C. B. Zeller

What caused the excess? Was it a 415 (annual additions) excess, meaning that the sum of all contributions to your account was greater than your net earned income? Or did the total employer contributions exceed 25% of your net earned income, exceeding the deduction limit? Or was it something else?

Sometimes it works out that way. Of course, sometimes the owner is paying their spouse $20,000 and they are deferring $19,500 of it, so it works both ways.

Apparently your formula is known as the "Simple Dietz Method" https://en.wikipedia.org/wiki/Simple_Dietz_method

The only type of DC plan that I can think of that would be impacted by a change in the NRA would be a target benefit plan, and those types of designs are quite rare. In a typical profit sharing plan, the plan's definition of NRA really only ever comes into play when a participant who is less than fully vested in employer contributions attains normal retirement age and becomes fully vested as a result. Since NRA can be defined as the later of age 65 and 5 years of plan participation, and the longest permissible vesting schedule in a DC plan is 6 years, it is rare for this to occur. But it does happen sometimes, usually either because a participant failed to work enough hours each year to earn a year of vesting service, or because a participant who terminated employment delayed their distribution until NRA.

The failsafe is never your only hope. You can do an -11(g) amendment to correct a failed coverage test. However if the plan document says that a coverage failure will be corrected under the failsafe then you have to follow the terms of the plan document and apply the failsafe. This is a big reason why I advise against the use of the failsafe is most cases; once it's in the document you are stuck with it. You have a lot more flexibility with an -11(g) amendment to correct the failure in the way you want.

Yes. If they employee had any deferrals under a 125 plan, don't forget to subtract those out as well.

That would be an extremely poorly designed fail-safe if it could bring in HCEs who were not benefiting. Can the plan pass coverage on the average benefits test? Hopefully its use is not precluded by the plan document.

This would require a change in the law, as age 65 comes out of IRC 401(a)(14). Since you posted this on the 401(k) forum, what would be the practical effect of the change for a 401(k) plan? Normal retirement age doesn't really mean much in a 401(k) plan.

I assume you're talking about the actual rate of return (used to adjust the credit balances)? The effective interest rate is based on the funding target and has nothing to do with plan assets. Let's simplify your formula a little. Ending balance B = Beginning Balance A + contributions - distributions + gain/loss I. I am also going to use r for rate of return because it's confusing to have two different "I"s in the formula, and I am easily confused! r = 2 * I / (A + (A + contribs - distribs + I) - I) r = 2 * I / (2 * A + contribs - distribs) r = I / (A + 1/2(contribs - distribs)) This is just the formula for a dollar-weighted rate of return using simple interest and assuming that all contributions and distributions are made exactly in the middle of the year. Personally I would not use this unless it would be reasonable under the circumstances to assume that all contributions and distributions happened in the middle of the year (or were made evenly throughout the year). But even then, it's easy to use actual dates and get a more accurate value. I will point out that if you are currently using this formula, changing it would likely constitute a change in funding method, which would require IRS approval. However it might be eligible for automatic approval under Rev Proc 2017-56.

Is the participant otherwise excludable? If not then they must get the gateway minimum. Read your plan document carefully and make sure it provides a waiver of the last day/1000 hour rule for a participant who needs to receive the gateway minimum under 1.401(a)(4)-9. If it does not then you will need an -11(g) amendment to grant them the additional PS.

Just because the plan document says new comp does not mean you have to cross-test. The allocation you're describing would pass the general test on allocation rates but you can't do it if your plan document doesn't allow allocations by individual groups.

Mike and ESOP Guy are correct of course. They must follow the terms of the plan document as written. The best way to get them where they want to be, assuming we are talking about 2020, is to make no contribution under the plan (assuming the amount is completely discretionary) and adopt a new plan retroactive to 1/1/2020 with an individual groups (a.k.a. "new comp") allocation formula. They can then merge the original plan into the new one later on so they are not stuck maintaining two plans forever.

I think you're right - I must have missed that section about the effective date that applies to the segment rates. The way I'm reading it is that the sponsor has to make an affirmative election to continue using the old segment rates for 2020 or 2021. So for a sponsor who fails to make any elections, the new segment rates come into effect for 2020 and the new shortfall amortization for 2022. Effen, thanks for the insight. It's disheartening that the new rules undo a lot of the plan to get single-employer plans adequately funded under PPA. Perhaps ironically, the higher PBGC premiums might actually be justified now if plans are going to be less well-funded as a result of the changes made by ARPA.

Agreed on PBGC premiums. It's disappointing that Congress didn't act to stabilize premiums in a similar manner to funding. Hopefully ARA will lobby for it whenever the next round of relief comes up. It's insane that the 1st segment for minimum funding under ARPA for 2021 is now 4.75% while for PBGC premiums it can be as low as 0.51%.

Sure, why not?

Compensation for self-employed individuals is always net earned income, regardless of whatever definition is chosen for employees.

The Rescue Plan Act was passed by the House today and is expected to be signed by the president on Friday. The bill adjusts (increases) the segment rates for minimum funding starting in 2020, and (optionally for plan years starting in 2019, 2020, and 2021, and starting for everyone in 2022) replaces the 7-year shortfall amortization with a 15-year amortization. How are you planning to handle the changes? Hopefully most of us have our 1/1/2020 valuations finished by now, are you contacting all your clients and letting them know they should expect a new minimum contribution calc? Are you going to discuss the shortfall amortization option with them, or just opt them all in (or out)? Or wait until your software supports it before even bringing it up? Any other ideas or concerns about the new law?

I've got a better solution for this. Click on your username at the top, or on mobile, open the menu and go to Account. Then go to Account Settings. Go to Content View Behavior and choose Take me to comments I haven't read, and Save. Seems to be working for me on both desktop and mobile.

Nope. And there may be issues with a 412(d)(2) amendment as well. If you have an hour, Kevin Donovan did an "Actuarial Grab Bag" webcast a few weeks ago that covers these and other issues and goes through some creative solutions. I highly recommend it. It's on ASPPA's web site.

IRC 401(a)(11). In order for a 401(k) plan to be exempt from the qualified joint & survivor annuity rules, the participant's spouse must be their 100% beneficiary, unless waived.

There's nothing that says MEPs have to be huge plans. You can have tiny MEPs - we have several in our office. The basic things you need to know about a MEP are: Coverage, non-discrimination and top heavy are done as if they were separate plans Service is combined for eligibility and vesting On the 5500-SF, check the box for multiple employer plan and see the instructions for the required attachment

If you go into the thread I linked @RatherBeGolfing explains the whole story. The short version is that starting in 2020 the instructions for the 5500-EZ say that a partner includes a 2% S-corp shareholder, as defined in IRC 1372(b), and 1372(b) references 318.

The plan might also allow you to designate a non-spouse as your beneficiary.

I sent you a DM

As far as I can tell, the tax laws of NY state treat distributions from the NYC teachers' 403(b) plan as non-taxable. Is that fair to others who receive distributions from 403(b) plans in New York that do not get the special treatment afforded to the NYC teachers' plan? I don't know, but that's a subject for the citizens of the state of New York and their elected representatives. If people paying their fair share of taxes is your main concern, it seems to me there are far bigger fish to fry.