C. B. Zeller

The letter did not demand anything. It said specifically that it was not an audit or a compliance check, and that no reply was needed. It did say that the sponsor "may need to take certain actions based on the information provided." The second page, which described the rules around partial terminations, also gave info about how to make a correction using self-correction or VCP, and how to correct the 5500.

Predecessor plan does not mean just any other plan sponsored by the same employer. It has a specific definition and a particular impact on vesting service. You should read the 411 regs to get a better understanding of the rule and see how it applies in this case. You said the old plan terminated 12 years ago so it might not be a predecessor plan. Have there been any other plans during that time?

Assuming he worked enough hours each year to earn a year of service (also assuming that the plan uses the counting hours method for vesting, and that the vesting computation period is the plan year, and that there are no predecessor plan issues, and that he has not reached his normal retirement date under the plan, etc, etc) 7/1/19 - 6/30/20: 1 year 7/1/20 - 6/30/21: 2 years 7/1/21 - 6/30/22: 3 years Looks to me like he will be fully vested before his RBD regardless of any break in service rules.

Why wouldn't he be 100% vested?

A client of mine just received a letter from the IRS about their 2018 Form 5500. Apparently the trigger for the letter was a "significant reduction in plan participants" and also showing more than zero participants who terminated with unvested benefits on the 5500. For the year in question, the total number of participants at the beginning of the year was 15, and the total at the end of the year was 10, which is a 33% reduction. However the reduction was all terminated participants who took their distributions. The 20% number for a presumed partial termination is in regards to turnover, which means active employees, right? You can't have turnover of people who left in prior years. The number of active participants at the beginning of the year was 7 and at the end of the year it was 6. Only one person actually terminated during the year and that person was less than 100% vested under the plan's vesting schedule. What is the IRS doing sending letters and scaring sponsors over non-issues like this? Has anyone else seen a letter like this recently?

He will attain age 72 on 7/15/2022. Assuming he is a 5% owner during the plan year ending 6/30/2022, then his first distribution calendar year is 2022 and his RBD is 4/1/2023.

From today's Employee Plans Newsletter

Why isn't the plan passing 410(b)? Are the husband and wife the only participants? A participant is considered to be benefiting for purposes of 401(a)(26) if they are benefiting within the meaning of 1.410(b)-3(a) - see 1.401(a)(26)-5(a). An employee in a defined benefit plan is benefiting for 410(b) even if they do not accrue a benefit because of the 415 limit (1.410(b)-3(a)(2)(ii)(A)) or because they reached the maximum number of credited years in the plan (1.410(b)-3(a)(2)(iii)(B)). The 0.5% accrual per year comes from an IRS memo and does not actually appear in the law or regs. I would have a hard time believing that a participant who is at their 415 limit is not "meaningfully benefiting" under the plan. Regardless of all this - what does the actuary think you should do?

Simple answer: No. Once you satisfy the eligibility conditions, you remain eligible for all future years. Once in, always in. The more complicated answer: If the participant terminates employment and has zero vested balance (including deferrals), and incurs five consecutive one-year breaks in service, and is later rehired, their prior service may be disregarded for eligibility purposes, meaning they would have to complete 1000 hours again before they could enter the plan. Plans are also permitted to exclude a class of employees, for example, employees who work in the Chicago office, or employees whose job title is Director. If the plan starts excluding employees who would have been eligible (because they met the age and service conditions) then the plan has to worry about the coverage test; however if the employees being excluded are HCEs then it would not negatively impact the test. If an employee changes job classifications, they could move from an eligible class to an ineligible class and lose their right to contribute. Or the plan could be amended to exclude a class of employees that was previously allowed to contribute. It is not clear at this time how the break-in-service rules or the class exclusion rules are going to interplay with the long-term part-time employee rules. It is anticipated that the IRS will release guidance on these issues some time before 2024.

A lot of your questions may be answered by reading the instructions: https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2020-sf-instructions.pdf https://www.irs.gov/pub/irs-pdf/i5500ez.pdf

They are covered by Title I, since the daughter is not an owner or owner's spouse. Bond is required. This applies once anyone - HCE or non-HCE - other than the owner and their spouse are covered by the plan. Coverage and nondiscrimination testing will automatically pass, since all employees are HCEs. Whether 5500-SF or EZ is required will depend on what type of entity the employer is. If it is an S-corporation, they will file 5500-EZ. Anything else and they will file 5500-SF. There is a rule that applies solely for determining which form to file that says a 2% shareholder of an S-corporation, taking attribution into account, is considered an owner.

The client will only get taxed and penalized if she does not roll over the distribution. Have you spoken to the advisor who convinced her to start the plan in the first place? It sounds like the client just has cold feet about the plan; she might need some reassurance that everything is going to be ok, and the advisor (who she clearly trusts) might be the right person to do it.

What does "somewhat" related mean? Are all four businesses owned 100% by the same person? Then they are all part of the same controlled group. Did all four businesses in the controlled group adopt the same plan? If there are no other adopting employers outside the controlled group, it is a single employer plan.

Hello, welcome to the boards! Please do not consider this site an authority on anything. This is an informal discussion board for industry professionals. Answers you find on here might just as easily be wrong as correct. Even if you do find a correct answer, there could be subtleties or complexities to the answer which might not be apparent to you that would make the answer inapplicable in your situation. Nothing on this board should be relied upon without real, professional advice from an industry expert. I urge you to find a local TPA who can answer these questions for you. With that out of the way: In general, a plan does not have to cover employees who have not attained age 21 or worked 1000 hours in any year. For 401(k) plans, that is changing soon, as the SECURE Act added a rule requiring 401(k) plans to cover employees who worked at least 500 hours for 3 years. They aren't counting years before 2021, so these so-called Long-Term Part-Time employees will become eligible starting in 2024 (barring any further changes to the law). An employee who has met the plan's eligibility requirements is considered to be covered by the plan, even if they do not have a balance. A former employee with a balance is also considered to be covered, until they take a distribution (including an involuntary distribution). Plans which cover employees other than the 100% owner and their spouse, or partners in a partnership and their spouses, are covered by Title I of ERISA and must file Form 5500-SF (or the full Form 5500 in some cases). Plans which cover only the 100% owner and their spouse, or partners in a partnership and their spouses, must file Form 5500-EZ unless they are exempt from filing. Solely for purposes of determining whether a plan must file Form 5500-EZ, a 2% shareholder of an S-corporation, including attribution of ownership, is considered a partner in a partnership.

Would you file a 5330 in that case? Or file it with $0 due? It doesn't seem right that the sponsor should avoid the excise tax merely because the plan had a loss. Would it be reasonable to use the DOL calculator rates to calculate the excise tax, but use the actual rate of return (not less than zero) for purposes of making up the loss to the plan? edit: cathyw, you posted at almost the same time I did, and I think we are coming to the same conclusion based on the sources. It does seem like it might be a reasonable approach, but I am not aware of any practitioners currently doing it that way.

By doing at least the amount calculated by the DOL calculator, you could still file VFCP if you decide you want to. I would have a hard time giving the participants less than was actually withheld from their paychecks, even if the plan had a loss.

VCP

A plain reading of 4975(f)(5) supports that you would use the actual rate of return: If the earnings determined by the DOL calculator are less that the plan would have earned had the contributions been deposited timely, then that would put the plan in a worse financial situation, and therefore the PT would not be corrected. However, I'm also aware of Rev. Rul. 2006-38 which notes: So I think you could argue it either way. Personally, I will usually calculate it both ways and use the larger one.

I have no doubt that the ability of plan sponsors to foul up their plans in new and innovative ways will continue keep us all busy for the foreseeable future.

Not helpful at this point, but perhaps interesting, the Securing a Strong Retirement Act that was introduced in the House a few months ago would add another subparagraph to 401(b) that allows retroactive amendments up until the plan sponsor's tax deadline. The SSRA includes lots of other goodies that testing nerds like us will love, including allowing otherwise excludable employees to be disaggregated for top heavy, getting rid of the rule that creates controlled groups when there is a child under age 21, and allowing sole proprietors to make retroactive deferral elections when there are no other employees in the plan. No way of knowing if this bill will actually go anywhere, but it at least shows that Congress is aware of these issues.

Prior discussion, which leaned towards the conclusion that adoption of a participating employer agreement is an amendment, not a plan adoption: The safest way to approach it might be to have B adopt a new plan, permissively aggregate the two plans for testing, then merge them into a single plan later on.

Logically yes, but legally, no. If memory serves me right one of the bills currently floating around Congress has a provision intended to fix this and allow retroactive amendments.

It seems like it should be possible, as long as you know the dollar amount of the husband's accrued benefit (AB) and social security (SS). I am speaking about this from a purely theoretical standpoint as I have never actually encountered this situation. I think you could do it either as separate interest or shared payment. Set it up so that the husband's benefit (before the social security supplement) is equal to (AB - SS) / 2, and the wife's is (AB + SS) / 2. Putting some numbers on it, let's say the AB is $5,000 and the SS payment is $1,500. Without the QDRO, payments would be $6,500 prior to SSRA and $5,000 after SSRA. With the QDRO, payments to the husband will be (5000 - 1500)/2 + 1500(for the SS supplement) = 3250 prior to SSRA and 1750 after SSRA. Payments to the wife will be (5000 + 1500)/2 = 3250 both before and after the husband's SSRA.

I am speaking well outside my area of expertise here, but I believe immigration status and national origin are protected statuses for things like employment benefits. You may want to consult with an attorney before you exclude somebody from your plan merely because they are not a resident alien.

E will no longer be part of the same controlled group after the sale. Based on your description it is possible that a management function ASG might still exist, which would have the same effect as being a controlled group for most purposes. If there is no ASG, and if no participation agreements are revoked, the plan will become a MEP on 8/1 since there would be more than one unrelated employer participating in the same plan. That may or may not be what they wanted.