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Message Boards Digest

August 31, 2021

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AlbanyConsultant created a topic in 401(k) Plans

One Schedule C Has a Net Loss... Possibly Outweighed by the Owner's Other Compensation?

"A doctor owns 100% of three businesses: Sole Prop A, Sole Prop B, and S-corp C. They are all part of the plan. For the first time, I've got an issue with the compensation. Sole Prop A has a net Schedule C (before pension expense) of $34K. Sole Prop B has a net loss (before pension expense) of -$127K. And the S-corp paid him a W-2 of $278K, including $18K of 2% shareholder health insurance premium. Normally, all the numbers are positive and combine to be way over the compensation limit (even after the safe harbor expense for the participants), so this is nothing to worry about. But 2020 was, well, 2020. I'm sure it isn't as simple as combining the three numbers. I thought I remembered hearing that you combine the self-employed amounts, and if that is less than zero, you can treat that as zero... but I can't find that in writing at the moment, so I'm reluctant to go with that until I've got something to hang my hat on."

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EBECatty created a topic in 401(k) Plans

Testing of 401(k) Plan with Dual Eligibility

"I'm not perfectly clear on how you would test this design, and would appreciate any insight. A 401(k) plan allows immediate eligibility for deferrals on date of hire; the only condition is age 21.

The plan also provides a safe harbor nonelective (also age 21). Eligibility for this portion is the January 1 or July 1 after working 1000 hours (not January 1 or July 1 following a full 12-month period in which the employee completed 1000 hours). So, if a full-time employee was hired on July 1, 2021, they may work 1000 hours before the end of 2021 and enter the safe harbor portion on January 1, 2022.

This does not seem (to me at least) to impose the maximum permissible minimum age and service conditions in 410(a), so it's not clear that dividing line for ADP/safe harbor would necessarily correspond to the participants actually getting those contributions when using the otherwise excludable employee rule (i.e., some participants who have not satisfied the maximum permissible age and service requirements would be getting safe harbor nonelectives).

If that's the case, how would you test? Would it be everyone with less than the maximum permissible conditions subject to ADP (even if some are getting safe harbor nonelectives) and everyone with more than the maximum permissible conditions exempt from ADP testing due to the safe harbor? FWIW, this is what ERISApedia and Who's the Employer seem to suggest."

2 replies so far   |    Click Here to Add a Reply

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