CuseFan

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.

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.