CuseFan

Agreed, the amount subject to FICA is the benefit accrued (balance) up to the point FICA is applied, but then any incremental interest thereafter is not subject to FICA.

I searched archives and couldn't find an answer, would have thought this group would have discussed at some point - maybe I didn't look long enough. Combination CBP (1,000 hours for allocation) and PS 401k with SH match and individual groups with no allocation conditions for PS. Two NHCEs terminated with less than 1,000 hours, so no CB allocation and no top-heavy (if applicable, but not TH yet anyway). The CB providers doing the testing think that the employer can declare zero PS for these two NHCEs and therefore, they are not benefiting under the (combined) plan with respect to 401(a) source and need not be provided the gateway allocation of 5%. Employer was given option to give these two 0% or 5%. The DC providers think that these two NHCEs are required to get the gateway because there are no allocation conditions. I am in the CB camp (no gateway). Regulations say gateway is required for employees benefiting under the "plan" and refers to 1.410(b)-3 for "benefiting" which says: § 1.410(b)-3 Employees and former employees who benefit under a plan. (a) Employees benefiting under a plan - (1) In general. Except as provided in paragraph (a)(2) of this section, an employee is treated as benefiting under a plan for a plan year if and only if for that plan year, in the case of a defined contribution plan, the employee receives an allocation taken into account under § 1.401(a)(4)-2(c)(2)(ii), or in the case of a defined benefit plan, the employee has an increase in a benefit accrued or treated as an accrued benefit under section 411(d)(6). These two terminated NHCEs are not receiving an allocation. It is clear we cannot exclude them from coverage and nondiscrimination testing, even if hours are less than 500, because that is not the reason they do not benefit, the reason is that the employer (under the terms of the plan) decided that these individual allocation groups will not be given a profit sharing contribution. As long as coverage and nondiscrimination pass with these people included as zeroes (in the denominators only) I think we're good - and it isn't an issue as this is a fairly large plan. Who is correct CB or DC providers and why, if anything different or additional from above regulation? Thanks

The back-door Roth would be done through in plan conversion, I'm sure.

If they want to include the effect of the amendment in their valuation, which would increase the minimum required and maximum deductible amounts, but it's not required.

Rest assured, she is in the plan. Whether she is entitled to an allocation depends on those respective provisions.

That would make for a great presentation or panel discussion at a conference! Personal opinion is that cybersecurity is a shared responsibility of all related parties, including the participant. But, like 404(c) where you must educate the participant to off-load fiduciary responsibility for investment selection, I think plan sponsors also bear the onus of keeping their participants informed regarding the security of their retirement accounts. Assuming buy-in on the initial premise, the next discussion is how plan sponsors do this and whose help do they enlist? RKs are probably best positioned to help as could legal counsel with subject matter expertise. And this is not a one and done affair, the more the issue is put in front of people the more they'll be aware - and if it is stressed that they share responsibility, including the risk of loss (i.e., not an automatic that others will reimburse them for their own security lapses) then hopefully they will pay attention. My humble thoughts.

Yes. People often think of transition rules only for mergers but they work the other way as well. You do not get a free pass on testing, unless no one (or no HCE) is benefiting. I would not terminate until 12/31/2021 and use permissive aggregation (and transition rule, as no longer part of CG at year-end). Terminated employees can get distributions, although I don't know if you need to leave a person (owner/seller?) to keep the plan open - I don't think so, because the plan doesn't need to have assets all the time.

Agree on both counts - doesn't look kosher but seems to follow letter of the law. I don't know, just posing the question, if you count this doctor's past service with unrelated employer for eligibility, would you have to use that for lookback year compensation which could then make him/her an HCE and thereby create a discrimination issue? I don't think so, but looking under all the stones for gotchas.

Since plan for 2020 can be adopted by tax return due date per SECURE Act, I think that is possible.

Good questions. I think you look at the merged plan for 2022. Bigger picture - consult with buyer to do the right thing and fully vest people losing their job as result of the transaction regardless.

Not too clear on the situation from your description, but it sounds like she should have commenced in 2004 because actuarial increases to her benefit would cause such benefit to exceed the 415 limit of 100% of her high three-year average compensation (actuarial increases are often required after normal retirement age). Plans are required to commence benefits in such instance to avoid an impermissible forfeiture. The annuity option includes makeup of past annuity payments with interest, a correction the plan is required to make. I do not believe the makeup payments are eligible for rollover as they would be considered part of the annuity, but I would consider enlisting a qualified tax advisor for a definitive answer as the amount is likely substantial. I'm not sure a normal lump sum payment option would/should be possible as a correction, but this is an unusual situation. If the employee is retiring or is somehow allowed a new current "annuity starting date" (benefit commencement date, then maybe it's possible to get 17 years of annuity makeup and then a current lump sum of the present value of remaining annuity. Or is the lump sum being offered also retroactive to 2004? If so, that should be brought forward with interest. If a true lump sum in this fashion and no required minimum distributions (you say she is active) then that could be rolled over. Do not understand connection between workers comp rules from the 1980's and her retirement age.

Also, depending on the state, bankruptcy protection of IRA may not be as strong as qualified plan, so moving assets into plan could strengthen that protection.

Yes, you need to follow terms of the plan. If they require the match then you should allocate and then address 415 correction according to the terms of the plan.

Check plan language, my recollection was that an irrevocable waiver could be rescinded by the employer if necessary to satisfy coverage. Of course for 401(k) coverage, this was evident from the start and you're likely looking at QNECS for these people whether they want them or not.

Need to keep eye on this because if 25% ownership goes to 51% then the 415 limit is also combined - you have a CG for that person's 415 limit even though not a CG in general.

Exactly - it's not an automatic. Most pre-approved plans now have that as either automatic or as an option that can be checked, but as always, you have to see what the plan document says. If the beneficiary form has related language, the document should support because it is the document that provides ultimate determination.

Agreed - plan is bound to follow the law and the terms of document. This was not, based on what has been received, a valid waiver. I don't think sponsor "accepting" the form means anything, as it was likely a "thanks, we'll put it in your file" w/o any further scrutiny. Is it the PA's responsibility to ensure participant beneficiary elections are complete, accurate and valid? I don't know, maybe they should ask their attorney. But I would pay the spouse and risk 25% liability from child than pay four ways and be on the hook for the 75% not paid to the spouse.

Agree with the above, but the tax withholding would be my big concern as I don't recall brokerages doing that either. Their position is all of that is a function of the Plan Administrator and/or Trustee of which they are neither. But if they are withholding and remitting taxes to IRS then you need to find out what EIN they using and prepare 1099R's et al using the same otherwise you, the plan sponsor and participant recipients are in for future headaches trying to reconcile this with IRS.

From the Coverage and Nondiscrimination Answer Book, a great resource that I highly recommend. Where we find restructuring most useful is when you cannot pass average benefits because you have a young HCE with significant deferrals, even when limiting their employer contributions, and so we have our restructured plans pass the RPT for coverage. BUT, if you use average benefits you do not need to satisfy nondiscriminatory classification. How is a component plan tested for coverage? Each component plan must pass coverage testing in its own right; that is, component plans may not be aggregated with other plans or component plans in order to pass the coverage tests. Further, if a component plan uses the average benefits test to satisfy the coverage testing requirement, it must be part of a larger plan that passes the average benefits percentage test as a whole. Each component plan need not pass coverage testing using the same coverage test as the plan as a whole. Further, different component plans may pass coverage testing using different coverage tests. It is not necessary for each component plan to satisfy the nondiscriminatory classification test.

Also beware of options, which can be considered ownership.

That was my thought but was having a "discussion" with actuary who thought otherwise and a colleague also officially broke the tie (in my favor - yay!), otherwise you could circumvent 415, especially for owner-only or owner-centric plans. Thanks

If you play with your deposits and transfer between plans then you are asking for trouble, in my opinion, as that is not a legal transaction. Whoever set up your DB should have asked about your PS and its 2020 funding BEFORE adopting the new plan and informed you of that limitation. If your did not make your DB deposit in 2020, you could deduct for 2020 (deposited in 2021) up to your combined plan limit and then deduct for 2021 the remaining amount of your 2020 minimum required funding deposited in 2021. You'll need to limit all future PS to 6% of eligible pay and best to do this after year-end. The funding rules are such that your maximum DB deduction in year 2 should be significantly higher than your 2021 minimum, so you should be able to deduct some of your 2021 requirement for 2021 as well and so on, catching up eventually. You need an actuary for a DBP, or a TPA who outsources to an actuary for required functions, and the actuary and/or TPA should be able to map this out for you.

DBP participant has an annuity benefit that is less than his/her 415 limit but their lump sum exceeds the maximum allowable. Can the plan pay the maximum lump sum which, for example, converts to 90% of the accrued benefit using statutory assumptions and then pay the remaining 10% of accrued benefit as an annuity (assuming the plan document allows for bifurcated benefit distributions in general)?

seconded

We typically have the sponsor review their formula every three years or so and adjust/amend on that cycle accordingly unless other relevant business (not individual personal owner) conditions or events warrant an earlier change, such as ownership changes, major shifts in business (like pandemic response) or M&A activity. Personally, I think an annual amendment is a blatant pattern of discretion in practice and I don't think it matters whether that discretion is attributed to the individual owners (deemed impermissible CODA) or attributed to the employer (deemed impermissible discretionary profit sharing) and violates the definitely determinable requirement. Maybe if no individual owner was modified more frequently than every third year and/or the frequency of amendments was necessary to add and/or delete individual owners it would be more defensible. Furthermore, we even try to discourage clients from a yo-yo pattern with respect to individual credits even if staggered three years apart. If an owner is allowed to do $50,000 for three years, jump to $150,000 for three and then back down to $75,000 w/o a corresponding business reason for the employer, I think that's a potential issue. Probably less likely to garner attention, especially if among a larger group of owners, but plan sponsors and individual owners still need to be aware of the risk. Without some defensible business reason, I typical recommend an individual's credit amounts be amended on a trend, whether up or down. Note that ANY amendment where it could be argued by IRS that an individual had discretion with respect to their credit amount could be viewed by them as an impermissible CODA. No, it is not your place to allow or not allow amendments, but it is your place to provide prudent advice concerning the risk regardless of past practices.