Nate S

An ESOP's normal form of distribution is a 5-year installment; the plan document allows that the remaining payments may be accelerated to a single lump sum distribution at the Plan Administrator's discretion. The sponsor then adopts by resolution a distribution policy that restricts the acceleration to terminated participants, depending upon available cash flow; retirees will be paid installments. Their ERISA counsel insists that this class-based distinction is non-discriminatory, and besides, the retirees benefit by continuing to enjoy gains from the future stock value growth. As of 12/31/21 there are three retirees(2 non-hce & 1 hce) paid by installment; and two terminees they want to accelerate, 1 non-hce of <$5k and 1 HCE(former 5% key) with a $750k account balance. The retirees installments are less than $300k, and their total balances are less than $700k. 1. Is the determination to accelerate distributions subject to BRF? 2. How would you structure that test, amounts distributed this year vs total balances, ratios of eligible distribution amounts, other?

It was the combined value; the limit for 2006 was $100k, the Pension Protection Act increased the limit to $250k for 2007. But that is a very long time ago... it would be very hard to have maintained accurate records going back that far, especially when you consider the damage you took in the fire/flood/earthquake of 20XX... or were those in the files your kids accidentally tossed when you told them to clean the garage... If the accounts now total over $250k combined, I'd start with the 'Final' 5500-EZ; and "as many" previous years as you have "sufficient" records for. The IRS correction program (not the DOL's DFVCP) caps the penalty at $1500 per plan. [Although I'm perplexed by your statement that the 401(k) PLAN had profit sharing and money purchase Keough accounts. Yes, previously two plans were needed to get to 25%, but they could have been merged under one document anytime after 2001(?). The monies can be in multiple trust accounts and still be part of one plan, so I don't know if you still have two plans to file for or not.]

The 415 limit can cause this too.

Sorry, I'm confusing my excludables. Is his compensation 100% attributable to his union-related services? Could it be that he belongs in both testing groups, with a split of his compensation and deferrals, or a loading of his deferrals into only one portion? Does the Plan Document delineate how to operate under such conditions, and if not, how should the Plan Administrator decide; remembering that such undefined determinations typically have to be made in favor of the participants? Can the other union participant somehow be otherwise excludable so that the union test is HCE only? Is he actually a 6% owner, or does his union membership reduce his voting power; especially where benefits are concerned, he could not participate or vote on any agreement without a conflict of interest.

Depends on how the assets are managed in the paying of the fee. It it's offset against the revenue sharing or some sort of sweep arrangement then that portion is netted against the gain/loss. If it's paid directly out of the trust then its an expense. And is it's managed as a commission or fee paid by the insurance custodian then it goes to 10(e).

I did have an auto-repair shop (c-corp) with a 401(k); the employees decided to unionize, the owner was going to get shafted on insurance costs because his benefits would all then considered "personal coverage" or he wasn't insurable, I forget what the core issue was. He allowed the union to come in as long as he was covered as well; agreed to an independent arbitrator for collective bargaining, and was treated as the foreman or site supervisor. The 401k was safe-harbor match with a low integration profit sharing. Since he didn't have discretion over his wages or benefits; business profits were held as retained earnings; he would eventually get double-taxed either in the dividend, or if he re-classified away from the c-corp. Otherwise, we've also had a large municipal and road contractor who with a 10-year interstate highway widening project where operators and supervisors become HCE'S. The test would vary from year to year whether or not we permissively disaggregated the union guys, but most of them were understanding enough about the "bonuses" the Plan was paying back to them. What about the other 94% of the ownership? In an s-corp they would have to have considered income so you should have other HCE'S?

The less that a Doc tells them they can or can't do the better!(i.e. top-paid group election in the adp/activity test b.s.)

The intent is good, but I wouldn't draft an exclusion based upon disability or age status. You could establish a compensation band(indexed to the SSDI threshold) for the exclusion, this would be definitely determinable and non-discriminatory. Any post-year end election/resolution you make should recognize the harm to those participants if the benefits are fully paid; you're not following the document regardless, but maybe this gives reasonable motive. If I recall this issue correctly, there is little you can do, if they are eligible, then they must benefit according to the document. If the employer is so inclined, maybe a non-compensatory expense reimbursement to replace the ssdi benefits subject to refund.

Plan Administrator or TPA need to issue payment to IRA for balance due to bring the gross deposit up to $40k. Recordkeeper needs to file amended 945(IRS) and whatever state form to get back taxes incorrectly withheld. Corrected 1099's need to be issued, showing 40k rollover, and 0 cash distribution with 0 taxes. Returned taxes can be paid to whoever fronted the corrective deposit. TPA and Plan Administrator can then bicker over fees and responsibility. Basic tenant of any correction, put the participant in the position they should have been in without the error, without harm. That would mean 40k in the IRA, and no tax shenanigans!!

It depends if the failure is originally eligible for SCP or not.

The missed after-tax would only be if there was a mandatory component

@ColeC Follow Lou's advice for scenario 1, that's fairly straightforward VCP and 5500EZ correction program. Scenario 2 is also VCP situation, and as Luke addresses above, the more paperwork you have around the Plan, the more likely you are to have a "Plan". Resolution to establish, correspondence regarding plan provisions, payroll deferral election, beneficiary designation, annual plan administration reports, filing a 5500(even if not required!); have all the surrounding paperwork you can "find" available now before going through VCP. In both instances, clients may balk at the VCP cost, but compare that to the years of tax liability, plus interest and fees they would be exposed to on each filing, especially if max tax bracket.

Check. Your. Plan. Document. There's a section in there that will designate what action needs to be taken to effect a termination. Is a Resolution sufficient? Maybe. In the OP, @PS notes intent, which is not enough. Ok, so you intend to terminate the Plan. But, did you? It's a small semantic difference between intent and what @CuseFannotes, which would be a hybrid resolution that goes on to include the actionable "the Plan is terminated." A pure Resolution creates the impetus to cause corporate action to then occur. The amendment of the Plan would then be the action. Also, who is signing the Resolution? Is it the Sponsor who has the authority to amend, or is it the corporate secretary? Do the bylaws give the secretary the full authority of a corporate officer(usually not), or is the secretary actually just the executive administrator to the president/VP/COO/in-house counsel???

No the controlled employer(the leasing employer) has not adopted the plan sponsored by the recipient employer.

A large employer (closely held by father and 3 kids) has 7 leased employees (no coverage issues, this is purely an allocation eligibility issue); the Plan excludes leased employees. But as it turns out, the leasing employer is in a controlled group with the recipient employer, as the father, and a family trust comprised of the spouse and three kids, are also the owners of the leasing employer. As such, are these 7 employees still able to be excluded due to the leased employee classification; or should they be benefitting participants because the controlled group means they are just treated as employees of the sponsoring employer?

So, they are trying to file a DRO to seek roughly 18 months worth of benefit payments, from the divorce date to the AP's death? Benefits that were already paid to the participant, btw. I don't see that the Plan has any possible liability here. For example, if we go back in time to the date of divorce and split the benefit payment, the AP is on a lifetime annuity that ends when she dies. The bigger issue would be the 50% reduction to the participant benefit that is now lost to anyone once the AP dies, it's not as if that payment reverts back to the participant for the remainder of his time. There's no way the AP's estate can force any reduction to the future payments on that basis, because they don't have an eligible recipient! If they really want their lb of flesh for the 18 months of benefits she could have possibly earned, they need to go after the participant who received and enjoyed them. The Plan should engage an ERISA attorney to put this in fancier legalese and rebuff any attempt to submit a DRO against them.

If it causes the participant to not have those monies in their account as of that day then yes.

Documents also usually exclude from deferrals non-payable income items such as tips that are collected in cash directly by the employee. I would get away from compensation and dig deeper into the deferral sections.

The Plan Doc should address unknown, unreachable, incompetent situations, usually they are able to forfeit the monies with the understanding that they are refundable to the participant/beneficiary if or when resolved. A corporate resolution documenting the action, and the actions to be taken upon restitution (assumed earnings, etc.) will suffice. Most likely it was an overfunded safe harbor match, mutual fund's fee redemption, class action settlement payment, or trailing dividends from a closed fund that the prior RK didn't track to a current investment.

An email or phone call from a regulatory agency is informative correspondence only and is not considered actionable communication. In fact agencies will warn you that they will never initiate contact this way and those attempts should be considered fraudulent. From a regulatory perspective, "in writing" still means the physical delivery of a message affixed to a paper medium. The electronic disclosure regulations only applied to Employer to Employee communications.

Ditto on the new CPA. Although he may be entirely wrong, that link includes the remark, "The S corporation also can’t deduct any plan contributions for these participants that are based on accrued compensation." So is the CPA also not disclosing that he incorrectly calculated the compensation using accrued income??? You could also recommend seeking mediation through the AICPA: Ethics hotline: 1-888-777-7077 Typically the contributions on the SB are going to be matched to the deductibles for the year; but in this case the actuary may be another accredited opinion to influence the CPA; he could also threaten to match the SB to the undetected amounts, but include a dissenting opinion naming the CPA as being at fault.(as long as there wasn't a funding deficiency as a result) But regardless the Employer has final say on his own tax return, all efforts should be shown towards influencing him to get it prepared properly.

Do the CB participants have the same 7/1 entry date? If so, then your participating compensation is 414(s) safe harbor and you can use that for the testing regardless of the basis of the allocation compensation. And if the CB entry dates are retroactive back to 1/1, an alternate definition of entry date compensation would be as of the date eligibility was actually satisfied, ie hired 3/26/2020, one year satisfied as of 3/25/21, participating compensation is 3/26/21 - 12/31/21. Don't forget the caveat to the consistency precept of "unless you have to" .😇 Such as for one plan using calendar year compensation aggregated with one using fiscal year compensation. So you could force the issue by writing the separate plan calcs into the "administrative procedures" of the documents.

It's a question of limitations, which the IRS says should be measured on a full year basis anyway.

Its only taken 13 years but the IRS finally updated their vendetta against these arrangements, read carefully the 2008 memo towards the bottom: https://www.irs.gov/retirement-plans/rollovers-as-business-start-ups-compliance-project Essentially, the establishment and unwinding of the Plan are prohibited transactions. And no one is properly valuing the stock in between.

Only if it placed the onus to elect the lump sum payout on the AP, instead of compelling the Plan to make the payment that way.