Will.I.Am

I have a client who pays people who could be classified as independent contractors as statutory employees and issues them a W-2. Do these employees count towards the limit of determining if a plan sponsor has to do auto enrollment or not?

Do the ASG management group rules apply to businesses that are service businesses? For example, would it apply to car dealerships? Or so the recipient business who receives the services from a management company have to be a service based company?

I have a client who owns 40% of 3 car dealerships, the other 60% is owned by his father-in-law (30%) and uncle-in-law (30%). He then owns 100% of 4 other dealerships. He has two 401(k) plans that we administer, one plan covers the entities he owns 40% and the other plan covers the entities he owns 100%. With respect to this situation I have the following questions: 1. I have done controlled group analysis and have determined that the 3 dealerships he owns 40% are not part of the same controlled group as the entities he owns 100%; does this appear to be right? Am I missing anything? I don't think affiliated service groups applies since a car dealership isn't a service entity and I don't think a management group applies because he gets paid a W2 from each dealership, he doesn't have the dealerships pay a management company that he owns (also, I am not sure if it is a requirement for the business to be a service company to be part of a management group). 2. We have been allocating a profit sharing contribution for each plan and since I think both plans are unrelated he has a separate 415 limit in each one. One plan he does his max deferral and gets a match and maxes out to the 415 limit via profit sharing and then the other we just allocate a profit sharing contribution and max out to the 415 limit. However, he just turned 50 in 2022 so he is eligible for catch-up. My question is, if we had him fund the normal 402(g) limit (22,500 for 2023) to one plan without catch-up and then fund the catch-up (7,500) to the other plan, could he fund $73,500 to each plan? It seems wrong because he is basically using the catch-up limit twice (each plan would be using 7,500 of catch-up) but he isn't going over the 402(g) limit (he would only be funding 30,000 total in deferrals between both plans). Hopefully my questions make sense, let me know if I need to clarify anything. Thanks,

Thank you for the response!

I accidentally posted this in this Section, go to Retirement Plans In General and I posted this there which I feel is more appropriate.

I am looking at setting up two plans for a controlled group. The entity structure is as folllows: Company A is owned 100% by husband and Company A owns 100% of Company A1 and 70% of Company A2 (the other 30% are unrelated owners) Company A1 and A2 are restaurants and Company A is a management company. Company B is owned 100% by wife (married to husband above and husband and wife participate in all businesses) and Company B owns 100% of Company B1 and 100% of Company B2, Company B1 and B2 are restaurants and Company B is a management company. If we did one plan to cover all entities it would have enough participants to require an audit. What we are looking to do is have two plans (both plans would be designed the exact same) and Plan 1 would cover Company A and Company A1 and A2. Plan 2 would cover Company B and Company B1 and B2. By having two plans each plan would have less than 100 participants and neither one would need an audit. I have the following questions: 1. the affiliated service group rules don’t apply here since these entities are mainly restaurants, right? 2. Wouldn’t Plan 1 technically be a multiple employer plan because of the 70% ownership of company A2? (Doesn’t rise to 80%) 3. If Plan 1 is a multiple employer plan (which I think it is) can Plan 1 be permissively aggregated with Plan 2 for testing purposes (coverage and nondiscrimination)? Technically wouldn’t you just be aggregating Company A and A1 in Plan 1 with Company B, B1 and B2 in Plan 2 and company A2 would be tested separately? 4. Are there any risks to structuring two plans instead of having just one to avoid an audit?

I am looking at setting up two plans for a controlled group. The entity structure is as folllows: Company A is owned 100% by husband and Company A owns 100% of Company A1 and 70% of Company A2 (the other 30% are unrelated owners) Company A1 and A2 are restaurants and Company A is a management company. Company B is owned 100% by wife (married to husband above and husband and wife participate in all businesses) and Company B owns 100% of Company B1 and 100% of Company B2, Company B1 and B2 are restaurants and Company A is a management company. If we did one plan to cover all entities it would have enough participants to require an audit. What we are looking to do is have two plans (both plans would be designed the exact same) and Plan 1 would cover Company A and Company A1 and A2. Plan 2 would cover Company B and Company B1 and B2. By have two plans each plan would have less than 100 participants and neither one would need an audit. I have the following questions: 1. the affiliated service group rules don’t apply here since these entities are mainly restaurants, right? 2. Wouldn’t Plan 1 technically be a multiple employer plan because of the 70% ownership of company A2? (Doesn’t rise to 80%) 3. If Plan 1 is a multiple employer plan (which I think it is) can Plan 1 be aggregated with Plan 2 for testing purposes (coverage and nondiscrimination)? Technically wouldn’t you just be aggregating Company A and A1 in Plan 1 with Company B, B1 and B2 in Plan 2 and company A2 would be tested separately? 4. Are there any risks to structuring two plans instead of having just one to avoid an audit?

If the plan has elected the safe harbor rules for hardship distributions can the plan sponsor rely on employee certifications with respect to the amount to satisfy the financial hardship and the employees need for the hardship distribution? I want to make sure we are okay to just have them sign a certification statement without having to also request documentation proving the hardship.

My question is should you always get a tax identification number when you are setting up a new retirement plan? I setup a lot of new plans every year and a lot of them are with recordkeepers and my understanding is if the TIN isn't used the IRS will shut it down so a lot of times I haven't been getting a TIN and have just been using the EIN of the business. I know this is technically not accurate since the assets are not the employer's assets but from what I have seen I think this is quite common. Most recordkeepers I work with have never asked me for a Plan TIN for a plan and have just used the EIN of the business. I also setup a lot of solo 401(k)'s and have been doing the mega backdoor internal Roth conversion of after-tax employee money and these types of plans typically in my experience are setup in self-directed brokerage accounts so when I do the 1099 for the conversion I will have to have a TIN for the plan so these plans I have usually been applying for a plan TIN. Is it recommended to always get a plan TIN no matter what? Or from a practical standpoint can you just get one when you know you will use it on 1099's, etc.

Why are you trying to avoid aggregation? Can’t you still aggregate and just allocate a profit sharing contribution in one plan but allocate zero in the other? Am I missing something?

Our firm uses ftwilliam and as far as I know it can’t do restructured testing (breaking the plan into component plans and testing separately). I was wondering how other people were doing this testing? Do other software programs do it? Do you have to do the testing outside of a software program like in excel?

Thank you for the quick reply. I have a follow-up question. I have normally seen just a single self-directed brokerage (SDBA) account opened for Solo 401(k) plans where all contributions types are deposited into that single account (Pre-tax, after-tax, Roth deferral, Profit sharing, etc.). Is maintaining account balances using balance forward accounting for the different sources adequate enough if you are planning on doing after-tax employee contributions and converting to Roth; or, is it recommended to open up a separate SDBA account for Roth money, pre-tax money and after-tax money and transfer between them?

Assume you have a Solo 401(k) that allows after-tax employee contributions and in-plan Roth rollovers and you have pre-tax money and after-tax employee money. Can you do an in-plan Roth rollover/conversion and convert only the after-tax amounts and exclude the pre-tax amounts from the conversion?

Wouldn’t doing an amendment to make the employees somewhat vested instead of not vested at all be a step in the right direction? It would give the allocations “substance” and make it not as abusive? I know we are operating in the grey a little here but if I am going to rely on allocations given to non-vested participants who I know have terminated to give more money to the owners I remember reading somewhere that the allocation needs to have “substance” which from what I remember means they need to be somewhat vested in the money they are being allocated.

I am allocating them a profit sharing contribution to pass testing. I don’t have allocation conditions in the document so I can’t exclude them. It is only two people but one of them that have terminated I am relying on for general testing; however, they only have one year of vesting service earned and the plan uses a 2-6 year vesting schedule so they are 0% vested so I am allocating them money to give the owners more but they aren’t vested.