justanotheradmin

For a plan year that has already ended, and the error is discovered and correct now, I see no issue in using a testing method specifically allowed by EPCRS. They should also correct the ongoing MOD if there is one, which yes, offering the plan now, and means that the testing for the current year will include the NHCE. At which point that's on them if they choose not to tell their employees about the plan. But typically we strongly suggest they add a safe harbor provision so that the ADP testing is moot, and often the Top Heavy minimum becomes irrelevant as well. I have refused to work on corrections for prior years where I know the sponsor is having the error continue. Part of the principles of EPCRS involve fully correcting and changing processes and procedures to reduce future issues. Why would I want to work with a plan sponsor that has no intention of doing it right moving forward? (this is rhetorical - I don't need anyone to answer).

I think you are mis-understanding. The ADP test would not include the NCHE at all. If the only two people who were given the opportunity to defer are the H/W owners, then the ADP test will pass. You will have 2 in the HCE group, and 0 in the NHCE group. No ADP test failure at all. Then you would move on to the MOD failure.

The ADP testing would not need to include the NHCE if they weren't offered the plan. See page 86 on Rev Proc 2021-30 https://www.irs.gov/pub/irs-drop/rp-21-30.pdf "(g) The methods for correcting the failures described in this section .05(2) do not apply until after the correction of other qualification failures. Thus, for example, if, in addition to the failure of excluding an eligible employee, the plan also failed the ADP or ACP test, the correction methods described in section .05(2)(b) through (f) cannot be used until after correction of the ADP or ACP test failures. For purposes of this section .05(2), in order to determine whether the plan passed the ADP or ACP test, the plan may rely on a test performed with respect to those eligible employees who were provided with the opportunity to make elective deferrals or after-tax employee contributions and receive an allocation of employer matching contributions, in accordance with the terms of the plan, and may disregard the employees who were improperly excluded."

yes, sounds like standard successor plan issue, (which means no distributable event). I suggest contacting the PEP to get a copy of the plan document. There should be a section in there about termination of participation in the PEP by a employer and I would bet it mentions spin-off to a stand alone plan and possibly even use the term successor plan. The ones I've seen from PEPs seem to be fine in those regards.

What are you trying to actually trying to accomplish? Force terminated folks out? Force older active employees to take distributions? Some plans can be amended to force distributions at normal retirement age, regardless of balance.

was it a stock (equity) acquisition or asset acquisition? If a stock acquisition - you have a classic successor plan scenario, and no, there would be no distributable event.

I apologize I can't find a cite for this at the moment, but I was taught many moons ago that the 5% owner status was cemented on the date the RMD requirement 'vests' for lack of a better word. I'm sure there was a better word for it, but I can't recall. For example, if my RBD is April 1, 2025, and my first RMD year is 2024, my vesting date is 12/31/2023. If I am a 5% owner (with attribution and all that jazz) on that date, then even if I sell my ownership after 12/31/2023 but before 4/1/2025 I'm still a 5% owner forever for RMD purposes. Perhaps that sounds familiar to someone and there is a cite for it (or an update showing its changed!).

it falls under the same correction umbrella. It is a Failure to Implement a Deferral election. the IRS website is great. but best to go to the actual Revenue Procedure. https://www.irs.gov/pub/irs-drop/rp-21-30.pdf See Appendix A.

What do folks think "substantially same employees" works out to be in real life? §45E(c)(2) Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a qualified employer plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan. Example A: ER has SEP - covers only the owner because the other employees don't have enough service. Starts 401(k), due to shorter service requirements, 10 employees (including the owner) are part of the 401(k). Would that be different employees because the employees weren't covered by the SEP? or because they could have been covered by the SEP if they had more services, they are considered substantially the same because they could have been covered? I think they are different, they didn't actually have any benefit in the SEP so don't count. see "contributions were made, or benefits accrued" So I think for Example A, the full gamut of tax credits would apply. Do others agree? What if the ratios were different? say the existing program covers 30% of existing employees, new plan covers 50% of employees? Anyone have thoughts on the cut off or what reasonable math test to use? Is there guidance somewhere? (probably laughable, I know, but I figured it can't hurt to ask).

I agree its done a lot more than it should be. How to address it the way Rose proposes isn't something I'm familiar with because I refuse to entertain the idea and whenever it comes up I send it back to the CPA and have them tell me what to use because I refuse to figure that calculation out.

No it doesn't sound familiar because LLCs with pass through SE taxation are not supposed to issue W-2s. Period. The only time I see that is when an existing employee is becoming a partner mid-year. See Revenue Rulings 69-184, 81-300, and 81-301. An individual cannot be both an employee and a partner for employment tax purposes. I would confirm with the CPA that the LLC does not have an S-Corp election. If they confirm then have them tell you want to use as compensation. It's their issue.

how would this be reflected on the Form 5500? The closed MEP files a single form 5500. The participant counts as a whole are all above 120. A schedule H would be required, no? And there is no place on the Schedule H to claim the small plan audit waiver.

Thanks Luke!

What is your relationship to the plan? Are you the TPA? Advisor? Do you provide recordkeeping services? Was your office the one that processed the reversal? Honestly at this point I'd probably resign. The client should have been told about ADP and TH testing (perhaps they were and it just didn't register) and if they are committed to doing it correctly (they can't even bother to take out earnings correctly?) which the money never should have been removed its an issue. and FYI 5500 are often on accrual basis. The schedules even have lines specifically asking about receivables and liabilities.

This is a very common error and falls under "Missed Deferral Opportunity" Typically a QNEC and lost earnings are calculated and deposited, and there is a make-up for any missed match. You will want to read Appendix of Revenue Proc 2021-30 https://www.irs.gov/pub/irs-drop/rp-21-30.pdf More general information about EPCRS is available here: https://www.irs.gov/retirement-plans/epcrs-overview

Closed MEP 401(k) plan. Can an audit be avoided if the individual entities are each below the participant count threshold? The MEP as a whole appears to be over the audit count threshold. I confess my ignorance, I've only had experience with small MEPs, usually former control groups that became not-a-control-group but still worked together. I have seen some MEPs do individual 5500s for each single employer, does anyone have any rules or reading I can do on this topic? Would filing each entity under a separate 5500 alleviate the audit requirement? If there are other threads or reading material on this question specifically, please point me in that direction. I do understand the Form 5500 has an updated MEP attachment, which I think I understand fine. My question isn't related to that. Thanks everyone!

This may have changed recently to be more consistent, but my limited experience the last few years is that whether or not all the interim documents and amendments are needed seems to be up to the discretion of the assigned IRS agent for the VCP review. I have had some just take the updated document and run with it, and other who wanted the plan to adopt everything in between (EGTRRA, GUST, TEFRA etc). In those cases it was much more work to create and provide those intervening restatements.

Unfortunately I can't help with Plan Premier, but I perhaps have a different suggestion? A pivot table in excel, done by someone who has some data scrubbing experience, with some rules thrown in about which dates to use if there is more than one (min, max etc) might get a single coherent census, in a couple of hours. I'm also surprised Relius don't have conditional importing of data points as an option. Something like, import rehire date unless the date in system is older. Or the ability to import and combine for things like compensation, as opposed to overwrite.

Because it's an employer contribution, and all employer contributions are pre-tax. Roth is a specifically made at the election of the employee. You can choose to convert it to Roth (and pay the tax on it). Roth is §402A, completely different section of the tax code than employer contributions. There is no provision under 402A that allows for QNEC.

I figured it out! just took a few minutes!

I think all the major recordkeepers will do that. At least I've never seen one turn it down. Assuming someone else (TPA) is doing the actual admin on the combos. American Funds Recordkeeper Direct, Principal, Nationwide Transamerica, John Hancock, OneAmerica, Lincoln etc The cash balance plan would typically have a single account, its own contract #. The 401(k) would have the regular recordkeeping for each individual participant (if participant directed).

I have been reading through the text, as well as some articles on the credits. My question is specifically about the start-up plan employer contribution credit (not the admin cost credit or auto enroll etc). I understand it creation is through an addition /modification to §45E. One ASPPA article in particular says this: *If the employer maintained a 401(a), 403(a), SIMPLE, or SEP plan in the three taxable years immediately preceding the tax year in which the plan is adopted, the employer cannot take a deduction for the year of adoption, but is eligible for tax credits in the next four tax years. https://www.asppa.org/news/where-credit-due-tax-credits-small-employer-plans-under-secure-20 Can some explain where that reasoning comes from? If I have a SIMPLE for a year, then terminate and switch to a 401(k), wouldn't I be precluded for the first three years of the 401(k)? And is there clarification somewhere about how to apply this credit if I maintained (but discontinued mid-year) a SIMPLE or one of the other types listed in the ASPPA article? Just because I'm in year two of my new 401(k) plan, I would have still had a SIMPLE in the preceding 3 years, so how would I be an 'eligible employer'? I'm sure there is something simple I'm overlooking or understanding. Thank you for your insight!

Is the "non-eligible pay" defined in the plan document? you mention that plan compensation is based on W-2. If the "non-eligible pay" is reported on a W-2, and the document does not exclude it specifically, sounds like you need to include it. More than once I've had employers operate plans by excluding certain types of pay, certain classes of employees, etc, but if those exclusions aren't in the written plan document, and also passing testing, they need to be part of the plan. Just having it in a handbook, or mentioning it upon hiring, etc, or just have it written in HR isn't enough.

Short Answer: Yes, a mid-year change to the safe harbor generally requires 30 days notice, and accrues through that date. In addition to the amendment (which would be accomplished with the update onto the restated doc). Long Answer: what provisions are unnecessary? Is the Safe Harbor NHCE only? Are you wanting to change the EACA and cross-testing as well? He has a solok. The fact that it has provisions he might not use doesn't make it not a solo k . If the only two people eligible are him and his spouse, that's a owner only plan. Doesn't matter what the document is marketed as. Solo K is a marketing term, not a technical term. How is everything max out already based on 25% of W-2? Most people don't have final W-2 wages until December? are they at 415 limits for the year? Individual grouping (the cross testing) is super handy if the deposits don't occur exactly pro-rata. As long as testing passes they can be differing %. I'm guessing the EACA was put in for the tax credit, even if its never used. Hopefully the service requirement is 1 year, I've seen way too many employers think they will never hire someone and they do and that person is immediately eligible because that's how the plan is written. Having safe harbor to NHCE only also tends to help with this just in case it happens.

The IQPA audit is completely separate from the IRS audit. The IQPA audit is performed by CPAs that the plan hires. Its not the same as the audit being done by the IRS. What plan year is the 5500 rejection letter for? What year is the IRS auditing? I agree with Lou S. - if the IQPA isn't being released because those auditors want to see the IRS audit resolved first, I suppose that's possible. But I don't see how that is going to speed things up with the IRS. Their stance would probably be along the line of "well the IQPA audit should have been done months ago before our audit even started, not our problem"