C. B. Zeller

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.

Without going back to check, iirc code M has been around since the 2018 Form 1099-R following the changes made by TCJA. Regardless, the only difference between a code M and a code 1/2/7 is that the participant gets extra time to roll it over. If they were not intending to roll it over then it doesn't matter. If they do want to roll it over and are going to rely on the extended deadline, they might be able to get away with just attaching a note to their tax return, but it would be safer to issue a corrected 1099-R.

Yes, top heavy minimum is subject to coverage. If an allocation only to the non-keys employed on the last day fails coverage then you will need to make additional contributions to NHCEs to pass. Don't forget about the average benefits test.

You might have a partial plan termination under these circumstances. If so it would require the terminated employees to become 100% vested.

The force out threshold is based on the vested balance. Check your plan document for "deemed cash out" or similar language. What it usually says is that when a participant terminates with a $0 vested account balance they are deemed to have received a distribution of their vested account, and the unvested amount is immediately forfeited. From a practical standpoint, this means the sponsor would contribute the amount to the participant's account and then immediately forfeit it. Note that if the correction was done with a retroactive amendment, a.k.a. an -11(g) amendment, then this goes out the window. The -11(g) rules require that the benefits granted by the amendment "have substance" which means an allocation to a 0% vested terminated participant does not count. You have to grant them some vesting, not necessarily 100%, in order for it to count. After applying the vesting, if their vested balance is less than the applicable limit then they can be forced out. You didn't specify the nature of the coverage failure. If this is a correction of a coverage failure on profit sharing, maybe there were non-key HCEs who received the top heavy minimum, then this is fine, but $5k as a 3% contribution for an NHCE seems like a lot. However if this is a correction of a 401(k) coverage failure which you are correcting with a QNEC then disregard what I said, since a QNEC must be 100% vested. In that case you have a participant with a vested balance over the involuntary distribution threshold, just like anyone else. They can not be required to take a distribution until age 72 (or plan termination). As always, more facts are better.

If a plan sponsor does not want to have to test their allocations under the general test of 1.401(a)(4)-2(c) then they must use one of the design-based safe harbors. Generally this is not a big deal as most allocations which would satisfy one of the design-based safe harbors would readily satisfy the general test. An allocation formula which includes permitted disparity at an integration level less than 100% of the taxable wage base is an acceptable design-based safe harbor under 1.401(a)(4)-2(b)(2)(ii) and 401(l)(5)(A)(ii) which requires that the integration level "not exceed" the TWB. However it is not permissible to use anything other than the full taxable wage base when imputing permitted disparity on the general test under 1.401(a)(4)-7(b). Therefore a contribution allocated in this manner is not guaranteed to automatically satisfy the general test. A sponsor who wishes to allocate their contributions in this manner might prefer to rely on the design-based safe harbor.