C. B. Zeller

Do you need to revise any of the dates in your post? In general, the definition of compensation used for allocations does not need to be the same definition used for testing.

The rule is that it has to be for repair of damage to the participant's principal residence due to a casualty loss that would be deductible under sec. 165, but without regard to whether it was located within a federally declared disaster area. The situation you described sounds to me like it would qualify but I am not an expert on section 165.

Do DFVCP now. The fee to file is small enough that it shouldn't even be a question. Admit the mistake to the client and explain that you are going to eat the costs since it was your mistake. Consider yourself lucky that you caught it before the client did, or worse yet, the IRS or DOL.

If I were the fiduciary in this case, I would invest in the manner of a prudent person familiar with such matters. Furthermore I would diversify the investments in order to reduce the risk of a large loss. For real though, there is no reason that the ages of the participants need to dictate the plan's investment strategy. Assuming that the plan provides that gains and losses will be allocated to each participant's account in the same manner, then the fiduciary needs to decide what constitutes an appropriate level of risk and return for the plan and invest accordingly. Any age-based investment strategy (e.g. higher risk for younger participants and lower risk for those closer to retirement) would by design be counter to the interests of certain segments of the plan population. A particularly sophisticated fiduciary might seek to use an immunization strategy to hedge against investment losses. This is typically more applicable to a defined benefit plan where the plan has fixed liabilities that it can anticipate, but the concept could apply to a DC plan as well. However the costs of doing so may be prohibitive for a small plan.

Good call Peter. Here is some more reading material on the topic from Ms. Ferenczy if you are so inclined: https://ferenczylaw.com/flashpoint-surprise-you-are-or-are-not-a-professional-and-you-are-or-are-not-covered-by-the-pbgc/

The 401(k) portion of the plan has to be in effect for at least 3 months in the first plan year. They would have to adopt by 9/30/2021 if they want to be safe harbor for 2021.

The SECURE Act didn't change anything with respect to safe harbor match notices. It still has to be provided within a reasonable amount of time before the beginning of the plan year. 30 days before the beginning of the plan year is automatically considered reasonable for this purpose.

I don't see a problem here. As long as no HCE is getting a higher rate of match than an NHCE, taking into account both the discretionary and fixed contributions, it should be fine. It sounds like the intention of this design is to allow them to satisfy the ADP safe harbor and then have the option to make or not make a match for the HCEs each year. Am I missing something?

Your question could be worded a little better. However what I think you meant to ask is, "Under what circumstances would a plan which covers only the substantial owner(s) of a business and their spouse(s) not be exempt from PBGC coverage under the substantial owners exemption?" This might shed some light on the question: https://www.pbgc.gov/prac/other-guidance/insurance-coverage#substantial If spousal attribution only applies in the case of a corporation, then in the case of a partnership, the spouse must themselves directly or indirectly own more than 10% of the profits or capital interest (since spousal attribution doesn't apply, I am not sure what it would mean to "indirectly" own an interest in a partnership, I am thinking community property maybe). In the case of a sole proprietorship, the spouse could never be a substantial owner. If the business is a professional service employer, then they could still be exempt even if the spouse is not considered a substantial owner.

#1 and #3, definitely yes. #2 probably also yes, but there might be a nondiscrimination issue if the group of actives is predominantly HCE. There are some rules about how nondiscrimination applies to former employees that I don't know off the top of my head. Actually come to think of it there might be nondiscrimination issues with #1 depending on the number of HCEs and NHCEs who are eligible for each vesting schedule. If they go with #1 or #2, this may sound silly but make sure they know what to do with forfeitures. Since the plan is currently 100% vesting they probably have never had to do a forfeiture allocation before. If they go with #2, what happens if one of the former employees is re-hired?

No way. DB plans are subject to the minimum participation rules of 401(a)(26). At least 40% of the employees (or 50, if less) have to get a meaningful benefit in the plan.

1.414(c)-4(b)(5)(ii) An individual shall not be considered to own an interest in an organization owned, directly or indirectly, by or for his or her spouse on any day of a taxable year of such organization, provided that each of the following conditions are satisfied with respect to such taxable year: (A) Such individual does not, at any time during such taxable year, own directly any interest in such organization; (B) Such individual is not a member of the board of directors, a fiduciary, or an employee of such organization and does not participate in the management of such organization at any time during such taxable year; (C) Not more than 50 percent of such organization's gross income for such taxable year was derived from royalties, rents, dividends, interest, and annuities; and (D) Such interest in such organization is not, at any time during such taxable year, subject to conditions which substantially restrict or limit the spouse's right to dispose of such interest and which run in favor of the individual or the individual's children who have not attained the age of 21 years. The principles of §1.414(c)-3(d)(6)(i) shall apply in determining whether a condition is a condition described in the preceding sentence. Since Bob is an employee of Betty's Enterprises, the exception to spousal attribution does not apply and Bob is deemed to own 100% of his wife's ownership interest. Therefore all 4 businesses are part of the same group under common control.

A W-2 contractor is a contradiction in terms. W-2 is the wage statement provided to employees. What you might be thinking of is a situation where you are doing work for company A using their equipment and facilities but you are getting a paycheck and a W-2 from company B. Company A has a contract with company B where they agree to pay them for some employees for a period of time. In this case you are a common law employee of B and what is known as a "leased employee" of company A. Leased employees are still required to be included in plan testing (the technical term is they are "non-excludable"); however, many employers, especially large ones, will exclude them anyway but still be able to pass the coverage test.

When computing the cushion amount for 404(o), you are allowed to include the amount by which the funding target would increase if future compensation increases were taken into account. Does this include the expected increase in the participant's 415 limit due to the increase in the high 3-year average compensation? For example, say a participant's high 3-year average comp is $60,000/year(=$5,000/month) and their accrued benefit under the plan's formula before applying the 415 limit is $8,000/month. However the actuary reasonably expects the participant to earn $120,000/year for the next 3 years. Can increase in the funding target due to the extra $3,000 be included in the cushion? Is the answer different depending on whether the plan is covered by PBGC? I know PBGC plans are permitted to assume increases in the 415 dollar limit for this purpose. I am not sure if that also applies to increases in 415 due to the 100% of pay limit.

(B) any subsequent repayments with respect to any such loan shall be appropriately adjusted to reflect the delay in the due date under subparagraph (A) and any interest accruing during such delay, The January payment is a subsequent payment with respect to the suspended payment and therefore would be appropriately adjusted to reflect the delay by adjusting its due date.

This topic was just discussed in the ASPPA All Access session on compensation. The speakers agreed that the self-employed individual does have earned income for the short plan year.

You can, generally speaking, amend a plan to exclude a class of employees prospectively, as long as it doesn't cut back any benefit they have already accrued. However there is a rule under notice 2016-16 that says you can not amend a safe harbor plan mid-year to reduce the group of employees eligible for safe harbor contributions. Therefore the earliest you could make the plan amendment effective to exclude this person would be the beginning of the next plan year.

Just because 7 business days is the DOL safe harbor for small plans does not mean the loss date is automatically the 7th business day. The loss date is the date the contribution would have been deposited, absent the error. If the business normally deposits employee contributions the day after payday, then that is the loss date, even if they could have done it up to a week later and not run afoul of this rule. What I have done in the past (not always, but when the situation calls for it) is filter a transaction history report down to just the timely deposits, add a column equal to the difference between the pay date and the deposit date, and take the mode of the values in that column. That is how many days it typically takes the employer to deposit the contributions. Then I add that value to the pay date for the late transactions, and use that result as the loss date.

There are instructions for doing the calculations yourself somewhere on the DOL website. When you have more than a handful of entries it might be easier to use a spreadsheet. Edit: The instructions are on this page: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/vfcp. Scroll down to "Performing the calculation manually" under "Examples." The interest rates and factors needed are linked at the top of the page.

Lou is right - the irrevocable election has to be provided before the participant first becomes eligible. Since this person became eligible on 1/1/16 the election signed in June 2016 is no good. Even if the election had been executed correctly, the employee is still considered non-excludable for 410(b) purposes. imho no one should ever use the irrevocable election. Whatever the employer's purpose in allowing it could be accomplished easier, and more in a more flexible way, using a class exclusion.

This is not definitive in any way, but maybe reasonable for an order-of-magnitude estimate: https://www.pbgc.gov/search-trusteed-plans search for "cash balance plan" yields 25 results. https://www.pbgc.gov/search-insured-plans search for "cash balance plan" yields 8,180 results. The number of cash balance plans trusteed by the PBGC is 0.31% of the number of cash balance plans insured by the PBGC.

This was discussed in another thread on here not too long ago. Consensus seemed to be that the owner had $0 comp for the short plan year since their comp is deemed to be received on 12/31.

Just be aware (in case you weren't already) that if this business has any employees, nondiscrimination testing applies and you may be required to contribute on behalf of the employees.

He might just mean two accounts. I've seen more than a few doctors etc. have one brokerage account for their Roth 401(k) and a separate one for their PS and refer to them as the Roth "plan" and the PS "plan" even though there is just one plan doc and one 5500.

RBD is April 1 following the year the participant attains age 72 (actually 70.5 in this case, since if they are 75 in 2020 they were born before the cutoff for the SECURE Act changes, but regardless) and terminates employment. They terminated employment and were over 72 in 2020, so RBD is 4/1/2021. RBD for a DB plan means benefits must commence by that date. If the participant elects to commence an annuity on 1/1/2021, they are in compliance with the RMD rules. The latest allowable annuity starting date would be 4/1/2021. If they are eligible for a lump sum distribution, the RMD could also be computed using the account balance method. In that case the lump sum would have to be distributed no later than 4/1/2021.