CuseFan

The date to determine here is the annuity starting date, which for a lump sum is the date by which all actions/events necessary to pay the lump sum have been completed, i.e., QJSA notice, valid benefit election and spousal consent (if applicable). This does not have to be the date of cutting the check or transferring funds as you are allowed reasonable administrative delay. Typically, for a 5/1 ASD and lump sum valued as of such date, we'll want everything completed and returned before such date if possible (or completed before such date and returned not long after) such that the lump sum can be physically paid before 6/1. For a plan termination, we would value benefits as a proposed/estimated distribution date of 5/1 and then make sure benefits were all paid in early May, but if it didn't happen until 5/4, not a problem. (14th and 17th in your case) If you have some excess because of market value changes, allocate if required/possible or use for expenses - but assets should have been in cash so a couple of days' interest would be minimal, and if they weren't, that's another discussion.

1. Yes as there is no requirement that the plan year and the fiscal year be the same. This could be continued indefinitely. That said, if you also have a DC plan and need to aggregate the DBP with the DCP to satisfy coverage and nondiscrimination testing, then those plans MUST have the same plan years. 2. If I remember correctly, and someone will correct me if I'm wrong, but I thought you had three options (1) deduct the PY contribution in the tax year in which the PY ends (so $275k for PYE 7/31/2020 would be deducted on 2020 return), (2) deduct the PY contribution in the tax year in which the PY begins (so $275k for PYB 8/1/2019 would be deducted on 2019 return, presumably the short 2019 tax year), or (3) a proration. I also thought that you had to apply whichever methodology consistently from year to year. I don't know how the short fiscal year affects this. Unless you had a aggregated plan testing need, I don't think you can do a DFVCP or EPCRS filing for what amounts to forgetting a discretionary amendment to make administration easier.

If SEP is on IRS model Form 5305-SEP, that document precludes having any other retirement plan, so he might also have the headache of finding and paying for a provider's SEP document in addition to a 401(k) document. Seems like a lot of hassle to avoid a very easy/minimal 5500-EZ (until such time as the final return is needed).

That is correct - every non-key employee who is in the plan for some portion/money-type and is employed at year-end must get at least 3% of annual 2020 compensation from employer contributions to satisfy top-heavy.

Of course that assumes those individuals were truly independent contractors. If nothing in the relationship changed except the employer "flipped a switch" and presto chango now everyone is magically an employee, then there is certainly some risk that IRS could retroactively reclassify them as employees from the start. Absent one or more of these individuals pursuing/inquiring about this directly with IRS or DOL, the chances of such are probably slim but something of which the employer should be aware I would think.

I actually had a client that extended their return, filed shortly after the original due date claiming the sizeable DBP deduction which generated a sizeable tax refund received before the extension expired and which they then used to fund the required DB contribution.

you are correct

The ability to get contributions (individually) under the plans is based on your W-2's as Luke noted. Whether, and how, these are deducted on tax returns and potentially flow through and effect your individual/joint tax return is definitely a question for your accountant.

Related. From the top-heavy regs: T-32 Q. How are rollovers and plan-to-plan transfers treated in testing whether a plan is top-heavy? A. The rules for handling rollovers and transfers depend upon whether they are unrelated (both initiated by the employee and made from a plan maintained by one employer to a plan maintained by another employer) or related (a rollover or transfer either not initiated by the employee or made to a plan maintained by the same employer). Generally, a rollover or transfer made incident to a merger or consolidation of two or more plans or the division of a single plan into two or more plans will not be treated as being initiated by the employee. The fact that the employer initiated the distribution does not mean that the rollover was not initiated by the employee. For purposes of determining whether two employers are to be treated as the same employer, all employers aggregated under section 414(b), (c) or (m) are treated as the same employer. In the case of unrelated rollovers and transfers, (1) the plan making the distribution or transfer is to count the distribution as a distribution under section 416(g)(3), and (2) the plan accepting the rollover or transfer is not to consider the rollover or transfer as part of the accrued benefit if such rollover or transfer was accepted after December 31, 1983, but is to consider it as part of the accrued benefit if such rollover or transfer was accepted prior to January 1, 1984. In the case of related rollovers and transfers, the plan making the distribution or transfer is not to count the distribution or transfer under section 416(g)(3) and the plan accepting the rollover or transfer counts the rollover or transfer in the present value of the accrued benefits. Rules for related rollovers and transfers do not depend on whether the rollover or transfer was accepted prior to January 1, 1984.

Yes

$45,000 all around (aggregate the two apples in one sauce). If the $50,000 was W-2 from S or C-corp, and $5,000 loss from a sole prop, then (although there is no clear guidance) the thought is you don't cross the streams and you're looking at $50k for comp. I garnered this from an excellent ASPPA webcast on earned income given by Darrin Watson.

Yes, VAT for 2020 should have been contributed in 2020. You don't need to immediately convert, but if you don't then you have earnings which are taxable upon conversion. If you go over 415 you refund excess as defined in the plan (likely the VAT/Roth first). You run this risk any/every year you don't know in advance what the component contribution amounts will be. Also, the plan must have a Roth feature, in-plan conversion feature, allow for VAT contributions, and those VAT contributions need to be ACP tested.

Specifically, I think this applies to all that had not entered the plan as of the effective date of the amendment - but in this case they are the same as entry was immediate upon satisfaction of eligibility requirements.

agree, that would be the best way to handle.

No. What happens if the plan terminates? Will they only fully vest actives? The only issue I'm aware of is that an amendment that increases benefits for former employees must be looked at for non-discrimination separately with respect to such former employees. If your group of former employees with balances is predominantly HCEs and many NHCEs have already been cashed out at the lower vested percentage, then you could have an issue.

Bird is spot on. The "employer" PS contributions made on behalf of partners is taken as a personal deduction on the individual's tax return and so necessarily reduces such partner's taxable income directly, dollar for dollar. PS contributions made on behalf of partners will reduce the cash available to distribute, but this in and of itself does not create a CODA. If all the partners got 10% PS or up to the 415 max, would you even be asking the question? Regarding the determination of PS, there should be clear documentation at the partnership level and, as you note, no individual elections.

I agree that it is very questionable that for-cause termination is considered a substantial risk of forfeiture. Such a provision appears to be primarily designed to defer taxation. I also agree with need for qualified professional counsel.

You can do a window - discrimination is looked at separately with respect to current employees and former employees, so no problem offering only to current employees. You can offer lump sum to retirees in pay status provide it is non-discriminatory with respect to that group, and so limiting to (former) NHCEs even if top-25 restrictions are not in play would be OK as well. I would suggest not adding a general lump sum option and, outside of any window, only allow lump sums upon termination. But LSWs in advance of a plan termination is not w/o its drawbacks. The counts you give are small - is that just for example purposes or is this a relatively small plan? Because if you offer a lump sum window, and also offer to retirees, and are left with a small in pay status group for which to purchase annuities, you could have a very difficult task in finding an insurer to underwrite and likely incur a sizeable negative selection premium as well. If you have a reasonable retiree liability, that is what attracts the insurer and helps ensure they'll write the deferreds as well. Insurers love immediate annuities, do not like deferred annuities (from plans), and hate plans with general lump sum options. Anything the sponsor can do to maintain the former while avoiding the latter as much as possible will improve their plan termination annuity purchase experience (willing providers and pricing). A good broker (we use Brentwood) can advise you all on that and (this is the mistake often made by not doing) should be consulted now rather than waiting until the formal termination process begins. If your plan is small, if it looks like you may be able to entice everyone, actives/deferreds/retirees, to take a lump sum, that would be your best outcome but it's a risky proposition if you're left with just a couple of annuities and a killer if any are deferred.

Surprised - at least on class transfers, although I don't think that's the applicable issue because HCEs are not an ineligible class, they merely have a different eligibility requirement. Most plans (although not required because not protected as Lou stated) say that upon amendment of eligibility those already in the plan continue in the plan regardless, but that doesn't really fit here either. Without seeing specific language, I would think or otherwise might interpret that the exclusion/waiting period for an HCE specifically applies to an "eligible employee" and does does not mention someone who is already a participant. Most likely, the language with respect to this precise issue is sufficiently vague enough so that the Employer/Plan Administrator can exercise its right and duty to interpret the plan as it deems reasonable provided this is applied on a uniform and nondiscriminatory basis in the future. That is, figure out what makes the most sense, document the decision and move forward now and forever accordingly.

Yes, this would only apply to 5% owners, and makes sense because (like Lou noted) you don't want an owner's child instantly eligible and potentially blowing up your testing.

That should happen with Roth deferrals, which are after-tax, and in that case I think the employer would deduct as wages rather than contributions - but these are the accountant's problem(s), not yours.

Exactly - that's why it's there.

Sorry, just wanted to emphasize that not reporting taxable income is a serious issue, and the lack of reporting potentially happened in two manners - by the account payer (which appears to be the account owner) and the recipient (same person). And ex-ballplayers have gone to jail for not reporting income from autograph selling shows. The situation above may certainly not rise to the level of tax evasion, but the seriousness of the situation should not be overlooked, that's all - and that comment from an attorney years ago have stuck with me.

I have never seen a brokerage (I expect the institution was not a bank) on a retirement custodial account do any sort of tax w/h and reporting, they'll cut checks to the account holder but that's usually it - don't know what anyone else's experience is, but that should have been a red flag from the start. Not to further alarm, but failing to report income like that is tax evasion, pure and simple, and is the kind of thing for which people go to prison. A lawyer told me long ago, you can play with deductions and if you get caught you get taxes, interest and penalties, but you hide income and get caught you go to prison. So a tax lawyer should be hired to clean this up ASAP unless it no longer matters based on account holder's incapacity. But if son wants to protect for his future benefit and sleep at night, they will want to address. Good luck.

Does plan say three years, three plan (or limitation) years or 36 months? If three years, then I'd be inclined to say $190k +$275k +$280k divided by 3 for average annual compensation.