FORMER ESQ.

I am far from an expert on Section 436, but since no one else has responded, here is my view (with the major caveat that an actuary really needs to answer this question): My general understanding is that once an AFTAP is certified, it applies to all distributions with an annuity starting date on or after the AFTAP certification date. So its the annuity starting date, not the date of signature that controls. If the annuity starting date is after the AFTAP certification, then I think the less than 60% applies. Again, I'm not an actuary...

Treasury Reg. 1.401(k)-1(a)(6)(iii) states that “a partner's compensation is deemed currently available on the last day of the partnership taxable year” and therefore, the partner must make the cash-or-deferred election no later than such date. The reason for this is because the partner's earned income is likely not yet known. But, this provisions relates specifically to the timing for making the 401(k) election. It does not say that all of a partner's compensation is earned on that date. The very next paragraph-- Treasury Reg. §1.401(k)-1(a)(6)(iv) states that “the income of a self-employed individual for a taxable year constitutes payment for services earned during that year.” Therefore,I don't think your conclusion necessarily holds.

Always thought that this was a grey area, but others will surely know more about this. The question is when IRC 404(a)(7) says “a plan covered under ERISA 4021,” what is the measurement date for PBGC status with respect to the employer's taxable year? I normally recommend being conservative but I would imagine that clients and their CPAs are much more willing to use 25% of compensation as the deduction limit.

But is the client specifically dealing with a failed non-discrimination test that requires the 11(g) amendment?

Instructions to the Form 5500 EZ: A one-participant plan means a retirement plan (that is, a defined benefit pension plan or a defined contribution profit-sharing or money purchase pension plan), other than an Employee Stock Ownership Plan (ESOP), which: 1. Covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (which may be incorporated or unincorporated); or 2. Covers only one or more partners (or partners and their spouses) in a business partnership (treating 2% shareholder of an S corporation, as defined in IRC §1372(b), as a partner); and 3. Does not provide benefits for anyone except you (or you and your spouse) or one or more partners (or partners and their spouses). 1372(b)2-percent shareholder defined For purposes of this section, the term “2-percent shareholder” means any person who owns (or is considered as owning within the meaning of section 318) on any day during the taxable year of the S corporation more than 2 percent of the outstanding stock of such corporation or stock possessing more than 2 percent of the total combined voting power of all stock of such corporation. Section 318(a)(1)(A): (1)Members of family (A)In generalAn individual shall be considered as owning the stock owned, directly or indirectly, by or for— (i) his spouse (other than a spouse who is legally separated from the individual under a decree of divorce or separate maintenance), and (ii) his children, grandchildren, and parents.

No, I don't think so. The 4 children are attributed ownership under the 1372/318 rules and deemed owners. There are 4 owners because of attribution, and they all participate. Also, what does receiving W-2 compensation have to do with anything? S-corp owners receive W-2 compensation, and they are still "owners".

I'm with @Paul I on this one. It's not really a "supply side" issue. Employers are offering retirement plans, but most of the retirement plans have a heavy employee funding component (e.g., 401(k) plans) and US workers have less and less additional income to save for retirement when they are worried about paying rent/mortgage and buying food.

Under EPCRS, a plan sponsor may retroactively amend its plan document to allow for Roth source rollovers so as to "match" the plan's actual operation with the document. However, the retroactive amendment cannot otherwise be discriminatory under 1.401(a)(4). It's the 1.401(a)(4) issue that I would examine if the employee in question is an HCE.

Assuming the employer has a 12/31 PYE and FYE and has filed a Federal income tax extension for 2025, then: Any amount not contributed by 10/15/2026 is not deductible for the 2025 tax year. Any amount not contributed by 11/15/2026 is not an 415 annual addition for the 2025. The 415 part is where this gets tricky, I would be careful on this. The SH contribution (assuming it is a SH NEC or SH Match with annual contribution) must be made by 12/31/2026. If not, you have a qualification failure that must be fixed under EPCRS. The Gateway and TH contributions (and PS contribution in general) must technically be "allocated." I don't think there is an actual contribution deadline for these contributions (like there is for the SH). Of course, this is an academic point because not making the contribution that has been "allocated" constitutes an operational failure that must be corrected. Also, the real enforcement mechanisms to ensure timely contribution are the 404 deduction/ 415 annual addition rules.

After several months of hard work, I have designed A.I. that gives a structured analysis of affiliated service group and controlled group determinations under Section 414. The level of reasoning provided cannot be matched by ERISApedia, Chatgpt, Claude, etc... The program thoroughly analyzes all aspects, including entity and family attribution to the "judgement" issues such as what constitutes "performance of services", "services organization", "regularly performing services" are analyzed. The program gives a structured layout of the issues involved, the facts pointing in one direction or another, and probability of affiliated service group status. When facts are missing or incomplete, it still provides an analysis with differential outcomes. The program has been trained with over 500 real life affiliated service group scenarios that I have analyzed for it. It is currently going through beta testing. Of course, ERISA attorney analysis would be required to confirm the analysis, but it will significantly reduce ERISA attorney time. Before starting on the project, I should have asked how people in the retirement industry would view such a product. But, it was such a neat experience for me that I decided to create it anyway. At the very least, I could use it myself. What are your opinions?

I second your opinion. Assuming the plan covers only the children, under Section 1372(b), applying 318 attribution, each child is deemed to be a 100% shareholder of the S-Corp.

Any eligibility classification that is a proxy for imposing a service requirement violates 410(a) on its face. Your eligibility classification of hourly employees is fine so long as there is a 410(a) failsafe language (e.g., hourly employee credited with 1000 hours of service would be eligible). Also, don't forget that the LTPTE rules would have to be an exception to the hourly exclusion unless you want to deal with missed deferral opportunity issues later.

Why do this when you have time to retroactively amend (assuming the plan year end is 12/31)?

Extremely likely this is a 4975(c)(1)(D) prohibited transaction. See also DOL Opinion Letter 2011-4A.

If its a SH plan, IRS Notice 2016-16 Section IIID applies to your facts. You have some time, but must act.

If Company A's resolution/amendment to terminate its 401(k) plan was executed prior to the effective date of the stock acquisition (A acquires B) then the successor plan rule would not prohibit distributions from A's plan on account of the A plan termination.

What is the client trying to achieve here?

If you take a look at Section 3 of Appendix B in the EPCRS, it notes that the earnings rate to be used is generally the "investment results that would have applied had the failure not occured." I read that to mean the actual overall earnings rate for the plan. I think it is a reasonable position to use the .88%.

No, you don't need to understand who owns the PE. It's basically an fund that invests in (and restructures) relatively mature cash-flow positive companies. PE (and its managers) are subject to Federal securities rules (primarily the 1940 Investment Advisors Act). What is important is the PE's percentage of ownership in the attest and advisory entities. The ownership percentage is important for determining Affiliated Service Group relationships. You are correct that they are not using the proper terminology. It's not a controlled group, and almost every PE I have worked with takes the position that the controlled group rules (i.e., 414(b) and 414(c)) do not apply to a PE structure because the PE is not a trade or business, but rather an investment vehicle.

She owns 100% of her Sole Prop, and 80% or more (I assume) of her own "small practice." This is a controlled group under Section 414(m). Don't confuse the 414 rules, which tell you "who is the employer" with the "same trade of business" rules which tell you whether different streams of earned income may be combined for purposes of determining "plan compensation."

Unfortunately, PE investment in professional services is becoming more prevalent. PE's wish to gain a foothold in a new class of investments (because they are not happy with not owning everything) and the owners of the professional service firms seek some cash liquidity. For CPA firms, the business is splt into two entities: The auditing business (the attest side) and the advisory business. The advisory business can be 100% owned by the PE, but under state law, a non-CPA (such as a PE) can only own a certain percentage of the attest business. For your purposes, as TPA, the question is whether the attest and advisory business are under Section 414 common control? They are likely not part of the same controlled group because under state law the PE likely cannot own 80% or more of the auditing business. BUT the two entities are likely part of the same affiliated service group. The attest business being the FSO and the advisory business being the A-Org.

And this is why this forum is excellent. Thank you!!

The way I interpert the Treasury Regulations is that a proposed amendment (tested independently) must be non-discriminatory in timing or effect. That is, even if the plan passes its annual non-discrimination test (by including the higher benefits from the amendment) that does not mean that the amendment itself is non-discriminatory. So, if the amendment increases HCEs benefits, but NHCEs are not receiving any increase, I would take the position that it is discriminatory. Would love to hear from others.

Both Paul I and Peter are giving you the proper framework. Please be cautious. A third-party administrator should not be giving "advice" on how a client allocates income between the K-1 and W-2. Only the accountant or the client's tax/legal advisor should opine on that and in each case, they are constrained by their own standards of practice.

Terrific! Option one.