can we create a plan for 3 partners in 2019

[thepensionmaven]

An accountant has asked if a new 401K with no employees, non-safe harbor, can be set up for 2019 for three partners under the following circumstances:

Three attorneys set up their own PLLCs 7/1/2019, no eligible employees, so safe harbor not needed. Accountant wants them to have a 401K for 2019.  Each worked for the same law firm prior to 7/1 and one made contribution to another 401K, one to a 403(b).  Obviously, the 402(g) limit comes into play.  I don't see how a 401K can be set up by 12/31, either with an effective date of 1/1/2019, 7/1/2019 or even 12/1/2019, but the accountant is telling me another TPA firm says this will fly.

I don't see how.

[Larry Starr]

47 minutes ago, thepensionmaven said:

An accountant has asked if a new 401K with no employees, non-safe harbor, can be set up for 2019 for three partners under the following circumstances:

Three attorneys set up their own PLLCs 7/1/2019, no eligible employees, so safe harbor not needed. Accountant wants them to have a 401K for 2019.  Each worked for the same law firm prior to 7/1 and one made contribution to another 401K, one to a 403(b).  Obviously, the 402(g) limit comes into play.  I don't see how a 401K can be set up by 12/31, either with an effective date of 1/1/2019, 7/1/2019 or even 12/1/2019, but the accountant is telling me another TPA firm says this will fly.

I don't see how.

Sure it can; what do you see as the problem?  ADP will pass (no NHCEs).  Effective date can be 1/1/19 with no problem, just make sure you have an entry date that brings them all into the plan by 12/31/19.

[Mike Preston]

Are the PLLC's disregarded entities? If so, great. If not then deferrals need to come from compensation. 

[thepensionmaven]

The "problem" is that I have never seen a "tested" (non-SH) done so late in the year.

I would assume, though, the deferral elections are to be made prior to 12/31/, then they have the due date of their returns to make the contribution.

I don't know what a disregarded entity is?  Disaggregated?  Definitely controlled group.

I've never done one plan for three (3) employers before, two at the most, but it was a MEP with Dr. as PC and a sole prop.

Who would be the sponsor??

Sorry for my ignorance.

 

[thepensionmaven]

Larry, have you ever seen a 401K with entry dates of 6/30 and 12/31 before???

[Luke Bailey]

I agree with Larry, generally not a problem, but there are some issues that need to be sorted out. You say, the pensionmaven, that they each have a PLLC. Are they taking the position that the three of them together are not a partnership? Note that assuming they did not own so much of the partnership that they left to cause it to be in a controlled group with them for a portion of the year, they may have two 415 limits for the year. Also, make sure that the partnership they left does not make nonelective contributions for partners, even if they leave during the year. Some do not have a last day of year rule.

[Larry Starr]

9 hours ago, thepensionmaven said:

Larry, have you ever seen a 401K with entry dates of 6/30 and 12/31 before???

I seem to remember seeing that option in some documents years ago; it would generally be the last day of the sixth month and the last day of the 12th month, instead of the first day of the first month and the first day of the seventh month.  But it is legal, just dumb; it just brings people in a day earlier than the statutory minimum. And then for testing you have a different group (potentially, but probably rarely) for the "otherwise excludable" group.  I haven't seen it used in many many years.  Is this from a prototype and is it a hard wired option?

[thepensionmaven]

OK, let me start over.  Accountant came to me with a prospect.  Three employees of a law firm terminated and formed separate PLLC on 7/1.  Two are sole proprietorship PLLC, the third PLLC is a partnership consisting of the two partners.  Doesn't make sense, but rather than have three separate plans, the accountant wants one plan with the three PLLCs, two of which will be taxed each as sole props, the third as a partnership.

This whole situation is very "interesting" and we are trying to find a way, if possible, for this to work.  They each contributed to that firms 401(k), so any contributions would come off the 402(g) max for the year.

Plan could be effective 1/1/19, but income for contribution would have to be from 7/1-12/31/19 obviously.  The elections for the plan would need to be effective prior to the end of the year, obviously we can not have 1/1 and 7/1 entry date, which is why I mentioned 6/30 and 12/31 - they come in the last day of the year.

Who will agree with me that none of this makes any sense??

[C. B. Zeller]

Do these three PLLCs have anything to do with each other besides the fact that the members used to work together at the same law firm? If they are working together then there needs to be some sort of an umbrella organization, in which all 3 PLLCs have some ownership, and then you will (probably) have an ASG. You could of course also do a single plan as a MEP if there is no ASG.

Why can't you just use the adoption date of the new plan as a special entry date?