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Can the required matching contributions to a 401(k) be paid with proceeds from a PPP loan?

Hi to All, In calculating the potential maximum contribution for the partners in a LLC, which number on a K-1 for Form 1065 is used as the equivalent of a regular employee's W-2 wages for purposes of calculating a contribution? We are working on a plan where a prior administrator in past years has used Item 14A, "Self-employment earnings (loss)" as the magic number for the year upon which to make calculations. We'd like to know if this is the correct approach. Maybe I should clarify that Item 14 does not automatically come with the letter A attached. Whoever prepared the form has put that in there, which according to the list of codes, means that the number is ""Net earnings (loss) from self-employment". Thanks as always for your comments.

Good morning to all, Here's a new one for us. A client called this morning to say that she (owner of the company sponsoring the plan) wants the company to pay off an existing participant loan. The participant happens to be her son who of course is Key and HCE by virtue of his relationship to his parents, the owners. He is currently making payroll deducted payments but "the company" wants to pay his loan off for him in 4 quarterly installments beginning now. She had already called John Hancock to find out if this was feasible and they told her to call us as the TPA. Our first inclination is to say "Sure, why not?" but then we started wondering if this could somehow be construed by an auditor to be a contribution that went only to this one employee and was therefore discriminatory, or whether there is some other problem associated with it. We have no idea how the company would eventually treat this for tax purposes. It's not supposed to be a contribution to the plan of course. It might be additional pay for the son, from which it appears that he's making the payments? This is an issue they have to work out with their CPA. At a minimum, we should run a new amortization schedule for them to correspond to the payments they actually intend to make. Any thoughts on how this could somehow get the client in trouble? Thanks as always for your advice, thoughts, help.

Just took over a new plan and haven't seen this in a long time - the employer reimburses investment fees through thru the trust instead of paying directly. I believe this is considered a contribution when they do that. Does anyone have a cite that clarifies this? Rosemary C. Raymer, ERPA, QPA, QKA

Client has provided employees with bonuses at year-end for many years. While the plan document states that W2 compensation is eligible plan compensation, the client did not withhold employee deferrals from the bonus pays as they would with any normal payroll. Instead, because employee feedback was that most employees did not want employee deferrals withheld, the client began communicating that employee deferrals would not be withheld unless the employee completed an election form specific to the bonus pay. Each year, only about 3% of employees completed the election form. Would a QNEC be required for employees that did not have employee deferrals withheld from the bonus pay? To your knowledge, how far back would the corrections need to go? Thank you.

A plan allows dollar deferral amounts, ie. $50, $40, etc. What should occur if the employee does not make enough in their paycheck to cover the deferral amount? The plan sponsor has be netting them down to $0 in this occasion in the past.

We recently received a census from a client where she indicated that all terminated employees separated from service. No deaths, no disabilities, no retirement. She reconfirmed this by phone. At least in her mind, nobody was retired. However, one person who quit fit the parameters to be considered "retired". He is well over age 65 and had 5 years of service. Our computer software is picking him up as retired instead of just separated from service. In this plan, he will be eligible for a match and a profit sharing contribution he would not otherwise have received. Does it make any difference that the employer considers him to be a person who merely quit? Is it correct that once a person has satisfied the age 65 and 5 years of service this plan requires, and he leaves, he is retired, regardless of the circumstances when he terminated employment? Thanks as always for any help here.

Client accidentally deposited payroll contributions twice for the same effective date. Instead of reversing second transaction, can employer leave the funds deposited alone, and change the effective date of the second deposit to match with the next pay date? The funds would have been deposited before they were withheld from participants' paychecks, but isn't the risk entirely on the employer? There is no harm to participants - in fact, they benefit.

Professional partnership firm with money purchase pension plan. One of the partners no longer has ownership in the firm, but is now a nonequity partner with his own MP plan that is tested together on a control group basis with the main plan. Are there compliance issues for the main plan if the one separate nonequity partner either does not deposit his contribution or take his RMD?

Example: 4 family members own a s corp biz (mom, dad and adult children), no other EEs. They currently pay the same salaries for all 4 (~30k/yr). They sold the assets of the business (~1.5M) early this year but retain the entity, which is now flush with cash. Just over 1M is not basis so subject to form 1231 cap gains.In order to minimize cap gains, we are considering a combination of 1) reallocation of equity (gifting some by parents to children using small part of lifetime gift exemption before eoy to keep cap gain liability at 15% (they should have gifted the equity before the sale but besides the point), and 2) starting a k/ps/cb plan to reduce AGI from 1120s, but naturally considering adjusting comp before eoy to get to funding levels for the ps/cb that make sense. Since the income of the business was minimal (sold early in the year), they will show significant loss of income in the business due to ER contributions to owners for ps/cb plan. However, they own several other businesses (no EEs other than the same owners) that will pay a management fee to the original co or the original may just become a holding co for the rest, to be determined, but income will flow into the entity after this year. My question is: 1) is there a limit to deductibility for ps/cb plans for an all owner/family relation company w no other EEs? 2) can losses due to contributions be carried forward like other corporate losses? Thx!