Minimum Funding when last day rqmt. and services cease during year.

[Guest chris4013]

A 1 person MP wants to avoid minimum funding for the 09/30/04 plan year. Services were no longer performed by the C-corp in 12/03. No compensation earned after that date. So, technically, isn't his last day of employment 12/03, and since he is not employed on 09/30/04 there is no mimimum funding for the MP plan?

[Lynn Campbell]

does the plan contain last day of employment provisions?

[Guest mecboo]

Yes, according to the subject, it does contain a last day requirement.

[Guest chris4013]

Yes, that's correct. There is a last day requirement.

[AndyH]

Boy, is Blinky having a tough week or what? His ace pitcher hitches a ride to Boston and actually DOES break the Curse. Then he gets battered by Moe, Larry & Curly. Now he's the victim of identity theft.

Geez.

[K-t-F]

Imitation is the sincerest form of flattery... but do we need another Blinky?

[Guest chris4013]

I was conducting an experiment because no one answers my questions. Using blinky was succesful in getting responses to my posts, but yet the question remains unanswered.

I'll come up with something different. It was meant to be flattery.

[Blinky the 3-eyed Fish]

I was distracted by the multiple fish. But to answer your question, if the person truly no longer worked for the corporation before the last day of the plan year, then he didn't meet the accrual requirements and there would be no funding.

Your client should be prepared to back this up somehow if the IRS ever challenges that the owner of a 1-man corp is no longer employed by it. I would think relevant factors are how quickly the corporation dissolved and if the person ever worked there in the future. Otherwise, I could see them ruling that it was not a termination of employment, but a vacation and that the guy is trying to skirt the minimum funding rules.

BTW, why is this still an MP plan and not a PS plan?

[AndyH]

Is this guy still your client? Does he still have a plan? Has he perfomed or will he perform any duties related to the plan since the plan year ended, such as speaking to you or signing a 5500 form? Those are the duties of the plan administrator. If so, how can you say that he was not employed 09/30/2004? Is it your argument that he will rehire himself on ocassion?

Just one opinion, but I don't buy into it. I think a contribution is due.

[Guest chris4013]

Can't my argument be that the stream of income has ended for his practice? No income menas no employee.

It's a mp because the owner doesn't like to do anything, including amending plans or funding contributions.

[TBob]

Aside from the last day requirement issue, I think that the key is that there was no compensation earned in 2004. Even if the contribution is required for '04 the contribution would be 0 anyway.

[Guest chris4013]

Well, there is compensation for 2 months in the plan year.

[TBob]

Duh....missed the plan year dates!

[chris]

204(h)/4980F notice aside can you have a plan w/o employees? Plan deemed terminated as of 12/31/03? Or is it that the corp. is still alive and he's still "employed" but he just doesn't have any compensation (other than the 2 mos. at beginnning of plan year)? If the owner doesn't like amending or funding the plan , then why have the plan? Terminate it as of 12/31/03, make the required amendments to the doc. language and file the final 5500. I'm sure the owner can probably find something that would pass as a 204(h)/4980F notice..... Just additional thoughts which probably raise additional issues....

[AndyH]

Sorry, but I must clearly dissent. This is the description of the client:

the owner doesn't like to do anything, including amending plans or funding contributions.

I don't think that "finding" a 204(h) notice or a termination resolution for such a client is a prudent suggestion.

Doing such a thing will take you down a road that will end in disaster.

[Blinky the 3-eyed Fish]

Can't my argument be that the stream of income has ended for his practice? No income menas no employee.

I don't see this as the criterion. What if business just is in the crapper?

Andy, to me it seems as if certain duties, like signing a 5500 or serving as a director of the corp does not constitute an employer/employee relationship. I have seen more than a few clients that have directors that are definitely not employees, so I personally wouldn't consider that function as the sole determination of continued employment.

But it appears in this case that he very well may be "employed". Although, is there also a 1,000 hours requirement? Maybe he didn't work that much. In this case, only the client would truly know this, so ask him to get you his hours in writing.

don't think that "finding" a 204(h) notice or a termination resolution for such a client is a prudent suggestion.

I agree completely.

[chris]

I don't think he would have a handwritten memo lying around labeled "204(h)/4980F Notice"; however, sometimes clients do have internal memos, minutes or other information that might suffice. Sounds like he should get one drafted effective to terminate the plan as of the current year if he doesn't like amending, funding,....maintaining the plan. What's the reason to have it if he's not going to do what he should to maintain it....? He would be hard pressed to have had 1,000 hrs. in approx. 60 days (10/1 - 12/3). That may be the way out.......

[No Name]

204(h) is ERISA. One man plan subject to that rule? Could he look in the mirror and say I'm terminating the Plan in 15 days?