Paul I

Going back to the original question, do you have to cover 95% of zero or the 3 former owners, my understanding is the answer is neither is enough. If there are 40 active employees when the plan is terminated the QRP would have to benefit at least 95% of 40. If you terminated the CB plan before the date of the sale and kept the PS plan open up to the date of the sale and terminated the PS plan as of the day before the date of the sale and amended the allocation conditions so everyone active on the day before sale received an allocation and that did not blow up 415 limits you may have choreographed enough steps to dance to.

Section 1.401(a)(4)-11(g)(5) reads: "(5) Effect under other statutory requirements. A corrective amendment under this paragraph (g) is treated as if it were adopted and effective as of the first day of the plan year only for the specific purposes described in this paragraph (g). Thus, for example, the corrective amendment is taken into account not only for purposes of sections 401(a)(4) and 410(b), but also for purposes of determining whether the plan satisfies sections 401(l). By contrast, the amendment is not given retroactive effect for purposes of section 404 (deductions for employer contributions) or section 412 (minimum funding standards), unless otherwise provided for in rules applicable to those sections."

There used to be a concern the assets in an IRA were not protected from creditors in case of bankruptcy, whereas assets in a qualified plan were protected. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) protected the up to $1,000,000 in iRA assets from creditors in case of bankruptcy. That limit is subject to annual adjustments and now exceeds $1,500,000. If the assets in the solo 401(k) described in the original post exceed this amount and there is a concern about a potential bankruptcy, then that should be considered in deciding whether to move funds from the solo 401(k) to an IRA.

Regarding the EZ, the instructions for the form are explicit: "Who Does Not Have To File Form 5500-EZ You do not have to file Form 5500-EZ for the 2022 plan year for a one-participant plan if the total of the plan’s assets and the assets of all other one-participant plans maintained by the employer at the end of the 2022 plan year does not exceed $250,000, unless 2022 is the final plan year of the plan." What they don't say is if you file a 5500EZ in one year and do not file one in the following year, there is a good chance your future holds getting an IRS letter asking why there was no subsequent filing, or worse, you get a letter saying you owe a bazillion-dollar penalty. Either way, it creates an unnecessary interaction with the IRS. If the plan terminates, it will need to file a 5500EZ regardless of the amount of assets indicating the filing is the final filing. Once the participant reaches RMD age, the plan will have to pay an RMD in addition to any RMD paid from the IRA or IRAs. If the individual has multiple IRAs, the amount of the RMD is calculated based on the amounts in all of the IRAs, but the individual can choose the IRA or IRAs from which the RMD is paid. The above are practical reasons for terminating the plan now. On the other hand, we have a client who has an emotional attachment to their solo plan. To them, terminating the plan is like deciding to retire and they are not prepared to acknowledge that there most productive years are past.

There are a few other places to check, too. What does the SPD say? If there is a separate loan policy, if so what does it say? What does the loan application or description of the loan provisions on the web site say? Is there anything in the promissory note (less likely) that says anything? In the method being used, the interest is going back to the original source, but all of the principal is going into the profit sharing source. In effect, the method is accelerating the repayment of the loan principal that came from the profit sharing source and which reduces the total interest the profit sharing source otherwise would have received if the principal was being repaid concurrently across all sources. The other sources wind up with more interest than otherwise would have been paid if the principal was being repaid concurrently across all sources. The gist of most of the comments is that each source has different BRFs, so is this an issue? The answer often boils down to "it depends". For example, it depends on availability of the funds for in-service withdrawals, or vesting schedules among sources (e.g., NEC versus match). Generally, if the perspective is the loan is an investment option available within the source, and interest on loans is the return on that investment, then this method is counterintuitive. I have seen many different schemes for recordkeeping loan repayments but have not heard of either the IRS or DOL challenging any of them. Follow the plan's documentation, collect regular loan repayments, stick to the amortization schedule, and be consistent on how the repayments are posted.

Given the date today, it sounds like participants are just now trying to file their taxes. None of them likely wants to be told to file an extension even though they waited until the last minute to file. I also doubt anyone will be understanding about the story the IRS deactivated the EIN. Assuming deactivation is the problem, may you have the good fortune to get the EIN reactivated in this time frame.

CuseFan is correct, there is no prohibition and it is reported as taxable compensation to the employee. But first, read the document/agreement. It is not uncommon for the document/agreement to contain a 409A Gross-Up Payment clause spelling out terms and conditions of such a payment. For example, you may find provisions specifying timing of the gross-up payment and the tax year of the individual in which the gross-up will be paid and be taxable income, specifying how the gross-up will be calculated, specifying obligations of the individual to work with the company to contest the claim or to cooperate with the company's legal counsel, and other related details.

The issue is the pending requirement to allow only Roth catch-up for High Paid (earning over $145K in the prior year). All other participants can choose between pre-tax or Roth catch-up contributions. Focusing on this narrowed topic, we have had at least 2 clients ask if they can require all participants to make catch-up contributions as Roth and not allow anyone to make pre-tax catch-up contributions. One client commented that they run all of their payroll in-house and do not believe they can program the new requirement correctly. The other client commented that they believe their payroll service provider cannot program the new requirement to work correctly. Pension Nerd, the cite is Reg 1.401(k)-1(f)(1). It is not explicit, but the way it is worded you have to be able to make a pre-tax deferral which you then can designate as a Roth contribution. This implies that if you cannot make a pre-tax deferral, then you cannot designate it as a Roth contribution. A further wrinkle in this whole mess is the ability to make Roth contributions is subject to 401(a)(4) and must be available to a nondiscriminatory group of participants (1.401(k)-1(a)(4)(ii) & (iv)). Under the pending requirement, if you want High Paid individuals to be able to make catch-up contributions, you have to make Roth available to everyone for all elective deferrals (with the possible exception in a very tortured example of an NHCE High Paid group which I would not want to explore).

Whatever reason that may be professed, the most likely is meeting the requirements for making the bill fit within fiscal parameters which are tied to a 10-year time frame. The same rationale applies to defining a High Paid person for purposes of mandating Roth catch-up contributions. Why $145,000 instead of the HCE limit? Roth catch-ups for High Paids at $145,000 was just enough of a revenue raiser.

Here is part of the section from Relius that follows with some requirements the plan sponsor may not embrace: "What conditions must an 11(g) retroactive corrective amendment satisfy? An 11(g) amendment must satisfy the following conditions: The amendment may not reduce benefits (including any benefits, rights and features), determined on the basis of the plan terms in effect immediately prior to the amendment. However, see 5.b. below. The amendment must be effective as if the amendment had been made on the first day of the plan year being corrected. The amendment must be adopted by the 15th day of the tenth month after the close of the plan year being corrected. If the plan sponsor applies for a determination letter before the end of the 9½ month period, the retroactive correction period is extended in the same manner as the remedial amendment period. The additional allocations or accruals must separately satisfy the nondiscrimination requirements and the group of employees benefited by the amendment must separately satisfy the coverage requirements using the same rules that apply in determining whether a component plan separately satisfies coverage. A plan does not need to satisfy this requirement if the plan sponsor is amending the plan to conform to one of the nondiscrimination safe harbors. The amendment cannot be of a pattern of amendments being used to correct repeated failures with respect to benefits, rights and features. The relevant provisions of the plan immediately after the amendment with respect to benefits, rights and features remain in effect until the end of the first plan year beginning after the date of the corrective amendment. The corrective amendment either expands the group of employees to whom the benefit, right or feature is currently available, or eliminates the benefit, right or feature to the extent permitted under the anticutback rule.

The 410(b) failsafe provisions in the FTW document appear in section D.6 of the adoption agreement and section 4.02(d) in the BPD. Note that the last sentence in section 4.02 in the BPD says "Notwithstanding the foregoing, the Plan Administrator always retains the option to meet the minimum coverage requirements of Code section 410(b) by using the average benefits test of Code section 410(b)(2)." I would try using ABT before using the provisions to adding in more participants. If you are going to add in participants, section 4.02(d) has specific rules for who gets added in based on the election in the AA.

Belgarath, don't give up on your memory. The instructions to Form 1099-R say: Losses. If a corrective distribution of an excess deferral is made in a year after the year of deferral and a net loss has been allocated to the excess deferral, report the corrective distribution amount in boxes 1 and 2a of Form 1099-R for the year of the distribution with the appropriate distribution code in box 7. If the excess deferrals consist of designated Roth contributions, report the corrective distribution amount in box 1, 0 (zero) in box 2a, and the appropriate distribution code in box 7. However, taxpayers must include the total amount of the excess deferral (unadjusted for loss) in income in the year of deferral, and they may report a loss on the tax return for the year the corrective distribution is made.

Currently, Reg 1.401(k)-1(f)(1) says: (f) Special rules for designated Roth contributions (1) In general. The term designated Roth contribution means an elective contribution under a qualified cash or deferred arrangement that, to the extent permitted under the plan, is - (i) Designated irrevocably by the employee at the time of the cash or deferred election as a designated Roth contribution that is being made in lieu of all or a portion of the pre-tax elective contributions the employee is otherwise eligible to make under the plan; This is the problem with the drafting error in SECURE 2.0 requiring high-paid individuals to make all catch-up contributions as Roth contributions. Existing rules say the you need to be able to make pre-tax deferrals in order to be able to make Roth contributions. Hopefully this will be fixed before 2024 arrives (and may divine providence help the software programmers for payroll and recordkeeping systems).

All of the cash balance plans that I have seen provided for default beneficiaries if for some reason there are no spousal benefits payable, with the estate being the ultimate default beneficiary. Further, all of the defined benefit plans I have seen also provided for additional, non-spouse default beneficiaries. That being said, this article published by the Pension Rights Center in November 2020 https://www.pensionrights.org/resource/understanding-survivor-benefits-in-private-retirement-plans/ comments that "Pensions are another common type of employer-sponsored retirement plan. The formal industry term for a pension plan is a Defined Benefit Plan. Survivor benefits in defined benefit pension plans are very different from survivor benefits in defined contribution plans. Spouses of participants in defined benefit plans are better protected, but defined benefit plans typically only pay survivor benefits to a spouse. If an unmarried plan participant dies but has children, those children will most likely not receive a survivor benefit." Unfortunately, they do not list a source for this comment. I am surprised at the use of "typically only" and "most likely" in the highlighted sentence. I imagine any pension plan that did not pay benefits where there is no spouse and no participant-designated would say "that's what mortality tables are for".

Let's keep it simple. If the plan says it is a REA safe harbor and includes the required language needed, then no spousal consent is needed. If the plan doesn't say it is a REA safe harbor (explicitly or not) or does not include the required language, then spousal consent is needed for amounts over an applicable force out. If the plan, regardless of what is says about a REA safe harbor, says a transaction (loan, withdrawal, distribution, amounts under $5000, ...) requires spousal consent, then spousal consent is needed. Or, as Peter and CuseFan commented, RTFD.

It looks like the plan allocation formula defines groups of employees versus a rate group for each participant. I don't see how you can modify the allocation formula after the close of the plan year disguised in an 11(g) amendment to add a new rate group for one HCE and a new rate group for 2 NHCEs.

It sounds like you need to confirm (with backup documentation) exactly what was done and when it was done. Was the soloK actually terminated? Were there common law employees in the other company eligible for the soloK at any time in the existence of the plan? Does the other company still exist? Were the soloK plan eligibility provisions drafted in a way that would extend eligibility to the current company employees? What did the owner think was the distributable event that allowed for a rollover? ... There may be a problem because of the successor plan rule. There may be a problem because there is a controlled group. There may be a problem because there are eligible employees who are due benefits. There may be a problem because there are missed deferral opportunities (assuming these are 401(k)s)... In almost all of these scenarios, consider involving an ERISA attorney at least to review all of the facts and proposed remedial actions. This is the kind of surprise with a new client that we all dread. Stick to the facts and follow them to where they lead, and consider asking the questions about other plans to your due diligence process for accepting new clients. Good luck!

Assuming there are not complicating factors such as the plan contains amounts transferred from another plan that was subject to REA, then a distribution from a REA safe harbor plan does not need spousal consent for a distribution (or in-service withdrawal, or a loan). Any amounts transferred in that are subject to REA continue to be subject to spousal consent. Keep in mind that a REA safe harbor plan like all other plans does need to get spousal consent for a designation of a non-spouse beneficiary.

My understanding is you use line 34 from Schedule F to report your net farm profit or loss. This is carried forward as net income from self-employment and is used for pension purposes. This is analogous for non-farm net earnings from self-employment from Schedule C. Note that line 23 on Schedule F is where you would report contributions the farm business made for common law employees, but not contributions for the farm owner.

I see "corrective distribution" more like a generic term for anything that must be paid out of the plan as a result of an correction or remedial action. It would include you list plus things like QNECs credited to terminated participants, income of late deposits... A corrective contribution due to an active participant or a former participant with an account balance must be credited with the corrective contribution regardless of the size of the amount. If a corrective contribution is due to a participant who is paid out and the cost of paying is out is less than $75, then my understanding is the corrective contribution does not have to be paid. Be careful using this exception. There are some situations where these amounts must be reallocated to the other participants who are receiving the corrective contributions. (For example, if I recall, lost earnings allocations may fit this situation.) Similarly, with some corrections that require allocating additional contributions to participants, the allocation must be "meaningful" so, for example, it cannot be allocated to a terminated, non-vested participant and immediately forfeited. I do find it interesting that the rules do not actually prevent writing very small checks. For example, if a former participant gets a $76 corrective contribution and the cost of processing the distribution is $75, the net check to the participant is $1. The recordkeeper may get $75, the participant laughs at the check and doesn't cash it, the plan deals with uncashed checks, and the auditors get to make a management comment. Bottom line, follow the rules and live with the results.

The IRS weighed in on plans that were not timely amended for Cycle 3 (assuming we are talking about a DC plan). At a high level, have them adopt your document with a current effective date. The Plan Sponsor can name the Trustees. The restatement will concurrently change the Plan Sponsor and Plan name. Highlight this in the resolution to adopt the restatement. Keep in mind that you don't know what you don't know. With all of the recent legislation particularly around the pandemic, a plan could make decisions on various provisions which they could apply in practice but would not need to be included in the document until later. It sounds like those who would have known about any such decisions are no longer around. This may require looking at available participant records including statements to see if there was activity that would have been driven by some of these provisions (particularly payments and loans). You should take an inventory of items that should have been done but were not. This would include compliance testing, 5500s, disclosures, timing of funding... If this inventory is long or contains operational failures, the you need to consider which may rise to the level of a VCP, VFCP, or DFVCP. They likely will, so the plan restatement should be done in the context of an overall cure for plan deficiencies. It can be challenging to know the full scope of this type of work. You should get a signed engagement letter setting out how you will get paid.

Here is a link to several posts from a few years ago discussing splitting a plan to avoid an audit: Splitting Plans to avoid audit It includes comments from those who have done this. Note that all of the comments focus on how to split the plan prospectively including steps to take to mitigate possible challenges to the process. There are several comments about the DOL and IRS perspective on how to count participants as of the beginning of the year. Basically, they will look at facts on the first day of the plan year and a plan cannot alter those facts. My take is the plan will not succeed in trying to alter, with a retroactive amendment, the participant counts as they stood on 1/1/2022. It will be interesting to see if anyone has had any more recent experience on the topic.

In this case, for the 11(g) amendment we get to decide who will be allowed to get covered and be considered benefiting for coverage. We know each individual's service history and compensation, and the consequences if we extend coverage to include each of them. We then expand the existing ACP test population to model the inclusion of a prospective selection of individuals for coverage on the ACP test. Using this population, we model ACP testing strategies to optimize the outcome. (Depending on the plan sponsor, optimizing may be purely cost or may include some consideration on who gets included and who does not.) Once we have modeled a desired result, write and adopt the 11(g) amendment. The amendment is predetermined to result in passing coverage and curing the ACP. Short version, when we can control all of the variables, we can predict the outcome. If you try this with canned testing software, it can be terribly inefficient. Excel can be used to build the model then use its data management features and what-if analytical capabilities to find a solution.

The solution to the coverage issue is going to require increasing the count of NHCEs benefiting from the match. What happens next can depend on some additional details and take different paths forward. For example, is the plan (hopefully) using current year or (hopefully not) using prior year testing? Did the plan pass the ADP test and the ACP can benefit from borrowing? Will disaggregation help? Will a QMAC help? If you're taking the 11(g) route, work out the coverage solution and the ACP end game beforehand.

Thanks for the fun fact. Do we now have an example for when someone who was performing services in the employ of certain organizations was not employed? Sounds like a riddle: When is someone who is employed not employed?