Chris123

So my question is concerning an employer who would like to give his employees money when the plan starts (after meeting the eligibility requirements). This is a 401(k) Profit Sharing Plan, and this would be money that he is giving them as bonus or profit sharing from prior work they have done. Is this possible and are there limitations on how much he can give to each employee? The employer would like to give the employee that have been with him the longest a little more. I'd appreciate any feed back.

Alright, that's actually good news. I appreciate the feedback!

Alright, so the Plan is in fact terminating; however, termination occurred after the asset sale. I’ve been researching this, because everything I’ve found (including in the ERISA Outline Book) just talks about terminating the plan due to a 410(b)(6)(c) transaction – nothing about having to terminate it BEFORE the transaction. Then I went to 1.401(k)-3(e)(4), which the ERISA Outline Book indicates that this is from, and it reads as follows: ________________ (4) Final plan year. A plan that terminates during a plan year will not fail to satisfy the requirements of paragraph (e)(1) of this section merely because the final plan year is less than 12 months, provided that the plan satisfies the requirement of this section through the date of termination and either - (i) The plan would satisfy the requirements of paragraph (g) of this section, treating the termination of the plan as a reduction or suspension of safe harbor contributions, other than the requirements of paragraph (g)(1)(i)(A) or (g)(1)(ii)(A) of this section (relating to the employer's financial condition and information included in the initial notice for the plan year) and paragraph (g)(1)(i)(D) or (g)(1)(ii)(D) of this section (requiring that employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, employee contribution elections); or (ii) The plan termination is in connection with a transaction described in section 410(b)(6)(C) or the employer incurs a substantial business hardship comparable to a substantial business hardship described in section 412(c). ______________ So I’m not sure – reading this, I don’t see anything about WHEN the plan is terminated. I’m just reading this as the plan is terminated as a RESULT of this transaction. My thought is that what if someone thinks this is going to happen, and then terminates their plan lets say on March 30th, assuming the sale is to be March 31st. Then let’s say the transaction falls through – that happens quite frequently. What happens then? They have terminated a SH plan with the assumption that this transaction was GOING to happen, which means it could have been SH. But then the transaction DOESN’T happen – so basically, they would lose SH status and would have terminated the plan when they didn’t need to. It just seems with ANY termination prior to an actual transaction, you never know whether the transaction is going to go through. So again, given my thinking and that I don’t see anything in the regulation that specifically says the plan must be terminated BEFORE the transaction, I’m thinking it’s still good if the termination occurs after the transaction date. It’s only at that point that you know that it is actually happening/happened.

If a PR Plan has been dual qualified in the US, must minimum participation, top heavy rules, RMD, and PPA rules be satisfied?

Thank you! This really helped clear things up for me!

I have an inquiry to make that I hope would be fairly simple to answer, which I know is normally not that case - I never knew this but then the year before last in a conference call a client was stopping SH mid-year because they were acquired by another company. As a result, I was advised that the SH provisions continue to apply, even if the SH is removed mid-year, if it results from an acquisition. Again, I was never aware of this so I would appreciate it if someone could confirm whether it is in fact true if SH is removed mid-year because a company is acquired by another company, then the SH provisions DO apply for that year and you don't need to worry about ADP testing.

Alright, so my question concerns the merging of a safe harbor plan with a non-safe harbor plan and the potential pitfalls which may arise. We have a client who is currently involved in a corporate acquisition, not yet known whether a stock or asset sale, and their company is acquiring another company who currently sponsors a SH plan. Note, our client's company currently sponsors a non-safe harbor plan. I would like to provide them with a few bullet points of what to look out for and potential issues which may arise as a result of the merger. Based on my research, the IRS hasn't really provided guidance in this area and it appears the safest thing to do would be to move the participants of the seller's plan to the buyer's plan at the end of the year. However, playing devils advocate, what if they were to merge mid year? Also, how would deferrals be treated with respect to the safe harbor plan? I would greatly appreciate any input.

Hey, guys, I'm writing with a question regarding rollovers from US plans to TSP plans for Federal employees in Puerto Rico. There are two federal employees (doctors) that recently relocated to Puerto Rico and work at the VA Hospital in San Juan. They both have Stateside qualified plans (one in Michigan and one in Florida). I know that they wouldn't be able to rollover from a USA plan to a PR plan unless it is dual-qualified; however, I'm unsure what the rules are when they are Federal employees. Can they rollover from a Stateside 401(k) or 402(b) to their TSP here in Puerto Rico?

There is a partnership (is this an LLC taxed as a partnership?). The partners (owners) in the partnership are the S-Corps. And then each Doctor owns an S-corp. Income from the partnership is paid/reported to the individual S-corps as partners. THE ONE IN QUESTION IS MORE LIKELY AN LLLP PARTNERSHIP. SOME OF THE PARTNERS ARE INDIVIDUALS, SOME ARE LLC/ CORPORATE S CORPS. THE TWO INDIVIDUALS I AM CURRENTLY ASSISTING ARE BOTH S CORPS/P.A.’S PARTNERS IN THE LLLP LAW FIRM. YES THE PARTNERSHIP ISSUES THE S CORPS K-1S, REPORTING GUARANTEED PAYMENTS (THEY DO THIS ALSO FOR INDIVIDUAL PARTNERS WHO DO NOT HAVE S CORPS SET UP). Which Entity sponsors the retirement plan? LLLP/LAW FIRM - HAVE TO, UNDER THE AFFILIATED SERVICE GROUP RULES. Are the S-corps participating employers in the plan? I AM NOT SURE OF THE TECHNICAL TERMINOLOGY HERE. I DO KNOW THAT THEY S CORPS ARE PARTICIPATING IN THE PLAN, BUT THE WAY I UNDERSTAND IT IS THE LLLP MUST TAKE INTO ACCOUNT THE W-2 ISSUED TO THE S CORP OWNER, AS WELL AS AN ESTIMATE OF THE INCOME ALLOCABLE TO THE S CORP, WHEN DETERMINING TOTAL COMPENSATION AS IT RELATES TO THE CASH BALANCE PLAN CONTRIBUTION LIMITATIONS, ETC. If the S-corps are participating employers, then each Doc should be receiving W-2 compensation from their individual S-corps, and it is that compensation that the deferrals should be processed from. SEEMS LIKE YOU ARE CONFIRMING WHAT I HAVE BEEN TOLD BY 2 OTHER PENSION ADMINISTRATORS. IT SEEMS TO ME THAT THE LAW FIRM IS DOING THIS WRONG WITH RESPECT TO ALL OF THE P.A./S CORP PARTNERS, BY WITHHOLDING FROM THE GUARANTEED PAYMENTS, RATHER THAN HAVING THE EMPLOYEE DEFERRAL COME OUT OF PAYCHECKS ISSUED BY THE S CORP, WHERE SOC SEC AND MEDICARE CAN BE WITHHELD AND REMITTED. THAT’S MY UNDERSTANDING AT LEAST. I GUESS THE QUESTION NOW IS ARE THERE ANY EXCEPTIONS TO THIS? THE LAW FIRM SEEMS RETICENT TO CHANGE POLICY OR EVEN ADMIT THAT THEY ARE DOING THIS WRONG. MY CONCERN IS IRS GOING AFTER VERY SUCCESSFUL PARTNERS (AND THE LAW FIRM PARTNERSHIP) AS I HAVE ALREADY SEEN THAT HAPPEN TO HAVE A DOCTOR GROUP PARTNERSHIP WITH INSUFFICIENT PAPERWORK (BEFORE I WAS INVOLVED) RESULTED IN IRS FINE OF $2,500.00 (ALTERNATIVE WAS TRIGGERING $3 MILLION IN ORDINARY INCOME FROM REVOKING COMBINED TOTAL OF ALL DOCTOR SEP IRA’S STATUS). THEY PAID THE FINE.

Let me begin by giving a bit of background: My understanding is that 401(k) withholding - also called the employee deferral - max of $19,500 in 2020, must be withheld from a paycheck. That is the gross wages must be high enough so that when the withholding is taken out, there is enough left for a net check that is $0.00 or higher than zero. For example, I have a doctor group of S Corps who have a partnership. The S Corp /Doctors have salary schedules. They front load their 401(k) withholding in January/February of each year because they can - their cash flow is high enough to allow this. In order to do it, we have to increase the gross wages to accommodate the withholding of the 401(k) deferral. My understanding is that the law requires the gross wages to be included in this situation so they can collect social security & medicare on those wages. I have had 2 pension “experts” tell me this over the last 10 years. Recently, the law firm’s pension administrator (internal admin person, not a lawyer) said that the law firm’s policy is to treat all partners the same with respect to 401(k) withholding, and that is to withhold it from their “compensation” - in this case, since the entity is a partnership, the compensation is in the form of guaranteed payments as required by IRS rules. Partners cannot receive W-2s from the partnership if they are more than 2% owners. They must receive guaranteed payments (GP). GP are subject to “self-employment taxes” if the partner is an individual. But when the partner is an S Corp, there is no self-employment tax at the S Corp level. The S Corp must pay a reasonable salary to the shareholder, but if the shareholder does not take any money out of the S Corp that year, the IRS would not receive any social security or medicare taxes on that “compensation.” It is my understanding that this is therefore NOT an allowable approach when the partner is an S Corp - withholding from GP to take the 401(k) employee deferral of $19,500.00. My question is the following: Were both of the “experts” incorrect, and in fact, the law firm is allowed to handle this the way I stated above, when the partner is an S Corp - withholding 401(k) employee deferrals from GP? Or are they correct and what should happen if the S Corp should have a salary schedule that includes gross ups sufficient to allow for the 401(k) withholding to be paid that way?

Appreciate the responses everyone. Justanotheradmin, the document provides that non-resident aliens with non U.S. source income are excluded. Looks like all we're going to need is their original date of hire to assure there is no interruption as to their service once they transfer over to the US entity. Thanks again!

My question is the following: Corporation A maintains a 401(k) Plan in the US. Corporation A is a US company with foreign subsidiaries. Corporation A has a number of employees that come and work in the US from their Canada and Paris offices. Can employees that have worked in the foreign offices have their time counted towards eligibility and vesting when they come over to the US?

Thanks for your response, Cusefan. It's a DB Plan, David.

So my questions concerns Restorative payments and tax deductibility for defined benefit plans - I'm currently dealing with a situation where the DB plan trustee (employer) invested in an investment in which the investment became bankrupt and is now worth $0. The trustee later found out that the investment was a ponzi scheme and sued for recovery. As a result of the lawsuit, the trustee was able to recover a $100k settlement check, which the trustee had made payable to the plan. My question is the following: Can the employer contribute a restorative payment to make the plan and the participants whole? Does a restorative payment by the plan sponsor qualify as a deductible contribution? I found language that if a fiduciary commits a breach of his or her responsibility in picking good investments, then the fiduciary is PERSONALLY liable to make restorative payments. Everything talks about if a fiduciary has done some due diligence in selecting investments – and given that most plan sponsors are not investment professionals, it’s not like they would know everything or all the questions to ask – then it would generally NOT be the case that the fiduciary would be personally liable to make any restorative payments. I would think if the sponsor relied on the advice of someone who IS presenting him or herself as a professional, the fiduciary could not be personally blamed for the losses. Thus, based on the above, I believe the amount could not be deposited into the DB plan but, rather, could be used to fund future contributions which, one would assume, would be greater due to the loss in the value of the plan’s assets.