C. B. Zeller

This type of plan design relies on the ability to disaggregate the portion of the plan that covers otherwise excludable employees. Under this design, you have two groups of employees and two disaggregated plans. The first plan covers the group of employees who have satisfied the minimum age and service conditions under 410(a). That plan satisfies the ADP test by way of the safe harbor contribution, which is provided to all NHCEs (and optionally HCEs) who are eligible to defer. The second plan covers those employees who have not yet satisfied the minimum age and service conditions under 410(a). This plan will typically not cover any HCEs, since an employee has to have prior year compensation above the applicable limit to be considered an HCE, and employees who do not have a year of service will typically not have prior year compensation that high (if they have any at all). This plan satisfies the ADP test automatically as long as it covers no HCEs. If you have any employee who will be an HCE before they meet the statutory eligibility requirements, you can have a problem with the otherwise excludable group. Usually this would happen if someone who is a 5% owner by attribution (such as the owner's spouse or child) becomes an employee. If that is a concern you may want to specify in the plan document that 5% owners have to complete a year of service before they become eligible to defer. As sb0828 mentioned, if the plan is top heavy, they lose the top heavy exemption with this plan design. If we are talking about a 3% safe harbor non-elective contribution, then the sponsor is going to end up making the 3% contribution for all employees, except those who terminated before meeting statutory eligibility. The contribution for the employees who have not met statutory eligibility can be subject to a vesting schedule, although if the employer was not intending on making other contributions which would be subject to a vesting schedule then this may be more administrative hassle than they were prepared to deal with.

1. Yes 2. There is no mandated method, any reasonable method should be fine. A reasonable method might be to allocate the contribution in proportion to the pay credits earned for the year.

If you are filing 5500-SF you do not need to attach Schedule D.

At least one formerly prolific contributor to these forums believes that the summary substantiation method should be avoided, although he did not go into much detail as to why. Under the new hardship regulations, a plan administrator is also required to obtain a participant's written certification that they do not have enough cash or liquid assets to satisfy the need. The plan administrator may rely on that certification unless they have actual knowledge to the contrary. A plan sponsor may limit hardship distributions to 2 per year.

They may or may not send more letters in the future. They may or may not also decide to audit the plan. I am not aware of anything that would allow a multiemployer plan to be exempt from the fiduciary rules that apply to plan assets, but multiemployer plans are outside my area of expertise.

Did they report late contributions on the 5500? These letters are usually sent in response to that. It's just the DOL saying, "Hey, we noticed you had some late contributions, you might want to correct the fiduciary failure under VFCP." You don't have to - the "V" stands for "voluntary," after all - but if the client wants to dot every i and cross every t they could. The fix under VFCP is basically to make up the lost earnings and pay the excise tax under IRC 4975. Hopefully the plan sponsor already did that. Then they would just need to file the VFCP form.

What specifically are you looking for in this rev proc? Because 2017-56 does address both a change in the valuation date to the first day of the plan year (at any time), and a change in the valuation date for a terminating plan from the last day of the year to the termination date. If you look at the end of 2017-56, it states that it modifies rev proc 2000-40 and announcements 2010-3 and 2015-3. Are any of those what you were looking for?

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.