FORMER ESQ.

The 415(c) limit for PYE 2020 is $58,000. You are calculating it as $57,000. The fundamental issue I see in your analysis is that you are calculating the 415(c) dollar limit based on PY beginning, not PY ending in 2020

Assuming the plan document states that the limitation year is the plan year, the 415(c) dollar contribution limit for PYE 9/30/2020 would be the 415(c) dollar contribution limit for 2020, which is $58,000 (I believe). For 415(c) purposes for PYE 9/30/2020, the 401(k) contributions from 10/1/19 to 9/30/2020 are counted. He only contributed $19,000 during that time period. What we do not know is his 401(k) deferrals from 1/1/19 to 10/1/19. That would determine how much of his deferral for 2019 calendar year would be regular and how much would be catch-up (which would not count towards the 415(c) limit for the PYE 9/30/2020.) Yes, he will have to defer above the 402(g) limit for calendar year 2020 to take advantage of the catch-up provision for the 2020 calendar year. But, under your facts above, that will not have an impact on his 415(c) limitation for PYE 9/20. His deferral in the last quarter of 2020 will not be counted towards his 415(c) limit for PYE 9/20.

Not any applicable law that I am aware of. Make sure plan document "automatically" pulls in all controlled group members (i.e., a corporate resolution to adopt plan is not required).

More facts are needed, but it appears that the 3 S-Corp partners in the LLC form an A-Org Affiliated Service Group with the LLC. At any rate, to answer your question, the LLC, if taxed as a partnership, is a flow-through. It's the LLC's partners (i.e., the 3 S-Corps) that are looked at for purposes of both financial and tax accounting. It is the partners who are deemed to be making the matching contribution for both purposes.

No. The former participant (i.e., does not have an account balance as of 12/31/2020--the plan termination date) is not an "affected employee."

As Bill Presson indicated above, the answer is no. As Bill Presson also indicates above, you are going to need to re-open the effected participant's accounts for purposes of making the correction. Put them in the position they would have otherwise been absent the error (including interest). Do not forget that the late contribution of withheld amounts is a prohibited transaction. Look at doing a VFCP filing with the DOL, which if properly accepted, will get the plan sponsor out of the 15% excise tax on the PT .

Yes, you can generally adopt a retroactive amendment to the plan to reflect its actual operation (in this case, inclusion of the 4th company in the plan). As I recall, it would have to be done under VCP. This is not SCP eligible.

Not required for pre-ASG service, but it is the right/fair thing to do.

Luke, when I left big law more than eight years ago to become a businessman overseas, what I missed the most about practicing law was trying to make the "argument." I enjoyed our back and forth on this topic, and do not think your position is unreasonable. There is a logical purity to it. The participant's loan note (which is secured by the account balance) is an asset. It should be treated like any other asset and should be eligible for a COVID-19 distribution. But with all of the relief specifically provided with respect to loans, I would hesitate and at least contact the IRS on a no-names basis to see what they think. Anyway, do they still do that nowadays? I recall specific contacts for specific Code Sections, etc... It has been a while.

Mr. Bagwell makes a good point, and raises a broader point: When dealing with potential controlled/affiliated/management group scenarios in closely held businesses, make sure you have all the facts and ask all the relevant questions as it relates to family attribution. For example, while it would appear based on the facts you provided in this post and previous post that a controlled group does not exist, as Mr. Bagwell points out, if the husband and wife have a minor child (under age 21), all bets are off: Each spouse's 100% ownership in their respective companies is attributed to the minor child. The minor child is deemed to hold a 100% interest in both companies making this a classic brother-sister controlled group of corporations. This means that the controlled group cannot offer both the 401(k) and the SIMPLE IRA in the same year.

The requirement is that advanced notice must be provided within a "reasonable time" prior to the beginning of the plan year. That requirement is "deemed" to be satisfied if it is provided no later than 30 days before the beginning of the plan year. Depending on the facts and circumstances, one can always argue on reasonableness of time.

This is great! Thank you.

Mike, what I am trying to say is the following: If a contribution is made to the DC plan and those contributions do not exceed 6% of compensation, then the 404(a)(7) combined limit does not apply to either the contributions to the DC plan or the contributions to the DB plan. Is the above a correct statement?

I read the main legislative intent as a temporary stop gap for a liquidity crunch during 2020. Much narrower reading than you. To provide cash relief during 2020 (their main concern), among other things, they allowed for the temporary suspension of loan payments during 2020. If they were focused on the continuing economic pain post 2020, they could have extended the COVID-19 distribution relief to all of 2021 or 2022 as well. Or they could have extended loan suspensions through all of 2021 and 2022 as well. Your scenario described above does not address the cash crunch they face in 2020, but future cash flow. And if future cash flow (post 2020) was as important component to the legislation, they could have extended the loan and distribution relief to 2021 and beyond.

Not exactly. The deduction limit applies in the event the DC plan contributions exceed 6% of compensation. Essentially, DB/DC plan contributions are limited to 31% of compensation.

But, it is clear that the substance of the tax-gross up payments are compensatory. That is, if this person were not an employee, the company would not be making the gross up payment. The gross up payments are taxable for Federal income taxes and would likely be covered as "compensation" under the plan, but I would check the definition anyway to be sure. This is not clear. Are you saying the employer does not want the employee to defer into the 401(k) from the gross up? If so, why? To reduce a match? Do you mean to say that the payments were eligible compensation for deferral under 401(k) plan?

Let me answer your question this way. An attorney doing the VCP filing who knows that the past-employees should be addressed in the VCP, but purposefully omits them anyway, is committing fraud in front of the IRS. That, and the possibility of severe sanctions from the applicable state bar. If a client asked me to file a VCP to exclude the past employees after I had explained to them why they should be included in the application, I would simply resign.

Access to cash. The whole rationale for the COVID distribution option is to give participants much needed access to cash. I don't see how a loan distribution does that, unless access to cash means potential lower payment of taxes in the future. That is possible. But access to cash now seems to be the the underlying intent, which is the reason for the temporary loan suspensions.

Your new fact pattern presents very important facts. While each spouse owns 100% of his/her respective business and "has nothing to do with each other", you would want to make sure that neither spouse has any sort of participation in the other company's affairs (e.g., sign off on certain situations). Because if they do, husband and wife's company would be deemed to be one company as a result of spousal attribution under the "controlled group rules."

Rabbi trusts are subject to the claims of the company's general creditors and by design do not guarantee that payments will be made. Otherwise, the economic benefit and constructive receipt doctrines would apply.

That was an important detail you left out. As Bill Presson stated, you will likely have to do what the QDRO says.

1. What does plan document say about who has the power to terminate the plan? Is it the full board? Is it someone else like VP of Finance, etc... Many times, proposed termination resolutions may not be effective if the wrong people signed the resolutions. So one would argue that the initial set of resolutions had no effect. 2. If the proper authority signed, and not too much time has passed from the effective date of the resolution, I usually don't see a problem in a rescinding resolution. I don't think the IRS or DOL are going to complain that the client changed its mind and decided to continue the plan unless there was some sort of evil or discriminatory intent behind it. 3. As far as the pre 59.5 distribution to a NHCE, I doubt again that this has an impact on the corporate resolution to rescind. Of course, now you are going to have to explain this change of heart by the plan sponsor to the NHCE and ask for the money back because of an operational failure-- plan overpayment.

Nothing directly on point in the 1.401(a)(4)-11 Regs, but I think there is enough language in 1.401(a)(4)-11(c) to argue that the vesting schedule for the pre-merger account balances does not need to be compared for BRF purposes to the vesting schedule for post merger matching and profit sharing contributions.

Sorry, did not see that you are 61 years old. Just make sure your plan allows for installments.

To add to the above (and state the obvious), make sure that your 401(k) plan allows for installment payments that you describe and that you are eligible to begin receiving distributions from the plan.