C. B. Zeller

Is capital a material income-producing factor?

is the HCE who is deferring Key? If not then there is no problem. Otherwise there are a few options I can think of: 1. Forfeit the excess contribution. The participant was not entitled to it under the plan's formula so it can not stay in their account. Could possibly be returned to the sponsor as a mistake of fact, depending on the circumstances. 2. True up the match on an annual basis (if this will help). 3. Make an additional discretionary ACP safe harbor match, if allowed by the plan document. 4. Make the necessary top heavy minimum contribution to the non-Keys.

The definition of "Plan" in 1.401(a)(4)-12: Plan means a plan within the meaning of §1.410(b)-7 (a) and (b), after application of the mandatory disaggregation rules of §1.410(b)-7(c) and the permissive aggregation rules of §1.410(b)-7(d). Once you have permissively aggregated the two plans for testing, they become a single "plan" with a single latest normal retirement age.

If I'm understanding you correctly, the new formula grants an additional 2% of average comp per year of service up to 5 years as long as those years were completed prior to 1/1/2019. Since the formula is treated as being in effect for all plan years, for this purpose the extra 2% per year would be treated as accruing in the employee's first 5 years prior to 2019 - not in the current year.

For purposes of the 133-1/3 rule, plan amendments are treated as if they were always in effect. In other words, the new formula is not tested against the old formula, but only against itself. See 411(b)(1)(b)(i) for reference.

If you wanted to get picky, (2) refers to excess contributions but not excess aggregate contributions. However I think it is reasonable based on the language in (i) to interpret it to mean that the term "excess contributions" in (2) is intended to include excess aggregate contributions. But it sure would have been nice of them to include that one extra word to avoid any confusion.

Yes, but not in the middle of a plan year. You can make the change effective for the next plan year.

Sounds like a missed deferral opportunity to me: https://www.irs.gov/retirement-plans/fixing-common-plan-mistakes-correcting-a-failure-to-effect-employee-deferral-elections

The definition of target normal cost in 430 specifically says that you can include increases in compensation for the current year. However if you are changing the data elements used to determine the current year comp, then that would be a change in method that requires approval as @digger said.

I think the first distribution calendar year would be the year they attain age 70.5 - since the definition does not make any reference to the amount of the accrued benefit or vesting. I think you're probably right about using 4/1/2022, or really 3/31/2022; in effect you are saying that a distribution of $0 per annum commenced on the employee's RBD of 4/1/2020, and that it increases to the amount of the vested benefit during 2021, so the end of the payment interval in the next calendar year is 3/31/2022 and that is when the payment is due. I agree delaying it to 12/31/2022 seems like a stretch.

Paraphrasing, 1.401(a)(9)-6 A-6 says that a benefit is treated as accruing at the time that it becomes vested. Paraphrasing again, 1.401(a)(9)-6 A-5 says that distributions must commence for amounts that accrue after the RBD with the payment interval that ends in the calendar year following the year of accrual. The participant becomes vested at some point during 2021. Therefore the benefit must commence with the payment interval ending in 2022. So in the case of an annual payment, by 12/31/2022, for a monthly payment, by 1/31/2022, and such. With regard to your question about not knowing the actual benefit accrued as of the date payments begin, A-5(b) of the same reg also says (verbatim this time): A plan will not fail to satisfy section 401(a)(9) merely because there is an administrative delay in the commencement of the distribution of the additional benefits accrued in a calendar year, provided that the actual payment of such amount commences as soon as practicable. However, payment must commence no later than the end of the first calendar year following the calendar year in which the additional benefit accrues, and the total amount paid during such first calendar year must be no less than the total amount that was required to be paid during that year under A-5(a) of this section.

Like ESOP Guy said, a QSLOB must have 50 employees. There is an exception to spousal attribution under 1563(e)(5), which says, in short, the spouses must have nothing at all to do with each others' companies. If the exception applies, then the spouses' ownership in their respective entities is not attributed to each other for purposes of determining whether a controlled group exists. If there is no controlled group, then the companies can adopt plans independent of each other.

This might meet the definition of an orphan plan. There are rules under EPCRS for determining a new plan administrator and terminating an orphan plan. See https://www.irs.gov/retirement-plans/plan-sponsor/fixing-common-plan-mistakes-using-epcrs-to-terminate-an-orphan-plan

Loan payments can be suspended during an unpaid leave of absence of up to 1 year. This does not extend the 5 year maximum loan term. The outstanding balance of the loan should be reamortized into level payments upon the participant's return to work.

The 415 limit doesn't change - but catch-up contributions are not considered when applying the 415 limit. You have deferrals of 22,500. That exceeds the 402(g) limit by 4,000, so 4,000 of that is reclassified as catch-up. The remaining 18,500 deferral continues to be counted as annual additions. Then you make an employer contribution of 38,500. Add that to your 18,500 and you now have 57,000 in annual additions. This exceeds the 415(c) limit by 2,000 so 2,000 of your 18,500 deferral is reclassified as catch-up. So you end up with annual additions of 16,500 (deferrals) + 38,500 (employer) = 55,000 which satisfies 415, plus 4,000 (exceeded 402(g) limit) + 2,000 (exceeded 415(c) limit) = 6,000 catch-up contributions.

If anyone is interested in a mathematical analysis of this question, here is something I put together a while ago. Hopefully this puts the question to bed for anyone who is still unconvinced. https://drive.google.com/file/d/1A2V2lkI6r9kL9YQPLA7beRmcmCOwJ6PU/view

New comp does not mean cross-tested! Well, it kinda does, but the way the term "new comp" is used really means "allocate based on groups with each participant in their own group." You can still test on allocation rates with permitted disparity.

Here are a couple of older discussions I found: And another one discussing the topic from the other angle, i.e. what if you started RMDs while still employed because you were a 5% owner, then subsequently become not a 5% owner, do you have to continue taking RMDs (yes you do):

It definitely does seem like it goes against the spirit of the RMD rules, but the definition is pretty black-and-white. Besides the code section mentioned above, see also reg 1.401(a)(9)-2 A-2(c). It's also been discussed on these boards before, I'll see if I can't dig up a link. For what it's worth, I agree with your example, assuming that the S-corp did not exist until after the end of the calendar year in which he turned 70-1/2.

It is correct that the RBD is based on whether or not you were a 5% owner in the year you turned 70-1/2, so if the company did not exist in that year then you cannot be a 5% owner for purposes of 401(a)(9). HOWEVER: If the entity that would be adopting the plan is a sole proprietorship, then consider that a sole proprietorship is considered to be indistinguishable from the owner. Does an individual own 100% of themselves? At all times or only when business activity begins? It is not clear what the implications of this are for RMDs. If the plan you were intending to adopt is a profit sharing plan, then there must be recurring and substantial contributions in order to have a bona fide plan. If it is just set up to hold an rollover for an indefinite period of time then it would be considered terminated. Also, consider the risks if the IRS decides that the arrangement is not legit for whatever reason. The penalties for non-payment of RMDs is quite steep. I wouldn't play games with it.

Depends what you mean by "not active." Does the 3rd partner have comp that is eligible for deferral and simply elected not to defer? Then include him in the test. Is he a limited partner that contributes capital to the partnership but not any personal services? Then he would not be included.

Assuming that there was not a blackout period and this was simply a change of funds... The requirement to provide a notice 30-60 days before the available investments change is part of 404(c). Therefore the plan was not in compliance with 404(c) during the period of time from when the investments changed to at least 30 days after the date that the notice was provided. Plans are not required to comply with 404(c) so there isn't a risk of disqualification, but the sponsor could potentially be at risk as a fiduciary for any losses that occurred. Essentially a participant could come back and say, if I had been provided this notice in a timely manner I would have done X, but since I wasn't given the opportunity, the investments did Y and I'm holding the plan sponsor responsible for the difference. I don't think there is a prescribed correction for this type of failure. What I would say is give out the notice now, and if anyone raises a stink, be prepared to credit them any earnings that they might have earned had they been able to make a timely election.

I agree the plan is not required to accept the payment (unless it would otherwise accept a rollover contribution from a terminated former participant). The new tax law extends the deadline for an individual to roll over a qualified loan offset by making the payment to an IRA or other qualified plan, it does not require the plan that originally held the loan to extend the period that it will accept repayment.

A colleague of mine had a plan that was under IRS audit a number of years ago. The IRS agent insisted that the BOY count on the 5500 should be equal to the prior year 5500 EOY, regardless of any new entrants/class exclusions that were effective on the first day of the year. This "rule" is not in writing anywhere so maybe you can take your chances and use a different BOY count from the prior EOY.

The pay credit does not have to be based on current compensation, it can also be a flat dollar amount! Really it could be almost anything else you can think of as long as it satisfies the rate of accrual rules of 411(b). Your document software might not support formulas other than percentage of pay or flat dollar amount, but that is a separate issue.