Jakyasar

First time I have seen the following in my many many years in this business. I am looking at a 5500 forms prepared by another TPA. It is first filing and for 2020 (calendar plan). 401k/safe harbor/profit sharing plan. 401k feature started late in 2020 - adoption date of the new plan. Not a short plan/sponsor year. Plan effective 1/1/2020. Safe harbor and/or profit sharing deposited after plan year end. All participants have been employed more than few years so eligible under 21/1 rule as of 1/1/2020 i.e. entered the plan on 1/1/2020. On the 5500 forms, participant count on 1/1/2020 is 0 and 12/31/2020 10. All 10 were eligible as of 1/1/2020 - no one entered the plan after that date. The way I know/done is the participant count on 1/1/2020 is 10 and not 0. What am I missing here? Thank you

Hi The assets were a mixture of cash/in-kind, as permitted. Thank you for your comments.

Hi Late Friday night, thought was going to relax and therefore, shut down the brain activity. However, got an email from a client with not so great news as distributions were not completed by the dates as I provided. When it comes to determining DB plan distributions, I am a stickler to due dates for the distributions to be physically completed. I use monthly adjustments. For example, if a participant was born on the 15th of the month, the distribution has to happen physically on 14th otherwise I recalculate the amount for the next month cycle. The software I use also agrees with me. I am working on a PBGC termination and this is the first time I need to deal with request date vs actual transfer date issue for distribution. I instructed the DB distribution had to be finalized by the 14th of the month. The client provided a letter to the investment house, requesting this transfer to be completed on the 14th , on the 14th. However the physical transfer of assets occurred on the 17th due to investment house procedures/settling of transfers. I have actual letters provided with the 14th date. To make matters more complicated, the per share value of a stock held in the account was lower on the 14th than the amount on the 17th which creates excess of 415 limit (participant is over age 70 and at 415 limit) at the time of physical transfer. As I need to provide detailed documents to PBGC showing the amounts distributed and possibly how they were calculated, which date of payment is acceptable/correct one? If it is any relevance, they transferred the assets to the existing 401k plan. I hope i was able to explain the dilemma here. Thank you,

Thank you for sharing your experience. Have a great weekend.

Hi Peter Thank you for providing the links however I have the actual PTE although my recent online search including the website you provided did not locate it for me. I was more looking for any input from anyone who may have had some recent experience and see if any new rules/regulations that I may not be aware of. I have not had this situation in well over 10+ years. Thank you,

Hi I have been doing some research and see if there is an update to prohibited transaction exemption - PTE - 79-60. I have a broker who wants to start a defined benefit plan and include insurance in the plan where he is the broker. I have always known about the 5% rule i.e. his commission from this transaction cannot exceed 5% of the total insurance commissions income received for the year. I found nothing to the contrary i.e. no changes. Please let me know your thoughts/comments, if any. Thank you PS insurance in pension plans should be illegal

And make sure that it is very well spelled out in the agreement that B is taking over the liabilities.

OEX - otherwise excludible - is that what you meant with your question?

Very good and sunny bright side, always love the OEX testing, can create miracles

Thank you both for your patience and explanation. You learn something new everyday.

Sorry being a bit thick headed here as I am trying grasp this concept (in theory, as I never had to deal with this scenario in the past). So, employee (the only non-highly compensated employee) is over age 21 but never worked (and will work) 1000+ hours at any given 12 month period. New plan with no initial eligibility, employee becomes a participant, at least this is what I understood from initial post. Now you are saying let's change the plan's eligibility to 21/1 during 2021 and therefore the employee is out as a participant for 2022 - all this is retroactive to his initial eligibility. This is what I am not grasping, interesting. I am definitely missing something in the law here. As Lou S. said, still a participant for 2021, this is clear. Time for a vacation and may be then, I will understand. Thank you for trying though.

Not for safe harbor and not for safe harbor, right? I guess I am seeing the logic here. Once you are in and NHCE, hours do not matter for top heavy and safe harbor. May be I will get it later.

BG5150, once employee is in, how do you avoid 410b, 401a4, SH, top heavy? This is a non-key/NHCE. What am I missing here? Just curious.

The question was theoretical with the assumption that they will be making 2 catch up within 12 months. Thank you

plus the profit sharing provisions in the plan

Hi Looking into a cb/dc combo for someone - both the sponsor and plan years are fiscal e.g. 7/1/2020 to 6/30/2021. Never worked on fiscal combo before. DC has 401k + 3% non-elective safe harbor + profit sharing provisions. A theoretical question: The participant defers max for 2020 from 7//1/2020 to 12/31/2020 and max for 2021 from 1/1/2021 to 6/30/2021. So defers 39k within 12 month period. Salary and election to defer maximum from each paycheck - very high #. Based on above, I should be checking for the following: Full 39k is included in the 410b testing Only one catch up? I have no idea on this especially if does catch up twice within one plan year. As the 415(c) limit is annual and within the plan year, the 58k limit is reduced by 39k of deferrals + 3% safe harbor this leaving very little for profit sharing (assume limitation year is plan year). So more goes to 410(b) and less goes to 401(a)(4). Am I missing anything? As someone mentioned during Derrin Watson's webinar last month, fiscal plans should be illegal especially with 401k features. Thank you

If it is assumed that the total distribution is at 415 dollar limit (not compensation limit unless over age 68 or 69 - depending on the actuarial equivalence assumptions) and the participant has full 10 years of participation, there is no room for growth. If this is not the case , then C.B. Zeller's approach in the second paragraph is the way to go. However, if the owner is retiring soon i.e. no more business, how is setting up a qualified replacement plan will help with the overfunding? 350k over funding, with very little return on investments and with a salary at least equal 415(c) limit, will allow the overfunded portion to be eliminated within 7 years e.g. 58k salary for 7 years = 406k. There will be no deductions except for possible catch up only, as they would want full 415(c) limit for the profit sharing portion. If the owner is going to retire in the next couple of years or so, the overfunding issue will not go away. In this case, transfer a minimum of 25% of the overfunding into a profit sharing plan and reduce the 50% excise to 20%. Of course you also have to deal with using up the amount that you will transferring into the new profit sharing plan, possibly in the 90k range which can easily be used up in 2 years with minimal salaries. I am curious if someone has a very creative solution out there. Have a great weekend.

One can have db and the other DC, both at maximum levels, if I recall correctly.

Are the benefits fully accrued? Any room for average compensation increases?

Hi Drawing a blank for a change. Looking into a cash balance/401k combo plan. Non PBGC therefore 6% limitation on DC plan deduction limit. 401k plan with deferrals, 3% non-elective safe harbor and profit sharing provisions. HCE's are excluded from the profit sharing portion only i.e. they defer and received the safe harbor - top heavy plan. Do I count their salaries towards 6% deduction? Thank you

Much appreciated and thank you

What about a single member LLC? Biz names could be different? Just thinking out loud. In this case, would Mike's statement would still be applicable i.e. 415 limit is the combination of 2?

Cannot remember the details but what if the negative sch c did not adopt the plan i.e. only the positive sch c is sponsoring the plan?

May be I am not seeing but are the DB plan benefits are fully accrued i.e. 10 years of participation? There is no more room for further benefit accruals? No room for salary increase possibilities? Remember that the 415 lump sum limits go up every year. It is possible to eat up some overfunding in the next couple of years. They need to cool off on the investments. If they transfer to a QRP, with minimal salaries and no deductions, 500k can easily be spent in 7 years, assuming no crazy returns. You only need to worry about 415(c) limits.

Assuming no controlled and/or affiliated group issues, why not set up a separate plan? Will cost extra but total freedom on what can be done and also not worry about any funding issues in a plan where other participants are involved . Also, if the schedule c has been around for sometime, can certainly use prior salary history to develop a benefit structure. Again, assuming no issues.