C. B. Zeller

Would they be eligible to use the PBGC's missing participant program for DC plans? https://www.pbgc.gov/prac/missing-p-defined-contribution

I am not a tax expert but my understanding is that 401(k) contributions are not included in salary reported on the corporate tax return (just as they are not included in Box 1 of the W-2). They are deducted as pension contributions. From the instructions to Form 1120S:

This is what EPCRS has to say about it, RP 2019-19 sec 6.02(5) The VFCP calculator is a last resort. Even though it may be "inconvenient or burdensome" to determine the actual rate of return you still have to do it, or use one of the simplified methods I mentioned in my previous post, unless it is absolutely impossible to obtain the necessary information. Even then, I think that using the plan's earnings as reported on the 5500 to calculate an estimated rate of return would be more reasonable than the VFCP calculator.

I've never seen it done either but it certainly seems like you could. This is from the instructions for Schedule H: I would advise checking with the auditor first and make sure they are on board before doing this.

Rev Proc 2019-19 Appendix B section 3 offers some simplified methods of calculating earnings.

Thanks, Belgarath, for the on-point rev ruling. Here are the good bits: So if you can classify the fee reimbursements as "restorative payments" then they would not be treated as contributions. However: If the fees being paid out of the plan are reasonable, then there is probably not a reasonable risk of fiduciary breach, and therefore they could not be reimbursed with restorative payments. Time to find a new custodian.

Is the 3 months of service eligibility for deferrals only or for deferrals and safe harbor match? If it's 1 year of service for the match, and you have any employees who can defer but are not eligible for the safe harbor match then you lose the top heavy exemption.

I'm guessing the Key is under 50, since her contributions were refunded instead of being reclassified as catch-up? There are some tricks you can pull with catch-up and the top heavy minimum, but if the owner/key employee isn't eligible for catch-up then it isn't going to help. Does anyone know off the top of their head whether they can determine the alternative top heavy minimum using the net contribution after the refund? Meaning, key employee contribution rate=500/comp instead of 2500/comp. I agree with BG - this seems like a major plan design oversight.

I don't see how. The 1/1/2020 valuation has to be run using assumptions that were reasonable on the valuation date. If at the end of 2019 it was reasonable to expect that the owner would work 1000 hours in the upcoming plan year then he would be expected to accrue a benefit and have a non-zero target normal cost. If the sponsor gave you information that would make it reasonable to assume as of 1/1/2020 that he would be working less than 1000 hours in 2020 then you could take that into account, and as you said it would be a change in assumptions. If you wanted to change the valuation date to the last day of the year, then you could take into account the actual hours worked during the year, but that would be a change in method that would require IRS approval. If you watched Kevin Donovan's ASEA webcast earlier this year (or attended his session at ASPPA All Access last year) he presented a possible workaround to this type of situation that will not eliminate the MRC, but could substantially reduce it, by amending the plan's formula to move the accrual for the year into the funding target and then you can amortize it over 7 (or, thanks to ARPA, now 15) years.

He is referring to the last sentence of Code section 404(a)(7)(A).

I'll link my own post and point you here: A SEP is treated like a DC plan in this calculation.

Pretty confident. 401(a)(9)(C) as amended by SECURE reads The owner will have an RMD for 2022 if he defers in 2021.

1. You can determine the account balance either on a cash basis, or on an accrual basis. If you use a cash basis, his account balance on 12/31/2020 would be zero, so his 2021 RMD would be zero. Has the business been around for a while? For RMD purposes, you are only a 5% owner if you owned 5% during the year you attained age 70½ (or 72, post-2019). If he started the business at age 72, for example, then he would have been a 0% owner in the year he turned 70½ (because the business didn't exist) and therefore would not be a 5% owner and would not be required to commence RMDs until actual termination of employment. 2. I don't see any problems.

I think you have a problem with the refinanced amount plus the highest outstanding balance in the last year being greater than $50,000. The highest outstanding balance in the last year was probably on the day before the first repayment was made in 2021, so take $50,000, subtract that amount, and the difference should be the maximum they can add by refinancing. The loan payments do have to be level throughout the term of the loan, so for all remaining 69 months. If the new payment is at least equal to the amount that would be needed to amortize the additional loan amount over 60 months on its own, then you should be fine. For example, it would be a problem if the outstanding balance on the original loan was $1,000, and they wanted to add $40,000 by refinancing. The amount that would amortize $41,000 over 69 months would not be enough to amortize $40,000 over 60 months.

Then the maximum on the DB plan would be the greater of 6% of comp, or the amount necessary to satisfy minimum funding; assuming that amount does not exceed the maximum under 404(o). I'll admit I was not considering DC plans with large fixed contributions when I wrote that.

I'm not aware of any definitive guidance on the subject. However the buyer should be aware that failure to provide the 204(h) notice carries a substantial penalty. They may wish to consider the cost of the penalty at 30 days multiplied by the number of participants versus the minimum required contribution that would be owed if the plan were frozen 30 days later. The rest of this post is pure conjecture. I would advise you to disregard it entirely and seek ERISA counsel. If I were going to rely on the exception to the 45-day requirement, I would want it to be as clear as possible that the amendment is being made in connection with the acquisition of the plan sponsor, and not for any other reason. For example, I might do the following: In the 204(h) notice itself, state that "In connection with the acquisition of Sponsor Co by Bigname Inc., the Sponsor Co. Defined Benefit Plan is being amended..." Put similar language in the resolution adopting the amendment, e.g. "Whereas Bigname Inc has agreed to acquire Sponsor Co on the condition that the Sponsor Co. Defined Benefit Plan be terminated..." Commit in writing - either in the amendment itself or by a separate resolution - that if the acquisition falls through, or is not completed by X date, that the termination is rescinded and benefit accruals will be reinstated retroactive to the date of the freeze.

I think that as long as the amount added to the loan will be fully repaid within 60 months, it is ok. The amount outstanding from the original loan as of the refinance date could be repaid as late as 69 months from the refinance date.

In my experience, brokerage account statements are unlikely to include any of the disclosures required by ERISA. However you may want to ask the brokerage firm directly. Maybe they can provide you with a sample statement for your review. If no plan-related expenses are actually charged against the participants' accounts, then the expense-related disclosures of 404a-5 would not apply. The disclosures relating to direction of investments, plus the disclosures relating to diversification required under sec. 105(a) would still need to be provided somehow.

Just to be entirely clear, there is no 6% limit on the deductible contribution to the cash balance plan. When an employer sponsors overlapping DB and DC plans, and the contribution to the (non-PBGC) DB plan exceeds 25% of compensation, then the deduction on the DC plan is limited to 6% of compensation.

Depends how "unrelated" they are. Even if there is not enough common ownership to create a controlled group under 414(b)-(c), there might still be a controlled group under 415(h).

Friendly Benefitslink Inventors!

The plan is required to ask for the money back, but there is no mechanism allowing the plan to forcibly recoup it. However, the plan has a qualification issue created by allowing the participant to take an impermissible distribution. If I were the plan sponsor, I would be wanting the recordkeeper who allowed the distribution to pay for a VCP filing to correct the failure.

Assuming you did not make a calendar year lookback election, you will need to know 6/30 year-end comp and calendar year comp for all employees in both companies. For A's plan year beginning 7/1/2020, employees in both A and B who had comp greater than the limit for the period 7/1/2019-6/30/2020 will be HCEs when doing A's testing. For B's plan year beginning 1/1/2020, employees in both A and B who had comp greater than the limit for the period 1/1/2019-12/31/2020 will be HCEs when doing B's testing.

Don't forget the DOL can impose substantial penalties for a late filing in addition to the IRS. The DOL penalty is currently $2,233 a day. DFVCP by comparison is $10 a day with a cap of $750. I think the choice is clear. Also, don't file the 5500-SF saying that it was filed under 5588, if 5588 was not filed. Remember the plan administrator is signing under penalty of perjury. Check the box for DFVCP and pay the $10.

You can require 2 years of service if all contributions will be 100% vested. The 2 year of service rule is not available for 401(k) deferrals. You can still use semiannual entry dates with the 2 year of service rule. The way 410(a) is written, it says that if the plan provides 100% vesting then you can just replace "1 year of service" with "2 years of service" and nothing else changes. As long as the employee becomes a participant no later than the earlier of the first day of the next plan year or 6 months after completing 2 years of service, then they meet the requirements. Be careful with how you define your eligibility computation period when using this rule. The initial period always starts on the employee's date of hire, but the default in many plans is to have it switch to the plan year after the first period. If you do it that way the second period could begin while the first period is still ongoing. For example, if you have somebody whose date of hire is April 1, 2021, they would complete their first year of service on March 31, 2022. If the eligibility computation period switches to the plan year, then the second period begins on January 1, 2022 (assuming the plan year is the calendar year) and they would complete a second year of eligibility service on December 31, 022 and enter the plan on January 1, 2023. If the intention is for them to become eligible no earlier than their 2nd anniversary of hire, then you have to make sure that the eligibility computation period remains on the anniversary year and does not switch to the plan year.