1 with earned income. Does he automatically include that K-1 income along with his net schedule C profit when determining the SEP contribution? Or does the partnership need to somehow also adopt the SEP? Thanks.

Suppose you have a client that has a few leased employees and you determined that they are substantially full time, at the direction of the recipient etc. In other words they will need to be covered under the employers (recipients) plan. If the plan sponsor pays $50k per year to the leasing company, it is likely the employee only earns about $40k per year. How does the employer report this to the administrator? Do they need to obtain something from the leasing company showing the real wages of the leased employee (maybe a W-2)? Thanks.

A few of them are .32 and one is .35. I went to a seminar about 8 years ago where one of the big time ERISA attorneys was speaking. I thought one of the things he mentioned was that a voluntary correction could be done along with a determination letter request upon plan termination. Has anyone done this? Maybe this has changed or maybe I just heard wrong?