C. B. Zeller

In a non-PBGC combo, the maximum deduction on the DC plan is usually 6% of comp. At maximum comp, that means the total contribution to the DC plan will usually be $19,500 (deferrals) + $6,500 (catch-up) + $18,300 (6% of 305,000) = $44,300. If they are ok with Roth contributions, what you could do is contribute $61,000 - $19,500 - $18,300 = $23,200 as voluntary after-tax contributions and then immediately do an in-plan Roth conversion on that amount. That lets you get your total contributions up to the 415(c) limit. Of course, voluntary contributions are subject to the ACP test, so this design falls apart if there are any NHCEs in the plan. It also only makes sense if they want to do Roth contributions, which will not appeal to everyone.

Correct. Refunds have to use the method described in the regulations.

No, you can't pre-emptively reclassify as catch-up to improve your testing results. You perform the test as normal, and then the amount that would have otherwise been distributed as a refund gets reclassified as catch-up. If there were another reason that the deferrals could be reclassified as catch-up, such as exceeding the 415(c) limit when combined with a profit sharing contribution, then you would exclude those deferrals from the ADP test.

I think your terminated NHCE is nonexcludable. You can treat a terminated employee as excludable if they terminate in the current year and worked less than 500 hours, and only if they did not benefit in the plan solely because they terminated with less than 500 hours. In your case they worked more than 500 hours so they have to be included in your coverage and nondiscrimination test. If the plan has a last day requirement to receive a contribution, then you will either need to rely on a 410(b) failsafe (if the plan has one) or do a 1.401(a)(4)-11(g) amendment to waive the last day requirement for this employee.

Are you asking whether a plan which is an EACA could exclude LTPT employees from automatic enrollment without violating the EACA uniformity requirement? We don't have any guidance from the IRS on this, but my guess would be no.

Bonding is a Title I requirement. Plans which are exempt from Title I, including plans which cover only a 100% owner and their spouse, or only partners and their spouses, are therefore exempt from bonding. Prior to 2020, these were also the only plans that were able to file 5500-EZ, but that distinction has been modified slightly with the new rule for 2% shareholders in an S corp.

I don't think that an amendment to change the testing method can be adopted retroactively. In other words, if they wanted to change from current year to prior year testing for 2022, they would have had to do so by December 31, 2022. For determining the earnings on excess contributions that are being refunded, the regulations allow a plan to use any reasonable method, but you need to check your plan document to see what method it specifies.

For Key/HCE determination purposes, I believe the answer is no. Ownership is attributed under 318 for Key/HCE determination, and 318(a)(2)(B)(i) excludes stock owned by a qualified plan trust. Since you have access to Who's the Employer, also see chapter 13, example 13.3.17.

IRC 401(b)(3), as added by SECURE 2.0 sec. 316, says that for an amendment meeting the requirements, "the employer may elect to treat such amendment as having been adopted as of the last day of the plan year in which the amendment is effective." I am reading this to mean that you treat it as if it were actually adopted on the last day of the plan year. So there would be no need to worry about 1.401(a)(4)-11(g) or 1.401(a)(26)-7(c) issues, since those only apply to amendments adopted after the end of the year. If the plan's valuation date is the last day of the plan year, then the amendment would also be taken into account for minimum funding and maximum deduction purposes. If the plan's valuation date is not the last day of the plan year, then a 412(d)(2) election would be needed if you wanted to take the amendment into account. Reminder that this is only my best guess at this point, we will have to wait and see what the IRS comes out with.

If I am understanding you correctly, Jane has never been a 5% owner in any year. So her required beginning date would be April 1 of the year following the later of: The year in which she attains the applicable age (70½, if her date of birth was before July 1, 1949), or The year in which she retires from employment with the employer maintaining the plan Since it is clear she has already attained the applicable age, the question is, has she retired? Neither Code section 401(a)(9) nor the regulations thereunder provide a definition of "retires" for this purpose. Your question indicates that she is still performing some personal services for the business. It might be reasonable to consider her to still be an employee (and not retired) in any year in which she receives earned income (within the meaning of section 401(c)(2) of the Code), although that could be problematic if is is not known whether she received earned income until after April 1 of the following year. Another possibly reasonable approach might be to simply ask the plan sponsor whether they consider Jane to be retired, within the common meaning of the word. Ultimately this will be a matter of the plan administrator making a reasonable interpretation of the law and regulations.

No. It doesn't matter what you call it, it is not an RMD until the first distribution calendar year, and for a non-5% owner, that means the later of the applicable age or the year of retirement. Since they have not retired there is no RMD. This is assuming that the plan terms do not require participants to commence RMDs earlier than the latest possible date allowed by law. Only if the distribution was actually contrary to the terms of the plan; if the plan permits participants to take amounts in such amount and at such time as they may choose, and the participant affirmatively consented to the distribution, then there is no reason to treat it as a mistake that needs to be corrected.

One would hope that the loss of the top heavy exemption was discussed with the plan sponsor before they decided to remove the safe harbor match from their plan. Therefore, they should not be surprised that they are now subject to the top heavy minimum. As you noted, there is the 2002 IRS Q&A suggesting that they would accept the use of an accrual method for determining the top heavy ratio in a profit sharing plan, even though that is contrary to the text of the 1984 regulations. You might want to explain the situation to the client and let them decide if they are comfortable relying on the opinion from the Q&A, if it means they can save the cost of a top heavy minimum contribution for 2022.

Participants in an excluded class typically continue to earn vesting service as long as they remain an employee of the employer, they just can't accrue additional benefits.

For a corporation, the corporation is a separate legal "person" from the owner, so it's easy to see how someone could separately be a shareholder and an employee of the corporation. For a self-employed individual (partner or sole proprietor) you are right that they can not really be their own employee, which is why IRC 401(c) has to explicitly say that the term "employee" includes a self-employed individual.

I was thinking S corp, but even C corp compensation has to be reasonable. It's more of an issue in the other direction (paying too-high salary) for C corps though, since the idea would be that the corporation could deduct the salary paid to the employee, as opposed to paying them a dividend, which is taxable both to the corporation and to the shareholder. I don't see how $0 salary could be legitimate. If memory serves me right, Steve Jobs took a $1 salary from Apple for a number of years; if this company wanted to pay their shareholder a token salary I think that would be more reasonable than $0 which essentially makes them a volunteer.

It's important to make sure that they really are Leased Employees as defined in 414(n) - not every person who works for one company but gets a paycheck from another is a true 414(n) leased employee. Who's the Employer has a good chapter on the issues that need to be considered. If they really are 414(n) leased employees, then the correction (that doesn't involve retroactively letting them into the plan) would be to move the money out of their accounts and reallocate under the formula in the plan document for the year(s) in question. You would have to go back and re-do the testing for those years too; 414(n) leased employees are non-excludable so now you have to watch your coverage test.

How are they complying with the reasonable compensation requirement?

Can you share some of this literature? The 5-year period is to receive "qualified Roth" treatment on the distribution, i.e. earnings are not taxable. The 10% penalty is a separate issue. IRC § 72(t)(2)(A)(i), which says that the 10% additional tax "shall not apply to...distributions which are made on or after the date on which the employee attains age 59½" Also see IRS pub 590-B, Roth IRAs/Additional Tax on Early Distributions/Exceptions.

I agree with Bri - I think you are calculating your rate groups wrong. The percentage of NHCEs (or HCEs for that matter) benefiting in each component is the number of NHCEs (or HCEs) who are in that rate group (they have an EBAR greater than or equal to the minimum EBAR for the rate group, and they are a member of the selected component) divided by the number of non-excludable employees of the employer. Taking NHCEs out of a component doesn't reduce the denominator, so it won't improve your test.

1. No, but I can't see how it would help to have a component with only NHCEs; since each employee has to be assigned to exactly one component, it will just reduce the number of NHCEs in one or more other components which do cover HCEs and make it harder for those components to pass coverage. Maybe I am missing something. 2. If each rate group in each component is over 70%, then ABPT is not necessary.

All that sec. 350 did is it made the auto-enrollment safe harbor of .05(8) - which under rev proc 2021-30 was set to expire at the end of 2023 - permanent. The 3-month 0% QNEC and the 3-year 25% QNEC of .05(9) are still in EPCRS and are unaffected.

I believe the person would need to attach Form 5329 to their tax return.

The LTPT rules added by SECURE 1.0 said that you do not need to take into account periods of service before 1/1/2021. So maybe I am missing something but I don't see how you are going to get 3 consecutive 12-month periods beginning on or after 1/1/2021 and ending before 7/1/2023. I agree that 1/1/2024 is the earliest any LTPT employee needs to become eligible.

I am going to speculate here, but I think they would still get the deduction for the contribution, so it would still have the effect of reducing their net earned income for pension purposes. However on their tax return, the fact that the contribution is included in current income would have the effect of cancelling out the deduction. It would be like if they made a contribution and took a distribution in the same year. Or more on point, if they made a contribution and did an in-plan Roth conversion.

Yes, I was only talking about the terminal illness distributions. Qualified disaster recovery distributions, emergency expense distributions, and domestic abuse distributions (did I miss any?) are all clearly new distributable events.