Jakyasar

Thank you both.

Hi Plan is calendar 2020. 5%+ owner terminates in April 2020 and sells his ownership to the other shareholder. Under HCE, because he was an HCE on 1/1/2020, he is HCE for 2020. How key employee rules, are the same here i.e. he is a key for 2020 because he was on 1/1/2020? Thank you

Mike, thank you The only option in QR P is lump sum so no QJSA.

Hi DB plan terminates and provides all participants their benefits, some rolled over into IRA's and some to the existing 401k/PS plan. The residue i.e. overfunded portion, is transferred to the QRP under the terms of the plan and it will be allocated as profit sharing to all participants. Upon distribution, is the portion under QRP subject to QJSA? If it is, best if all assets are subject to it otherwise nightmare to keep track of the assets. Thank you

IDK, was trying to find some reference and came upon grey book reference. Thank you though.

Hi Mike Thank you for pointing this out. Are you referring to 2015 Gray Book Q&A 16? Have a great weekend.

You know what, totally spaced out before asking the question, long day, brain dead. Obviously, I will have them terminate on 12/31, thankfully one of us has the thinking cap on. Much appreciated and problem solved.

Hi DB/DC combo plans. DC is straight PS only, no other provisions. DB is covered by PBGC. 3 participants, owner/HCE, non-owner HCE and rank&file NHCE. Both the non-owner HCE and NHCE terminated on 6/30/2021 but worked over 1000 hours. Assume each had final salary of 50k for 2021 i.e. the 2021 w-2's will show 50k for each. Sponsor wants to terminate the PS plan as of 9/30/2021. His salary as of 9/30/2021 will be 200k and as of 12/31/2021 will be 290k. He has always been at maximum limits for the past 3+ years. The DB plan will stay active for the time being - no 401a26 issues for 2021. They are asking me to finalize the PS contributions for 2021 now. I have thoughts on performing all on a very conservative level but want to check on the following. What salary do I use for the owner for deduction of PS portion and what salary do I use for testing? If I did not ask the question properly, please feel free to correct. Thank you

Hi I think it is ok but want to see what others say. Calendar plan for 2021. Only PS provisions. It is cross tested with a DB plan. Top heavy provisions only provided by the PS plan 2 rank&file employees terminated with 1000+ hours but plan has EOY requirement for allocation. Only one rank&file in the DB and already accrued the 2021 benefit. Sponsor will terminate the PS plan during 2021. However will continue working for the company. Sponsor wants to provide PS contributions in excess of gateway requirements (combo testing passes easily with minimum gateway). Cannot do that with an 11-g so need to remove last day requirement. I can do the amendment now retroactive to 1/1/2021, correct? I also have a deduction and testing related question but will ask separately. Thank you

Thank you and this is why I said I do not agree with my own statement. I was just curious if I missed something. 100% in agreement with CB and others. 30k extra for all rank&file, sure will be one pissed of plan sponsor.

Here is a question, if they only took deduction for 70k and pay excise tax on 30k, would the 30k be applicable for 2021? Given the allocation above, 70k is not the 25% deduction limit i.e. there was more room for deductions. I am not sure I agree with my own statement though. Any thoughts?

No loan option? No in-service option? Otherwise Bill's suggestion is a good one.

Cushman, I am not sure if I agree with your absolute statement. Different vendors/attorneys I dealt with are of different opinions once the restatement period is open. All depends on when you officially terminate the plan or when all distributions are completed. However I agree with you 100%, always restate if the restatement period is officially open. It is always safest bet. My 2 cents for what it is worth.

Assume 1 hour of service i.e. participant met the requirement. Thank you

Great question, I am also curious if service can be counted with no US based income?

In this case, BOD is fine but still check if you need any snap on good faith amendments.

Actually let me change the above to a DB plan, again with all the above provisions, would I need to prorate the accrued benefit?

Hi Lou Thank you for the additional information but not worried about next year yet. Plan only covers HCE's anyway so 2022 is not an issue neither is 2021. Sometimes we need those plans with no testing issues. Much appreciated.

What type of plan DB or DC? Also, check with the document vendor as they will tell you what IRS mandated amendments (although some are good faith amendments) may be needed to be adopted, if any.

Hi Here is a new one for me. New 401k plan, effective 1/1/2021 (no short plan/tax year) They decided to hire a new employee on 9/1/2021 and will pay 350k salary for calendar 2021. This employee will have an immediate entry of 9/1/2021, a special entry date amendment otherwise plan has 21/1 and dual entry for eligibility. For 401k deferrals, profit sharing allocation and testing compensation, what needs to be prorated? Assume no hour requirements for ps and 401k. Thank you

Calavera No they do not want to, this is why I suggested after 9/15. I am not sure I agree with you i.e. make a deposit prior to 9/15 so that you can open the plan for 2020 and deduct for 2021. As far as I know and always have operated under the assumption that, if deposited by the due date of the corporate return, it should be deductible for that year and not the year after (unless no room for the deduction). Others may disagree with me.

No as 401k election had to be made by 12/31/2020. No issue with ps or db plan though.

Hi I would like to get some opinions. I am doing a bit of research for a hypothetical plan design someone. I have worked with overlapping plan/tax years in the past but nothing like the following: Calendar corporation ending 12/31/2020. Filed 2020 tax return end of May 2021 with extension. Want to set up a DB plan (non-PBGC and covering owners+spouses only) effective 10/1/2020 with PYE 9/30/2021 using 2020 w-2's. Generating minimum required contribution (MRC) of 100k and 404(o) maximum of 120k. Not deposited till after 9/15/2021 so cannot be deductible for 2020. Second plan year starts 10/1/2021 and end 9/30/2022 using 2021 w-2's. This plan generates 50k of MRC and maximum 300k of 404(o). They will deposit by 12/31/2021. They want both plan years to be deducted for 2021 tax year, what ever the amount is permitted. The plan year starting 10/1/2022 and ending 9/30/2023 will be deducted for 2022 tax year and based on 2022 w-2s. There are a few different things I am trying to understand here. The last line of 1.404(a)-14(c) states The employer must use the same alternative (either for plan year commencing in tax year or plan year ending in taxable year - I have no idea about the 3rd alternative i.e. weighted average so let's leave it alone) for each taxable year unless consent to change is obtained from the Commissioner under section 446 (e).” The above item 1 is inconsistent, at least to my understanding, with the design in mind above. Am I missing something here and/or overthinking it? Separate than above 1 and 2, what is the maximum deduction for 2021 tax year regarding the DB plan? I think 300k as it is the 404(o) limit under the 2021 valuation using 2021 w-2's. It includes for MRC's for 9/30/2021 and 9/30/2022 plus some cushion. I believe this is very conservative approach but still concerned about above 1 and 2 Now, as a bonus, they want to add a 401k/PS plan for 2021. I do not believe it is an issue if the plan is calendar plan (remember no testing issues as all are HCEs). The deduction would be limited to 6% of all 2021 w-2's as not covered by PBGC. Do you agree? Your comments/expertise are appreciated.

Agreed and thank you

Both plan and limitation year, correct? Thank you