C. B. Zeller

Wow, talk about thread necromancy. I was a senior in high school when this thread was posted. This thread is almost as old as some of the people working at my company. I agree with Bill, you can never add deferrals retroactively. They could add deferrals for 2021. As long as the deferral feature is effective no later than 10/1/2021, they can also be safe harbor for 2021. If you want to talk about testing options, I would recommend making a new post with more details in either the DB forum or the testing forum.

There is a rule in the 401(a)(4) regulations that prohibits discriminatory timing of plan amendments. There isn't a mathematical test, it is just a facts-and-circumstances deal. Whatever you end up doing, be careful that it doesn't have the effect of discriminating in favor of HCEs.

Since a sole proprietor's income isn't known until their tax return is completed, they are not required to deposit their deferrals until their income is known. However they are still required to make an election to defer before the end of the plan year.

If it ever becomes law, section 320 of the Securing a Strong Retirement Act would permit exactly this. However the fact that it is a provision in a new bill is a clear indication that it is not permissible under current law. https://www.congress.gov/bill/117th-congress/house-bill/2954/text?s=1#toc-H1C6C2AD2785149CFA7E8B441E3DC0C7E

If they filed and used the extension for their tax return, then the extended due date applies for plan adoption.

The excluded class here is the employees of the second employer, which is a member of the same controlled group as the plan sponsor but which has not adopted the plan. Is that a reasonable classification? I don't know for sure, but it doesn't seem unreasonable on its face.

The regulations under IRC 430 do provide sex-distinct mortality tables for funding purposes. However there is no guidance on how to apply them - how do you determine whether a participant is male or female? It's one of those questions that's easy to answer until it isn't. A reasonable approach (not supported by any authority that I know of, just my own speculation) might be to assume a 50% chance that the male table applies and a 50% chance that the female table applies. It just so happens that the unisex table, aka the 417(e) table, is just that - a 50/50 weighting of the male and female combined funding tables. So if you use the unisex table for funding, you are essentially saying that you don't know which table should apply to the participants and you have to assume equal probability that they might be male or female. As mentioned, you always have to use unisex tables for benefits.

I don't think you're going to find anything documented, but the only thing I can think of would be to estimate q_62.45 by assuming either UDD or constant force and interpolating between q_62 and q_63. Then calculate D_62.45 and N_62.45 to determine your annuity factor.

If they did not extend their tax return for 2020 then it is too late to adopt a plan for 2020. IRC 401(b)(2) references the deadline of the employer's tax return, including extensions. If there was no extension for the tax return then there is no extension for the deadline to adopt a plan.

It is not entirely clear whether adding a member of a controlled group to an existing plan that is already sponsored by another member of the controlled group counts as an amendment or a plan adoption. If it is a plan adoption, then you should be able to do it retroactively under the new 401(b)(2) as added by the SECURE Act. If it is not a plan adoption, then it is an amendment, and it should be able to be adopted retroactively under the rules of 1.401(a)(4)-11(g) for purposes of correcting a failed coverage test. Either way I think you should be able to do it. About the ABT, read your plan document carefully. Even with the failsafe language, you might not be precluded from satisfying the coverage test using the ABT. If the plan allows discretionary profit sharing contributions, then you may not even need to use a QNEC.

IRC 4975, if it is a prohibited transaction (which it sure sounds like to me). It also may be a violation of IRC 401(a)(2) which is disqualifying. If the plan is subject to Title I, then it is also likely a violation of ERISA 404(a)(1) and the trustee may be personally liable for a fiduciary breach.

From what you described, it certainly sounds like the plan should have been covered. The PBGC charges both interest and a penalty on late payments. Interest rates are found here and late payment charges are found in the instructions for each year's premium filing. However the late payment charge, by law, cannot exceed 100% of the missed premium for that year. If the plan has always been well-funded, and there was no variable-rate premium, then you can use the flat rate premium multiplied by 4 (for the 4 participants) as an upper bound for the late payment charge. Historic premium rates are published by the PBGC, for a list see the table on page 43 here. You might want to contact the PBGC in advance and see if they have any suggestions.

They must merge. The successor plan rule prevents company A (which is now the sponsor of two plans) from terminating the B plan while continuing to maintain the A plan. If company B had terminated their plan before the merger, it would not have been an issue, but it is now too late.

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.