CuseFan

As David linked this had a recent discussion, but basically you need to see what the plan document says. Some have automatic rescinding upon divorce others do not. If the document does not automatically then the participant would need to change his/her beneficiary designation - and should do so ASAP. I would suggest the participant update beneficiaries after divorce in any event, regardless of what the plan says.

Agree with you that EZ instructions do not seem to support prior TPA's position. Being a C-corp with multiple owners seems to kick it out. Instructions say an S-corp 2%+ shareholder is considered a partner in a partnership. If that applied to C-corp as well then the instructions would have stated such.

Which even if 1, 2 and/or 3 apply and it is a CG, I believe pension legislation under consideration could change that in the future (probably only for 2 and 3 is my guess). So this could go from CG to not CG w/o anything (other than law) changing, just be aware. Also, if using a vendor's branded "solo k" product, make sure it allows for other participating employers.

Interesting, I guess it shouldn't be surprising that Internal Revenue Code, website and publication are not consistent among each other - maybe some of those new 87,000 agents can rectify that!

Forgetting about all the reporting concerns, isn't anyone bothered by the "rollover" into the same/source plan? I did not think that was permissible, at least directly. You could go plan to IRA back to plan, but this, into the same plan? I would say no, unless it was a permissible CARES repayment. I googled the question on got this IRS website: https://www.irs.gov/taxtopics/tc413 Applicable excerpts: A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it, within 60 days, to another eligible retirement plan. If a plan pays you an eligible rollover distribution, you have 60 days from the date you receive it to roll it over to another eligible retirement plan. You can choose instead a direct rollover, in which you have the payer transfer a distribution directly to another eligible retirement plan (including an IRA). "Another" eligible plan is NOT the source plan. If this said "an" eligible plan then maybe I would concede, but it does not - and Publication 575 which is referenced on this site (and as more formal guidance maybe carries more weight) has similar language.

First, you have a control group, so if the employee of company 2 is non-excludable then you have a coverage (and nondiscrimination) failure in company 1 plan. 1099 person is a contractor, not an employee, and cannot participate unless (s)he adopts the plan as a participating employer - which creates a multiple employer plan. I do not think a SIMPLE works, I'm not entirely sure because I do not work with them but would be surprised if the rule prohibiting any other plans did not apply to the control group. If they want dirt cheap admin for employee then maybe a SEP, but that would also be a control group plan that applied to owners and keeping 401k just for them does not work. They can't give the owners a Cadillac and provide a Yugo to their employee. They can skimp on admin cost across the board and get simplistic same level benefits across the board, or they can adopt a program that skews as much to the owners as legally possible for a reasonable employee and administrative cost.

https://www.aon.com/getmedia/f57621bb-9f2c-44f9-a088-7bb29a38da20/Schwallie-Defined-Benefit-Plan-Termination-Exorcising-the-Excise-Tax-on-Reversion-JPPC-Summer-2020.aspx Here is a detailed article. It looks like the excise tax is 20%.

Does the plan define "active participant?" If not, and depending on usage elsewhere in the document, I think the PA could interpret as strictly or liberally as desired provided such interpretation is reasonable. For example, "active participant" could be deemed to mean any participant currently employed by the plan sponsor. Just a thought, if allowing the RO is desired.

Thanks Luke, good to know. Yes, those are some weird rules. It's not like participants only earned vesting service for years in which profit sharing contributions were made.

Agree with Bird - what you end up having is a "complete discontinuance of contributions" which should be referenced in the plan document and is somewhat like a partial termination but with respect to current active participants who must be made fully vested. It is likely in the plan termination or partial termination area. I'm not sure if any terminated participants without full vesting who have not yet forfeited non-vested balances need to be fully vested, but I expect at least one of our very knowledgeable colleagues on this forum knows that answer.

Yeah, I saw that as well, and chuckled at the Section 89 reference, that's how old this was.

I would be shocked if they didn't.

I'm not a lawyer nor an accountant, but here is my layman's take. Paraphrasing the facts as I understand them: an IRA purchased a home/real estate as an investment, the IRA owner did not use such property (either rented or maybe planned to flip), but the now engaged IRA owner plans to live in the property at some future point (after marriage) and so the IRA needs to divest/sell this property. The contemplated buyer is not currently related to the IRA owner, so I see no issue with the transaction provided any other rules for such are satisfied. If this was a friend, a cousin, a stranger, would there be any issue? I don't think so. An engagement for marriage is not a legal status as far as I know - it does not guarantee that a marriage actually occurs, and some engagements last years while others dissolve. What if he/she was just a boy/girlfriend, they did the transaction and then decided to live together without getting married. Something of this magnitude should be steered to a qualified tax attorney, but this was my not legal opinion.

agreed

It's kind of a "waterbed" issue - pushing down the interest rate increases the testing leverage of the DCP (where NHCEs get majority of their contributions) versus the CBP (where HCEs get majority of their contributions), but makes it more difficult to satisfy 401a26 and may require higher NHCE contribution credits - or the converse, where higher ICR helps 401a26 but makes NDT more challenging. That highlights the case for a knowledgeable actuary and/or consultant developing/analyzing the proper design given all the above mentioned variables in conjunction with the (prospective) client's objectives. (The fun part of the job IMHO.)

Agree as well - for brand new plans I thought the notice could be any time before effective date. Also, remember that the notice for 3% SH design is no longer required, it is optional. But I think the plan needs to be ready to start deferrals effective 10/1 as well. I don't think you could make it effective 10/1 but then not start taking deferrals until November because the admin wasn't set up - at least that's my understanding/opinion.

sorry, "while lower..."

Exactly, we have plans with fixed rates anywhere from 0% (yes 0% and have D-letters on that) to 6%. The best ICR choice depends on a lot of different variables and there are advantages and disadvantages to relatively higher or lower rates. Is it owner(s) only or are there employees covered, age(s) and risk tolerance of the owner(s), will it facilitate passing nondiscrimination testing, will it facilitate meaningful benefits for minimum participation, what are the investment advisor's recommendations? Some of these variables may be of little to no concern while others very important. Depending on the circumstances, we usually recommend 3% to 5%. However, lower while rates can support higher contributions/deductions, be careful of over funding relative to the maximum lump sum.

Interesting, thanks for the correction Doc! I can see the position where an employer says we'll pick up the RK expense for our current employees as an employee benefit that is part of their total rewards/compensation package but not for former employees who no longer get compensation from us, and see that as defensible assuming the required conditions are satisfied.

I agree with your assessment. I think the only way to change the distribution form on 2022 contributions is to delay that distribution timing to 5 years after separation.

My understanding is that you cannot charge fees only to terminated participant accounts as that would be a detriment to a valid voluntary election to take a distribution. That is, you cannot through adverse plan provisions coerce a participant to take a distribution, such as making only those accounts pay fees or (if otherwise participant directed) transferring accounts into a money market fund. Maybe that has changed as I'm long removed from DC administration, but I would tread carefully. Admin fees can be charged against everyone's account on some reasonable and nondiscriminatory basis, but as Bri said, these would have to be actual fees physically paid from plan assets. Big picture - why are they even maintaining such a PSP, average participant balance of $200, and paying admin fees for $17,000 in assets? That's crazy.

Match doesn't get out those small PS balances but does reward the new savers with a targeted allocation to cover RK expenses.

That could get some people out. When was that PS made and are these people vested? If it has been a few years and that has been the only PS contribution, they may HAVE to be made fully vested upon the complete discontinuance of PS contributions. Not knowing how RK expenses are determined, these people would still be participants just without balances, so included in testing, 5500 counts, etc. Assuming there is already a match, maybe an additional year-end discretionary match for these (assume NHCEs) employees equal to the annual RK account charge? Plan document would need to allow - would be easy if RK account fee was fixed dollar per participant.

Agree with Luke, need to review plan document language carefully, especially references to the annuity starting date. However, annuity starting date has a legal definition and it is different for benefits payable as an annuity versus a lump sum. For a lump sum the ASD is the date that all required conditions necessary to pay the lump sum have been satisfied - essentially, the participant is eligible for the distribution and a valid election has been made with the proper forms executed and submitted to the plan administrator, including spousal consent if required. It is not just the check-cutting date. For example, if all forms were submitted on 9/15 and participant was eligible to get paid then, dies on 9/25 before scheduled check date of 10/1, I think you can make argument that 9/15 was the ASD for lump, he was alive on the ASD and therefore pay the lump sum to his surviving spouse. I have seen a few plans that specifically address the issue of election then death before ASD, but they are few and far between (like large, complex, individually designed plans). Whatever the Plan Administrator decides/interprets (with your consultation) should be documented, including specific facts and reasoning, in the event of IRS examination and/or a similar future occurrence.

I don't care about pollution I'm an air-conditioned gypsy, that's my solution, watch the police and the tax man miss me - I'm mobile!