dan.jock

I think that if the NRA is age 65 and the plan has an unreduced early retirement benefit at age 62, then the 2.8M is distributable. 415: step 1 - calculate the plan benefit ($2.8M)) step 2 - compare to dollar limit (2.8M) 415 dollar limit is unreduced from 65 to 62. I'd suggest merely amending (or designing) the NRA to be 62 to avoid this moot complication since for testing, you'd have to use the age 62 unreduced benefit anyhow in the MVAR. -Dan

Attached is a comprehensive description of how to solve this issue. This is mostly difficult for the CPA/bookkeeper. If $0 has been made so far, I think you situation will be easy enough to resolve. Correcting a bad SIMPLE.pdf

1.401(a)(4)-5 prohibits amendments (including adoption of a new plan) that would discriminate in favor of HCE's. The conventional wisdom here is that your client should only count years of service and compensation from 1/1/18 forward. If salary and service with the predecessor employer are used to get a large DB contribution, that would be discriminatory since all those employees were around in the predecessor employer and are not getting anything.

When answering yes to this question, it asks us to enter the MyPAA filing confirmation number. I didn't do the PBGC filing yet. How do I get by this short of just doing the PBGC filing? For 2017, it is a new plan and the PBGC filing was due therefore 90 days after plan effective date, mid-March. Since we are busy with contribution numbers in the spring, we usually just let the first filing be late and pay the very small penalty (1% of the unpaid premium is peanuts) Since 6c is new, it is throwing me off. Any feedback?

Converse question: What if I apply for an extension for 8955 but then discover I actually don't need one this year. Does that trigger a compliance check?

Ownership is attributed between parents and adult children if the ownership % of one is greater than 50%. https://www.irs.gov/pub/irs-tege/epchd704.pdf page 12 So Dad owns 100% of a business with 50 employees. He starts a 50/50 partnership with his son and takes some clients there and is smart enough to keep the entities very separate in the clients they serve, maybe even a different line of business. Assuming the comp is there to support it, Dad has big qualified plan contributions in the side business and since it's less than 80% common ownership, it's not a controlled group and he doesn't have to cover his 50 employees. This seems like a scenario ripe for abuse. Where's the catch?

OK, Sorry I didn't mean to check out on this. I agree with Mike, that coverage AND NON-DISCRIMINATION need to pass on it's own. So yes, I am not using the SH match plan at all for ABPT part of the general test. SH match plan has no keys in there. This is the actual life scenario: Employer has a SH match plan for 2018. In 2019, he wants to do a DB/DC combo plan for a select group and leave the SH match untouched for the rest of the staff. If the select group passes 410b and 401a4 on it's own, I think I can do that. So the next question, Keys in select group have a SH match balance but won't benefit under that plan in 2019. I think it's blown because 416g2 says we aggregate each plan with a key participant. not a key benefiting participant. So if we set it up that way initially, we are ok, but I can't see a path to conversion.

Employer has a safe harbor match plan, top heavy not required. If they added a profit sharing allocation, they'd be blown and have to provide a 3% NEC. Say they had a second plan with an exclusive group of HCE's and HCHE's that passes coverage testing on it's own. The non-keys in that second plan get at least 3% for TH. Top heavy rules indicate that each plan needs to satisfy TH, so is the SH match plan still ok?

The accountant is the A-org. The mfg company is the FSO. Since mfg is not a service org, they are off the hook

If a doctor is a 79% partner at a surgery center and regularly performs service there as a sub-contractor, he is an affiliated service group and can't have a 1-man plan on the side. If an accountant is a 79% partner of a manufacturing firm and regularly performs services there as a sub-contractor, he can have a 1-man plan on the side since the manufacturing company is not a service organization. Seems unfair but legitimate. Am I misinterpreting?

It's a 4/1 plan so I can restate 4/1. On the 5500, I now uncheck the box that says it's a 412(e) plan and start doing SB's? Keep annuity contracts as paid up contracts. Check that insurance still satisfies incidental benefit rules. Seems too easy to be true.

I have a prospect that wants to convert their 412(e)(3) plan into a traditional defined benefit. I've never done this and the only way I can see when I read the ERISA outline book is to ask the IRS to treat the plan as if it was never a fully-insured plan. I calculate funding minimums and maximums back to plan effective date. If the contributions fall in the range and I do everything else the examining agent asks, then it would be "converted" or in other words, it was never a fully-insured plan. Anyone ever done this? Please share your experience, strength, and hope.

Thanks MIke. So my client made an ill-advised (more like non-advised) investment decision and he is about $8M overfunded. What should I suggest?

reversion taxes are described in the context of plan termination

Not according to this https://www.irs.gov/retirement-plans/tax-consequences-of-plan-disqualification

Client started a H & W DB plan in 2016. They bought a stock that increased 4000% so now they are way overfunded and benefits will never catch up. I am going to suggest they take out the money into a regular brokerage account and thus intentionally disqualify the plan. Pay regular capital gains. Taxes and penalty on the disallowed deduction are better than a reversion tax on an overfunded DB. Or are they? Please help!!

Former partner (or employee for that matter) in a firm now is an independent consultant for the same organization and receives a 1099. He wants to start a DB plan and deduct away his 1099 income. Can he consider the prior firm a predecessor employer and use that compensation in his 3-year average? In describing imputed comp, 414(s) says "prior employer comp for an employer...maintaining the plan" So this is obviously a reg that is addressing a more traditional migration of employment from one company to another. I think my client needs to start fresh like a new sole prop but I'm hanging this out there for any creative ideas.

There are currently 2 relief measures out right now. One says that they are going to relax documentation standards for folks to receive a hardship withdrawal. The other says that “various business tax deadlines” are extended to 1/31/2018. We are most interested in the latter. The text around it speaks to the filing and payment of estimated tax, company tax returns, and remitting of periodic payroll taxes. It does not specifically speak to retirement plan contributions or filings. However, the measure does not at all present the list of covered filings and payments to be comprehensive or exhaustive. So I would say that if a sponsor needs the relief while he picks up the pieces of his broken business, that he/she take it. We should not use this as a gimmick to kick the can down the road. The IRS further said that no one should call and ask for permission not to file. There is a list of counties in Florida that are listed as affected areas. If the address on the return or filing is within that geography, the IRS simply won’t send a late filing notice. If the sponsor does get a notice and they think they qualify for relief, they are then instructed to call and the IRS will abate any penalties. Hope this helps.

Business owner also receives a 1099misc for consulting revenue that is paid to her personally and not run through her business. No employees on the side revenue. Can she as a sole prop become an adopting employer of the retirement plan of her business thereby using that income for plan calculations? I would think so as long as the paperwork is in order, the plan allows outside adopting employers, and the sole prop formally adopts. Any cause for concern?

A 1/3 partner is retiring and retaining his ownership. (for now) Benefits won't be 110% after the distribution and the plan is less than 100% funded actually so he just wants to forego his benefit to the extent funded. I don't really have a good option for him except to defer receipt of his benefit until the plan is 110%+ or get them to terminate the plan. Termination is not what's best for the other partners though. So I think they wait and decide how to contribute profits to the plan until this fella can distribute. Plan consists of only partners so it seems legalistic and not what the spirit of anti-cutback is about. However, it is what it is.

In a PBGC plan termination, to qualify for standard termination, benefits needs to be fully funded. To accomplish this, under 4041.21(b)(2), an owner of 50% or more can make an election to forego benefits. Is anyone aware of the definition of majority owner being reconsidered? It seems like if a partner of say 10% should be allowed to make a similar election; no staff is harmed and the IRS gets an extra tax dollar assuming the deduction is not taken on fully funding the benefit. Second question: If the plan is not covered by the PBGC, what then?

instead of having a 27 year life expectancy for the 70 year old, the DB plan has more realistic expectation of life. amortizing over a shorter life makes for a larger RMD. DB folks-don't crucify me for over-simplifying !!!

...Obviously speaking of a DB plan...and assuming accrued benefit, 415, etc. is all handled correctly going forward. There will still be a little DB RMD after the rollover.

Should every 69.5 year old 5% owner take an in-service distribution so long as the plan allows? Rollover to an IRA and thus take an RMD on the account balance method and save money on personal income tax. I'm struggling to find a reason not to. I say 69.5 obviously so we get ahead of it before the first distribution calendar year. -Dan

Another clarification...say we use a 5% uniform allocation to offset the DB and only one older person is not 100% offset. I'd like to use the whole PS allocation to offset that person's benefit. That makes it not uniform. So I think we can do it but that person cannot be considered benefiting for 401(a)(26). If I can pass without that person, is that OK? A strict reading of the reg seems to permit this.