justanotheradmin

Yes. Yes. Yes. This exact scenario happens all the time. Be aware that if a SH contribution is due to the former owner(s), the new sponsor is now required to pay it - I have had that come up where the new owner did not anticipate having to make large SH contributions to the two former owner's accounts because they paid themselves well for the part of the year that they owned the business / were employees. And the prospective plan sponsor might want to review the plan first and make sure everything is in good order before taking it on. Sometimes the business attorney helping with the asset purchase does that.

Upon further reading - I do agree that in order to be an EACA it has to be in place for the first of the year. See the section on mid-year adoption here: https://www.irs.gov/irb/2009-12_IRB However - I think it's inaccurate to say the SECURE act credit requires it. It' doesn't qualify as an EACA if it isn't in place for the full year, it's a condition to meet to be an EACA, not a condition to meet for having the credit. I would not want a sponsor to think they could adopt an EACA mid-year and have it satisfy the EACA requirements if they were willing to forego the credit.

I have never heard of a 1st day plan rule for an EACA. Are you thinking of QACA?

Unless the rules have changed they can roll over to an inherited IRA. Distributions due to death are exempt from the 10% ( I believe a code 4 is used on the 1099-R along with another code). Yes - any distribution eligible for rollover is subject to the mandatory 20% withholding. Since this distribution is eligible for rollover, it follows that the 20% withholding rule applies.

The failure did not start / occur until 2020, when they were late. So for this one I would file a 2020 form.

Did the lead employer allow it's employees to participate in the plan ( make deferrals?) but it never executed a participation agreement for itself?

I agree with @RatherBeGolfing and @Larry Starr i've never seen a document (preapproved or otherwise) that allowed the type of safe harbor to be switched without an amended. Our document allows a safe harbor nonelective maybe without a second amendment to confirm it- but the plan document is written /amended before the start of the year to specifically say the plan might be using the safe harbor maybe, and if it chooses to do so for a given year both a before year notice and secondary (during the year notice before the deadline) will be given. in that case the operation aligns with the plan document. Our non safe harbor maybe plans don't have this written in their documents. In any case, that is materially different from being a regular safe harbor match or regular safe harbor nonelective. Those are guaranteed and must be reflected as such in the plan document for the reasons they stated above.

Anonymous submissions for everyone!!!!! On a serious note - if this is accurate - this sucks.

Ah, I didn't read the original post that way, but now I see how that might be the question. I do agree that's factually different than what I had. In my VCP circumstance the sponsor had the plan account for a number of years, contributions were made etc. They were not trying to adopt a plan in the year immediately following with a retroactive effective date just the year prior. And I agree, that scenario wouldn't fly with VCP (at least I wouldn't bother to try).

yes - I had one. they had an unsigned 401(k) plan document but could not locate a signed copy. There was some back and forth, but it was approved. I don't know if it was just luck or if they tend to approve them if presented favorably. That one was approved last year. I have not tried again since.

@AKconsult that is my conclusion as well - but the various webcasts on the SECURE act don't seem to agree with me. I think the presenters are confusing the two credits - and from what I can tell, they are apples and oranges. Just because an employer isn't eligible for the start-up credit doesn't mean they are also ineligible for the EACA credit. The two aren't linked or dependent on each other, the qualifiers aren't the same.

You are welcome!

I am starting a new thread because I think it it warranted and better suited in the 401(k) message board. Please see my prior question and the replies from @Larry Starr and @Bill Presson I'd like to clarify upfront that I am NOT asking about the start-up cost credit. I think I have a pretty good handle on that one. I am asking about the NEW! automatic enrollment credit provided by SECURE. Please don't conflate the two. Question: Section 45T that adds the new EACA credit. Can a one-person plan (HCE only) claim this credit? Assuming of course they are amending their plan to add an EACA? I don't think the plan start-up costs definition in 45E is relevant because this isn't a plan start up cost. Does anyone think the sponsor of a 1 person HCE plan CAN'T claim the credit? If so, why?

Almost this exact question was asked just a day ago. See: My two cents added: Does the plan allow incoming rollovers? Just because the IRS rollover chat says its okay doesn't mean the plan has to allow it. Kind of plan is it? defined benefit? 401(k)? That being said - almost all of the 401(k) plans I've worked on over the years would be fine with the rollover. The husband would elect a rollover death distribution via whatever the typical distribution process is. Money would be recoded from the wife's account to his, a 1099-R issued showing the non-taxable death rollover, and that would be it.

@Chris123 If an S-corp is the partner, then any guaranteed payments are technically going to the S-Corp. The S-corp can't elect personal deferrals. Only a human person can. So no deferrals should occur from guaranteed payments (or year end income) going to an S-Corp. I think that's the crux of the issue. If an actual person is the partner - then yes, deferrals can generally occur from guaranteed payments. Those are self-employment income, and the person can elect to defer from them. If the S-Corp pays their owner W-2 compensation - that compensation MIGHT be eligible for deferrals/ contributions etc. When we ask if the S-corp is a participating employer in the plan, we mean does the plan's legal document specifically cover (usually by name, often times it gets it own page in the doc under a participating employer heading) that S-Corp. Plan documents are drafted different ways, so it's hard to know without seeing it if the S-Corps are included or not. If the S-Corps are participating employers, great. The W-2 employees of those entities (such as the Docs receiving W-2 comp from those entities) count for plan benefits. If the S-Corps are NOT participating employers, the compensation wouldn't count (but there are lots of exceptions like if a person is paid W-2 wages from both the plan sponsor and the associated S-Corp). There are lots of special rules for related employer groups (control groups, affiliated service rules, etc) and different types of compensation (self-employment vs. W-2) is treated differently as well. Way too much to get into here. If you want to push the law firm on the issue- I would ask for copies of the K-1s. Anyone with deferrals should either have a K-1 in their name directly (not their S-Corp entity), or a W-2 in their name showing the deferrals in Box 12.

Let me see if I understand this correctly - please tell me if I'm wrong There is a partnership (is this an LLC taxed as a partnership?). The partners(owners) in the partnership are the S-Corps. And then each Doctor owns an S-corp. Income from the partnership is paid/reported to the individual S-corps as partners. Which Entity sponsors the retirement plan? Are the S-corps participating employers in the plan? If the S-corps are participating employers, then each Doc should be receiving W-2 compensation from their individual S-corps, and it is that compensation that the deferrals should be processed from.

Scenario A I'm imagining a scenario where a one participant plan (HCE only) spends $200 on a plan amendment to add EACA and gets a $500 credit for 3 years. Or scenario B, where a two person plan sponsor (one HCE, one NHCE) spends $200 on a plan amendment to add EACA (and no other costs) and gets a $500 credit for 3 years. Because the EACA credit isn't tied to "Qualified startup costs" wouldn't Scenario A still qualify for the EACA credit? A separate question: is the EACA credit limited to actual costs? I don't do business taxes so I don't know how the General Business Credit under section 38 works. I'm guess it probably is? As long as business costs over all are over $500 it might still apply? Or would plan specific EACA costs have to be $500 each year to get the full credit? Either way, that really isn't my question. I'm hoping for clarification on my one participant EACA credit question.

thanks Bill! Does that same definition of qualified startup cost apply to the EACA credit? Sec 45T does mention the "eligible employer" as defined in 408(p)(2)(C)(i). but it doesn't seem to reference the definition of Qualfied startup cost from 45E, probably because the EACA credit isn't dependent on actual costs (unlike the startup credit, which do require actual costs).

Thanks Larry. it was in the automatic enrollment tax credit section. I believe she was on slide 43 when she mentioned it. Could be I mis-heard or mis-understood. I understand in order to be eligible for that credit the employer has to be eligible to sponsor a SIMPLE. And if I understood correctly, she mentions that one of the criteria to sponsor a SIMPLE is they have to have a NHCE. Maybe I misunderstood and she just meant to say in order to be eligible for that particular credit the employer has to have a NHCE (which would narrow the group of employers). I don't think the criteria is they have to be eligible to sponsor a SIMPLE AND have at least NHCE. Maybe it's related to the fact that to be eligible it has to be an EACA (not just an ACA)? I don't see why an HCE only plan couldn't have an EACA? Maybe there is some rule that says in order to be an EACA the employer has to have at least one NHCE? Do you know of one? Anyone else? I've not hear of one, but most the plans I deal with either have no auto-enroll, or they have a full QACA. The reason I ask is because we've already had several inquires about HCE only (usually one participant ) plans wondering if they can amend to add an EACA to get the tax credit. I don't see why not unless there is something I'm missing about the rules. What do folks think?

By any chance are you using a pre-approved plan document? In ours the default for prevailing wage excludes HCE. You may have to check the basic plan document (if your plan has one) for this provision. For our document - we have to specifically mark a section to allow HCE to receive PW. If the plan document excludes the HCE from PW and they received one - you have a different kind of error. I would remove the PW from their account as an impermissable allocation. I apologize I don't have the citation - but there is some limit to how much of the PW can used as ADP QNEC - I believe it's 10%? If my recollection is accurate, you'd still have 14% subject to general testing, which sounds like would still fail, even if the HCE isn't an excluded class from PW. For plans with PW we try to make sure their discretionary employer contribution allocation method is everyone in their own group, then anyone who needs to receive extra to pass the testing can. If the HCE received 24% PW, and is allowed to receive it, I'd say you need to allocate enough profit sharing to the other folks to pass testing.

I will say it's what you make of it. How the projects are set-up, the reminders, the e-mails, etc are all customized by the TPA. If you don't have someone in your firm who is willing to be the person to manage all the templates or settings in PensionPro it might not be very helpful. For teeny tiny shops I would say it might be hard to use. If a TPA is large enough that keeping track of everyone's progress, project management, and CRM is important, then it's worth looking at.

I was watching the ERISApedia webinar on the SECURE Act questions - and Ilene mentioned that in order to sponsor a SIMPLE IRA, an employer must cover / have a NHCE. Does anyone have a cite for this? I have never heard that particular rule, but I don't work with SIMPLE IRAs, so I'm sure there is lots I don't know. I thought a sole proprietor with no employees could sponsor a SIMPLE IRA, but maybe I'm mistaken.

I agree and that's what I told the advsor asking. He didn't care for my answer, but its a tiny plan and it's not something worth my time. He disagreed. I suppose sometimes the truth stings.

I would point out that I have heard mixed opinions about the ACP safe harbor applying or not applying. Like many people I have been listening to many of the industry webinars on the SECURE act, and while I think many of the presenters agree with this, some seem to think the ACP safe harbor would still apply. So moral is to wait and see what the guidance says?

yup. I would NOT want to be that employer.