CuseFan

This sounds like a discussion posted not that long ago - is it the same situation? I have no current year (2022) solution, sorry, but I thought the group came to a consensus that amending the allocation formula to individual allocation groups would enable the employer to accomplish its objective of excluding employees not employed on the contribution determination date (or deposit date or however else they wanted). Assuming the number of exclusions did not create a coverage problem, if the profit sharing was a uniform percentage of pay there would be no testing issues.

From the Coverage and Nondiscrimination Testing Answer Book. You cannot permissively aggregate for just one of coverage or nondiscrimination, so the requirement for coverage noted below applies to nondiscrimination as well. Q 16:5,What conditions apply to the aggregation of plans for purposes of coverage testing? Last Updated: 6/2022 The following conditions apply when plans are aggregated for coverage purposes: 1. The aggregation may not include plans that are required to be disaggregated (see Q 16:29). [ Treas. Reg. §1.410(b)-7(d)(2)] 2. A plan may not be part of more than one aggregation group. [ Treas. Reg. §1.410(b)-7(d)(3)] 3. The plans must have the same plan year. (There is a limited exception to this rule for purposes of the average benefits percentage test, for which all plans of the employer must be aggregated regardless of the plan year.) [ Treas. Reg. §1.410(b)-7(d)(5)] 4. If a group of plans is required to be aggregated for purposes of determining the employee benefits percentage, the testing period is the plan year of each plan that ends within the same calendar year. The plan year is referred to as the relevant plan year or, in the aggregate, as the testing period. [ Treas. Reg. §1.410(b)-5(d)(3)(ii)] 5. Plans with inconsistent actual deferral percentage (ADP) testing methods—an employer may not aggregate a plan using prior year testing with a plan using current year testing, or aggregate a plan using the ADP safe harbor provisions and another plan using the ADP test section. [ Treas. Reg. §1.401(k)-1(b)(4)(iii)(B)] Thus, it is impermissible to aggregate a safe harbor plan with a non-safe harbor plan for coverage and nondiscrimination testing purposes. Treasury Regulations Section 1.401(m)-1(b)(4)(iii)(B) contains similar language pertaining to matching contributions.

Yes

I think that is a problem. I think you need same plan year to permissively aggregate for coverage and nondiscrimination testing. The only time you consider plans with different years is when you have to calculate an average benefits percentage.

Agree with CBZ with a caveat for #3 that assumes the categorical exclusion relates to all employer contributions under the plan (i.e., not excluded for SHNE but excluded for PS).

A terminating plan never HAS to restate but it must be compliant with all laws/regulations as of the termination date. You should only need to update for any SECURE 2.0 provisions effective prior to 2023, if any. For DBPs, I don't think there is anything.

The plan document should specify what sources are available for in-service distribution and when - for example rollovers may be withdrawn at any time but 401(k) only after age 59 1/2. So I think the individual source in-service distribution provisions are protected. Contribution sources usually have different distribution restrictions/availabilities as well as tax implications when dealing with pre-tax, after-tax and Roth accounts, so regardless of the protection issue I think it would be inadvisable to enact any such pro-rata procedures. That said, for sources with the same availability AND taxability, I think you can take in-service distributions pro-rata provided the document doesn't say otherwise.

Thrift has also been used by many a governmental plan. Your filing requirements will depend on whether the employer is considered a governmental entity (none) or simply a tax-exempt company (5500 with plan audit).

Lou is spot on, must amend to change to a short plan year before the end of such short plan year.

Paul, I think your scenario creates different plan years for DC and CB which prevents them from being aggregated to satisfy nondiscrimination. David brings up an excellent point - if the current actives are no longer employees after the termination can they be considered active in replacement plan? If they get 2023 allocation, and all the excess is used, I think that can be argued. I know complying with the spirit of the rule is not the same as the "letter of the law" but the result of allocating the excess pension assets to current pension participants in the (intended) QRP for the year of plan termination seems to be exactly the desired legislative/regulatory result - subject to all the other issues noted (same PY, 415 limits, etc.).

What will be the plan(s) termination date and when will employees terminate? If you transfer and use for PS that ultimately benefits 95% of those 35-40 (or however many were employed in 2023) then I think you should be fine. If the thought is to benefit three remaining partners, even if they were only actives left, that seems problematic to me and doesn't pass the smell test - doing what the rules are guarding against. Remember to coordinate your CB and DC plan terminations/PYEs if you're aggregating for testing. This also brings up the question - can a terminating plan be used as a QRP? I do not recall reading any prohibition against this, just that there are requirements when the QRP is terminated, so you should be OK as it sounds like you'd easily be compliant. Of course, this is just my non legal opinion. It doesn't hurt to get a legal opinion from qualified ERISA counsel.

Lou, thanks for restating the mantra of this forum. RTFD should ALWAYS be the first course of action.

David, that is an awesome statement and so true!

I wouldn't think so, provided it is reported as taxable compensation to the employee.

We can ponder what goes on inside the heads of politicians but those discussions are best had well into Friday happy hour!

Sometimes you just need to get creative with your words!

This was the first clue that something crazy was happening, as they do what's easiest for them. I'll repeat this forum's mantra - read the plan document and the loan program and related forms to see if they say anything applicable, they may or may not, but should be consulted first. Next question would be how are the interest payments being applied, is it in such a manner that each "source loan" is essentially being amortized separately (less interest into PS as that principal is paid down and more to the sources yet to see principal payments)? If so, and if the plan documentation supports (or does not prohibit) this then it's probably OK. Also need to make sure provisions concerning loan as directed investment (I assume) and general plan investment election provisions are not being violated by this in some fashion.

Peter, I don't think providing/not providing a death benefit above and beyond the required QPSA would have a material impact on the plan's minimum funding requirements. I do not recall seeing a small cash balance plan limit death benefits to the statutory minimum. I have seen one or two larger plans that provided the minimum QPSA only, mainly due to being a holdover provision from the converted traditional plan. That said, we have consulted on and performed many large plan cash balance conversions over the years and the enhanced 100% death benefit for all was a "selling point" that helped cushion what was future pension accrual slow down for older mid-career participants compared to the traditional plan formula. Also, many of our early conversions gave participants the choice of staying under the traditional formula or converting to cash balance (fully, with a converted opening account balance). In addition to the lump sum option, providing the 100% death benefit regardless of marital status was again an important selling point. Finally, in the small plan arena, where many a cash balance plan is designed to benefit one or more owners, I do not think single or divorced owners would view a partial or no death benefit in a favorable manner.

Does there not need to be a failure of some sort that the 11g is correcting? I agree that HCEs can get increases via 11g assuming nondiscriminatory, but what is the basis for the amendment in the first place?

How, when and why $0.02? Personally, if it's been $0.02 since 6/30/2022, I would treat as zero and file final return for 2022 by 4/17/2023. Otherwise you have a 2022 full year filing due 7/31/2023 and a 2023 final year filing due 7 months after closeout. And what would you show for 12/31/2022 and 1/1/2023 assets? $1? $0.02 rounds to zero. I think practicality and reason should prevail here. I would not like to have the discussion where the client is told they're getting charged for another 5500 filing because $0.02 was left in the account.

Right you are Peter, the very first thing everyone should do in every circumstance is RTFD as that's what it is there for and likely contains the answers to most questions.

Yes, there is no limit on the number of employees of an employer to be eligible to sponsor a SEP, so a larger employer MAY provide a SEP. However, examining the pros and cons of a SEP versus a qualified plan (i.e., PS 401(k)), it very questionable if a larger employer SHOULD provide a SEP. There might be some special circumstances where a SEP works better, but I would imagine those are few and far between.

Agree with all prior comments. Big picture: the successor plan rules are in place so a plan sponsor could not circumvent the in-service withdrawal rules by terminating its 401(k) plan, distributing assets and then starting another 401(k) plan in the near term. If none of the events resulted in an in-service pre-59.5 distribution of assets then I don't think you have any successor plan issues but it certainly doesn't hurt to get legal opinion.

I would consider it a mistake (which violates exclusive benefit rule) and have the plan return the rollover to it's source. It shouldn't count for any purposes under the plan and should be corrected as soon as possible, in my opinion.

Plans still define, or need to define, IRS required beginning date per statute (in my opinion) regardless of whether the plan by its provisions (and administration) maintains an earlier required commencement date. For example, there are defined benefit plans that require commencement at normal retirement age (65) regardless of employment status but those documents are still required to have RMD provisions. And we had clients that desired to maintain 70 1/2 after SECURE, so we amended the statutory RMD requirements but maintained the earlier required commencement. The practical difference being if someone has available and elects a lump sum at a required commencement date before their statutory RBD age they can roll it all over rather than splitting into RMD and non-RMD pieces. And a plan sponsor might want to keep 70 1/2 to avoid actuarial increases between 70 1/2 and later commencement. For purposes of simplifying this discussion I left out the later retirement consideration. I also think the option available to the plan sponsor is retaining the prior commencement structure and foregoing the updated statutory structure (1.0 or 2.0), and an amendment would be required in either instance.