C. B. Zeller

You and your spouse would generally be considered to own each others' ownership interest, unless you meet the requirements for the spousal non-involvement exception. If you do not meet the requirements for the exemption then a controlled group will exist. If you have a child under age 21 together, then a controlled group exists regardless. For the new S-corp, there would not be a controlled group with your sole prop. However, if your business is a service organization, then there might be an affiliated service group, which has a similar effect to being part of a controlled group. The rules around affiliated service group status are complex and highly fact-dependent. You might want to hire an attorney who specializes in these sorts of findings to analyze your situation and give you a determination. Actually, I lied in my last paragraph. There will be a controlled group with your sole prop and the new S-corp, but solely for purposes of the 415 annual additions limit, which defines a controlled group as 50% common ownership instead of the 80% that applies for other purposes. If you are not going to be participating in the S-corp's retirement plan, then this is a non-issue. A multiemployer plan is a particular type of plan that is sponsored generally by a union. That is completely different than a multiple employer plan, which is what you would have if a plan were adopted by more than one unrelated employer. Of course, if they are part of a controlled group or affiliated service group, then a single employer plan can cover multiple employers. What do you mean the terminology is confusing, it makes perfect sense...

Why? If this was a suspension under the CARES Act then you can extend the term of the loan by up to 1 year. See section 5 of Notice 2020-50. If you're not extending the term of the loan then it makes perfect sense. Let's say the outstanding balance when the suspension started was $25,000 with 57 payments remaining. Then you decide to eliminate 9 of those payments. Even if it wasn't increased with interest, dividing the balance by a smaller number of remaining payments is going to result in a larger installment amount. I believe it would. However if the plan permits participants to refinance their loans it may be possible for them to replace the loan with a new loan that has a different interest rate.

Maybe this is a silly question, but why don't we know the 2016 ADP? Last I checked we are past 12/31/2016. But for the sake of discussion I will assume it isn't known at the time the correction is being made. When EPCRS does not specify a correction method for a given situation, you should do something reasonable under the circumstances. Any of the following might be reasonable: Use the 2015 ADP Use the average ADP from 2010-2015 Use the highest ADP from 2010-2015 Use the deferral percentage that was actually elected effective 2/15/2016 There are doubtlessly other reasonable methods as well. If you are filing VCP because this is a significant failure then you will have the opportunity to get affirmative approval for your correction method from the IRS.

Free worked solutions to some older EA-1 exams are available here: https://studymanuals.com/Product/Errata/56 EA-1 is a niche exam; the number of test takers is very low compared to SOA FM or LTAM (exam MLC is no longer offered). As a result you are less likely to find resources tailored to it.

The prohibited transaction exemption under IRC 4975(d)(1) also requires that the loan bear a "reasonable" rate of interest. A rate of interest that is too high opens the door for abuse. It could be used as an avoidance of the annual contribution limits. If the IRS are not enforcing this then they are failing to do their jobs, in my opinion. For example, consider a loan of $50,000, amortized into monthly payments over 5 years at an annual interest rate of 5%. The amount of each monthly payment is $943.56. The sum of the scheduled repayments is 60 x 943.56 = 56,613.70. Under the recordkeeping system that MoJo described, the participant could immediately repay the loan by making a single payment of $56,613.70. That would have the same effect as allowing the participant to make an additional contribution of $6,613.70 without regard to any applicable limits. The rate of interest in this case would be 6,613.70 / 50,000 = 13.23%. If the loan were paid back the next day, the equivalent nominal interest rate on an annual basis would be 13.23 x 365 = 4,828%.

I agree with Belgarath. In order for the employee to be key for 2020, they would have had to satisfy one of the three conditions during 2019. It appears that they did not, since they were not an owner, and they were an officer but earned less than the required amount of compensation. Don't forget there is a limit on the maximum number of officers taken into account when determining who is a key employee. Depending on the size of the organization and the number and compensation of other officers, this employee might still be considered non-key for 2021.

In other words, if a participant repays a substantial amount (but not the entire amount) of their loan in advance, they will be charged the amount of interest that was due on the original amount of principal? There is no way that this would result in a commercially reasonable rate of interest. The loan would immediately become a prohibited transaction.

One more thing to consider - the plan administrator has a duty to ensure that the loan is repaid, as any amount that remains outstanding is at risk of default. If the plan administrator chooses not to allow prepayment, they are increasing the risk to the plan, perhaps imprudently so. If the plan is participant-directed then this may be less of a concern though.

The 401(k) portion of the plan still has to be in effect for at least 3 months to be able to use a safe harbor. SECURE didn't change that. You are spot on about the BRF issue. The reg that is violated is 1.401(a)(4)-4. The right to make an elective deferral (at any rate) was not available to the NHCEs. It was available to HCEs. Boom - instant current availability failure.

Does it actually exclude partners though? The document that we use (FT William) defines "Employee" to mean "any individual who is employed by the Employer, including a Self-Employed Individual." Guaranteed payments are not compensation for plan purposes. For a partner, compensation is net earned income. Net earned income is typically not known until the partnership's tax return is finalized, so that is when the income is considered to be available to the partner and they can make their contribution. The partner can make their deferral contributions out of their guaranteed payments if they wish, however it is going to cause problems if it turns out later that their compensation (net earned income) is not enough to support the deferrals that were made. Since the plan was not using net earned income for this participant in the past, they should go back and calculate his true compensation for past years. They may need to re-run their ADP tests.

The option to electronically file a 5500-SF for a one-participant plan went away on January 1, 2021. If you filed during 2020 using the 2019 5500-SF, you should be fine.

Not related to your question, but This is not quite correct. To be a 5% owner you must own more than 5% of the company. Someone who owns exactly 5% is not a 5% owner. 416(i)(1)(B)(i)

The reg section you are quoting is talking about plans that have mandatory employee contributions. Elective deferrals, by definition, can not be mandatory contributions (otherwise they wouldn't be "elective"). I don't see how the vesting provisions you described can be legal in a qualified plan. Do they have a determination letter?

Your use of the term "management group" is confusing, because there is a type of affiliated service group called a management function group, but that is not what you were asking about. I'll refer to the organization with the 50 partners as the partnership/LLC. The short answer is, if they are unrelated employers then separate 415 limits apply. When you say they want to max out in both 401(k) plans, presumably you mean the annual additions limit in both plans, since the 402(g) limit applies on an individual basis. The tricky part is determining if they are unrelated employers. With that many partners, it is unlikely to be a controlled group. It is possible that an ASG exists though. Do any of the 50 partners of the partnership/LLC have any ownership in the network? What kind of entity is the network? Does the partnership/LLC receive any income from performing services for the network? There are probably other relevant questions - determining ASG status can be complex.

If you are over age 59-1/2, the 10% penalty for early withdrawal does not apply. If you meet the definition of a qualified individual under the CARES Act, you can waive the 10% penalty tax (if applicable), plus you can spread the income over 3 years for federal income tax purposes of up to $100,000 of your distribution.

If it was distributed by the plan in 2020, then it is taxable to the participant in 2020 and a 2020 1099-R should be issued. Whether the participant cashes the check in 2020 or 2021 is irrelevant. See Rev. Rul. 2019-19.

They will have a qualification failure and need to correct it under EPCRS. If eligible to self-correct, they have until the end of the 2022 plan year to do so, or longer if it is not a significant failure.

This sentence doesn't make sense to me unless the wife is an employee of the husband's business. Is she?

Not sure I agree. The 30-day advance notice applies when you suspend or reduce safe harbor contributions mid-year. Since the year hasn't started yet, I don't see a problem (employee relations notwithstanding) amending out of safe harbor completely, effective 1/1/2021.

Strictly speaking, the IRS cares about whether you are required to pay a PBGC premium, not whether you actually paid it. Assuming that the plan is paying a PBGC premium if and only if it is required to do so, then you are correct.

The way I usually calculate the max deduction is like this, which works in most situations: Calculate the DB max under 404(o). This is always the DB max, although you might choose to do a smaller amount in order to have a larger result in step 3. Calculate 25% of comp, within the meaning of 404(a)(3). If the DB plan is covered by PBGC, stop here. This amount is the DC max. If the there are no employees who participate in both plans, stop here. This amount is the DC max. Subtract the DB contribution from the amount calculated in step 2, but not less than zero. Add 6% of comp to the amount calculated in step 3. This is the DC max.

No, you have it backwards. If they are exempt (that is, not covered by PBGC) then the combined deduction limit applies. If they are not exempt (they are covered by PBGC) then the combined limit does not apply.

The combined deduction limit of 404(a)(7) applies only when the DB plan is exempt from PBGC coverage. Is the plan covered by PBGC? Before you answer, note that the PBGC's position (stated here) is that spousal attribution of ownership applies only in the case of a corporation. If the business is a sole proprietorship then it is not clear that they would fall under the exemption for a substantial owners plan. They might still be exempt if they are a professional services employer.

That's a fun question! I always wonder when these strangely specific requirements end up in the law, who they were intended to benefit. I downloaded the 2019 5500 data set from the DOL's website and filtered it down to plan type=multiemployer, plan effective date<1970, and business code starts with 232, 236, or 238. There are 537 candidates. Edit: Silly me, I forgot that welfare plans file a 5500 too. Filtered to only include plans that attached a schedule R, it is down to 255 candidates. Edit 2: Since 401(a)(36) only applies to pension plans, filtered out any plans where the characteristic codes did not include a 1, 2B, or 2C. Down to 248 candidates.

It's impossible to know, because it will depend heavily on the interest rate. If your account is gaining 5% a year it would be very different than if it were gaining 2% a year. One thing you could do, if you know you want to take a withdrawal every month for exactly 25 years, that means you will have 12 x 25 = 300 total withdrawals. In the first month, take 1/300th of the account, in the second month, take 1/299th of the remaining account, and so on. The amount of the withdrawal will fluctuate with the gains or losses in the account each month but it will be approximately level. Another option is to look into using your account balance to purchase an annuity.