CuseFan

Buyer sponsors plan, terminates plan, then becomes sponsor of acquired plan. Yes, I think you have successor plan situation. Can they terminate, sure, but that won't be a distributable event. Why not merge plans - what is the aversion? I understand not wanting potential compliance liability for acquiring someone else's prior mistakes, but isn't that part of due diligence and indemnifications? In your situation, if the buyer is willing to sponsor the plan of its acquisition, why would it not want to merge? Unless buyer knows its plan has issues and wants it to go away?

For non-PBGC DBPs, if the plan is not already frozen then you need to provide 15-day advance notice (ERISA 204(h) notice) of an amendment that results in a reduction in the rate of future accruals.

Regarding account balances, I personally believe in accrual based accounting but I know lots of others use cash-based and I think the instructions say you can use either but likely need to be consistent with your method from year to year. I'm long removed from 5500 world so hopefully other and more knowledgeable 5500 practitioners should be able to confirm or correct my response.

Lou answered that on a prior response. Only those NHCEs that benefit must receive gateway, so you can have zeroes in there but you must benefit enough NHCEs to pass testing on ratio percentage.

It would not be subject to gateway if you are not cross-testing and are testing on contributions. You still need to satisfy coverage. If the document is set up with those 3 groups then that could be a reasonable classification and you can continue with average benefits. Then if you need to move someone from group 3 to group 2 to pass you could do via an 11g amendment. If the document just says individual groups then I think it's covering 7 and passing the ratio percentage test or nothing.

Agreed, any NHCE who benefits under 401(a) portion of the plan must get gateway which, for an HCE rate of 5.6%, is 1.866667% or 1.87%, not 1.86%. Also, to pass coverage using average benefits the first requirement is a reasonable classification. What was the reasonable classification used to determine the 4 (or 5) NHCEs out of 10 to give profit sharing? Picking the youngest and/or lowest paid doesn't fly the reasonable plane. You don't need reasonable classification once you get to nondiscrimination testing, but you can't fly there until your coverage flight gets off the ground.

Yes, but any investment earnings must be distributed as well and would need to go to a traditional IRA to further defer taxation.

This is the language from FTW SPD and still shows $110. Enforcing Your Rights If your claim for a pension benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Plan documents or the latest annual report from the Plan and do not receive them within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. In addition, if you disagree with the Plan's decision or lack thereof concerning the qualified status of a domestic relations order, you may file suit in Federal court. If it should happen that Plan fiduciaries misuse the Plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

The tax treatment of the distribution cannot control/deny someone of future participation. However, it can affect tax treatment of future distributions. If the person takes a permissible LS (total distribution) under the terms of the plan and applies NUA, then any future distribution attributable to future participation would be precluded from using such. I would not think such would retroactively negate the prior NUA treatment but would seek qualified tax counsel for that. I would also be EXTREMELY careful on distribution timing, what constitutes a lump sum and future participation. I think you would need to avoid any contribution after the distribution but in the same tax year as such that creates a balance at year end. Get qualified tax counsel and/or financial planning assistance AND understand your plan's rules and it's administrative environment as any misstep could prove expensive.

Exactly. Also, a person who works <1000 in first 12 months but >1000 in next computation period (as plan defines) should participate on next entry date, but the language as crafted would exclude that person, impermissibly. Find out exactly what the plan sponsor is looking to accomplish, reconcile that with the law, and then clean up the language for them.

I would recommend this but it is the client's call, and certainly very defensible, especially if the residual and payout happened in Q1.

I would also say to do a little forward looking here as well, or ask your question poser to do so. Is there an owner with substantial income being covered and might such owner be interested in a cash balance plan. Also, is the owner substantially older than the employees? Remember, everyone gets same percentage in SEP. A cross-tested safe harbor 401(k) profit sharing plan could provide an owner with the same or more contributions at a lower employee cost, more than offsetting the added admin cost. And if a CB is in the future, such does not pair with a SEP.

Agreed, just make sure the plan provisions clearly define the excluded class, say employees on a work visa. That keeps them out regardless of hours and LTPT rules. Coverage and NDT will not be an issue provided no HCE is ever covered.

Similarly, if remaining account balance investments incurred a 20% loss, you wouldn't be forced to call the loan because it then exceeded 50%. As Bri said, it's an origination snapshot.

Remember that MPPPs are subject to minimum funding due 8 1/2 months after PYE (9/15 for calendar year plans) similar to DBPs. In that manner, I believe you may have a funding deficiency. However, if checks were cut/mailed by the due date but not received/deposited until a couple of days later you may have wiggle room - but if a late electronic transfer then truly late.

Statutorily, yes, but make sure the plan's provisions allow.

Accrual rules get applied to an amendment as if it had always been in effect, is my understanding. That is, an amendment would not create an accrual rules violation unless on its own it was not compliant with the rules. If the plan has been in existence less than 5 years, I'd get all documents and subsequent amendments from the start to see the historical formula changes (if any) before consulting or opining on whether or not it is advisable to do a 2025 benefit increase.

Exactly. "Sorry, you should not have been allowed to participate and contribute. Here are you deferrals and attributable income back, any employer contributions we've made for you will be forfeited." I'd be shocked if your (pre-approved) plan document did not support that course of action.

As long as the allocation is nondiscriminatory and done in accordance with or not contradictory to any specific plan provisions for such you can do whichever way you want.

My understanding is that at a minimum you must count prior service for eligibility (and vesting) unless it can be ignored under the rule of parity. You can be more liberal but not more restrictive. You can also employ the one-year holdout where such prior service is not recognized until another year of service has been earned but then participation is retroactive to the date of rehire, not a new current entry date. I do not know how you deal with the salary deferral (and match) dilemma in such a situation, which is likely why 401(k) plans don't typically run that way - more prevalent in pensions - and I haven't done 401(k) admin in ages so I'm sure others out there have a better handle on this than me. And remember, if someone does not have at least a one-year break-in-service based on plan's definition, upon rehire they are treated as never having left.

Exactly, what is the historical pattern? If the plan went 5 or 6 years before the last increase in 2023 and now you want one for 2025, probably OK even w/o an underlying business reason other than increased deduction. However, if increases have come through every other year, say 19, 21, 23 and now wants 25 - that is very iffy IMHO. A "fresh start" has statutory and operational relevance beyond just an increase in the benefit formula.

Yes, if total lump sum distribution must split between RMD and non-RMD. I assume owner is at 415 limit, but hiring employee(s) solely for the purpose of earning pension accruals and using up the excess? Unless close friends or family members, why?

If neither plan had a 402(g) violation on its own then neither plan has an obligation to distribute without direction from the participant, who is the party responsible for informing either plan, as desired, to distribute. The excess should trigger 2024 taxation on filing that return and yes, missing the 4/15 deadline subjects the excess to taxation again. I'm not aware of any subsequent distribution timing but delaying serves to increase the attributable earnings and you're always looking over your shoulder for when the IRS catches up with you.

Yes. You need to comply with anti-cutback rules and 204(h). Depending on plan terms, 2025 may not be possible either. And they have 10 days to avoid a funding deficiency if 2024 MRC is not funded.

You don't say if the benefit driving the deduction was based on a percentage of current compensation. Historical earnings could have established a sufficient hi-3 415 FAE to substantiate a large benefit and resulting deduction which is then only limited to net adjusted SE earned income. We have lots of owner-only plans where current deductions based on historical average 415 comp drive net adjusted SE earned income to (near) zero. If the benefit or contribution credit is defined by a percentage of current compensation and $300,000 was used incorrectly for that purpose, that's a different story and benefits, valuation, etc. are not correct. If that is the case, I'd run corrected numbers and see if the $300,000 still works within revised Min/Max and there's no AFTAP issue. Unless other company is party to the plan, that income doesn't count for plan purposes - yes, can count for 415 purposes. However, if ASG or if CG filing separate tax returns, deductions are company-specific.