Basically

Ok... got it... it's all about the "election" to defer that needs to be by December 31. Thanks

Ok.. my mistake. I recall reading that single member sole proprietors have until 4/15 of the following year to adopt and fund a 401(k) for the previous year. No?

I know that the Secure Act says that a PS or DB plan can be adopted for the previous year up to the time the plan sponsor files their taxes. That December 31 deadline date scramble is no longer for them. The act did not change the 401(k) rule that says you need to give the NHCEs time to defer for that initial year. But what if it is a single member plan, a sole proprietor? Could they adopt a plan now for 2020 and still make deferral contributions in addition to a non elective contribution?

Great help.. thanks! I will clarify merger or termination with them. If they are ambiguous I will press for merger. Merger actually makes sense. All of this happened after my time with the plan. I honestly am in the dark. Plan merger... if a plan merger do 1099-Rs need to be prepared? It is my understanding that everyone rolled their accounts to the surviving plan. AND.. if a 1099-R is required do I only put on the form what was actually rolled over, what came out of the investment accounts and transferred into new accounts established by the surviving plan? or do I include what should have gone over had the plan been fully funded prior to the merger (hard assets transferred + SH Match receivables?)

Well... the financial advisor is asking me to jump in and help get the 5500 filed. The client didn't leave me due to my work, it was all about the ADP platform and supposed ease it brings for the employees to manage their accounts.... and for the sponsor to make deferral deposits. I would like to be thought of in a good light should more potential clients come down the pike by the advisor. A small TPA like myself... not a bad strategy All that said, is there an issue? At this point it's all water under the bridge.

Companies A and B are a controlled group. Both had their own plans... both exactly the same design (hey, they wanted 2 separate plans). I was handling the 2 plans up to the point where ADP stepped in with a bigger better way to handle everything. My services were terminated. This all occurred December 2020. I pressed to let me finish 2020 and let ADP take over first of the year nice and fresh. I was told that was not necessary that ADP would handle the 2020 Form 5500 (in writing). Come to find out they terminated Company A's plan and rolled it into company B's plan. All assets liquidated and transferred. Thing is.... Company A's plan was not whole. They moved the money even though the SH Match wasn't deposited. Is that ok? Since A's plan merged with B's, can B's plan accept the receivable SH Match? It is a control group situation. Thanks

@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.

Ok... so the plan is only required to file an EZ... and is technically not a one participant plan. Is a Fidelity bond required Is everyone an HCE due to attribution so the ADP test is a pass Is the plan entitled to ERISA protection This new rule only pertains to what form to file, an EZ or an SF I appreciate your patience.

2020 on, adding a child would not cause the plan to now need to file a 5500-SF. And because "all participants are partners" due to attribution the plan will not be covered by ERISA. Correct?

I also lean towards no. There is no control group. And I'll concede that if 250+ returns are filed on behalf of a single member business sponsoring a plan then maybe the IRS would want to see the EZ filed electronically. And just because he's a CPA preparing and filing returns for his clients should he be held to a higher standard? Be forced to file his 5500-EZ electronically? Maybe I'm naïve. In that example... a business that files 195 W-2s... would that business be eligible to file a 5500-EZ form anyway? Odds are unlikely I would say. Thanks, I just didn't want to miss anything.

I setup a plan for a CPA. He is a single member entity and files an EZ form . He called me in a panic this morning after reading the EZ instructions. Mandatory electronic filing. A filer must file the Form 5500-EZ electronically using the EFAST2 Filing System instead of filing a paper Form 5500-EZ with the IRS if the filer is required to file at least 250 returns of any type with the IRS, including information returns (for example, Forms W-2 and Forms 1099), income tax returns, employment tax returns, and excise tax returns, during the calendar year that includes the first day of the applicable plan year. If a filer is required to file a Form 5500-EZ electronically but does not, the filer is considered to have not filed the form even if a paper Form 5500-EZ is submitted Now as a CPA he prepares a myriad of returns for his clients. He is telling me that because he prepares more than 250 returns on behalf of his clients that he is required to file his EZ return electronically. I don't think so and tried to explain to him that my interpretation of the instructions is that if his business files 250+ returns on behalf of the business itself then he would need to file electronically. Because he as a CPA who prepares returns on behalf of his clients, those returns don't count. Correct?

I have read so much I am now becoming confused..... here is the situation - A CPA reached out to me regarding a single member client she has. This client was persuaded to open a 401(k) by the financial advisor who quite frankly I don't think knew anything about pension plans. Anyway, here is what happened: She opened a 401(k) for 2020 Rolled SEP money in (lots) Contributed to the plan in 2020 - Deferred the max (23K) - Maxed the employer (37.5K) upon advise of the financial advisor ONLY HAD $35,212 in schedule C compensation All contributions made in 2020. Taking the excess contribution out starts with deferral money then employer? or does it matter? Depending on what comes out.... 1099-R the deferral... withhold taxes 1099-R the employer, don't withhold taxes, code 8P perform the withdrawals before the 2020 taxes are filed Thanks

That is how it will be done. Thanks.