justanotheradmin

I'm going to preface this by saying I know almost nothing about Puerto Rico rules. So if someone has a primer resource that they think has the answer - please let me know. Question existing U.S. mainland plan, owner only. I am unsure of entity type, I suspect it is an LLC. I do not know which state. I will try to find out the details. The owner / business is moving to Puerto Rico and wants to keep their existing plan. Are there changes? Is this something that is going to be so complicated I should refer them to a different company? What things should they (I?) be aware of? I've tried some basic googling, but all of you are very quick and smart so I figured I would ask here.

This is one of the hazards of having a plan that allows for loans. It happens. Not much the employer can do about it. If the participant is eligible for an in service withdrawal a loan offset occurs in conjunction with the deemed distribution. If the participant is not eligible for a withdrawal the loan is deemed distributed - but tracked on the plan's accounting. Fairly standard stuff. I suppose you could make loan payments a condition of employment. Tell the employee if they rescind their payment authorization they are fired - but that seems harsh. If this participant had more non-loan assets in his account I'm guessing you wouldn't hesitate. He could take an in-service withdrawal - and use the proceeds to pay off the loan balance. He would be taxed on the in-service withdrawal. By discontinuing the payments and defaulting on the loan, the same is occurring, just without the whole tax withholding bit.

Me too - I wonder if it has something to do with garnishment? Maybe employees in California have different rights to reject different types of withholding? But that's just a guess. I don't know much about California. Then yes - by discontinuing the payments he is in effect electing an in-service withdrawal of the outstanding loan balance. In conjunction with a deemed distribution (which is the tax event) this is known as a loan offset. It's also reasonably common. What law circumvention are you concerned about?

We don't have enough information to answer your questions. When you say non-taxable, what do you mean? Roth Deferrals? Roth Conversion? After-tax? Something else? How old are you? How old were you when you stopped working for your former employer? When did you first start having non-taxable money in your account? Specifically what calendar year? Was the money contributed by you - such as a Roth deferral? or a conversion of employer money? For your new employer plan - if the non-taxable money was rolled over - would this be the first contribution of non-taxable money into your account at that plan? Or are you already making some sort of (likely Roth) contribution?

Is the employee eligible for an in-service withdrawal? If yes - then yes, go ahead and let the participant default. The plan will deem it distributed and offset the remaining balance as an in-service withdrawal. Happens all the time. Has nothing to do with being in California. In effect he is electing an in-service withdrawal of his loan balance.

That's a complicated question. If the person is self-employed and receives self-employment income from the business the answer might be no. Usually the only the trade or business involved can count self-employment income. If they receive W-2 based compensation the answer might be yes. I'd also suggest reading your basic plan document. There was an ERISApedia webcase on Compensation recently that if I recall covered this question. You may be able to look through the slides for an answer, or you can listen to it, I believe it's available on demand.

I would not do it. Though I know there are some out there that would. The amendment for the waiver date makes them eligible for 2019. A retroactive corrective amendment to bring someone into the plan is allowed - if it otherwise satisfies non-discrimination (this does not, it only brings in HCE), and it is used to correct a defect. Was any money already deposited in 2019? If not - there is no defect to correct. If this conversation was a year from now - and we were talking about making them eligible for the 2020 plan year, I might have a different answer because the SECURE act allows adoption of a plan after year end. The analysis would be different. But we aren't. Your question pertains to 2019.

Why do you think owner's portion would be after-tax? What kind of entity is it? A sole proprietor? The inability to deduct the contribution (and the associated excise tax) is on the employer, not the individual employee. If I'm an employee and my employer exceeded the deductible limit in contributions - it doesn't change the tax status of the employer contributions made to my individual account, they would still be pre-tax. Maybe there is some special rule for self-employed individuals, but if there is I'm not aware of it. But admittedly, employers contributing too much isn't an issue I've had lately.

I'm sure someone else will chime in with a more detailed answer - My short answer - Why not? If it is a related employer group (control group, affiliated service group, etc) usually all service counts, even while part of an excluded class. When an employee changes status from an excluded class to a covered class, all of that prior service still counts, it doesn't go away. Also - what does your document say? If you use a document that has a basic plan document, I would read any portions on related employers, changes in employee class, etc. I'm guessing the plan excludes the foreign subsidiaries entirely either by business entity, or as non-resident aliens with no U.S. source income - but I would double check that too. I have had plans that thought they didn't cover their offices elsewhere - but in actually reading the document, turns out those employees were eligible and covered by the plan. Poor drafting can have a huge impact. If all of the entities involved are large and there are any QSLOBs then there are probably special rules. Even if that service is excluded - usually plan documents can be amended to credit service from other entities if needed.

What kind of audit are you concerned about? an IQPA audit? IRS audit? DOL audit? Unless I'm misremembering, if you are subject to circular 230 the chance of audit shouldn't really be a consideration when giving advice. and if they are going to the long form due to participant count - typically they are subject to an IQPA audit anyhow - so I'm not sure I understand the concern? Can you elaborate?

This may be moot if your proposed plan has a long service requirement for eligibility, but likely your employee wouldn't be considered highly compensated until their second (or possibly third) year of employment because of how the HCE look-back rules work. I would also talk to someone about possible related employer group rules. I my experience it is unusual (though certainly not impossible) to have a 1 person physician practice (or two in your case) with absolutely no other related employers or employees. If there are other people you work with ( billing, medical staff etc) even if they are leased, temporary, or paid on 1099, please have someone well versed in control group / affiliated service group/ management groups etc review your particular circumstances to make sure there are other groups of people that have to be included in any retirement plan testing. You might not have to give them any benefits under the plan, but the actuary might need to include their data in the annual testing.

Thank you David and pensiongeek - that's the confirmation I needed!

I apologize, I'm sure this question has been asked and answered - so if someone could point me to the correct thread, I'm happy to read up on it. I also wasn't sure if this question was better suited for the distribution message board or this on. I don't deal with PBGC covered plans often - so my apologies in advance if I am using the wrong terminology or asking the wrong type of question. PBGC covered plan - terminated and closed. There were a about a dozen participants whose benefit was sent to the PBGC per the lost participant rules. We are now preparing 1099-Rs for the plan. The participants who elected something ( lump sum cash, rollover, etc) I have no problem preparing the 1099-Rs. But I don't know how to report those whose benefit was transferred to the PBGC. Do they get 1099-Rs? I'm thinking yes - but I've been wrong before If they get a 1099-R what code goes on the form? I'm sure there is a publication or guide that deals with this - I'm just not sure where to look. I called the PBGC for an answer and was told I would get a call back - but I haven't heard yet so thought I would ask all you smart folks here.

Is it by any chance a 3% Safe harbor nonelective? If so - I would review the new SH rules in the SECURE Act. If it is a Safe Harbor match - well, then, i'll let other folks give their thoughts on that.

I'm not sure what your question is - Is she concerned employees will claim that they were never offered the ability to make deferrals? Sounds like the plan does not have automatic enrollment - She gives them the enrollment forms or instructions - then she process payroll as normal unless they turn in a deferral form. Some ERs make a note of when then provided the forms (and how, paper, e-mail etc) so that they can document that there was no missed opportunity to defer. But if the participant doesn't turn in a form - there is no deferral. She doesn't need a form saying ZERO to proceed with ZERO deferral. Getting a ZERO election form returned is of course best practice - but it's not required.

I usually start by reading the plan document ( including the basic plan document). Ours specifies which limits are pro-rated and which are not for short plan years. It also differs if the short plan year is the initial year of the plan's existence or not. Maybe your document also includes those details.

I don't see why not - but - If they have access to a 401(k) plan wherever they are employed they could have accomplished the same thing even before SECURE. Are they making 401(k) deferrals there? 401(k) plans typically don't have any restrictions on participant age for contributions. At least I've never seen one restrict deferrals to participants based on age of participant. Edit to add: if the RMDs were required before - they continue to be required. So yes, the person should continue taking them. Unlike IRAs, a person's ability to make 401(k) deferrals does not end upon a certain age or because they have to take RMDs. I have seen employees in their 70s INCREASE their deferrals because they want to offset the tax impact of their RMDs.

The PTIN is free and simple to obtain. We require all of our admin staff who prepare Form 5330 (which is most) to have a PTIN. This includes assistants and support staff if they are preparing the Form 5330 (even though their work will be reviewed by a more senior person). Most of our clients hopefully will never need a Form 5330, but we do enough each season that we have the above PTIN requirement in place.

I'm sure it varies by plan document, I've seen it as you describe, as well as how our document uses it. We use a pre-approved document from a large vendor. The basic plan document has a variety of inter-related provisions (as all do). The Plan Compensation definition immediately references back to Total Compensation. Total Compensation definition references amounts from the Employer. The Employer is defined in part as "means the Employer that adopts this Plan and any Related Employer." Related Employer is defined as control, affiliated service, etc. group. All of that might be kind of hard to follow for the average reader - so the drafters included extra language to make it clearer: There is a section of the basic plan document that covers Participating Employers and it specifically addresses this issue: "Compensation of Related Employers. In applying the provisions of the Plan, Total Compensation (as defined in Section 1.141) includes amounts earned with a Related Employer, regardless of whether such Related Employer executes a Participating Employer Adoption Page." It goes on to mention how that default can be changed with elections in the adoption agreement. There is a separate portion of the basic plan document that addresses deductions, allocations of contributions, forfeitures, etc, for related and/ or participating employers.

If that type of compensation was excluded - would it have passed §414(s) testing? I would start by looking into a VCP submission. If the sponsor isn't comfortable 'fessing up so to speak, an anonymous submission is an option (though that comes with it's own pros and cons). In the submission you can propose a retroactive amendment that excludes bonus from deferrals. I'd think the VCP fee and submission cost would likely outweigh any corrective QNEC that would be due for a missed opportunity to defer or a failure to follow deferral election. Was anyone's ability to defer actually impacted? Or were participants able to reach their deferral goals? i.e. maximizing deferrals through regular pay? Can you make the argument that the NHCE weren't harmed? I know there are lots of folks with good ideas on these boards, hopefully some will chime in other options to consider.

Larry's answer discusses the coverage /non-discrimination testing issue. I think the original poster is more likely asking about a scenario in which the employees receive compensation from both entities. The person is eligible to defer from their Company A compensation, but not their Company B compensation. For the answer in that scenario - I would look to your plan's definition of compensation (it may be in a basic plan document). Ours says that all compensation from the controlled group counts as Plan Compensation, even if a specific entity is not a participating employer and isn't otherwise included in the plan. This is separate from an employee who only receives compensation from Company B - and who might be included in non-discrimination testing - but isn't eligible for the plan.

Yes, we were aware. I'm not sure what other folks are doing, but anytime a client gives us an address change (or entity change etc) file 8822-B is on our checklist to see if it is needed or not. If it is, we prepare it and get it filed. It's a PITA in my opinion, but I'm sure it helps the IRS somehow. I think it is just one more possible thing to get missed, that doesn't seem to serve much purpose.

I think you are correct. You aren't a shareholder - so you don't benefit from the sale. It just happens that the shares are held by the ESOP. I suppose you could ask for a bonus if you were instrumental in the sale of the company, but I don't have any ideas. I think when small companies are bought or sold the employees don't typically have an expectation that they will benefit monetarily from the transaction. It just happens that a number of them will because of their shares in the ESOP. You aren't one of the lucky ones.

@Linda Wilkins Thank you! I KNEW there had to be some sort of exception related to the fact that the control group is ending. I just couldn't remember or put my finger on it. If the control group wasn't ending, I think the result would be different, but that's not my particular fact pattern. We will give the business the information and they can decide what they want to do (or not do). Thanks again! And Happy Holidays everyone!

How many participants would be affected? Is it practical to get everyone to complete a distribution election in time? Is the concern that the notice isn't being provided at least 30 days in advance? Or will the notice not be provided at all? If the participants elect a distribution ( as opposed to being forced out) then usually the distribution forms have language in them that the participant acknowledged receipt of the notice, and any 30 day requirement is waived. If the participants are affirmatively electing some sort of distribution with their waiver, i don't see an issue with the Notice date and the Distribution process date being less than 30 days apart.