C. B. Zeller

It's not an unreasonable strategy to say that you are going to deal with the LTPT rule by modifying the plan's normal eligibility requirements such that no employee ever enters the plan as a LTPTE. One way of accomplishing this might be to redefine a year of service as a 12-month period during which an employee is credited with 500 hours of service, as opposed to 1000. Other ways are certainly possible as well. Defining a year of service as a year of elapsed time should do the trick as well in most cases. However, it could be possible for an employee to be credited with 500 hours of service during two consecutive 12-month periods and not complete 1 year of elapsed time in certain re-hire situations, if they have a period of severance greater than 12 months. I'm hopeful that this will be addressed when the regulations are finalized.

No can do. It's a prohibited transaction. Commissioner v. Keystone https://supreme.justia.com/cases/federal/us/508/152/ DOL interpretive bulletin 94-3 https://www.law.cornell.edu/cfr/text/29/2509.94-3

Spouses are usually attributed each other's ownership for controlled group purposes, unless they meet the requirements to be exempt. The requirements to be exempt from attribution are described in IRC 1563(e)(5) - does it apply in your case? If they want to be in a controlled group, it should be pretty easy to make that happen. Personally I am of the opinion that collaborating on a retirement benefit program rises to the level of being involved in the management of each other's business, so just the fact they are both talking to you about adopting a plan together probably makes them lose the exemption. But if you wanted to be more formal about it, you could have one of them hire the other (and pay them a salary), or put each other on their company's board of directors.

Yes, this was the IRS's holding in rev. rul. 2004-13.

Sorry, I meant NOT a top heavy plan. I've edited the original post.

But are they related under the meaning of 414(b), (c), or (m)? Being in different professional fields is indicative, but not determinative.

When you're referring to plans that use the OEE provision, do you mean plans that have different eligibility for deferrals and safe harbor? In general, the option to disaggregate otherwise excludable employees is a testing election that is made operationally - it is not a plan design specification. A plan that has the same eligibility for deferrals and safe harbor, and makes no other contributions, is considered to not be a top heavy plan. A plan that has different eligibility for deferrals and safe harbor, or that makes other non-safe harbor contributions, loses this exemption. The proposed regs say that basically, you ignore the LTPTEs entirely when you make this determination. So if everyone who is eligible for deferrals also gets safe harbor, except for the LTPTEs who are eligible for deferrals but get no safe harbor, then you still have a non-top-heavy plan. If there are some employees who met the plan's normal eligibility requirements (i.e. something less than 3 (or 2, starting in 2025) consecutive years of 500 hours of service) and those people are eligible to defer but not to receive safe harbor, then you lose your top heavy exemption. It IS confusing. I had written a couple more paragraphs about this but deleted it, worried that I might make your confusion worse. I'm hopeful that IRS will improve the situation in the final LTPT regs.

SECURE 2.0 allows the plan administrator to rely upon the participant's self-certification that the hardship is one of the types specified in the regulations. Why are you requesting evidence?

As far as I know, it's the same as it's ever been...file Form 5329.

There are many different types of payments that are reported on "a 1099." You can read about some of them here: https://www.irs.gov/businesses/small-businesses-self-employed/a-guide-to-information-returns Distributions from retirement plans and IRAs are reported on 1099-R. Payments to independent contractors could be reported on 1099-MISC or 1099-NEC.

Is this a 401(k) or profit sharing plan that is exempt from QJSA? The rule to be exempt from QJSA is that the spouse must be the sole beneficiary of the entire account balance. If the participant wants to designate someone else as the beneficiary, the spouse must consent.

IRC 45E(c) defines who is an "eligible employer" for purposes of the credit: Paragraph (2) excludes employers which are a member of a controlled group if there was another plan in that controlled group covering "substantially the same employees." Presumably, if the plan being adopted for the newly-acquired company covered a separate group of employees, then the credit could still be allowed. I'll admit that my initial reaction was the same as Bill's - that you couldn't get the credit multiple times just by adopting multiple plans. However a closer reading of the statute seems that it might not be impossible after all. I wouldn't want to be the one making the call on this though. Pass this code section off to the accountant and let them interpret it. Or maybe they have a tax attorney consulting on all these acquisitions? They could hopefully offer an opinion. If they are doing multiple acquisitions, remember that they have to stay under 100 employees across the entire controlled group in order to be eligible for the credit at all.

Good try, but nope. You can only borrow from the ADP test if the 401(k) plan is actually subject to the ADP test. 1.401(m)-2(a)(6)(ii)

The deadline to make voluntary after-tax contributions is 30 days after the end of the limitation year. 1.415(c)-1(b)(6)(i)(C) Assuming limitation year = plan year = calendar year, your client missed it by a couple of days.

There is a special catch-up available in 403(b) plans that is designed to allow participants to make up for some years in which they didn't maximize their contributions. I don't deal with 403(b) plans enough to feel comfortable explaining it here, but you can research it if you're interested. There is nothing along those lines for 401(k) plans however.

Unfortunately, they're going to have an uphill battle. If they go back to their former employer, the employer is going to say that the plan is terminated, and the benefits were transferred to the insurance company, so it's not their problem. The insurance company is going to say that the benefit isn't payable until age 65, and whatever information was provided previously is wrong, or not binding on them since it was provided by someone else, and again not their problem. Hopefully you have a copy of the Summary Plan Description. It will describe the early retirement benefit. That might be enough to convince the insurance company to take it seriously, but then again it might not. The insurance company should have an appeal process for denied claims, which you will probably have to use. And yes, you are correct that PBGC protection ended when the benefit was transferred to the insurance company. Good luck.

Are you sure about this? Please go and read the document carefully. I have a feeling it actually says that it excludes non-resident aliens with no US-source income. If they are working in the US then they are not excludable under this definition regardless of their immigration or residency status.

The plan document should contain a definition of Year of Service for eligibility purposes. What does it say?

Luke, you are correct. Circular 230 sec. 10.37(a)(2)(vi) forbids a practitioner from taking into account "the possibility that a tax return will not be audited or that a matter will not be raised on audit." Section 10.37 is titled "Requirements for written advice." Does that imply that you can advise a client on this as long as it is not in writing?

IRC 3405(e)(10)(B)(i)(III)

The 1/3 test uses 414(s) compensation. The 5% test uses 415(c) compensation. For purposes of the gateway, BOTH may be measured either over just the period of plan participation, or over the plan year. This is because the option to use participation compensation for testing does not come from 414(s); it is found in the definition of "plan year compensation" in 1.401(a)(4)-12. If your system is excluding the pre-entry compensation for the 5% test, you may have it coded incorrectly.

You said it is W-2 comp which implies this is a corporation. I'm going to assume S-corp, since that's more common for small businesses. I'm also assuming you (and your client) are aware of the issues with reasonable compensation for S-corp shareholder employees. If there was no passthrough income from the corp to the shareholder in those years then it's probably not an issue. Just to clarify, what was his comp for 2023? You wrote $300,000 in the first paragraph but used $330,000 for your calculation. I'll assume that $330,000 is correct and that $300,000 was a typo. Under the circumstances, I would have no problem including the pre-2023 years of service for 415. However I would include them for 415 comp as well. The comp limit is the high 3-year average comp prorated for less than 10 years of service. So his comp limit at 12/31/2023 is (0 + 0 + 330,000) / 36 months = 9,167 * .5 = 4,583.

I think you answered your own question. The plan clearly says that the allocation will be reduced so as not to violate 415. I would recommend changing the formula to individual allocation groups for the next plan year.

I believe 4.96% is correct. The 25-year average for the second segment as of September 2023 was 5.13% (Notice 2023-66). That gives us a 95-105% corridor of 4.87-5.39%. The actual 24-month average of 4.96% for January 2024 falls within that corridor, so it is not adjusted.

This is correct. If you're looking for it in the 1099-R instructions, it's under the heading "Qualified rollover contributions as defined in section 408A(e)."