C. B. Zeller

Under IRC 401(b)(2), as added by the SECURE Act, a profit sharing plan can be adopted as late as the sponsor's tax filing deadline for the year, including extensions. Yes. The issue preventing you from adopting a 401(k) retroactively is that you have to make the actual deferral election no later than December 31. While the plan could be adopted retroactively, you can't make a retroactive deferral election, so there is no way to make a contribution into a 401(k) plan if it was adopted retroactively. 10/1 is only the deadline if you want to have a safe harbor 401(k) plan. A non-safe harbor 401(k) plan can be adopted as late as December 31. Although if you have non-HCEs who would be eligible, and the HCE is the only one who is able to make a deferral election between the time the plan is adopted and the end of the year, your testing is going to be problematic, to say the least. If you mean for a PS plan to add a safe harbor 401(k), that is also 10/1. The 401(k) feature has to be effective for at least 3 months.

I agree with ESOP Guy, once you have a required beginning date, there is nothing that would allow you to stop or suspend RMDs merely because you were re-hired. Even though the RMD due 4/1/2021 was waived, it still counts as the RBD and RMDs would be required for 2021 and every year thereafter. The question becomes, is 2020 really a distribution calendar year? As CuseFan pointed out, if she terminated in 2020, it could only be a distribution calendar year if her date of birth was on or before 6/30/1949; otherwise her first distribution calendar year would be the later of when she turns 72, or retires. There is, unfortunately, no definition of "retires" in the regulations. If she was born on or before 6/30/1949 but, at the end of 2020, the employer reasonably expected her to return to work in a couple of months' time, I think you could argue that she did not retire, and therefore it would not trigger a RBD. This is not a terribly aggressive position in my opinion, but there is no official support for this stance either. If you want to play it on the safe side, have the employee take the distributions regardless.

Although it is not required, you could notify the PBGC that the sponsor is eligible for disaster relief before actually submitting the comprehensive premium filing; that could help avoid having them send a notice to the sponsor. See emphasized section below. https://www.pbgc.gov/prac/other-guidance/Disaster-Relief#notifying

The 415 limit is separate for each unrelated employer.

The way the relief works is that if the number of active participants on 3/31/2021 is at least 80% of the active participant count on 3/13/2020, then you do not have a partial plan termination for any plan year that falls within the 3/13/2020-3/31/2021 period. If it's a calendar year plan, that would mean that if you met the requirement on 3/31/2021, then you wouldn't have a partial plan termination in 2021, regardless of any reductions that might or might not happen later in the year. I think it's incredibly poorly thought out, and far too broad, but as written by Congress and interpreted by the IRS, that appears to be the rule. I agree that in normal years, a reduction of less than 20% does not mean there was not a partial plan termination.

Without looking up the details of the PTE, my recollection is that you take the amount you would have paid as the excise tax, but pay it to the plan instead. You also have to provide a notice to participants explaining what happened. There are limits on it; you are only allowed to use it for PTs below a certain dollar amount, and you can't use it if you've done it within the last X years. But in my experience, it's the notice requirement that drives people away from using this. Most employers would rather send the IRS a check for a few bucks than have to tell their employees they messed up the 401(k) plan.

Are you sure? A significant reduction in the number of active participants, particularly when the reduction is the result of an employer-initiated action (such as the sale of a division that was participating in the plan) would tend to indicate that a partial plan termination has occurred. When there is a partial plan termination, all affected participants must become 100% vested. There was a special rule in the Consolidated Appropriations Act passed at the end of last year that granted partial termination relief. If this employer is eligible for the relief, they may not be required to vest the affected employees.

Plans are not required to permit this. Check the plan document and make sure terminated participants are allowed to request amounts in excess of the RMD but less than their full account balance.

"Plan administrator" means the ERISA 3(16) plan administrator. That entails a lot more than just signing the 5500. If you want to know more, is just so happens that Ilene Ferenczy is doing a free webcast in less than a couple of hours from now on this very topic. You can register at http://www.erisapedia.com/webcasts

Not exactly. Deferrals can only be reclassified as catch-up when a limit is exceeded. And there are only 4 limits that can be exceeded to cause a deferral to be reclassified as catch-up. Those limits are: 402(g) limit 415 limit a plan-imposed limit the maximum allowed under the ADP test (meaning, excess contributions that would otherwise be refunded due to a failure of the ADP test can be reclassified as catch-up instead of being distributed) So what I am saying is that if there are other contributions that would cause the participant to exceed the 415 limit, then some of their deferrals can be reclassified as catch-up. I'll jump in on your questions for BG too, hope he doesn't mind: 1. Yes 2. Maybe, but not without discussing it with the client first. If the plan does not have a last day requirement to receive an allocation of profit sharing, you can not generally change the allocation formula during the current year. In other words, if you are changing the formula, it can't be effective earlier than the first day of the next plan year. 3. No comment here, except to say that we should avoid discussing specific firms or fee structures on this board.

Like I said, it's not entirely clear. If the employer wants to take the safest option, they will limit their contribution on the PS plan to 6% of comp. I think either position is reasonably defensible. SFlannery-Nova didn't go into detail on the circumstances that caused the plan to cease to be covered, but I am going to assume that it's something like the last non-owner participant terminated employment and was paid out during the current year. As a result, the plan is now a substantial owner plan and is exempt from coverage. In that case, I would probably say that if the terminated non-owner participant is still getting a contribution in the PS plan, then you are on a lot safer ground than if the owner is trying to take that whole 25% deduction for themselves.

Yes. Really the right way to think of it is that you take the participant's total annual additions, and compare it against their 415 limit to see if they pass the test. In this case her annual additions are $19,500 + $7,500 = $27,000. Her 415 limit is the lesser of 100% of comp or $58,000, which is $30,000. $27,000 is less than $30,000, so the 415 test is satisfied. Another thing that can happen is, let's say that she only deferred $10,000, and the employer decided to give her a $25,000 profit sharing allocation (ignoring the deductible limit for now). Since $10,000 is less than the 402(g) limit, none of it has been reclassified as catch-up at this point. $10,000 + $25,000 is $35,000, which is more than her 415 limit. One of the ways of correcting a 415 excess is to reclassify the excess as catch-up, if the participant is eligible. So in this situation, $5,000 of her deferrals would be reclassified as catch-up and she would still get the full $25,000 employer contribution. Yes. Even if the plan does not need to be tested, such as your case that covers no non-HCEs, this is still the preferred way to design the plan, as it gives you the most flexibility in allocating contributions. A common misconception is that you are required to cross-test with this plan design - you are not. You can still do a pro rata allocation, which would satisfy nondiscrimination testing on an allocations basis.

I think the missing piece is that if the ratio percentage test is not satisfied on an employer-wide basis, then you test the nondiscriminatory classification test on an employer-wide basis without regard to the average benefits percentage test - see 1.414(r)-8(b)(2). Without the average benefits percentage test, the nondsicriminatory classification test is just the ratio percentage test with a lower - in some cases, much lower - bar to pass.

The wife has to get at least some of PS contribution, otherwise her comp wouldn't be included in the calculation of the deductible limit. Catch-up contributions are not included in applying the 415 limit. So the wife can defer $26,000, then get a PS contribution of up to $30,000 - $19,500 = $10,500.

I believe the section you are looking for is 1.415(c)-1(b)(6)(B), which says that in order for a contribution to count as an annual addition, it has to be made "no later than 30 days after the end of the period described in section 404(a)(6) applicable to the taxable year with or within which the particular limitation year ends." Assuming that limitation year = plan year = calendar year, then 2020 limitation year ends on 12/31/2020, which is within B's 7/1/2020-6/30/2021 tax year, and the 404(a)(6) period for that tax year would end on 9/15/2021, extensions notwithstanding. You may also find 1.404(a)-14(c) relevant, which talks about how to determine the deductible limit when the tax year is different than the plan year.

The nondiscriminatory classification test is not the entire coverage test. Please refer to section 5.03 of the book that you linked. I have never heard of it referred to as a gateway test, but then I don't do much work with QSLOBs. Usually "gateway" means the minimum allocation gateway for cross-testing DC plans on an accrual basis for 401(a)(4). As an aside, I am surprised that ASPPA is ok with posting their entire study manual on a public website. They usually charge a lot of money for that book.

No. From the premium filing instructions:

Generally you can't waive participation in a DB plan - it is not an elective contribution. If you mean the irrevocable waiver of participation, that has to be done before the employee becomes eligible for any plan offered by the employer, and must apply to every plan ever sponsored by the employer. If they are already eligible for the 401(k) plan then it is too late. That's even if the plan allows irrevocable waivers, which plans are not required to offer.

I'm not aware of any clear guidance on this issues, but I would be reasonably comfortable taking the position that if the plan was covered by PBGC at any point during the year, then they are still exempt from 404(a)(7). After all, you are still required to pay the full premium even if coverage ceases mid-year.

DOB of 1/6/1951 means that 2023 is his first distribution calendar year and his required beginning date is 4/1/2024. If he takes a distribution during 2021 or 2022, it would not be subject to any RMD requirements, since neither 2021 or 2022 are a distribution calendar year. Of course, if he rolls it over to an IRA, he will have to start RMDs from the IRA by 4/1/2024. As an aside, you should be aware that whether someone is a 5% owner for RMD purposes is determined solely with respect to the year they turn 72 (formerly 70½, although the regs have not been updated yet). Meaning that if he sold the business in 2022 and he was not a 5% owner during 2023, he would not be subject to RMDs from the plan until he actually retired. RMDs have to start from an IRA regardless of whether you are retired or not.

If they put in a new PS plan, they can keep the TH exemption for the existing plan as long as it continues to consist solely of deferrals + SH match. Then then can exclude this particular individual from both the CB and PS plans, and they won't need to give them a TH minimum. If that's too much trouble, they could exclude the individual from the existing DC plan going forward; they would probably still need to give them a 3% TH minimum for 2021 (assuming they are excluded from the CB plan), but after that, nothing.

I don't see anything that says the other benefit has to be disclosed in the SPD, or even that the employee has to be aware of the other benefit at the time the election is made for it to be a contingent benefit. But I'll grant that is certainly the spirit of the rule, so taking that into account, consider that once word gets back to the current employees that the employer is paying out incentives to former employees with small balances, you could reasonably see somebody who's thinking of leaving in the near future decide to start contributing now, so that they can get that extra cash in a few years. The regulation does say that the distribution of the participant's account balance is not a contingent benefit. But we are talking about a cash payment in addition to the participant's account balance. You could argue that since the cash payment is conditioned upon the distribution, and the regulation specifically says that a distribution of the participant's account balance is not a benefit conditioned on the election to defer, that this clause in the regulation "breaks the chain" and causes the cash payment not to be conditioned upon the election to defer. That is not an unreasonable argument, but the word "indirectly" in the regulation is pretty broad. I could see this going either way.

CuseFan, thanks for pointing out that the document issue was stated in the title. It's easy to miss that when reading the question. Given that, I agree that what's been done is most likely correct per the plan document, and the plan document controls. The sponsor can eliminate the auto-enrollment provision prospectively, and change the eligibility requirements going forward, but that's about it. If the recordkeeper admits to screwing up, then you could maybe try to get them to pay for a VCP submission to ask the IRS to allow the correction I mentioned in my earlier comment. They should come prepared with some pretty strong evidence that the provisions they intended to adopt and what was communicated to participants was not what was in the document. They should also be prepared to explain why they didn't read what was in the plan document that they signed. I wouldn't give this a good chance of success, but they might get lucky.

You can self-correct this. I would first, immediately stop the contributions at the payroll provider. Then, have the mistaken 401(k) contributions distributed to the employees. Use code E for the 1099-R. This will get the correct tax treatment, since (assuming the contributions were withheld pre-tax) they would have already been taxed for FICA, but not for income tax. The code E will get it included in income tax for the current year. They will get taxed on any gains, but I think that is inevitable. Hopefully they didn't have any losses. The mistaken employer contributions will probably have to stay in the plan. Move them out of the participant accounts and into a suspense account. Use the suspense account to fund other employer contributions until it is depleted.

A participant who is not a 5% owner, who was born on or before December 31, 1949, and who terminated employment during 2021, would have a required beginning date of April 1, 2022.