I have a small defined benefit plan that is terminating due to the sale of the sponsor's dental practice. The plan is underfunded so the owner will be signing a waiver for the unfunded portion of his benefit. So far no problem. A substantial contribution was deposited in 2019 to make up some of the unfunded shortfall. The amount deposited was well within the plan's deduction limit. However, when the accountant completed the 2018 preliminary returns the Net Schedule C Income for 2018 is about $17,000 less than the deposited amount. The accountant will take a deduction for only the portion up to the Net Schedule C amount, not the full amount of the deposit. According to the accountant there will be no Schedule C Income after 2018 so the excess $17,000 can't be deducted in a later year. My understanding is that the sponsor will owe a 10% penalty for the nondeductible contribution for the 2019 plan year (the year of the deposit). How is the excess contribution paid out of the plan?

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[1] If a plan defines a year of service for eligibility as 1,000 hours, would you be required to look back at hours history to determine the otherwise excludable employees (to see if any never met 1,000 hours)? Or could you just use hire date (and birth) for administrative ease/sponsor does not provide hours? Especially for new takeovers, it's tough for sponsors (especially large ones in certain industries) to provide hours history for a long period of time. I'd just assume a part time employee who has been at a company for 20 years met 1,000 hours once. I think it's common practice to make certain assumptions but can't find any language anywhere. [2] If a plan uses elapsed time for eligibility, could they not use the 1,000 hours to determine if they ever met a year of service for otherwise excludable classification? I think the regs just reference year of service, which would then come down to how the plan defines it.

A partnership with 3 related partners normally funded their contribution separate from another business owned by them with several other people. Until 2018 they were not a controlled group. This year, the same 3 people (family members) own both companies. So the question is not whether they must pass coverage as a controlled group of employees/participants, but instead is whether the owners can fund their $55,000 max contribution through either plan. Or do they have to fund it through the second company with all of the employees/participants?

This question is related to a 401(k) plan with many partners and rank-and-file employees (not to a solo SEP or 401(k) with only one partner). For the 2018 Plan Year, I calculated a maximum contribution (employee deferrals, Safe Harbor 3% NEC, and Employer Profit Sharing) for a partner as $55,000. The accountant is telling me that the partner's maximum contribution is limited to 20% of reduced K-1 income, which is approximately $50,000. I've found guidance about the maximum contribution for self-employed individuals as being limited to 20% of reduced K-1 income, but would that apply to 401(k) plans (not just to solo SEPs and 401(k)s having one partner as the sole employee)?

So a partnership and an LLC are testing for coverage. The partnership has a huge profit. As long as the cross-tested formula passes coverage, can the owners choose to deduct their own contributions form the partnership or the LLC? The partnership has no other employees; all employees are part of the LLC.

401(k) plan. Participant X completed a beneficiary form years ago. Spouse as primary, father as "contingent." Plan has normal language that a divorce revokes the spousal beneficiary designation. X gets divorced. No QDRO directing that ex-spouse receive any benefits from the plan or must remain as beneficiary. X never completed a new beneficiary form. Some years later, X dies. No spouse, no children. The plan's provisions, when there is no designated beneficiary, list the parents of the deceased as 3rd in a default hierarchy, after spouse and children. X's parents are divorced. So here's the question. Is a "contingent" beneficiary designation valid if the primary does NOT die? In other words, in this situation, is the father the sole beneficiary, as a "contingent" beneficiary, or does the automatic revocation of the ex-spouse as beneficiary also revoke the "contingent" status? If contingent status is NOT revoked, father is the sole beneficiary. If contingent status is revoked, then the death benefit would be split between father and mother.

A church has decided to sponsor a new 401(k) plan effective 01/01/2019. A few ministers receive a housing allowance, which I understand is not included as compensation under 415(c)(3). So it seems a minister who during 2018 received paid compensation (for Federal income tax purposes) equal to $115,000 plus an additional $40,000 in housing allowance would not be considered an HCE for 2019. Is that correct?

An employee become a participant 7/1/2018 and terminated 8/18/2018 with only 1 year of service for vesting purposes. This participant shared in the allocation of the employer contributions for the 2018 plan year, which was made in March 2019. Is this 0% vested and terminated participant included in the 2018 participant count for Form 5500-SF purposes? (Item 5(b) -- Total number of participants at the end of the plan year; item 5(c) -- Number of participants with account balances; item 5(e) -- Number of participants that terminated employment during plan year with accrued benefits < 100% vested. Also, generally speaking, is item 5(e) applicable to 401(k)/profit sharing plans?

Husband and spouse own one company 50/50. Their two sons own another company 50/50. Technically the companies are related -- both companies are in the same industry, but perform different functions within the industry. Some employees work for both companies. Both companies sponsor separate profit sharing plans. One of the sons in his company defers, so the plan was amended to SHNE. The son is also an employee and participant in the other plan and no one in that plan defers. Doesn't this plan have to be amended to an SHNE plan?