Larry Starr

Maybe and maybe not. This is where you ask the doc for a copy of the documents that show him as an owner. Also, a copy of the tax return for the entity. Once I have those, I can figure out exactly what is going on. Alternatively, a conversation with counsel for the hospital would probably also shed light.

I think it fair to say that the IRS folk back then never considered this an issue at all, either as a BRF or otherwise. They of course backed that with their standard comment that an egregious situation could always be found to be problematic but they did not expect that in the ordinary course of operation the timing of the match payments would be a problem. FWIW.

Some info: Q 17:8 Are the attribution rules of Code §267(c) used elsewhere in pension law? Yes. The prohibited transaction rules of Code §4975 use the §267(c) attribution rules as their own, although §4975 substitutes its own definition of family. [Code §4975(e)(4); Q 17:4] Even though §267(c) is limited to attribution of corporate stock, §4975 uses its principles for attribution of ownership of partnership interests and beneficial interests in trusts as well. [Code §4975(e)(5)] And this: Q 9:13 How is stock treated which is held by a qualified trust? Retirement trusts frequently hold stock in corporations as an investment vehicle. For ordinary income tax purposes, such as determining corporate tax rates, stock held by a trust exempt under Code §§401 and 501 is not attributed to the beneficiaries. [Code §1563(e)(3)(C)] However, this rule does not apply for qualified plan purposes. [Code §414(b)] Stock held by a retirement trust is attributed to the participants and other beneficiaries of that trust to determine if two corporations are a controlled group under Code §414(b). [BL 22; BL 53; BL 159] Example 9.13.1 Jill owns 100% of the stock of J, Inc. J sponsors a profit-sharing plan, and Jill is the only participant in the plan. The plan owns all of the shares of Corporations A and B. A and B are in a brother-sister controlled group because the trust owns 100% of each of them. For ordinary income tax purposes, that is the end of the matter. However, for qualified plan purposes, Jill is deemed to own all of the stock held by the trust. Therefore, A and B are in a brother-sister controlled group with J, she being the owner or deemed owner of all three. As stock held by a qualified trust is attributed to the beneficiaries of the trust, the normal trust attribution rules apply. [Q 9:12] The following examples illustrate these rules: Example 9.13.2 John and Mary are the only two participants in the ABC Retirement Trust. John’s beneficial interest is 60% of the trust and Mary’s is 40%. Absent specific allocations, John is deemed to own 60% of any stock held in the trust. Example 9.13.3 Continuing Example 9.13.2, Mary has 100 shares of XYZ company stock allocated to her account, which can be used only for her. She is deemed to own all 100 shares of that stock and John none. Sometimes, stock held by a retirement trust may be disregarded altogether if doing so would create a controlled group. [Q 8:23 and Q 8:26]

The very first thing you need to do is ask the CLIENT why there is a 1099 and what is it for. Until you know that, all the answers provided here are of no value. Get that info; then come back and explain.

Definitely a service business in my view: Alternatively, a business is a service organization if capital is not a material income-producing factor. [BL 130] Whether or not capital is a material income producing factor is decided on the basis of all facts and circumstances. The regulations give three examples to illustrate this point: Capital is a material income-producing factor for banks and similar institutions. Capital is a material income-producing factor if there is substantial investment in inventories, equipment, plant, and machinery. Capital is not a material income-producing factor if the income of the business comes primarily from fees or commissions for personal services performed by one or more individuals. [Prop. Treas. Reg. §1.414(m)-2(f)(1)] Given this definition, most all manufacturers, retailers, and wholesalers will not be service organizations, because capital is a material income-producing factor in their business. [BL 76; BL 77] Seems to me they clearly do not have capital as a material income producing factor; income come primarily from fees for the videos (personal services of teaching). FWIW.

Has been discussed with IRS honchos over the years; they never saw it as an issue. FWIW.

Yes, in community property states, you have to be careful to make sure you understand how the ownership is considered in a community property situation. Look at this case: Q 8:15 How is stock ownership determined for the controlled group rules? Ownership of stock is determined under relevant state law. Even though ERISA and the Internal Revenue Code are federal statutes, there are several instances in which they interact with state law. For example, state law determines when a husband and wife are married or divorced; the state may or may not recognize common law marriage. [Q 9:21] Similarly, state law determines the actual ownership of stock. Code §1563 adds to that actual ownership a set of deemed ownership rules [Chapter 9], but it is up to state law to determine what is owned in the first place. The following example is from a case that demonstrates this point: Example 8.15.1 The Aero Industrial case involved a mother who owned ⅔ of one business and 100% of another. The remaining ⅓ was owned by her son-in-law. There is no attribution between the son-in-law and the mother. Since the son-in-law owned no stock of one corporation, Vogel Fertilizer excludes him from consideration. The mother owned less than 80% of one of the corporations and so, at first glance, it appeared there was not a controlled group. However, the son-in-law received his stock as compensation for services rendered to the company. Under state law, his stock was community property, even though it was in his name alone. Hence, under state law, the mother owned 67%, her daughter owned 16%, and the son-in-law owned 16%. The daughter’s shares were attributed to her mother. [Q 9:17] The mother was deemed to own 83% of the company, thus creating a controlled group. [Aero Industrial Co., Inc. v Commissioner T.C. Memo. 1980-116 (1980)]

Sorry, didn't follow that you were dealing with passing non-discrim with the initial allocation schedule and if you do so, you do not need an -11g amendment and vesting is not an issue at that point. So, the answer is still the same: cherry pick as much as you wish in this situation; I would not worry about picking the next participant who is vested already. Larry.

Definitely overthinking it; not an issue at all.

For our plans, it is ZERO for both!

When someone "tells you" something that is questionable, you should be asking that person for the proof that it is true. This is certainly NOT true, since assets of a plan are required to be held in trust or by an insurance company on behalf of the plan. Let's also note that a DB plan IS a 401(a) plan! Here is 401(a). Note the word "pension" in the first sentence. (a)Requirements for qualification. A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section— And, how about this section 401(a)(5)(d): (D)Integrated defined benefit plan.— So, whoever made that statement is blowing smoke out of their rear!

As Cuse Fan notes, there is absolutely no problem "cherry picking" for the best result. However, I think it important to note that the person who is getting the allocation must be vested at some level for the -11g allocation to meet the regs. If you have a 2/20 vesting and this guy only has one year and is 0% vested, you can't use him UNLESS (and this is what we do), in addition to the allocation in the -11g, we also through in a 10% vesting on the guy who is otherwise 0% vested.

Peter: None! I can't imagine a reason why an employer would want to be connected to an employee's ex spouse for umpteen years. All our QDROs (and I write most of them) provide for immediate distribution if the plan allows, and my plans allow. I would never council a plan sponsor to do otherwise.

I vote for 001 and original 1986 effective date since it is a spinoff of the same plan. I also don't think it will matter if you start using 002 and still keep 1986 as the effective date, but I would use 001. Also, there doesn't seem to be a predecessor service issue (there is no EMPLOYER predecessor; ADP was never the employer - it looks like the same employer since 1986). Likewise, I don't think there is any question that you are including all service (at least since 1986).

Peter, EVERY ONE of our plans allows for annuity distributions as the normal form because of the alternative which mandates that children of a prior marriage be disinherited. That is a big problem that most don't address. We avoid that with a J&S requirement in all DC plans, but that also allows fixed period payouts. So, how many plans allow periodic payments? ALL OF THEM. But, how many periodic payments have we had over 35 plus years, exactly TWO and both of them were actual annuity purchases. Two out of (probably) ten thousand by now. Not much extra work. The others finally got to the heart of your 70 year old; that's not an issue of a periodic payment since it's an RMD. And all of our plans also allow in-service distributions POST NRA, but only one a year, so the guy who is working but wants $10k out of his plan this year and is post NRA, no problem. I myself am using this provision now (post NRA but prior to RMD).

Raises interesting questions in my mind. First, since there are no HCEs, the employer can give each employee whatever they want as an allocation and never have a problem, so the correct question to ask the client is "what do you want to allocate to each nurse and on what basis". Once you know that, you should be able to put it into language that works. Now, more specifically, the client shouldn't care about eligibility with regard to whether the on-call hours apply or not, because (again) the end result is always "what is your desired result for allocations" since you can clearly make that happen. The interesting question I have is the allowance for payment for on-call at a rate of $2-$4. That clearly will violate every minimum wage law in the country for paying people for work. So, this is paying people NOT for work but to be available to come in when called. Would those "hours" count in the 1000 requirement? Would they count as hours NOT worked so only count to the extent of avoiding a break in service? Not sure. If they do "count", how is the violation of minimum wage reconciled? Just an interesting issue; I can't research it now but would love to hear what others would think.

I wish we could waive a magic wand and make you see the mathematical error you are making. I wish you could just trust us that you ARE making an error. But that probably won't happen. This reminds me of the Monty Hall problem; there are still people who argue that you are NOT better off by switching doors (that it is just a 50/50 chance when really your odds are increasing to a 67% chance of winning). https://en.wikipedia.org/wiki/Monty_Hall_problem So, maybe (just maybe) this will work. Let's have a loan with a 0% interest (if that was legal). Now, borrow $10,000. Now, pay it back at the rate of $100/week. When you took out the $10k, you didn't pay tax on it (because it isn't a distribution, it's a loan just like you would get from the bank: the plan IS the bank!). Now, when you pay it back, you are just giving the plan back the $10k you borrowed. Assume you stuck it in your mattress because you ended up not needing it (the $10k "need" feel through). After you have paid back the loan with the money you took out as a loan, how are you in any different tax situation than if you hadn't borrowed anything? Is that any help? Probably not I guess. Monty Hall! :-)

Thank you David; much appreciated right now. Interestingly, I went back and found the offending comment; here it is: "Sorry, but that's just not true. You can't have the participant elect, but you can have the employer "elect" by a proper plan amendment." I think that is a pretty tame comment, but each reads things in their own way. Peace to all; especially today.

Thanks for clarifying; that was the way I read the original posting. Now, I suggest you go back and re-read my posts (and please ignore someone who hides behind the alias ETA Consulting who can't keep a civil tongue in his head and clearly can't help you get the right answer; I refuse to engage in a battle of wits with an unarmed opponent). I'm going to recap for you. You note you are dealing with a 401(k) plan that does not provide for the SH minimum for HCEs. Good design. I'm going to assume that it also has a last day employment provision. Therefore, you can amend it currently (during the 2019) year to limit any one of your HCE allocations to a dollar amount that includes zero from the employer. You can do that amendment right up until the last day of the year because no benefit is ACCRUED until that last day. That sounds like exactly what you want to do, no? As I previously noted, the amendment to limit the allocation for a particular individual is done at the plan level; it is NOT an election by the participant. It is an amendment by the plan sponsor to the plan. I know you said you don't do many of these plans; I do hundreds. Feel free to give me a call at 413-736-2066 or email me directly at larrystarr@qpc-inc.com and I can even give you a sample amendment that will accomplish what you are looking for. Hope this helps. That is the whole idea of these boards. Take care.

And wrong.

Hmmm.... it would have been nice if he had mentioned that if that were the case. Meanwhile, he still has not contradicted the answers and it's now going on 3 days. Of course, if true, that does have a small impact on the answers! :-)

Sorry if you were offended; not intended. But your first statement was it was all or none, and that was what my drew my response. And such a response was not helpful to the questioner, because it's NOT all or nothing, as I clearly explained. I wasn't discussing semantics in any way. Also sorry that I did not read the hidden message in your quotes; if you are going to "take the time" to put it in quotes, take a little extra time so that everyone will clearly understand what you are trying to get across. Sheesh!

Of course not.

Sorry, but that's just not true. You can't have the participant elect, but you can have the employer "elect" by a proper plan amendment. Say you have a plain vanilla integrated formula for this plan. There is nothing stopping the plan form adopting an amendment which says HCE Employee A will be limited to a maximum of $X allocated to his account, and $X can be zero. The rest of plan is still the basic SS integrated formula (again, as noted, a possible dinosaur) and passes non-discrimination handily.

If he's a passive investor/partner, then he is not eligible and won't have Self-Employment Income, so you can't include him. This from the IRS (particularly see the second bulleted paragraph): Question Are partners considered employees of a partnership or are they considered self-employed? Answer Partners in a partnership (including certain members of a limited liability company (LLC)) are considered to be self-employed, not employees, when performing services for the partnership. If you're a general partner of a partnership (or treated as a general partner in an LLC) that carries on a trade or business, your net earnings from self-employment include your distributive share of the income or loss from that trade or business. General partners must also include guaranteed payments as net earnings from self-employment. If you're a limited partner of a partnership (or treated as a limited partner in an LLC) that carries on a trade or business, only guaranteed payments for services you rendered to, or on behalf of, the partnership are net earnings from self-employment. Limited partners don't pay self-employment tax on their distributive share of partnership income, but do pay self-employment tax on guaranteed payments. Additional Information Instructions for Form 1065, U.S. Return of Partnership Income Publication 541, Partnerships Publication 3402, Taxation of Limited Liability Companies Publication 334, Tax Guide for Small Business