C. B. Zeller

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.

C/T = what....cross-tested? Please don't make up abbreviations; even if you think it should be obvious, it makes your post harder to read and makes readers spend time trying to figure out what you're asking instead of thinking about the answer to your question. Anyway, what you've suggested sounds fine to me. The only thing to remember is that the gateway applies before you restructure into component plans, so the NHCE in the component being tested on allocation rate still has to get at least 5%. But it sounds like you have that covered.

With SECURE a "no" is mostly the same as a "maybe" - either way you can decide up to December 1 if you're going to be 3% safe harbor for the year. But being "maybe" and providing the notice lets you do a couple of extra things - you can make an ACP safe harbor match, and (if your notice contains the "maybe not" language) you can suspend the safe harbor without the need to be operating at an economic loss. I am having a hard time figuring out when the "maybe not" would ever be useful in this situation, you would have to basically decide in October that you wanted to be safe harbor and then change your mind a couple of weeks later. Preserving the option to do an ACP safe harbor match though is likely worth the effort to provide the notice in most cases. But I wouldn't sweat it if you missed any.

ERISApedia had a webcast a while back with the info you're probably looking for. You can watch the recording for free at https://www.erisapedia.com/webcasts

What does the plan document say?