EBECatty

I agree with your client. The SECURE Act RMD rules were intended to eliminate "stretch" RMDs based on the life expectancy of a beneficiary who is far younger than the participant. If an individual who is older than the participant (and therefore not more than 10 years younger) is the beneficiary, they wouldn't be able to stretch the RMDs over a longer life expectancy either way.

Interesting, and I don't think you'll find any clear guidance. Partial termination is ultimately a facts-and-circumstances determination, so I think be reasonable, consistent, and probably err on the side of caution. I would lean toward vesting based on the layoff counts across 2021-2022 if doing so would clearly cause a partial termination in the seller's plan if left separate from the buyer's plan. To take an extreme example, seller's plan covers 100 employees and buyer's plan covers 1,000 employees. In December 2021, 15 seller employees are laid off. Turnover rate of seller's plan is 15% for 2021, so no presumption of partial termination. The plans merge 1/1/2022. In January 2022, 50 more seller employees are laid off. On the basis of the merged plan, your 2022 turnover rate is <5% (50 out of 1,085). However, when looking at the layoffs across 2021-2022 as the "applicable period" you have laid off 65% of seller's employees. My gut says vest them.

I did something similar recently, but can't seem to find any of the analysis at the moment. I do recall being comfortable enough that it was defensible, although not perfectly clear, on the theory you mention.

There may be other complications I'm not thinking of off-hand, but could you spin-off the 401(k) portion into a separate plan, then terminate the 401(k) plan? The ESOP would not be a successor plan. I've done the opposite - added a new 401(k) to an existing ESOP by creating a new KSOP then merging the ESOP into it - and received a DL with the IRS treating the KSOP as a new plan. (This was after the elimination of the DL cycle, so the plan had to be new to get an initial DL.) Seems like the OP would be the same transaction in reverse, i.e., "un-merging" the two components into separate plans.

The SECURE Act age 72 RMD provision is "optional" in the sense that a plan can still keep all its existing substantive RMD terms that apply at age 70.5 as a matter of optional plan design. Any distributions forced out between 70.5 to 72 would not be required minimum distributions, they would just be regular eligible rollover distributions forced out by discretionary plan terms (that happen to align in every respect with the RMD rules, except still tied to age 70.5 instead of 72). No distributions would be required minimum distributions until the participant reached age 72, at which point all subsequent distributions made under those provisions would be RMDs.

Exact opposite here. I had always assumed #1, and honestly hadn't even considered the alternative, which I think makes more sense, until seeing this.

Not sure if this is asking about the original question (which was not mine) or my hypothetical, but in my hypothetical the plan would be designed with everyone in their own group for allocation purposes.

Thanks. It does seem much easier in situations like this. Just wanted to make sure I wasn't missing a piece of puzzle. I'm honestly not sure the "HCE gets less" rule applies here either, but thought I'd throw it out there. The regulation is not very clear, but does not seem to require a specific plan provision resulting in the lower HCE allocation. Doesn't matter either way for present purposes.

Bird, you read my mind. My post at the same time was intended to respond to the OP.

This raises an issue I've been thinking about recently, and I feel like I may be missing something very basic by never being heavily involved in the allocation/testing process. Can you put everyone in their own group for allocation purposes, then do a general rate group test based on contributions (not benefits)? My perception is that, as soon as everyone is put in their own group, most people automatically go straight to cross-testing. Our Relius documents do not connect the two; they allow an allocation method based on every participant in their own group separate from cross-testing. The only other option seems to be general testing. Assuming for the moment no other HCEs, it seems like the above situation would pass general testing based on a 3% allocation to 100% of non-HCEs but only 50% of HCEs. The age of the owner's son would be irrelevant. Is this a valid option? Also, 1.401(a)(4)-2(b)(4)(v) seems to allow the plan to retain a safe-harbor allocation even if one or more HCEs receives a lower allocation than the "normal" allocation.

I don't think you have parent-child attribution at all, assuming you're working under section 1563 or 414. An adult child is only treated as owning the parent's stock in a corporation where the adult child already owns (either directly or through another form of attribution other than adult child/parent attribution) more than 50% of the corporation. Assuming the son could only be attributed the parents' stock through the adult child/parent attribution rules, the son does not own directly, and is not deemed to own indirectly, any of Corporation A. The same rule would apply in reverse to determine the parents' ownership in Corporation B. If the only route to attribution is adult child/parent attribution, they are deemed to own 0% of Corporation B. So the ownership is: Corporation A, 100% parents; Corporation B, 100% son; no parent-child attribution; no overlapping ownership. See Treasury Regulation 1.1563-3(b)(6)(ii) and the example in (iv), particularly subsection (d) of the example. The same rule and example are found in 1.414(c)-4(b)(6). On the other hand, if the son is working for the parents' company, there may be some other type of attribution, but I don't think parent-child will get you there on its own.

I agree a 75/25 split would work, assuming no attribution (including options) or other application of the stock-exclusion rules. This could involve a review of the shareholder agreements, buy-sell agreements, etc. Also, unless the values of the two businesses are (and remain) identical, my guess is the owners will try to find some way to "equalize" the value of their ownership through something that may implicate one or more of the attribution/exclusion rules. Controlled group ownership can be premised on the voting power or the value of the stock owned, so changing voting share ownership to 75/25 may not break up the controlled group if there are different classes of shares that give the owners a closer-to-50/50 economic split.

In a stock sale, the plan sponsor entity still exists and continues to have all the legal obligations it had before the sale. It's the same as an ongoing business terminating their plan, just under new ownership. If the individual sellers are trustees, they can remain as such or can be updated by the buyer. But either way, the entity still exists.

Assuming it's an asset sale, as C.B. Zeller notes, the corporate entity will still exist after closing for any number of things. The corporation does not immediately dissolve when its assets are sold. It has to wind down all its other affairs (pay debts, file final tax returns, collect any lingering A/R not otherwise assigned, etc.). This includes plan-related items (final testing, 5500, distribution processing, etc.). Generally the corporate entity will remain active to handle all those items and then dissolve (whether formally or informally) once everything is concluded. So the simple answer is: Do everything the same way you have been doing it. It's still a plan sponsor, just one without an active operating business.

No, the "no amendment" rule is not that broad. It only prohibits changing coverage under the plan (i.e., if you make an amendment that substantially changes coverage, you lose the transition rule). Changing the trustee will not impact.

1. Yes, as long as M remains a separate entity (i.e., it was not merged into S after closing). 2. Yes, but generally it's recommended to appoint someone on the buyer's side if the sellers will not remain involved with M after closing. Also, M's plan cannot be terminated in 2021; if not maintained separately, it would have to be merged into S's plan to avoid successor plan issues.

I have only ever used the three-year catch-up contribution rule for 457(b) plans for FCUs (which usually isn't very helpful as they generally have maxed out the 457(b) limit each year).

In my opinion, this will become the biggest issue (assuming as Luke notes that there is no underlying PT based on the husband not having enough personal funds, etc.). If my experience is any indication, at some point the husband will want to engage in some form of transaction with the plan's interest, whatever that may look like. I dealt with a very similar situation recently where an individual co-invested alongside his plan several years ago, then the plan could no longer support its obligations in the underlying investment. We had to tell the individual he could not fulfill the plan's obligations or buy out the plan's share of the investment personally. In a fact pattern like this, it leaves few good options.

Yes.

True, but if you look at Section 5.01(3)(a) of EPCRS, the definition of an "Excess Amount" is much broader than just a 415 excess. I've always taken the language in 6.06(1) referencing Rev. Proc. 92-93 ("...generally treated in the manner described...") as meaning "use rules similar to." Just my two cents.

I think you have an excess allocation that should be corrected under 6.06(2) under the provision you quote. If you look one paragraph before, in 6.06(1), it says excess amounts should be treated/reported as described in Section 3 of Rev. Proc. 92-93 (https://www.msbo.org/pdf/403b/92-93.pdf)

The below is from the same revenue procedure. You did not miss anything; there is no special situation for ESOPs. You cannot file for a DL for an ongoing ESOP but can continue to rely on the existing DL (with the expiration date no longer operative) unless and until changes are made (or required and not made). SECTION 13. RELIANCE ON DETERMINATION LETTERS .01 Rev. Proc. 2016-6 provides that, effective as of January 4, 2016, determination letters issued to individually designed plans will no longer contain an expiration date. .02 Under this revenue procedure, expiration dates included in determination letters issued prior to January 4, 2016, are no longer operative. .03 In general, a plan sponsor that maintains a qualified plan for which a favorable determination letter has been issued and that is otherwise entitled to rely on the determination letter may not continue to rely on the determination letter with respect to a plan provision that is subsequently amended or that is subsequently affected by a change in law. However, a plan sponsor may continue to rely on a determination letter with respect to plan provisions that are not amended or affected by a change in law. Reliance on determination letters is discussed in section 13 of Rev. Proc. 2016-4, 2016-1 I.R.B. 142 (updated annually) and section 21.01 of Rev. Proc. 2016-6, 2016-1 I.R.B. 200 (updated annually).

I do think this will be most useful for the 2020 plan year, but was struck by the potential implication of the 2021 plan year. Say a calendar-year plan on March 13, 2020, has 100 participants. On April 1, 2020, the employer lays off 50 participants due to COVID. On December 31, 2020, the 50 participants are still laid off, but on March 1, 2021, 40 of them are rehired. On March 31, 2021, the plan covers 90 participants -- 90% of the number of participants that it covered on March 13, 2020. In that case, no partial termination would occur for the 1/1/20 - 12/31/20 plan year. That seems entirely logical to me. But say the employer then sells one of its two locations on June 1, 2021, and 50 participants terminate employment and are hired by the buyer. On December 31, 2021, the plan covers only the 40 remaining participants. The statutory language seems to say the 2021 plan year also would get partial termination relief based solely on the number of covered participants on March 31, 2021, as compared to March 13, 2020. This seems less logical.

Does anyone have thoughts on the impact for 2021? A calendar-year plan would have two plan years that include that period. And no plan could have a single plan year that includes only that period. Perhaps I'm missing something. SEC. 209. TEMPORARY RULE PREVENTING PARTIAL PLAN TERMINATION. A plan shall not be treated as having a partial termination (within the meaning of 411(d)(3) of the Internal Revenue Code of 1986) during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80 percent of the number of active participants covered by the plan on March 13, 2020.

Thanks. The document does provide, and top heavy is not an issue. Appreciate it!