CuseFan

Agree w/CBZ 100%

You aren't confused, just sounds like they want to avoid taxes on the gains on the VAT account without rolling out the VAT account and steering to two IRAs - Roth and traditional.

If the plan says 8% annually w/o conditions then everyone gets 8% for 2024 and cannot change that until 2025. However, if the allocation period is not annual and the plan says each payroll period is 8%, then you may have a case for amending future payroll periods. It's the plan language that is important here, not their payroll/deposit/allocation practices. If you are able to amend, I think you need to provide ERISA 204(h) notices to those seeing the future reduction, which must be done 45 days (large plans) or 15 days (small plans) in advance.

Congrats Andy, enjoy for yourself what you've spent a career helping others attain - I'm jealous!

Effen and Peter, as you see, provide excellent input and your subsequent attainment of the facts now give sense to the situation. The plan could certainly have allowed a life annuity with period certain for the AP and allow the AP to name a beneficiary for any remaining guaranteed payments after his death. The plan could not have provided for a survivor life annuity to AP's beneficiary (i.e., APs cannot elect a J&S with a new spouse or other beneficiary).

Your question is not clear, are you asking when does the deferred compensation become taxable and subject to income tax withholding rules or when the actual tax on the income is due? If it's the former, the income is taxable as compensation when it is paid or otherwise made available to the recipient, which is the 6 month delay date, and subject to withholding at that time. If it's the latter, the tax is due on the recipient's tax return due date as the amount is contingent upon the person's total tax situation.

The provider is claiming that the those different lines asking for different numbers are in fact asking for the same numbers, which makes no sense, otherwise there would be one set of beginning/ending counts. And clearly, collecting counts for both eligible participants and participants with balances would be a metric of interest to IRS/DOL.

Agree with Bird, we rarely see small plan clients on pre-approved documents submit for plan termination determination letters. On permanency, I think you can craft an early termination excuse out of just about anything.

I have not seen an IRS challenge to any client's early termination, but that doesn't mean there is little to no risk for an unsubstantiated early termination.

The IRS presumption is that 10 or more years is deemed permanent and won't be questioned. I suggest anything less than that have a reason other than "changed our mind." I use the 3-5 year period for changes, so as not to have a pattern of frequent amendments that create a discretionary arrangement that is not a "defined" benefit. That said, there are a lot of business reasons that could substantiate earlier termination, just be careful you do not have a blatant short-term tax deferral.

Not sure, but when you use prior year testing you assume 3% ADP for NHCEs, right? So wouldn't that be a reasonable level here? For CBP, owner and spouse are 40% (2/5), so you don't HAVE to include those NHCEs unless they should have been included under the terms of the plan. Is this a last year situation or a multiple year situation?

Yes, I remember the discussion. I think there are potential 415 and deduction issues as noted in the prior thread and there is a better way to accomplish (individual allocation groups). Also, if that is language modification to a pre-approved document and has not been submitted, you may not have reliance on opinion letter.

Yup - it was my mother who pushed Latin, saying it was the basis for all the other Romance languages - but after two years of Latin the last thing I wanted was to take another language. Should have taken Spanish or French, but I must admit Latin has helped on the vocabulary side, when I can remember that is! She also suggested I take typing (still called that back then) but I drew the line and refused. If I knew then what I know now I would have taken typing and not taken Latin, and maybe it wouldn't have taken 10 minutes to type this response LOL!

Yeah, I took two years of Latin in high school, and no, just no. Cogito ergo fuggetaboutit.

Certainly an operational defect (OD) and it has been corrected. Not all ODs give rise to a prohibited transaction (PT). To the extent you have deferrals deposited late you have a PT - but your correction was an ER contribution, there were no salary deferrals withheld for which the employer had prohibited use that would create a PT, in my opinion, so I think you are OK on that front.

Thanks Luke, I tend to get short and cryptic when doing seven things at once!

Also, if you allow new benefits to accrue based on COLA limit increases, does that create a 401(a)(26) issue in that you don't truly have a frozen plan?

Spun off as in a new employer with a new EIN and now that new company is responsible for those NQ benefits? I would say yes as it is a new plan established by a new employer.

3-year average compensation may be taken from any consecutive period, pre-plan, post-freeze. Likewise for Years of Service. Participation is credited service for which the person accrues (or would otherwise accrue) a benefit - so no for pre-plan and no for post-freeze. See the regulations.

I believe that as the earnings vest they are subject to FICA but then future earnings on vested amounts are not. So after year 1, 1/3 of $66,500 is subject to FICA. Year 2, $74,500 x 2/3 less the original vested total from year 1 AND the applicable portion of earnings attributable thereto. Similar for year 3 on remaining piece.

I know NYS taxes (or used to) NY-source NQDC if it is paid to a non-resident over a period less than 10 years, the threshold for qualifying as "retirement" income to which Peter alluded. I'm not sure if that is still the case, but knowing NYS would be surprised if it no longer applies. If so, I think the payer has a withholding requirement, which creates the compliance mechanism.

I don't think there has to be a minimum salary to be on the payroll and the one just needs to be an employee of the other, and really, I thought the criteria was either an employee or some involvement running the business - but being an employee and getting a W2 is likely an easier documentation.

Exactly, no reason NOT to do that, especially when you can fully vest on death or disability to protect against those contingencies. And I agree with Lou. They keep pushing out the age so why not just make it age based for everyone with a 12/31 due date, with a one-year delay for new plans like the above situation?

What is definition of plan compensation? I assume some standard definition and bonuses are not excluded, so then you need to look at whether post severance compensation is excluded or not and there's your answer. Or as Bill Engvall would say, "Here's your sign."

I wouldn't worry about a brief non-CG period. Also, Schedule SB is still used for multiple employer plans, you just need to do an SB for each employer. The MB is for multiemployer plans - a different animal. Very easy to force CG, put wife on husband's S-corp payroll, doesn't have to be material, she just needs to be an employee. I'm sure there are other easy ways as well, having husband somehow formally involved in wife's sole proprietorship. BUT - your administrative ease should not be the driving force (sorry) behind "to be (a CG) or not to be" question, it should be all the relevant issues/advantages/disadvantages with respect to their businesses and tax situations as discussed with their accountant (and attorney if necessary).