CuseFan

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.

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?