Larry Starr

Regarding the contribution, I think it is actually better described as a mistake of fact and would follow those rules. As to the match, while I have not studied that issue, I would think the same thing applies which would allow it to be refunded. The mistaken fact was a mathematical error on the size of his earned income. The match follows from the same error. Hope this is helpful.

You are clearly confusing entry dates with deferral elections. The entry date is the earliest date upon which they are in the plan and can make a deferral. If this individual wanted a deferral out of his 7/1 paycheck, he would have had to turn the deferral election form in prior to that date (but effective no earlier than 7/1). He didn't, so whenever he turns it in, it is effective for the next payroll. He can apparently change it any time he wants (the same way all my plans work) so he goes from a zero election to a positive election at a point after his actual entry date. No problem.

You simply have to test in the aggregate, so no special issues.

Austin, I don't worry about "explaining" this (or many other things that aren't their concern) to the employees. We simply tell them the fact: "there are two plans, one for those hired after XXX date and one for those before. The benefits are the same and we do that for logistical reasons" or some such phrase. Employees are just not going to care.

Gilmore posted two questions and ETA give a solitary answer but I'm not sure to which question or mabe intended for both. In any case, if the ex-spouse has an account in the plan, it seems that you no longer have just an owner and a spouse and no longer have an exemption from filing. I would suggest that if a distribution is being made from the owner's account, so long as it is not set up in a separate account first but just paid directly from his account as a distribution in compliance with the QDRO, then you never have a non-owner participant and you maintain your exemption.

Just to pile on, what they were told before is utter nonsense and easily shown to be incorrect. You should also check whether you need to amend the 5500s (besides getting the appropriate bonding in place).

Art: Yup; completely aware of that issue. For most of our plans, it is just not applicable. Thanks.

And now you don't have to be "conservative" and will look brilliant to your client and save them THOUSANDS of dollars. The 2009 Q&A exactly represents what we talked about in private but that particular group of DOL officials did not want to say publicly at that time. Nice to know that, a few years later, they found the ..... gumption! :-)

You are setting up a straw man argument. First, you are saying that an aggressive IRS agent is going to do the wrong thing! No; they mostlyu understand the law and it will be an extremely rare agent that is going to make up their own rules and take a wrong headed position and fight for it. Then, you are saying the client won't want to pay for the work to explain, so avoid it by not doing the action. Again, no. If a plan is being audited, it is being audited for reasons having NOTHING to do with this transaction. If the agent brings it up, it is a two minute conversation we will have and then it will be dropped (because if she pushes it, I would quickly suggest that she consult with her boss since we will strongly contest such a position). For those reasons, it is a non-issue. If they did it the non-traditional way, it is still a non-issue. The comment you made that I had a problem with is this: An aggressive IRS agent will/may say that the transfer of IRA assets to his profit sharing plan in order to make contributions for his employees is a PT, in which case his entire IRA blows up for tax purposes. You cannot run your business on an assumption of a stupid argument from an IRS agent that has no basis in fact. It is NOT a PT, and the IRA does not blow up. Ths IRS agent would be wrong, and THAT is the "so what". So what? That's what. And it matters. IRS agents are far from omnipotent. I find most agents are very willing to listen to advice from people they understand know much more about this business than they do. They actually are very good students if you treat them that way and help them learn how things work. I take the time to educate them, much as I do my clients, their advisors, and others in our industry. FWIW.

Art: In my scenario I see no disadvantage of any kind to the participants. They are indifferent and the employer was paying the auditing fees, but if the plan paid the fees, the participant situation is enhanced not disadvantaged. The administrative costs are minimal (an extra document and an extra 5500 filing). Many thousands of dollars less than the audit costs. And again, happily absorbed by the employer to save the auditing costs.

I wrote the question (I was in charge of the Q&As in those days). We discussed it in advance and they took a very cautious PUBLIC stance but in private, if we really ran it as two plans, with two separate trusts (this is 401(a) and not 403(b)), they privately said it would be very hard for them to argue it was really one plan. It had to be TWO PLANS; it had to be substance not just form. They were much less concerned about plans that were not split, but that organically grew separately. So if you dealt with it in advance and never got to the audit stage, they were much less concerned about the issue. So the new plan situation (which I suggested here) should fly. FWIW.

Jpod: an IRS agent who makes that argument will be wrong. If all parties treat it as a distribution, it IS a distribution. And no agent would ever even see where the money came from. If it is treated as a distribution, then he is free to do with it what he wants. The only thing that hasn't been mentioned so I will mention just to make sure nothing is overlooked: the recontribution of these funds to the PS plan must meet the deduction rules applicable to the sole prop and the income therein WITHOUT reference to this transferred money. I assume that is assumed! :-)

Patricia, why not set up a new 403(b) that would include all employees hired after 1/1/18 and amend the prior plan to exclude anyone hired after 1/1/18. That would fix the size of the "old" plan and not have to worry about the existing contracts having to somehow be split into two plans. I am currently dealing with a similar issue and while I do very little 403(b) work (and this one is a freebie for a local community center that I am involved with as a volunteer), I am investigating this very issue with a friend who runs a firm in Calif that does LOTS of these and it seems to be a possible solution.

We use what's called a "Supplemental Participation Agreement" where the new "Participating Employer" agrees to a whole bunch of things. It is signed by BOTH employers and the trustees as well. Here are the terms: 1. Wherever a right or obligation is imposed upon the Employer by the terms of the Plan, the same shall extend to the Participating Employer as the "Employer" under the Plan and shall be separate and distinct from that imposed upon the Employer. It is the intention of the parties that the Participating Employer shall be a party to the Plan and treated in all respects as the Employer thereunder, with its employees to be considered as the Employees or Participants, as the case may be, thereunder. However, the participation of the Participating Employer in the Plan shall in no way diminish, augment, modify, or in any way affect the rights and duties of the Employer, its Employees, or Participants, under the Plan. 2. The Trustees hereby agree to receive and allocate contributions made to the Plan by the Employer and by the Participating Employer, as well as to do and perform all acts that are necessary to keep records and accounts of all funds held for Participants who are Employees of the respective employers. 3. The execution of the Agreement by the Participating Employer shall be construed as the adoption of the Plan in every respect as if said Plan had this date been executed between the Participating Employer and the Trustees, except as otherwise expressly provided herein or in any amendment that may subsequently be adopted hereto. 4. All actions required by the Plan and Trust to be taken by the Employer shall be effective with respect to the Participating Employer if taken by the Employer and pursuant to Plan Section 11.3, the Participating Employer hereby irrevocably designates the Employer as its agent for such purposes. 5. The Fiscal Year of the Participating Employer means the Participating Employer’s accounting year of twelve (12) months commencing on January 1 of each year and ending on the following December 31 .

No question that his sole prop needs to adopt the plan of hte LLC. The LLC is a real business even though it is taxed as a sole prop; it is NOT a sole prop. His sole prop is his board of director fees. Have the sole prop adopt the existing plan and the comp from both are aggregated for plan purposes. He can still file the 5500-EZ. The qualifications for filing the 5500-EZ are: 1. Covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (which may be incorporated or unincorporated); or 2. Covers only one or more partners (or partners and their spouses) in a business partnership; and 3. Does not provide benefits for anyone except you (or you and your spouse) or one or more partners (or partners and their spouses). All three requirements are still met in your situation where we have an additional adopter of the plan.

Hmmm... I would say our default provisions are there exactly to relieve the burdens of not having a default scenario would produce.... but, I would think it could be changed without any reliance issues.

You might find this outline helpful; it has been requested 100's of times over the years. Compensation Outline 2000.pdf

Mea culpa. Of course that is the correct definition of per capa. Havent dealt with that since I studied it in the early 70s. Actually, have never seen it used ever. And I'm willing to bet that the document under discussion has default provisions that include per stripes distribution.

A shared employee is one who, for example, works in an office of two independent dentists who share office space. When she is working, it is not possible to tell who she is working for since she answers the phone for both docs. When she leaves that shared office space and is now working exclusively for one doc, she is not a shared employee as it relates to that doc. She might be a part timer who doesn't qualify (whereas, in the shared office she was full time but split between three docs and was therefore in all of their plans for her total hours but attributed compensation individually). Sounds like she now has two part time jobs in two totally unrelated entities.

Per Stirpes has to do with the splitting of the funds among siblings. If it is per capita (the opposite of per stirpes) then if one of two siblings (who are the beneficiary class) has died, all the funds go to the remaining sibling. Per stirpes is used to make sure the deceased sibling's share goes to the deceased siblings issue (children) if there are any. Now, our documents also have default beneficiaries and include per stirpes as the method. Since the original question says there is belief of adult grandchildren, the plan administrator needs to hire a search service (if necessary) to find them since they would be the benes. Finding the executor or administrator of the estate would be a logical starting place and you might start with one of your own legal contacts to find out how to search the probate records for the names executor/administrator of an estate. Larry.

You treat the two of them as one person with an ownership equal to the total they own together. Use that "individual" in your ownership table for testing. Company A is owned 100% by the "individual" Mr/Mrs. Does that help?

What? No, it is NOT clearly a controlled group. In fact, in might be three different practices with what are called shared employees. Are they a single partnership or corporation? Or are they three separate businesses? Your commentary sounds more like three separate entities. I hope you have access to Derrin Watson's Who's The Employer http://employerbook.com/ . You can read all about shared employees there. Full disclosure: I have had a hand in developing and marketing that book in its early years; Derrin was one of my partners. Larry.

This is labor issue and, I'm afraid, not well documented. It is a facts and circumstances result. What I quoted above is the basics of the legal opinion I drafted in the later 1970's for a major insurance company (Ct General; now CIGNA) and vetted by our corporate legal staff before it was adopted. It is an issue that I have revisited over the years and something that, when I was in charge of the IRS Q&As for ASPPA annual conventions for a significant number of years, discussed with our friends at IRS and they were of the same opinion but were not willing to commit it to writing because they also felt it was a labor issue. I can offer you the following from Sal Tripodi's ERISA Outline Book, but it is more concentrating on the other side of the issue and is not really dealing with our direct issue here, but it is the best I can find. 3.e.1) Union status of supervisor/owner/officer. Sometimes the identity of an employee as a union employee or nonunion employee is ambiguous. The employer may need to consult with its legal advisor regarding labor matters to resolve the question. A situation that comes to mind is the supervisor, owner, or officer, who “carries a union card,” but does not enjoy all the benefits that other union members do. Is this person a collectively-bargained employee or a non-collectively-bargained employee for coverage testing purposes? The question is raised particularly when this individual participates in the so-called “nonunion” plan, but other union employees are excluded from that plan. The union contract may shed light on this. Ultimately, the plan administrator (usually the employer) will have to make the final decision on how the plan language is interpreted. If it is determined that the individual is a non-collectively-bargained employee who is eligible for the plan (with respect to all or a portion of his hours), it follows that the individual is also a nonunion employee for coverage testing purposes with respect to the hours for which he is covered by the nonunion plan. There has been IRS rulings on sham union negotiations for so called "owner unions" where the unions were set up for owners so they could be provided benefits without taking into account the rank in file employees. These don't work. Again, from the EOB (but we are assuming this case is NOT a sham union): ¶3.g.(6)(a) Definition of egregious. An egregious violation is an Operational Failure that is considered too severe to be resolved under SCP. The IRS gives as examples: (1) a plan that has consistently and improperly covered only highly compensated employees, (2) a plan that provides more favorable benefits to an owner based on a purported collective bargaining agreement, where there has in fact been no good faith bargaining (see Notice 2003-24 with respect to welfare benefit funds), and (3) a defined contribution plan to which a contribution is made on behalf of highly compensated employee that is several times greater than the dollar limit set forth in IRC §415(c). See section 4.10 of the EPCRS Procedure. The reference to owner benefits provided under a purported collective bargaining agreement is in response to a growing number of sham collective bargaining arrangements designed to provide “union-negotiated” benefits to owners that purportedly are deemed to satisfy the coverage and nondiscrimination testing requirements. Here is some definitional items regarding what is a collectively-bargained employee (but again, it is not definitive on the owner situation, just makes clear that a union that is not primarily non owners will NOT qualify. COLLECTIVELY-BARGAINED EMPLOYEE A collectively-bargained employee is an employee who is included in a unit of employees covered by an agreement that the Secretary of Labor finds to be a collective-bargaining agreement between employee representatives and one or more employers. The qualified plan rules include some special exceptions that apply with respect to collectively-bargained employees. In particular, the coverage testing rules under IRC §410(b) and the nondiscrimination testing rules under IRC §401(a)(4) make provision for special testing requirements with respect to collectively-bargained employees. These special rules are discussed in more detail in Chapters 8 and 9. Part A., Elements of the collectively-bargained employee definition 1. Good faith bargaining on retirement benefits is required. An employee is not considered a collectively-bargained employee for qualified plan coverage testing purposes unless there is evidence that retirement benefits were the subject of good faith bargaining between employee representatives and the employer.Treas. Reg. §1.410(b)-6(d)(2)(i). It should be noted that under the Labor-Management Relations Act of 1947 (LMRA), benefits are a mandatory subject that must be considered in the collective bargaining process. Thus, if there was evidence that benefits were not the subject of good faith bargaining, the certification of the collective-bargaining unit could be jeopardized and the employer could be subject to sanctions under the LMRA. 2. Members must be primarily nonowners. If more than 50% of the members of an employee representative (union) are owners, officers, or executives of the employer, the organization is not treated as a proper employee representative for tax code purposes. See IRC §7701(a)(46). In such case, an agreement between the employer and the organization is not treated as a collective-bargaining agreement, and the employees are not treated as collectively-bargained employees for purposes of applying the qualified plan coverage tests under IRC §410(b). See Treas. Reg. §1.410(b)-6(d)(2)(i). 3. More than 2% of the collective-bargaining unit cannot consist of professionals. For purposes of applying the qualified plan coverage tests under IRC §410(b), an employee is not a collectively-bargained employee if more than 2% of the employees who are covered by the collective-bargaining agreement are professionals. Treas. Reg. §1.410(b)-6(d)(2)(iii)(B). In such case, all of the employees covered by the agreement, including the nonprofessionals, are treated as nonunion employees for coverage testing purposes. "Professionals" for this purpose are highly compensated employees who, on any day of a plan year, perform professional services for the employer as an actuary, architect, attorney, chiropodist, chiropractor, dentist, executive, investment banker, medical doctor, optometrist, osteopath, podiatrist, psychologist, certified or other public accountant, stockbroker, or veterinarian. This definition appears in Treas. Reg. §1.410(b)-9. Finally, here is something from the quoted regs that you might find helpful, since it says that someone that is in a "union plan" by agreement but really isn't represented by the union (which is almost always the case with these owners) is NOT a "union employee". (iii)Covered by a collective bargaining agreement - (A)General rule. For purposes of paragraph (d)(2)(i) of this section, an employee is included in a unit of employees covered by a collective bargaining agreement if and only if the employee is represented by a bona fide employee representative that is a party to the collective bargaining agreement under which the plan is maintained. Thus, for example, an employee of either a plan or the employee representative that is a party to the collective bargaining agreement under which the plan is maintained is not included in a unit of employees covered by the collective bargaining agreement under which the plan is maintained merely because the employee is covered under the plan pursuant to an agreement entered into by the plan or employee representative on behalf of the employee (other than in the capacity of an employee representative with respect to the employee). This is the case even if all of such employees benefiting under the plan constitute only a de minimis percentage of the total employees benefiting under the plan.

I disagree with logroller, though I'm not sure you meant to say what you did. The QDRO rules were written as the sole method of getting at retirement benefits in a domestic situation. Either the ERISA rules are met or they are not. Any order dividing retirement benefits is NOT a QDRO unless it is found to be a QDRO by the plan (and it meets all the requirements). An order from a judge that does not meet the rules is NOT enforceable to divide retirement benefits in a qualified plan. So it really does matter what an order should be called. Having said all that. that was not the original question; we asked for more info and now, a week later, no info is forthcoming so we still can't answer the question any better than the previous responses. Regardless of whether this was a standard, valid QDRO or some court order dealing with federal benefits (a "Federal QDRO" which is not a QDRO at all), returning to court is the only legal solution to make it go away, which is apparently what all parties want.

It's still a bit "murky" (I like that description!). You needed to have BOTH entities be adopters of the plan in 2017. It you restated the plan in 2017 for the new entity and did not have the old LLP also be an adopted, I think you have a problem because you effectively terminated the plan of the LLP at that amendment point. Now you need to figure out what problems that has caused since you amended a SH plan midyear with an effective termination. Not something I want to try to figure out, so maybe others who have had this problem before might want to chime in.