justanotheradmin

What you propose is a permitted correction method. Make sure to give out a written notice explaining the error, the correction, and the right to adjust future deferrals. The specifics of what needs to be in the notice is in Revenue Proc 2018-52 Since your SH match is annual and you are not required to deposit each pay period (even though you choose to) I think letting it get fixed in the year end true-up is acceptable. Just make sure the true calculation is based on a total deferral amount that includes what WOULD HAVE been been deferred for the missed comp, not what was actually deferred. Here is a link to the Rev Proc. https://www.irs.gov/pub/irs-drop/rp-18-52.pdf One more thing, usually the notice has to go out within 45 days, so hopefully you can meet that deadline, depending on when you caught and fixed the error.

My understanding is the invalid SSN is a completely distinct issue from the right to the plan accounts. Just because someone does not have a valid social doesn't mean they don't have a right to compensation or wages. There are lot of intertwining issues, but especially if there are deferrals (but even if only employer contributions), the money belongs to person the same as any other plan participant. Now if the IRS were to get awarded the accounts because of tax fraud and a court judgment, that would be entirely different. Similarly, if I find out someone's SSN isn't valid and I fire them, it doesn't mean I can withhold their final paycheck. If they worked and earned the money, it is theirs. As for what to use on a 1099-R, I would suggest getting a taxpayer ID from their home country if they do not have a SSN. And don't forget the higher possible tax withholding, and W-8BEN.

I can assure you that filings are available on efast for public viewing, even if filed as part of DFVCP. We have a number of clients that have used DFVCP and their late filings are viewable the same as if they had been filed timely. If there are other reasons why it wouldn't be available (one-participant plan etc, ) those limitations would still apply. But if you have a one participant plan, you wouldn't be correcting with DFVCP anyhow. You'd use the special program for those kinds of plans. Now, I can't say if they would all be available back to 2002... for most plans the filings on efast only go back a few years. I don't know if they are archived based on the plan year end, or on the filing date. If based on plan year end, I would think the very early years (2002 to maybe 2013) wouldn't be on efast. But if done based on filing date (which is what I think is more likely) then if all filed this year, they would all be available for download.

Is the concern that the signature will be viewable? Any 5500s filed by a third party vendor (instead of with a PIN directly by the signer) has an attachment with the signature on it. So there are lots of 5500s out there on efast with signatures already. Many vendors have the signers use their PIN for direct filing ( or semi-direct filing through the preparation software), but not all do. Some plan sponsors find it easier to wet sign, and authorize the service provider to e-file on their behalf. When done that way, a copy of the wet signed Form 5500 is usually visible. I don't know that will make your sponsor feel, better, but it might. Or they just might think the ones that don't direct file with a PIN are taking an unnecessary risk.

I don't have a sample notice specific to that, but usually I try to include the things mentioned in the EPCRS revenue procedure. Usually the format is something like: Date To: Participant in XYX From: Plan Sponsor Re: XYZ {Information about what is required - e.g. there is a SEP plan and sometimes employees are required to share in employer contributions} {Information about the failure - Contributions weren't made to accounts } {Information about the correction - opening accounts, depositing corrective amounts etc} {Other required information - for example in a 401(k) usually a mention about a right to change deferrals if there is a deferral error, or disclosure that plan information is available on paper upon request, etc) For more information contact NAME of PERSON Name of Company (usually sponsor) PHONE NUMBER E-mail address Address

It cannot unless the plan has never allowed deferrals. If the plan is amending to add a deferral option then yes, safe harbor can be added at the same time. Otherwise NO. Safe harbor cannot be added mid -year (though some in the industry wish it could be).

We've been amending documents all along, and at present the document provider we use is providing amendments for both the EGTRRA cycle docs and the PPA cycle docs so that EGTRRA doc clients can still be fully up to date even if not restated. If there are any other interim changes needed before 4/30/2020, I suspect they will continue to provide / support regulatory amendments to the EGTRRA document.

Update the document - Yes, that's been done. Amendments have been done as part of the plan termination process. The question is the actual requirement to fully restate the document. I don't see that addressed on the IRS website. The guidance I find on other items (such as this example for GUST https://www.irs.gov/pub/irs-tege/chap101.pdf ) mentions making sure the terminating plans have been amended. It doesn't mention restating terminating plans. It does not seem to use the terms restatement and amendment interchangeably, so I presume when it only references amendments, that's what it means. I'm having a hard time finding Notice 87-57 can someone provide a link?

Thank you draper1 and Ratherbegolfing. I think the discussion my colleagues are having is over the distributions that occur during the RAP. There is no question that any plans that still have money in them at the end of the RAP we will try to restate. The issue is plans that had their final distributions during the RAP. Some colleagues are taking the position that if ANY of the distributions occurred at ANY time (past or present) during the RAP then a restatement is required. I've heard some take a practical approach to split the different and not worry about restatements for plans that had already paid out when they started preparing them. Then only do restatements for any that have money in them now. I suppose that will help with the date issue, because typically I don't back date restatements. I find it easier administratively if the restatement is effective to coincide with an upcoming plan year. For instance, restated docs prepared in 2018 were made effective 1/1/2019 (calendar year plans), and restated docs prepared in 2019 will be effective 1/1/2020. For plans that already terminated and completely paid out, the restated documents would be signed NOW, but would have an effective date in 2018. That doesn't seem right to me. The earliest I would typically like to go back would be the start of the current plan year. But that's just me. What are other people doing? Is there something from the IRS that explains the rules more clearly? Admittedly I haven't delved into the weeds. I was hoping someone else here already had.

What say all of you about terminating plans and the current restatement cycle? Assume the documents have amendments to bring them other wise up to date, just not restatements. I have a couple of different scenarios. Are document restatement required in any/all of the following circumstances. There has been some debate among our actuaries and senior folks. A. Plans that are terminated and completely paid out as of today, but the plan termination date was AFTER the restatement cycle started. B. Plans that are terminated and NOT completely paid out, the plan termination date was AFTER the restatement cycle started. C. Plans that are terminated and completely paid out as of today, the plan termination date was BEFORE the restatement cycle started, but final payouts occurred AFTER the restatement cycle started. D. Plans that terminated AFTER the restatement cycle started, but distributions will be complete BEFORE the restatement deadline. When was the termination amendment? Before or after the restatement cycle started? When are distributions complete? During the restatement cycle or after the restatement deadline?

Why? There seem to be two different parts to that statement. 1. Are related employers ( Control group, ASG) automatically part of a plan, or is an affirmative participating employer election by the entity required? The document (a volume submitter) we use says Not automatically part of the plan, affirmative election is required. I have seen documents default the other way too, but unless you've read that part of the document, don't assume. 2. Pulling in another employer due to coverage? Is there a coverage failure? The spouse's are HCE, so I don't see why it would be necessary to pull in another HCE due to a testing failure on a 401(k) plan. These aren't DB plans with minimum participation under 401(a)(26). Even if there is a coverage failure, not all plan documents default to a fail safe that automatically pulls in extra employees to give them benefits.

What's the eligibility for safe harbor? Does it follow the deferral eligibility and entry? or the Profit sharing? the fact pattern doesn't say. What kind of safe harbor? nonelective? match? We have some plans that have the safe harbor follow deferral eligibility, and others that have safe harbor eligibility the same as profit sharing.

Madison71 - I agree with you. It's not an argument I would want any plan sponsor to make. But if that's the position they take, well, that's up to them.

I can tell you that it is at this point that in the preparations of a partner's return that I get questions. The occasional CPA will come to me to ask about the 25% aggregate limit and confirm it. But usually we've already supplied the sponsor and their CPA with a copy of an employer contribution breakdown by participant, draft SE tax calc , and draft 404 deduction worksheet for their use. But if the CPA hasn't seen those things and they want clarification most seem to know they can just ask us.

I don't think there is any disagreement about who counts as self-employed, or even what earned income is. The question is more where a self-employed individual is allocated an employer contribution that is larger than 25% of earned income, is the individual's deduction for their own contribution limited to 25% of the individual's income? Or does the plan deduction limit of 25% apply? This is assuming the allocated employer contribution otherwise meets the total plan deduction limit of 25% (under 404), and any other regular individual participant limits such as 415. Based on my reading of Reg 1.404(e)-1A the regular deduction limit for a self-employed individual is replaced by the amount deductible as an employer under §404. If i'm misunderstanding that reg, I'm hoping someone can point to the specific language and break it down for me.

I realize that the IRS's examination guide does not control / is not precedent, but it is helpful to know what an examiner would use to guide them, since it shows how they might interpret the rules. https://www.irs.gov/irm/part4/irm_04-072-015 At one point it describes the excess for a self-employed individual as the amount that exceeds 100% of their earned income. If the limits were applied the way Luke describes, it should describe the excess as the amounts over 25% of their earned income. See also Wouldn't it be clear that the limit applies to the individual, not the employer if that's how it should be applied?

this discussion from page 15? It mentions the circular calculation, which I do pretty regularly, but not a 25% limit per partner.

Hmm. I'm not a CPA, but I would think after years in this business this wouldn't be the first time I've heard of this. But I do learn new things all the time. §404(a)(8)(C) - to me this just says contributions can't exceed earned income. Okay, makes sense. For Reg 1.404(e)-1A https://www.law.cornell.edu/cfr/text/26/1.404(e)-1A Where does it limit the individual partner's deductible amount? If anything it seems to read that the amount deductible (not the 25% deduction limit itself) under the 25% limit replaces the the regular limitation for a self-employed individual. But admittedly I've only skimmed this cite. Publication 560 https://www.irs.gov/pub/irs-pdf/p560.pdf I agree with Bird on how that pub reads. I feel like this would be common knowledge if true.

Good thought, but unlikely. The IRS Form 5305 doesn't allow integration with SS. Which doesn't necessarily mean it's not allowed at all (I don't have a cite to the SEP rules to know). https://www.irs.gov/pub/irs-pdf/f5305sep.pdf SSI also doesn't help if the partners have similar comp. They would end up with the same amounts.

Keep in mind, that if there has been e-mail correspondence back and forth about the deferral error, that may meet the notice requirement in aggregate if it covered the required items. I'm not aware of any requirement that the notice be provided on hard copy paper (though it should be given on paper upon participant request). Nor am I aware of anything that says the notice has to be a single notice. I would argue that several communications that cover all the required elements of the notice should suffice. Best practice would be a single notice that meets the requirements, but depending on what's been communicated, it might not be needed.

Yes, the §4979 excise tax applies to excess contributions (and excess aggregate contributions, but sounds like they don't have any of those). Here is the cite to the 2 1/2 month deadline (March 15). https://www.law.cornell.edu/uscode/text/26/4979 I've never heard of an exception for partnerships. This assumes of course refunds are actually done, and they they don't simply deduct less as deferrals.

The article is very very simplified. For more detailed information, you'll want to look to the actual IRS Revenue Procedure 2018-52. https://www.irs.gov/pub/irs-drop/rp-18-52.pdf If you read it, you'll notice that there are lots of exceptions to the Elective Deferral Failure correction you describe, especially when the time period of the error is relatively short, less than 3 months. (December + January) Even if the failure was longer than three months, a reduced corrective contribution of only 25% of the missed amount is sometimes also permitted. So you might not get any corrective contributions. If the plan provides for a match, you should get the match as if the deferral is being made. As for a 100% deferral election, they probably figured this out, but because of payroll withholding it's not actually possible. It usually works out to be something like 92% deferral, and the remainder is FICA, FUTA, SSI etc.

I agree with Bird. I've also had this conversation with accountants before. If they are used to dealing with one-person businesses, the fact that one partner could have a contribution exceeding 20% never comes up. But any accountant used to working with slightly larger businesses should become familiar with the rule. Just having an employee can create this issue, even for a one owner plan sponsor. If a two person plan (one owner, one NHCE) and the owner gets a contribution of $50,000, but self- employment compensation is only $150,000 for the Owner, that might be okay. The NHCE might be getting a PS of $5,000 (say comp is $70,000) So total ER is $55,000, which is 25% of $220,000. Allowed as long as it passes testing. Even though the owner's PS is 33.3% of comp.

Are you the CPA? I usually leave deduction issues to the CPA or tax accountant. How the sponsor chooses to take the deduction (or not take the deduction) isn't something I get too concerned about. When I calculate a contribution I include a standard reminder about the timing of deposit, deductibility, and checking with their CPA. Beyond that, if you really want to help them figure it out, I would probably tell the client to look to the language of their partnership agreement and LLC documents. Usually a partnership agreement will have some sort of language about how to allocate expenses between the partners, though I'm not sure it would be saying anything about expenses NOT incurred by the partnership. But it doesn't hurt to check.

I think the question arises because under IRC §1372 the 2% Shareholder expense rules are explained as how to treat fringe benefits for partnerships. https://www.law.cornell.edu/uscode/text/26/1372 Since the IRC seems to include health insurance premiums a fringe benefit, the question makes sense. If health insurance premiums (a fringe benefit) are treated as compensation for 2% shareholders, does that then mean it is no longer a fringe benefit? Can it be both for plan purposes? I don't actually know the answer or have any research on it, but considering many plan documents have spots where fringe benefits can specifically be excluded from plan compensation, I would gather that as a generally rule, fringe benefits ARE compensation, at the same time that they are fringe benefits. There might be some nuance particular to the health ins. premiums for 2% shareholders that I don't know about, but as a generally rule something can certainly be BOTH a fringe benefit and compensation.