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  1. I'm trying to wrap my head around this and would love some input. We have a 401(k) plan with qualified employer securities. The plan sponsor is a C-Corporation and is privately-held. The owner formed a new business in 2022 under a separate LLC that they own 100% and hired employees in early-2022. Since the C-Corporation is in a controlled group with the newly-formed LLC, the LLC was added as a participating employer of the plan effective 1/1/2023, recognizing prior service with the LLC. We expect there to be employees that meet the plan's eligibility requirements in July 2023. My question is -- how does the qualified employer securities investment option work with the employees of the LLC? Would the LLC employees simply be treated the same as the employees of the C-Corporation and have the option to purchase stock in the C-Corporation? Or, is there some other piece that I'm missing. ....such as, since the C-Corporation is technically not their employer, would the option to purchase employer securities in the C-Corporation be unavailable? Although, if this is the case, I would presume this would run into benefits, rights and features issues.
  2. Facts: Company A, owned 100% by Adam has a 401k plan Company B, owned 100% by Bob has a 401k plan Neither company are currently related in any way. They are going to form Company C (33% owners each with a third unrelated owner) starting July 1, 2022. All of Company A clients and employees will move to Company C 95% of clients and employees of Company B will move to Company C. The owner of Company B will be on payroll and Company B & C. The idea is to have Company C take over as plan sponsor of Company A. The question is: 1. Can company B retain their 401k plan and not be related to Company C? The owner would like to keep his assets where they are while all of the employees of B transition to C would roll their money over. 2. Or should Company B terminate 6/30/22 to avoid issues. 3. For Testing purposes, how should this be handled? 1/1-6/30 for A, 1/1-6/30 for B and 7/1-12/31 for C? C do 1/1-12/31 for A employees and 7/1-12/31 for B? any help would be great.
  3. To present a hypothetical situation, Myra R----- works at Entity W and enters retirement plan 3. She later transitions to work at Entity T, an entity within the controlled group in which Entity W occurs. Entity T has not endorsed plan 3; she attains normal retirement age while at Entity T. To prevent ambiguity, Myra R----- transitioned from Entity W prior to having attained unequivocal vesting, though with a sufficient balance to thwart § 401(a)(31)(B) distributions. Must she receive full vesting while employed at Entity T?
  4. I have a client that has 5 entities, all owned 100% by Person 1. A-E. The 401k plan is set up under company A. Companies B-E are adopting employers. Companies A-D are being sold on August 1. They will be 100% owned by an unrelated company from Person 1. Person 1 will still own 100% of company E and the sole purpose of Company E will be to perform management functions for companies A-D. Since there is no common ownership as of August 1 between companies A-D and company E, is E still part of the controlled group? Can employees of company E still participate in the plan either for the remainder of the year, until August of next year or must their participation end on August 1?
  5. Good afternoon to all, We are setting up a new plan for a controlled group of 5 companies that will probably have 2,000 participants when it's all done. By design, HCEs and Keys are excluded from participating. There will never be a test failure such as ADP, ACP, 410(b), Top Heavy. That's not the issue. The issue is that the owner (one man owns all of it) wants to pick and choose select groups or individuals to whom he will give a discretionary match and/or a discretionary profit sharing contribution according to his pleasure. His idea is that since there are no applicable tests to fail, why not? We feel uneasy about this but can't find anything to hang our hat on. Is this really permissible? Thanks for your thoughts on this.
  6. Hoping someone can point me in the right direction here please. There is a controlled group of 2 entities. Both entities have an existing basic solo 401k plan with a brokerage firm. The goal is to restate those plans into one custom solo 401k plan that either entity can contribute to as part of the controlled group. The new plan document lists the original effective dates for both plans, specifies that it is restating a previously-adopted plan and creates a new trust for the plan effective in 2020. The plan administrator/sponsor is the 1st entity. The plan also states that members of a controlled group can contribute to it. I know the new plan will need to file a 5500-EZ for 2020 because the assets will be over $250k. I believe that both entities need to sign a resolution to adopt the plan. Is there anything else that needs to be done? Particularly for the 2nd entity because its own plan is basically going away and merging into the new plan under the name of the 1st entity?
  7. I just want to confirm... I have 3 companies Father owns 100% of company A & B Daughter (over age 21) owns 51% of company C and Father owns 49% of company C A & B are controlled C is not controlled. I appreciate your help! Thank you !
  8. I have a potential client with the following facts: Person A owns 73.33% Person B owns 16.66% The remaining 10% is owned by a trust. The Trust is an irrevocable trust where Person A is the grantor and Person A's children (ages 25 & 27) are the beneficiaries. Person A's brother is the trustee of the trust. The children are set to receive 1/3 of the benefit at age 30, 1/2 at age 35 and the rest at age 40. I am trying to figure out if the children's benefit in the trust should be attributed to Person A, creating a controlled group with a separate company person A owns 100%. Any help would be greatly appreciated.
  9. An attorney has a P.C. (100% owed). he also owns 50% of a CPA firm with which he is associated. No doubt, this is an A-Org/FSO ASG. Sometime in 2020 he sells his interest in the CPA firm. He still works there, but is no longer an owner. Does this break the ASG in 2020? When do we make that determination? First day of the year? Last day of the year? Any day of the year? I don't see any guidance on this. If this were a controlled group issue, does the determination date differ?
  10. A controlled group is made up of two entities and one of the entities would like to revoke Safe Harbor mid year. All the HCEs are in the entity that is revoking Safe Harbor. How would the 2020 Coverage Test be performed for the 401(m) portion? Are all the NHCEs considered as benefitting due to the Safe Harbor for the partial year? Any feedback is appreciated!
  11. I have a group of three companies all previously owned by the same family (three brothers, owning all three companies jointly), that have operated a single 401(k) Plan as a controlled group. Now they have sold 49% of one of these companies to an unrelated outside individual. They are asking if they now have the option to kick the 51% owned company out of the Plan. I believe they can, but also think the successor plan rule would apply since they maintained the 401(k) after the acquisition. Does anyone here have any thoughts?
  12. This is a husband and wife plan. The husband is an adopting employer. They’re getting a divorce that will be effective November 2018. The client would like to begin setting up a separate plan for her husband. Can he adopt a plan’s in the same year in which he is already an adopting employer of an existing plan? Or would it best to make the new one effect 1/1/2019?
  13. We have a QACA plan for a controlled group. One of the participating employers would like to spin off into a different plan in the middle of the plan year. The controlled group status is not changing. They have assured us that the new plan will have identical provisions. (Although I'm skeptical that they won't add something.) The receiving plan is part of a MEP. Notice 2016-16, III D 2 is very clear that you can't do a mid-year amendment that reduces the number or group of eligible employees. Our plan would obviously be reducing the group of eligible employees. However, because those employees are continuing to be eligible in a plan sponsored by the same employer with identical provisions, a co-worker believes it would be OK to do. Is that correct? Regardless of timing, we plan to write the amendment to transfer the balances of the impacted employees to the new plan at the time of the spin off. Going forward, if they have employees who move between companies, I don't believe those employees will have a distributable event in the plan they are leaving. Is there a way to write something into the spin-off amendment to allow the balances to move between plans for transferring employees? Do we have a benefits rights and features issue due to different investment line ups?
  14. I have a situation where Husband owns 100% of one business and Wife owns 100% of an unrelated business. Husband's business maintains a 401(k) plan for it's employees. Wife is an employee of Husband's business. They have a pre-nuptial agreement regarding the ownership of their own businesses, so there are no "direct" ownership issues. We have told them the two businesses are related because they do not qualify for the exception under IRC 1563(e) because the Wife is an employee of Husband's company. She is also a participant in the 401(k) plan her Husband's company maintains...probably the reason she's an employee in the first plan, but that is besides the point. They have come back an said the conditions under 1563(e)(5)(B) are satisfied even though the Wife IS and employee of Husband's business since she "does not participate in the management" of the Husband's business. Their interpretation is that the "and" underlined below means both conditions must be satisfied (employee and participate in management) for the condition to be considered not met. 1563(e)(5)(B) The individual is not a director or employee and does not participate in the management of such corporation at any time during such taxable year; I do not see anything in the Code or Regulations that clarifies this point. I have always interpreted this section to mean that if a spouse is an employee or director, the spousal attribution exception does not apply. I would read the part about not participating in the management as a separate condition. None of the articles I can find on the subject address the "management" language in 1563(e)(5)(B). Seems contrary to the general intent of the rules around spousal attribution to say the spouse can be an employee and participate in the plan, but the spousal attribution rules can be ignored as long as the sponsor is willing to say the spouse doesn't participate in the management of the sponsor. Anyone have thoughts on this? Authority for either position?
  15. Company A is a corporation and owns 100% of another corporation Company B. 100% of Company A's stock is held by an ESOP, no employee has a more than 5% ownership interest in the ESOP shares. Does a controlled group exist?
  16. As part of a plan merger we are looking at one of the plans subject to the merger. Organization has four owners who each have established their own LLC and elected to be tax as an S Corp. Each LLC owns 25% of the organization and is receiving guaranteed payments from the Organization. Each S Corp is then paying W-2 compensation to the owner from proceeds received as guaranteed payments. Current arrangement allows each S Corp to have its own retirement plan and be tested separate from the Organizations plan. The TPA firm says based on ownership and related that they should not be considered related organizations for retirement plan purposes. The Organization is in a service business. I am trying to explain the technical reason they should be considered one plan for testing purposes. Any thoughts?
  17. Company A and Company B form a controlled group. Company A sponsors a safe harbor match 401(k) Plan, which Company B has adopted as a participating employer. There is one employee, who receives compensation from both entities, but all of the deferrals have been made through Company A. For purposes of calculating the safe harbor match, I believe I should aggregate the compensation from both companies. For deduction purposes, should the safe harbor match contribution for this person be divided prorata based on compensation, or should the entire deduction be taken by Company A, since the deferrals were made by the employee from his Company A compensation.
  18. We have a client who owns two companies and both have employees including himself. One is a corporation; the other is a LLC. He has W-2 wages of about $190,000 from the corporation and over a million from the LLC. Both companies are adopting employers to the same retirement plan and all employees are covered for both entities. Question: In calculating the maximum benefit he can have for 2017, are we allowed to use both his W-2 wages plus enough K-1 income to get him up to the maximum we can take into account for the year of $270,000? Our gut reaction is "yes" but one of us has some doubts. We are grateful for any help!
  19. One of our clients has a 401(k) plan. During 2017, the employer created 2 new controlled group companies. All of the employees then became employees of one of the new companies. We were never informed of this and the 2 new companies were never added to the plan as participating employers. They continued to deposit deferrals for the employees. Do the deferrals have to be refunded? Or can this be corrected under EPCRS? Any other suggestions?
  20. FACTS: ABC is an S-Corp owned 100% by Mr. A ABC sponsors a Safe Harbor 401k (Cross Tested) Profit Sharing Plan: 2 HCEs are elig 10 NHCEs are elig ABC 401kPSP excludes employees of Affiliated Employers who have not adopted the Plan; Eligibility is 1 Year of Service with 1000 hours (no min age); Years of Service with Affiliated Employers are counted for plan purposes Maryland LLC is a multimember LLC taxed as a partnership 5% membership interest: Mr A 95% membership interest: Partnership Z (2 partners, both of whom are unrelated to Mr. A) At 1/1/2016 the membership interest changed when Partnership Z wanted to close down. In response to this, Mr A acquired 90% of the partnership's interest via an assignment of interest Mrs A (Mr A's wife) acquired 5% of the partnership's interest via an assignment of interest As a result of this change in LLC membership , Maryland LLC and ABC Corp are now under common control as of 1/1/2016 Mr. A hired an outside person (unrelated) to manage the day to day LLC operations as he simply does not have the time to do it. There are 5 LLC employees (all NHCEs), 3 of whom are very very part time (never 1000 hours), the other 2, John and Jane, may or may not work 1000 hours in a year for LLC however they are also employed by ABC Corp and have had at least 1000 hours credited per year with ABC Corp. These 2 employees are 2 of the 10 NHCE Participants in the ABC Plan. They both receive 2 separate W2s -- 1 for ABC Corp, 1 for LLC QUESTIONS: How do the 2 "shared" employees, John and Jane, count in the 410b test? Assuming the 3 very part time employees of LLC never have 1000 hours, they will never meet eligibility for 410b testing, BUT, the 2 shared employees, John and Jane, have >12mos, 1000 hours and are eligible for the ABC Corp plan (i.e. they are active participants), yet excluded as far as their LLC employment is concerned. So would the NHC coverage be 10/12 essentially counting them as 1 person each in the numerator but counting them as 2 people each in the denominator (1 as ABC ee, 1 as LLC ee)?? I realize it will pass either way, but next year the LLC #s may increase. Mr. A and his wife are eligible for the ABC Plan, yet assuming they have compensation from the LLC, that portion of their work/compensation is excluded from the plan. How does question #1 apply to them? Does the LLC compensation that is excluded for allocation purposes have to be tested for reasonableness, to prove the exclusion is not discriminatory? or does the LLC compensation have to be included for allocation purposes, i.e. added to their ABC Corp compensation for allocation purposes (SH, TH Min, PS)? Presuming the LLC Compensation is excludable, is 401(a)(4) testing done only with respect to ABC Corp compensation? or is the LLC compensation added in for Avg Ben, Rate Group testing purposes? Thank you!
  21. Please confirm the compensation earned from all members of a controlled group of businesses is aggregated for purposes of allocation, coverage, ABT and General Testing. Facts: LLC (single member, taxed as S-Corp) sponsors a Safe Harbor 401k with Discret PS features. The LLC controls all plan provisions. There are several nonHCE covered by the Plan in addition to the "owner" C-Corp (owned by same person who is Member of LLC) adopted the LLC's Plan, follows the LLC's provisions as stipulated, is a "participating employer." Suppose for this question the LLC Member's elig compensation is $50,000 and his/her C-Corp is $100,000. Total earnings $150,000. Is compensation for purposes of SHM $150,000, irrespective of which source of income (LLC or Corp) it was deferred from, meaning if the 401k deferral is deferred from the LLC source, wouldnt you still determine the SHM on the aggregate of both compensation sources? In this instance, the SHM w b $6,000... Further if the Corp fails to contribute its proportionate share of the SHM, the LLC will (be forced to contribute it to satisfy the SH) and can deduct it? Is compensation for purposes of the PS allocation $150,000? Deducted by entity who contributes it, correct (Same as above)? Further if the Corp fails to contribute its proportionate share of the PS, the LLC will (be forced to do so) and can deduct it (subj to 25% limitation)? For purposes of the ABT and Rate Group testing, the aggregate compensation is used for the Accrual Rates, correct? For determination of HCE status, aggreg is used? Each entity tests based on its compensation for 25% deduction limitation? Thank you
  22. I understand that SIMPLE plans are subject to the controlled group rules (i.e. all members of the controlled group are treated as a single employer for qualified plan requirements). While as a parent company has SIMPLE 401K plan, can a subsidiary company have SIMPLE IRA in the same year? Contribution percentage will stay the same. The most of the employees will be transferred to a subsidiary company, and parent company will be as a holding company.
  23. We work on a plan that is a controlled group. Out of the 3 groups we administer two and another TPA takes care of the 3rd Plan. Not a problem, however they acquired another group (4) that has a different Plan Year. We are contracted to take care of the coverage testing for all 4 groups. How do we handle the off calendar plan?
  24. An employee was working for City A and was covered under a union contract hat provided she was an eligible employee for purposes of Plan X (a defined benefit plan). After ten years of service, Employee became a certified teacher and took a job with the Board of Education for (same) City A and is now covered under a statewide retirement system for teachers of State S and no longer an eligible employee for Plan X. Assume that her last day of work with the City was on Friday and she started teaching in the schools of City A on the following Monday. Did this employee terminate service with City A when she became a teacher or has she continued to work for the same employer and just stopped being eligible for Plan X? Must she wait until she retires as a teacher (totally leaving employment with City A or its Bd of Ed or any other subdivision or related employer) in order to commence benefits? The plan does not permit in service commencement of benefits. The plan (which is based on statutes, ordinances and collective bargaining agreements) has very imprecise language so it's really not helpful at all in determining whether or not she terminated employment. If anyone can point me to guidance on how to determine separation from employment or application of controlled group rules as may be applicable to governmental plans in such a case, I would be appreciative. Thanks!
  25. We recently took over the work for a controlled group of employers that have a separate 401(k) plan for each employer. Deferral and match only, no profit sharing. All the plans pass the ratio percent test for coverage except for two plans - so the average benefits percentage is applied to test these last two plans for coverage. One of these two plans is a safe harbor 401(k) plan. The employer has no other safe harbor plan, thus it cannot be permissively aggregated with any other plan for coverage testing, correct? The final plan happens to be their only 401(k) plan that uses current year testing for ADP/ACP, so I don't think it can be aggregated with the other plans either. The question is regarding the terms 'testing group' and "taken into account" from the 410(b) regulations. In 1.410(b)-5(b), the average benefit percentage for a plan is the ratio of the NHCEs actual benefit percentage in plans in the testing group over the HCEs actual benefit percentage in plans in the testing group. In 1.410(b)-5©, the actual benefit percentage is the average of the employee benefit percentages in the group with all nonexcludables of the employer taken into account, even if not benefiting under any plan taken into account. In 1.410(b)-5(d)(3), the testing group is defined in 1.410(b)-7(e)(1) which states that the testing group is the plan being tested (obviously) plus all other plans of the employer that could be permissively aggregated with the plan being tested. So, when reviewing the prior firm’s coverage testing, they ran the average benefits test for the safe harbor plan by showing zeros for all the hundreds of nonexcludables (those are the employees in the controlled group covered by other plans but not covered by the safe harbor plan), then averaging the results. The averaging takes into account all of those zeros. However, for the current year tested plan, they ran the average benefits test by including allocations for all employees in all plans, including the allocations made in the safe harbor plan, then they averaged those results. So, for the average benefits test for coverage, the "testing group" is only the plan being tested. So does that mean the average for that test include all the zeros for the nonexcludables covered by other plans because they are to be "taken into account"? Or, are all the average benefits provided under the other plans also calculated for purposes of determining the average benefits. It seems like the prior firm did this both ways. Why would the safe harbor plan and the sole current year testing plan be done differently for these tests? Man, that's a long question. Sorry about that.
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