Basically

True, just no response from the client. Could an EZ be filed this year on paper after the SF was filed last year electronically?

A single member plan a year ago (2019) rolled into the plan a large sum and the sponsoring business intended to hire employees. COVID hit and no employees were hired. A form 5500-SF with the "one participant plan" box was checked and filed for 2019. Due to COVID the owner/single participant took a distribution and the assets of the plan are now only $51,000. No employees.... just the owner. Do we need to file for 2020?

I thought since they were not related in their business activities and didn't use the other's services they wouldn't be a control group. Would it be a control group of all 3 if one of the businesses was owned by a spouse? Or would it be a control group of just 2 of the businesses and the wife would be on her own? Thank you, I appreciate it.

A client has 3 small businesses... Lawn Service Professional power sweeping company Investment properties While they sound like they would all be using each other's services I am told they do not at all. Businesses #1 and #2 each have 1 employee + himself.... #3 is just him. Can he open a solo 401(k) plan for business #3 and not worry about the other 2? Or are we dealing with a control group? I recall reading another thread where the situation was similar but the other businesses were owned by a spouse therefore there wasn't a control group. He makes lots more money investing in real estate than the other 2 businesses combined. Thank you

No other employees, just father, daughter, SIL. Yes, I know it needs to pass non-discrimination tests. I appreciate the input. Thanks

Understood. Playing with the math... This following makes sense, right? If total compensation is 405,000 (290,000 + 91,000 + 24,000) and at the end of the year they only want to contribute $68,250 then after maxing out the father giving him his $38,500 the rest (29,750) would simply be allocated pro-rata to SIL and daughter. The resulting % each would get is a 25% employer contribution. And SIL's deferral would not play a part at all.

I am learning a lesson here.... So in total the plan can not receive employer contributions more than 25% of the total of all eligible compensation THEN... an individual employee can not receive more than their compensation, or the 415 limit, whichever is less In the example, SIL - if he defers 19,500, to max out he would need a 38,500 employer contribution... so that's the most he can get Daughter can not receive a contribution greater than her compensation or $24,000 or the 415 limit. Her comp is less so that is her max But how is that fair? Daughter ends up getting a 100% employer contribution and SIL gets a 42% employer contribution. In a situation like this you max participants out then what is remaining dribbles down to the next participant who still has room within the individual 415 limit? I see that in the end we couldn't eat it all up... $250 was left on the table. What if the SIL didn't defer at all? How would the $62,750 be allocated? Pro-Rata? This is very interesting

That's right... look back for HCE determination based on comp. Last year son-in-law earned $52K Daughter earns $24,000 and is a new hire 2021 Father earns $400K+ Straight pro-rata. Father want's to help them both out. Grooming them to take over. Father is 68

Son-in-law earns $90K. Needs to earn $130K or more to be a HCE, correct? For the owner to max out he would only need to receive a 13% employer contribution 58,000 415 limit (2021) (19,500) Deferral (I know, he can do the catchup also) 38,500 needed to max out or 13.275% of his comp (38,500/290,000) Can the business make an employer contribution greater than 13% on behalf of the son-in-law and daughter? 13% is all the owner can get... the employees could feasibly get a maximum 25% employer contribution and stay within the 415 limit... right? 25% of 91,000 = 22,750 if he maxes def to 19,500 he is at 42,250.

Point taken. Appreciate your help.

Ya that makes sense. Son-in-law lineage is kind of weak. Just to take it another step... if the daughter was an actual owner then son-in-law would be an HCE. It would be perceived that he would own her shares by attribution. Yes? Thanks

Sorry to re-visit this topic. We have a potential new client. - Older dad (68), owner of a supply company - Son-in-law works for the company - Daughter (wife of son-in-law) of the dad is also employed - ONLY these 3 employees They want a 401(k). Is this the same scenario? - Daughter is considered an owner by attribution from Dad Daughter technically doesn't own any company stock - Son-in-law is considered an owner by attribution from wife (who is daughter to dad the owner) ALL are in the eyes of the IRS owners and therefore HCES? No need for a SH contribution?

@Lou S., I think their fear is opening up the plan to a replacement bookkeeper should their daughter cease working and move away. I think I stated in the beginning, they are paying her out of their own pockets now and figured why not put her on the books and help her start a retirement savings account. It's never too early! @Bob the Swimmer, your suggestion is noted. My involvement in pensions is not much right now. I will look up ASPPA and CEBS in any event.

All of this information is excellent information. Very helpful and for this husband/wife company who want their daughter to participate, everything fits well. I appreciate the time taken to help me out.

Final question.. I think (and hope). Once someone becomes eligible to participate in a 401(k) to make deferrals, can that be taken away from them? If the child employee in my plan defers but due to college and her work load she drops her hours to below 500, does that mean she can't defer?

Yes it does and I am glad they are allowed. I appreciate your help and knowledge.

Thank you. I will research these types of assets. Are they allowed? Are they considered "non-qualifying" solely based on the fact that they are not held at a regulated financial institution. I guess they are not "secure" meaning that they can potentially disappear with the wind. A chance the participant takes if they decide to engage in this type of investment.

I will print them up and read them tonight. I'm glad you didn't include the 5500 instructions... those are 82 pages long. Although I should probably take a look at them also. 👍

Pardon my naiveté, when you say "qualifying vehicles" you are referring to investments and whether they are acceptable pension investments? What kind of investment would require a 5500 with Schedule I over an EZ or SF? Ohhh.. I just looked at Schedule I. I am guessing certain types of investments are considered "unqualified"? Looking at schedule I, Part I, 3 a-g I am presuming those are all unqualified investments (well, maybe not a participant loan). And all plans, even one participant plans that invest in these types of investments must file a form 5500 with Schedule I?

Thank you! That is what I thought in the beginning but then with the child's attribution/HCE status I thought everything changed. They are an S-Corporation so the EZ form on paper (no need to file electronically... correct?). I am learning that there are a lot of subtle nuances that come into play . Interesting but a lot to remember. I guess once you live it you remember all these rules and how they apply. I will research "qualifying vehicles". Thanks

I want to get this right and I feel like my plan is falling apart. I looked up attribution and read that a child employee is considered an HCE because their parent is an owner regardless of the child's age. Ok, that's fine. That solves testing quite easily. C.B Zeller in the beginning helped me understand that once a NHCE was a "covered" employee then the plan moved from an EZ to an SF form. I neglected to mention the employee in my story was the child of the owner, didn't realize attribution happened moving down the family lineage. Thought it was just a husband and wife thing. So let me summarize: - Husband & wife & daughter employees - All HCEs due to attribution - Daughter will only work part-time (yes, compensated hourly, reasonable for her job) Their goal is to help their daughter and be eligible for ERISA protection (they have done well and are just a little nervous in today's life climate. Dont want anyone threatening their nest egg). Daughter is an HCE by attribution, does that solely pertain to her status? Is the plan no longer a one participant plan? Is she considered a covered employee for purposes of Title 1 of ERISA? Do we file an EZ of SF? and is a fidelity bond required? Wow.. not asking too much am I. Thank you for your patience and help.

Ahh.. I see that point and how a restaurant type business plan could become messy. Here is my situation... Husband and wife business pay their daughter (college student) to do the books and some other odds and ends stuff in the office out of their own pocket. They want to hire her officially so she can participate, make deferrals to start saving. They personally only defer and like that (Ideally they don't want to make an employer contribution at all). This new Secure Act rule sounds like the solution for this small business. That is, if they amend the eligibility requirement provisions to read "all employees hired before X date automatically meet the eligibility requirements" that would get her in the plan. At the year end she will not have 1,000 hours so she won't be included in any testing. Husband and wife can max their deferrals and the daughter wouldn't screw it up for them testing wise. They want to help their daughter but looking into the future they don't want to open themselves up to letting possible future employees in so quickly. See where I am going? Question: Can the plan be amended to allow a new hire to be deemed to have met the eligibility requirements to enter the plan by being hired on or before a certain date? And as long as the new hire doesn't work more than 1,000 hours then they are only eligible to defer and are not included in the non discrimination testing? I understand that the plan would be required to file a form 5500-SF as that new hire would be a covered participant. And I would imagine an ERISA bond would be required.

Oh ok, thanks for that. I'm concerned with the ADP testing. If a part time employee is allowed to enter the plan because they worked 3 years with 500 hours, and then they defer, wouldn't we need to include them in the test? Or are they not included in the test because they haven't worked 1,000 hours? Got to be more to it Is there a concise Secure Act publication that has all these new rules? I'll Google "Secure Act, part time eligibility rule" and see what I can find. EDIT... found it! The SECURE Act provision for part-time employees only applies to elective deferrals. Employees who work less than 1,000 hours in a 12-month period can still be excluded from receiving employer matching contributions, safe harbor contributions and other employer contributions — until they meet the plan’s eligibility service requirement for these contributions. In addition, part-time employees who become eligible solely under the SECURE Act provision are excluded from the annual non-discrimination and top-heavy testing of the plan. So, this new rule allows part time employees (who are 21) to defer and that's it! All in all that's not a bad new rule in my eyes. Thanks for helping me

Thank you and understood... for informational purposes only. Reading your reply I see that the key word is "cover". If an employee is not "covered" then they don't count (to put it simply). If only owners are covered then the plan is eligible to file a form 5500-EZ. I also understand the form 5500-SF requirement you are explaining. If the plan has an active employee who is covered but has no balance then a 5500-SF is required. If a terminated employee has a balance in the plan left behind after they left then a form 5500-SF is required, until that balance is distributed. Got it. If I understand, starting with 2021 the requirement can still be 1,000 hours BUT if an employee works 3 consecutive years where they worked 500-999 hours then they meet the new secure act 500 hour provision and are now eligible to participate in year 4? Is the above only for salary deferrals to allow employees the ability to save for themselves? or does the secure act 500 hour rule count with regards tor employer contributions?

I have been tasked to understand/learn some pension basics. This site was recommended to me as the authority when it comes to all things pensions. Thank you for your help. a one participant plan is one where there are no employees other than the owner (and spouses and partners) If there is an employee but they just don't meet the eligibility requirement of 1,000 hours to enter the plan, is it still a one participant plan? And if that is true, then a form 5500-EZ is only required And as long as that one employee stays under 1,000 hours the plan will continue to be a one participant plan? if a one participant plan has an employee who has met the eligibility requirements, regardless of whether they have made a salary deferral, the plan must file a 5500-SF, correct? they would be a participant, just no plan balance. If the employee defers compensation in 2021 (meaning they have a plan balance) and they terminate in 2022, as long as their plan balance is in the plan do they need to file a form 5500-SF? Is it safe to say that any plan that is required to file a form 5500-SF is entitled to title 1 ERISA protection? I'm sure I will have additional questions. I don't want to be the source of misinformation.