Larry Starr

I think your statement of what the grace period applies to may not be accurate. I think the rules are basically providing that if you meet the requirements for treating the plans separately during the grace period for coverage, you basically get to treat them as separate plans altogether for other purposes as well. Therefore, until the grace period is over, it doesn't matter that they are utilizing different provisions for determining HCEs. Here's stuff from the EOB that might be helpful. I recognize it is not directly on point, but I think my read of it is most likely. Frankly, any other reading wouldn't make sense. For example, we meet coverage but still have to meet non-discrimination taking into account all the participants? We know that's not true (right?). Part E., Transition period for certain acquisitions or dispositions (IRC §410(b)(6)(C)) As illustrated in Part D of this Section VIII, a controlled group situation can affect coverage testing. If a greater percentage of the NHCs in the example in Part D.3.a. were employees of subsidiary Y, the X plan may have failed coverage. Due to mergers, acquisitions or spin-offs of companies, the make-up of a controlled group or affiliated service group may change. Also, when there is an asset acquisition, employees may experience a change of employer due to the business transaction (e.g., company purchases a division of another company - see 2. below). Under IRC §410(b)(6)(C), if a company (i.e., a corporation, a partnership, an LLC, a sole proprietorship, or a non-profit organization) becomes, or ceases to be, a member of a related group described in IRC §414(b), (c), (m) or (o), coverage is deemed to be satisfied during a transition period by any plan maintained by an employer involved in the company-level transaction, if: (1) the plan seeking relief met the coverage requirements under IRC §410(b) immediately before the change in employer (or related group) (see 7. below), and (2) the coverage under such plan is not significantly changed during the transition period (see 3. below), other than by reason of the change in members of a group or the change of employer due to the company-level transaction, or such plan meets such other requirements as the Treasury may prescribe by regulation. Also, as discussed in 2. below, similar treatment is provided with respect to plans in which other business transactions (e.g., acquisition of assets) result in the change of employer for one or more individuals. The transition period under IRC §410(b)(6)(C) begins on the date of the change and ends on the last day of the next plan year beginning after the change (subject to an earlier ending date in the event of certain significant changes in the coverage of the plan, as discussed in 3. below). 1. Example - stock acquisition. Corporation X purchases the stock of corporation Y on May 1, 2020. After the purchase, Y is the wholly-owned subsidiary of X. X maintains a profit sharing plan which, as of May 1, 2020, satisfied coverage. The plan is on a calendar year. The transition period runs from May 1, 2020 (the date of the transaction), through December 31, 2021 (the last day of the plan year that begins after the transaction date), assuming the conditions of IRC §410(b)(6)(C) are satisfied during that entire period. During the IRC §410(b)(6)(C) transition period, the X plan is deemed to meet coverage. This period gives X time to analyze the impact Y employees may have on the plan's ability to meet coverage. 1.a. What happens in the plan year following the end of the transition period.? For the plan year starting January 1, 2022, the impact of Y’s employees needs to be determined, because X’s plan must resume coverage testing. When the coverage test is performed for that plan year, the employees of Y are taken into account to determine the coverage testing group. If Y employees are not eligible for X’s plan in the 2022 plan year, the Y employees are still included in the coverage testing group determined for X’s plan because X and Y constitute a controlled group, but they will not be in the benefiting group under X’s plan. See the earlier discussion in Part D of this section. This could cause X’s plan to fail the ratio test or the nondiscriminatory classification test portion of the average benefits test. 1.b. What if Y also has a plan.? If Y is continuing a plan for its employees which it maintained prior to its acquisition by X, that plan also has the benefit of the transition rule. Accordingly, the Y plan would not have to resume coverage testing until the 2022 plan year either. 1.c. Continued maintenance of separate plans after transition period is over. The companies might be able to continue maintaining separate plans for plan years after the transition period ends, depending on the demographics and how coverage testing will be passed. For example, X’s plan might pass the nondiscriminatory classification test for first non-410(b)(6)(C) plan year and, with the inclusion of Y’s plan in the average benefit percentage test, the plan might still pass coverage on the basis of the average benefits test. Alternatively, if the X plan and the Y plan have the same plan year, they might be permissively aggregated to pass the ratio test or the nondiscriminatory classification test.

Good news: we clearly disagree as to which method is the simple one. We agree that keep it simple should be the rule.

Maybe your philosophy, not mine. Every question is important or shouldn't be asked (there are some posts that shouldn't be asked and I do not reply to them). If you can look at your original question and then look at your second posting (after I noted I had no idea what your first question meant) and think the first one was a reasonable posting to ask others to consider, then nothing I will say will have an impact. I say this not just to you, but to everyone: flesh out your posted questions and provide more information than you think may be needed. TMI is never the case here. FWIW.

Yeah, this is not the time of year to have to play 20 questions! :-)

OK, but that has got to be the weakest reason in existence to not use the simplest solution. The client couldn't care less what is used in testing; I'm guessing you set the admin system specs once and the testing is automatic in the future. OR, you put a BIG F'in NOTE IN THE FILE if you have to. Sheesh!

Now I understand what you are asking (better to explain things completely the first time). I will see what I can come up with but at this time of the year, it might not be today! :-)

Yes, complete. You can create the policy outside of the plan. It only provides benefits to NHCEs. And you do -11g amendments (which are individual participants and amounts) by 8 1/2 months to provide the additional contribution. No document changes are needed. But besides that, the whole idea is just stupid for every small business I can think of, but that's another issues.

You are looking for the EIN for the sole prop, which you need before you apply for an EIN for the plan. There is an "other" option in section 9; use that and say "started a retirement plan". Once you get the EIN for the Sole Prop, you apply for the EIN (TIN) for the trust, and you check "created a pension trust". As to the software problem, first, tell them to fix that. Not having an EIN should NOT prevent the production of a document. You don't need an EIN to set up a plan; you do need it eventually for the 5500 filing. If you can't get the EIN, use the Social Security number. It only shows up in the SPD which you can modify later when you have the real EIN. We were doing that today until we found out our sole prop who doesn't have an EIN for the sole prop actually is a one man LLC (that's why we ALWAYS ask for the returns before we set up the plan) with an EIN, so we are ok.

I could be off base here (have not looked it up and we have no plans that don't use a minimum of 62), but how about adding "or 5 years of participation) to your current age. You grandfather current folks (you have to) but doesn't that give you a non-uniform age which means you default to 65 for testing?

Well said, Obi-Wan!

We do; and we have multiple PTIN numbers (I have one as an EA; my VP has one and she runs the withholding operation and prepares and signs the 945s). Larry.

Austin: HELP! What does the question mean? "Align HCE definition"? Larry.

Well, if the auditors catch it and comment, they will most likely say "don't do that again". Doing the single amendment can't hurt, but maybe you just wait until you see if the auditors put up a fuss and make you do it.

Yes, go read IRC Sec 402(g) and the definition of elective deferrals. The match is not an elective deferral and does not count in the 402(g) limit.

In a one person DB plan, whatever is in the fund is their benefit. Pay credits and interest credits are silly; "how much is in my account" is actually answerable even though it really doesn't normally apply to a DB plan. In designing the plan, we simply want to know their budget, we design the plan to fit that parameter, and they know every day how much they are going to get paid so long as we keep the assets no more than the maximum payable (which we are very accomplished at accomplishing!). They don't have to understand accrued benefits or our actuarial black box; they see their plan statement from the investment company every month and that's their benefit. They know how much money we are targeting for retirement, but that can change every year as their business success waxes and wanes. Our job is to get each year's contribution where they want from the standpoint of their pocketbook. And at that we are very successful and don't need the restrictions of a cash balance plan to do it.

The QDRO cannot direct where the funds are paid from, except that it can direct that the funds be paid proportionally from different source accounts (pre-tax, after-tax, etc) and that it can be determined assuming no loan outstanding. If a DRO were to come to me with that language, we would either reject it or ignore it (I'm not sure if we can get away with ignoring it; I have to research that one). In either case, the other side would be informed that the direction of where the funds are to come from is not within their authority.

You are correct; the limitation only involved 401(k) plans; specifically dealing with distributions of funds that are subject to the 59 1/2 restriction. Take a look here; lots of answers: http://lmgtfy.com/?q=successor+plan+rules

Not even a product; just marketing BS.

Here is a very helpful chart from IRS that makes the question of "what can I rollover from where" a very simple glance. https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

YOU'VE GOT TO STOP SAYING THE BROKER OPENED UP A 401(K) ACCOUNT! THERE IS NO SUCH THING. THERE EITHER IS A 401(K) PLAN OR THERE IS NOT AND THROUGH ALL THESE POSTINGS YOU HAVE NOT TOLD US WHETHER A PLAN WAS ACTUALLY SET UP. AN "ACCOUNT" MEANS NOTHING. WAS THERE A 401(K) PLAN ADOPTED? THAT'S WHERE THIS HAS TO START AND AFTER ALL THESE MESSAGES, WE STILL DON'T KNOW IF THERE WAS A 401(K) PLAN OR NOT!

Do you actually have a client who is a PLC that is NOT a foreign corporation? I have never heard of one that is a domestic company. Here is a useful wikipedia definition: A public limited company (legally abbreviated to plc) is a type of public company under the United Kingdom company law, some Commonwealth jurisdictions, and the Republic of Ireland. It is a limited liability company whose shares may be freely sold and traded to the public (although a plc may also be privately held, often by another plc), with a minimum share capital of £50,000 and usually with the letters PLC after its name.[1] Similar companies in the United States are called publicly traded companies. Public limited companies will also have a separate legal identity As noted, in the USA they are called Publicly Traded Companies and I think (but will not swear) that they have to be corporations.

Appleby, if you called an elephant a horse, does that make it a horse? Bird did not confirm there is such a thing as a solo k, but I know you are looking to justify your comments. His material specifically matched what we have said; it is simply a marketing term, it is not a REAL plan. It is not an horse just because you call it a horse!

As noted, there was just a long thread on this issue. YOu need to go read it: https://benefitslink.com/boards/index.php?/topic/63512-unik-ower-dies-can-we-make-a-post-death-profit-sharing-contribution/&tab=comments#comment-288769 There is no such dichotomy as a "solo 401(k)" and a "regular 401(k)". Just to state the obvious, what are marketed by mostly incompetent firms are severely crippled 401(k) documents that are every rich a "regular" 401(k) plan. I will almost guarantee that a crippled 401(k) document and a defined benefit plan document will not be acceptable. More than likely, the 401(k) document has no language to deal with the existence of a DB plan with regard to things like, say, top heavy. Also, there is no earthly reason for a one man DB plan to be in the form of a cash balance plan. A one man cash balance plan and a "solo" 401(k) plan deserve each other! Strong opinion to follow. :-)

You may be right; so often questions posted on this site are abundantly unclear! I probably should have said "it is only employees who can convert their account to Roth accounts. Employer contributions are always before tax contributions".