Jakyasar

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.

2020 5500 due 7/31/2021 or 10/15/2021 if extended Final 5500, assuming the assets are zeroed out in April 2021, 11/30/2021. you can also extend this for another 2 1/2 month as long as you file 5558 by 11/30/2021 Hope this helps.

Hi Can anyone provide/point me to a link that provides good and simple information on the suspension of benefit rules (or even articles)? Need to check a few things. Thank you

Sorry if this was discussed before as now I have the following situation. A quick follow up on this. Employees are: 100% owner of S-corp Spouse of the owner Children of the owner, all over age 21. 5500-EZ is the way to file. No fidelity bond requirement. Would PBGC coverage still apply?

I guess no takers.

Hi I know of those. My memory might be playing tricks on me as I remember something specific to plan terminations. I will use 2017-56. Thank you for your input.

Hi I am trying to locate a rev-proc (may be a notice) that came out sometime 2016 (if I recall correctly) where it mentioned automatic approval of valuation date for an end-of-year valuation date to either the plan termination date or switch to beginning of year valuation. Just cannot seem to find it but remember it as it was specifically addressing terminating plans. This was something before Rec-Proc 2017-56. Any help would be appreciated. Thank you

Any takers?

Hi A bit confusing myself with a scenario I have not seen before. Defined benefit and profit sharing combo. DB started 2015(HCE only) and PS started 2019. One non-HCE was already in the DB plan for 2018 - year of participation. Another non-HCE is only in the PS plan i.e. excluded for DB categorically. All 3 are participants in the PS plan effective 1/1/2019. DB was amended for HCE only during 2020 using A+B method (A x% of average comp for YOS starting 1/1/2020) and B is AB as of 12/31/2019 without wearaway - standard design. I usually use annual method but for 2020 wanted to look into accrued-to-date method. Assume all data is correct for all past years i.e. I have the correct salary history and the PS plan assets are all correct. Are there issues I need to watch out for the 401a4 testing? Thanks

Mike, this is very generous of you. Thank you

Thank you

Hi Mike Can you please elaborate on your statement "There's also another prong to this calculation predicated on funding Target versus assets"? Thank you

Yes it can be more than 6% but now you have to the 31% test i.e. combined CB/PS (including any safe harbor) cannot exceed 31% of all eligible pay. Again, this is for non-PBGC covered plans. SEP is treated as part of the DC plan deduction and therefore included in the 6% calculations

Hi Lois I saw this but unless I am not seeing/understanding, pension plans not included. I hope someone will correct me. Thank you

Hi Reading Notice 2021-59 and looks like all sole-proprietorship 2020 filings have been extended to May 17th. I did not see anything on C-corps, correct? Also, with this extension, all contribution deadlines have been extended to May 17th as well, correct? Looks like all all states have extended the April 15th deadline except for a few that are pending. There are also a few states that do not have state taxes. Whether a state extends or not, the 2020 contribution deadline is on federal level and extended to May 17th. Is this correct? Thank you