FORMER ESQ.

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.

Working 6 months with 150 hours in each month is 900 hours. So, you require 900 hours in 6 months? Does your plan have a failsafe that regardless of this eligibility criteria, if the employee works 1000 hours in 12 months of service, they enter the plan on the next following entry date?

The record keeper made a mistake in assisting the client in administering the plan. That's it. One cannot categorize all vendor mistakes as the exercise of an ERISA fiduciary duty. It's not supported by case law. It's not supported by reality.

There it is...the fiduciary argument. Try again. Not going to happen.

Ummm...what exactly is the record keeper's duty under ERISA? Why don't you answer the question?

Huh? Please elaborate on the recordkeeper's duty under ERISA. Duty in what capacity?

One more item I just noticed--non-equity partners do not typically receive a 1099. They get a K-1. Are you sure this guy is not a profits partner? You are calling him a "partner." Get this issue resolved first. Because if he is in fact an profits partner, then all bets are off in what I previously discussed.

I assume you meant the Form 1099-Misc as an indpendent contractor. My opinion (not giving out advice) The law firm and title company are a controlled group. The individual sole prop (where the plan is to be sponsored) is not part of that CG. However, be very careful of a possible ASG. I would advise the client to get ERISA counsel involved and get an opinion. With respect to the ASG issue, I don't see an ownership relationship between the individual and the law firm or the individual and the title company. This would eliminate an A-Org and B-Org, but there is always the management type ASG depending on the type of services the individual is providing to the law firm. Also, don't forget the "catch-all" anti-abuse provisions under 414(o). In my experience, I have not seen the IRS try to apply that provision, but that is just my experience.

This would not be a controlled group post SECURE 2.0 unless one spouse is an employee of the other's company, is on the board or similar governing body (if applicable) or "participates" in the management of the other spouse's company. If not a controlled group, I would look at the affiliated service group rules, and determine if at least one of the entities constitutes a "service organization" and there is a service relationship between the two entities.

Thank you for this information. My comment still stands, which is that the estate is the designated beneficiary, and amounts from the plan can only be distributed to the estate, not an IRA. The estate can elect to take the whole account balance or receive the RMDs over time pursuant to the RMD rules that apply. In either case, amounts distributed are taxable income to the estate (or if applicable to the beneficiary).

I am assuming that the plan document provides that in the event the participant dies without a designated beneficiary and is not married, the designated beneficiary is the estate. The estate is not an individual or an eligible rollover recipient. So, this is not an inherited IRA situation. Amounts cannot be distributed to an IRA account. They must be distributed to his estate. The RMD rules apply. Specifically, the "at least as rapidly" rule would apply in this case. Amounts received by the estate are taxable to the estate (or beneficiaries, if passed through).

That's correct--11(g) amendments can only be used to fix coverage, non-discrimination and minimum participation failures.

Unfortunately, the vendor is correct and I wish the IRS would clarify this issue because it does cause a great deal of confusion. Your situation is an excess allocation. ECPRS treats excess allocations differently than excess amounts for purposes of the $250 rule. Excess amounts are generally ADP/ACP refunds, excess deferrals, etc...these are amounts that are normally corrected by distribution. The IRS says, okay, if it is normally corrected by distribution and the amount is less than 250, you don't need to distribute. However, in your situation, you have an improper application of the definition of compensation (that is an operational failure) that is causing an excess allocation. The normal correction is not by distributing this amount to the participant. Rather it is forfeiture or re-allocation to other participants. The $250 rule does not apply in such case.

Wrong. It would technically not be a PT if rolled over to IRA, but it would still be an operational failure.

Not automatically a PT. It depends on whether the $250K withdrawal was rolled over to his IRA/other qualified plan or if he took a distribution as cash or segregated it into his own personal account. The former is arguably not a PT, while the latter is absolutely a PT.

It is allowed under certain circumstances. That is why I mentioned IRS Notice 2016-16, Section D4.

That's great to know. But, they have not been operating the plan using a 415 definition, so there is still the possible need to go back and make corrective contributions.

I assume both plans have a 12/31 plan year end. If so, unless you are able to permissively aggregate the plans under 1.410(b)-7(d)(5) and, therefore, treat the plan merger as if it had occured on the first day of the plan year, the coverge testing for the seller's plan prior to the plan merger must be conducted by including all otherwise eligible employees in the controlled group. This is because, according to the fact pattern, the 410(b) transition rule does not apply.

Is the change really retroactive for the entire plan year under D4 of IRS Notice 2016-16 if the matching contribution is trued-up for a portion of the year and then based on payroll by payroll for the remaining portion?