CuseFan

You need to comply with anti-cutback rules and 204(h) but otherwise should be OK. I agree you do not want frequent amendments but this seems to be in response to a change in business conditions. However, I would not then jump back up next year - I'd make them ride this reduction for a few years. The last thing you want is a series of amendments bouncing owner benefits up and down.

I agree with your assessment, not leased employees.

Exactly - discretion and flexibility are not always good to have!

I think a document that specifies the order of usage (or a single usage) would/should survive any challenge. The recent Home Depot dismissal basically said following the plan document is required by ERISA (duh). Anyone else remember the simpler "olden days" when forfeitures either reduced employer contributions OR were allocated in addition to employer contributions and the sole method (no discretion/choice) had to be stated in the plan document?

If separation occurred after age 55 then you also have an exception to the 10% pre-mature distribution tax.

Looking at an FTW basic plan document of our own, that first period of service counts unless the AA allows you to disregard (i.e., holdout or parity checked). "All eligibility service with the Employer is taken into account except that if permitted in the Adoption Agreement, the following service shall be disregarded in determining Years of Eligibility Service:" Then subparagraphs (a) and (b) follow with those aforementioned rules.

What if it were two unrelated 50/50 partners? Would it be fair or permissible to allow one owner to cash out 100% and leave the other owner under funded? Why not terminate and have wife establish new DBP if desired? Or, if not too far short of 110%, pre-fund to increase the assets and get there.

That is what they bank on. Meet the new boss, same as the old boss....won't get fooled again - don't count on it. JQ Public duped again.

I think it should definitely be #1 as #2 would over correct and leave the person under the 415 limit. Does not the document spell that out?

Agree with Paul I, only her W2 pay from PC S-corp is compensation. If it's not subject to FICA and Medicare (or self-employment SECA) taxes (unless an exempt deferral such as a 125 plan) then it is not earned income and cannot be compensation for retirement plan purposes.

I agree with your thought process BUT as everyone else has opined, such matters are better left for consultation with qualified legal counsel.

So X will no longer exist as of 10/1 as it gets absorbed into Z, is that correct? Or will X now be a subsidiary of Z? You might be OK, especially in the former situation, but not knowing the language of either plan, I'd say it's safer to amend plan X to freeze and have a resolution for that and the merge into plan Z at year-end. Always better to over document in M&A situations, in my opinion. Being on same or different payroll is administrative and not relevant to plan documentation unless specifically referenced in either plan document.

If it otherwise fits within the definition of compensation, then yes, I can agree with that. You can often structure such payments as retention "stay until" bonuses and count as (post-severance) compensation. If the company has a formal/written severance plan and payments are made pursuant to that I think you have a hard time justifying it as compensation regardless when paid, in my opinion. Certainly, I would defer to qualified legal counsel opinions.

How? Brother-Sister relationship exists when two thresholds are met: Common Ownership: the same 5 or fewer individuals own 80% or more of each business; and Identical Ownership: the common owners have identical ownership of more than 50%.

Agree with everyone - and the ESOP Answer Book to which Peter refers is my go to source.

No, severance pay is not considered by the IRS as plan compensation in any manner. It is not considered payment for services. 415 post severance compensation is for payment of amounts after termination of employment to which the employee would have been entitled had the employee continued in employment, such as accrued vacation time, paid sick leave, delayed bonuses, etc. Severance payments would not be made to an employee absent termination and therefore not post severance compensation. This was always the IRS position on severance pay, even before the 415 post severance compensation regulations (which only confused the matter because of the use of the term "severance"), and employer compliance back in the day was inconsistent to be sure.

This is from pre-approved plan document. 2024 is the first distribution calendar year so I think the vested accrued benefit as of 12/31/2024 needed to commence at 4/1/2025, which as you note creates an issue. Maybe someone else sees it differently. (2) Amount Required to be Distributed by Required Beginning Date and Later Payment Intervals. The amount that must be distributed on or before the Participant's Required Beginning Date (or, if the Participant dies before distributions begin, the date distributions are required to begin under Subsection (b)(2)(i) or (ii)) is the payment that is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year. All of the Participant's benefit accruals as of the last day of the first distribution calendar year will be included in the calculation of the amount of the annuity payments for payment intervals ending on or after the Participant's Required Beginning Date. (3) Additional Accruals After First Distribution Calendar Year. Any additional benefits accruing to the Participant in a calendar year after the first distribution calendar year will be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such benefit accrues.

On a lookback year basis or maybe if scheduled salary or full time hourly rate is less than, but any way this does not pass the smell test. Also, are they looking to have this as a SHM 4%? So only covering NHCEs who are least likely to contribute? How else would they expect to pass ADP and ACP?

Can A & C fully fund B to terminate or is that too much cash? A as the fiduciary may try contacting PBGC for consultation on what may be done.

w/o 80% control I don't see how that is possible. If B has no operations then what is it's purpose, is it solely in existence as sponsor of this underfunded DBP? Assuming B has no assets and only DB liability, A or C taking the other's share of B in exchange for a payment covering their newly assumed liability is what neither is willing to do? Or are there other issues with B such that neither A nor C would want full control and responsibility? Why would A or C even want to merge B w/o proper compensation? Is B's plan being funded now at all and by who? Are A & C pumping cash into B solely for this? Is there a reason not to just let the plan "fail" and go to PBGC?

Look at the 436 provisions in the document/AA. From this it doesn't look like you can go back that far and may need an amendment. From IRS Publication 5139: Line c. The plan may provide that benefit accruals that were not permitted to accrue because of the limitation of section 436(e)(1) (described in line IV.d. of the worksheet) shall be automatically restored when that limitation ceases to apply if the continuous period of the limitation was 12 months or less and the plan’s enrolled actuary certifies that the AFTAP for the plan year would not be less than 60 percent taking into account any restored benefit accruals for the prior plan year. 436(i) 1.436-1(a)(4), 1.436 1(c)(3) https://www.irs.gov/pub/irs-pdf/p5139.pdf

Peter, are you asking when the determination of 5% ownership gets made? I don't know for certain, but drawing a parallel to the HCE rules I would say if they are a 5% owner at any time during the applicable calendar year (2027).

It looks like the goal is to cover "direct" owners while excluding other HCEs including spouses and/or children, and only covering the lowest paid NHCEs while excluding higher-paid NHCEs. I think you would have to satisfy coverage via ratio percentage, that this would not be a reasonable classification for average benefits testing. A bigger hurdle may be the IRS anti-abuse rule on including short service NHCEs while excluding other NHCEs. It's facts and circumstances and does not matter if you satisfy coverage and nondiscrimination, I don't believe. I would not recommend such a design unless the facts and circumstances support all facets (primarily the lower paid NHCEs NOT being short service employees compared to the NHCE population).

Lois, that is my understanding and about to opine such until scrolling down to your post. Once the participant dies, if the primary beneficiary is living, that beneficiary becomes the account owner, so to speak, and any secondary contingencies the participant had are moot.

If the documents were written that way.