CuseFan

Draft your own, just need to update the RMD language effective 1/1/2023.

Make sure your document has the override provisions for gateway if you are giving them anything more than the 3% SH on DOP comp, otherwise you're violating last day rule.

I think Lou is correct. The regs define the employer as the sponsor and any other entity required to be aggregated under the CG and ASG rules, so if you are a 5%+ owner of any entity in the group you are a 5% owner and an HCE. Otherwise, you could have 21 equal partners owning less than 5% of the partnership, but 100% of their own participating S-corp PCs, then pay themselves W2 under the HCE comp limit so no one would be an HCE. Then they could adopt a rich plan or plans for themselves and exclude anyone else because there would be no HCEs. But if Lou and I are not correct, I call dibs on the design in my second paragraph!

1. Consultation with accountant and/or lawyer would be advisable before pursuing, do not think this is area for retirement plan practitioners. 2. In-service so they could turn around and lend to the PA to contribute? If that was advisable (very questionable, yes possibly indirect double taxation), how could they comply with the requirement that the plan be 110% funded AFTER the distribution to HCE(s)? This is basically #1 but getting the personal funds via plan distribution. 3. Funding deficiency and excise tax, which if made up before too long may not be a big deal, but can go to 100% if not made up timely and get IRS notice. If they can fund a portion of MRC by 9/15 to minimize the funding deficiency, that would be advisable. If the PA could borrow to fund (may require personal guarantees) that might also be advisable. Terminating now (and taking owner haircuts) does not relieve 2022 minimum funding, unfortunately. Good luck.

I know people like the simplicity of a SEP but in a combo arrangement using a PS 401(k) is a much better option and worth the added cost. Unless the DB is PBGC-covered, DC (SEP or PS) is limited to 6% of eligible payroll as noted above - so $18k-$19k on max pay, but a 401(k) provision adds another $22k-$30k that is not available with a SEP. If the person does 402(g) max elsewhere (other employment) then a SEP makes sense. Looks like Schwab has one. https://www.schwab.com/resource/schwab-sep-ira-basic-plan-document I still don't know the ramifications of impermissibly adopting another plan when maintaining SEP on 5305, not to mention any combined plan deduction issues if they funded 2022 SEP to the max rather than limit to 6%.

Not terminating and unfreezing are two different actions. There should have been a resolution adopted to terminate the plan, so now a resolution to rescind the termination should be adopted. If the intent is to also unfreeze the plan then that should also be stated in the resolution - and if unfreezing applies to participation and benefits or just benefits. As you noted, that will require an amendment. If there was a plan amendment for the termination that made everyone 100% vested then I doubt if you can go back to 40% (unless specifically contingent upon plan termination) - but you can definitely go back to the vesting schedule for future accruals. If everyone was simply made 100% under plan terms pursuant to plan termination and the plan does not terminate, then maybe that is cause to revert to the vesting schedule. Was there an event or expectation thereof that gave rise to terminating the plan after only three years (potential red flag) that either didn't occur or was otherwise accommodated? Doesn't matter at this point but maybe an ongoing situation to monitor?

Also, might this then be a distribution "in kind" which must be allowed by the plan document and an option available on a nondiscriminatory basis.

True - but timing of taxation and distribution do not have to be coordinated. T - you can trigger payout based on defined event(s) which can include vesting. A common design I've seen is a deferred bonus - for example, executive gets a deferred bonus for 2022 that vests 1/1/2026 if the executive is still employed and which is then taxable and paid to the executive in 1Q2026. All of which is defined in the plan.

What is a non-model SEP, a provider's volume submitter/pre-approved document? It is the IRS model Form 5305-SEP that precludes maintaining any other plan. Does your non-model plan also preclude? That would be surprising. I do not know the ramifications if the DBP was impermissibly adopted retro to 2022.

And the audit risk is two-fold: if the plan gets audited OR the individual.

And PS contributions are discretionary, so what you are proposing is also equivalent to being able to avoid actual RMD and just say "I made a contribution for the same amount" and then book corresponding deduction and 1099R. These are separate and distinct transactions, not interrelated recordkeeping actions like Roth conversions. Would you directly deposit $30,000 into a Roth IRA and call it a rollover of voluntary after tax and generate a 1099 to substantiate without actually contributing to the plan, then withdrawing/rolling? I wouldn't.

The math works out but you can't simply net implied transactions - you don't have deposit to match contribution deduction and don't have a distribution to demonstrate RMD and justify a 1099R. I would not want to try to convince an IRS auditor that this is all OK because we get to the same place despite skipping the intermediate steps.

I thought that 2.0 enhanced what was provided by 1.0, and 1.0 allowed credit only if the newly established plan did not cover substantially the same employees who were covered by and benefited in a plan of the same employer within the last three years, and it was clarified in 2.0 that commencing participation in a PEP was treated the same as a single employer establishing a plan. However, if you're asking if the spin out of the PEP to single employer plan essentially constitutes a continuation of the same plan for which second year (and subsequent) tax credits should be allowed - I don't know the answer to that very good question. Was the employer's participation in the PEP identified by it's own name, EIN, plan number, and optional provisions (AA)? If so, and its PEP assets were spun out to establish a separate plan, is the identifying information the same? I think that would make the case it's the same plan. That is, you take the letter B out of the alphabet, it is still the letter B. BUT - since this is a tax question, I think it may be best to defer to a tax professional for interpretation.

I think you have an aggregated DB/DC "plan" and the people in that "plan" must get 7.5% gateway if they are benefiting in that "plan". If someone gets no CB because you exclude and no PS because they terminated, then no gateway because they do not benefit. Yes, your 6% DC max is based on compensation of those in the DCP.

The key is the separate recordkeeping/tracking. If staying under EZ filing threshold as long as possible is important then rolling out the VAT to Roth IRA makes sense. Keeping VAT in cash and rolling shortly after contributing will eliminate or minimize earnings, although those otherwise taxable earnings could be rolled to a traditional IRA if material and you want to avoid current taxation.

Such a modification likely does not make it an individually designed plan but is very likely the kind of modification that would require submission to IRS for an individual determination letter and which could not rely on the IRS pre-approved opinion letter for its determination letter. I agree with Lou that using the individual allocation groups is the best way to accomplish this, subject to satisfying coverage, nondiscrimination, et al, without annual additions year disconnect issue to monitor. That could be an issue if someone terminated early in the year immediately after declaration/entitlement with little current compensation - and people do stick around until they get their bonus (or profit sharing in this case) and then bolt, happens all the time.

Agreed, no amendment but excess (or desired portion thereof) needs to be transferred directly to the QRP. Jakyasar, you can amend to allocate all or a portion of excess to participants as you noted. Allocating on PVABs is only safe/nondiscriminatory if underlying PVABs were based on a uniform formula. I didn't think you could amend for those other discretionary options after your PPTD, you may have to push that back. You have a number of viable options, assuming you don't have an owner 415 issue to deal with.

Self-employed person/1099 contractor has a DB plan. The person contracted with one employer which no longer needed the services. The person provided no services and received no income for the year. The plan document defines credited service as elapsed time. Does this person get credited service or not? Compensation was zero so we aren't concerned for benefit accruals but need to know if service can be credited for 415 service and participation. My thought is that because the person did not provide any services that no service should be credited. I think this is different than if services were performed but expenses exceeded revenue resulted in zero net income/compensation, in which case I think you could/should credit service. I looked in the regulations but could not discern an answer, nor could I locate guidance elsewhere. Is my thinking correct/reasonable or flawed. Also, this is more than a one-year situation. Thanks

Was that paycheck included on employees' 2022 W2s? If not, which I don't think it would or should be since it was paid in 2023, then I don't see how they could withhold a 2022 HSA on 2023 compensation. I don't think it matters when the compensation was earned, it matters when it is otherwise available to the employee (absent any deferral election) and when it is paid. What if the pay period covered a week in 2022 and a week in 2023 - would you expect a split election between the two years to be executed? What about 401(k) withholdings? Did you have anyone hit the maximum earlier in the year? Then did they have deferrals withheld from this paycheck? With some pre-planning and consultation with your payroll provider, checks might possibly have been accelerate by a day to 12/31/2022 and then properly be accounted for in 2022 for all purposes. We had this exact situation two years ago, when the powers that be had to decide which year would have 26 bi-weekly payroll periods and which would have 27, and then delay or accelerate that final paycheck accordingly. Also note there is a one-week lag from earnings period to pay date, so even if that last paycheck was pushed into the next calendar/tax year, the compensation was attributable to the prior year. And all that was determined and communicated to employees during the third quarter of the first year in question.

and the loan availability

It has to be elected at the participating employer level and the document with respect to an individual employer's optional elections must allow. And remember, any other plans of the employer must also use the TPG election.

I think you must do the refund with 1099R reporting and the W2 reflecting the total deferrals. The W2 deferral reporting for the buyer's plan reflects what was deferred to that plan and should be totally independent of what went on at the seller level. That is, and others may know better and correct me if I'm wrong, but getting a refund/corrective distribution of salary deferrals from one employer doesn't give me more 402(g) room in another employer's plan. If they maxed out in seller's plan then anything deferred further in the buyer's plan puts them over the limit. BUT, then the individual can designate the plan from which their excess (>402(g)) gets distributed and I believe their ADP failure refund may also be applied toward their 402(g) refund - which indirectly does ultimately get you where you want to be, but with all deferrals hitting W2s and corrective distributions on 1099Rs.

Furthermore, the plan document certainly has provisions that say when an account balance may be distributed, as would the SPD. Point to those and the D-Letter/IRS Opinion Letter that those are IRS approved rules and as Bill said, they aren't tall enough to ride yet.

Yes, Peter, if the person was entitled to the TH allocation but took a distribution before such was deposited, that contribution must still be deposited and, to the extent vested, distributed. Same as any ordinary profit sharing - employer declares PS of X% of pay for all eligible participants employed at year-end, but doesn't deposit until 9/15 extended tax return due date. I terminate that March and take my vested balance (cash basis). Come 9/15 deposit, I need to get my X%. Can the employer make earlier deposits for participants getting distributions? Maybe, and doing so could alleviate tracking and paying these people two distributions, but then that must be tracked. Also, earlier access to that contribution may be a BRF subject to nondiscrimination.

Precisely, just went through all this with a colleague yesterday. Solo or HCE-only plans - no reason not to allow this. But any NHCEs - fugediboutit!