Leaderboard

Michael B. Preston, who was an enrolled actuary, was a giant in the pension field. He contributed so much to the employee benefits community. He posted 6,569 messages onto these message boards since he joined in 2001 (!) -- questions, answers and comments that helped to inform and educate hundreds, perhaps thousands, of his peers. They're all still here and on the search engines, so his wisdom and humor will continue long into the future. During the 1990s, Mike was a system operator of the PIX ("Pension Information eXchange") BBS (i.e., a "bulletin board system"). PIX basically was a server running proprietary software on a particular dedicated personal computer that had a dedicated telephone number. Members would use their PC (and a modem) to connect via a long distance phone call, so that the latest discussions could be downloaded for reading and for adding comments. Later, when the World Wide Web became popular and PIX closed, Mike become an active participant and later a "moderator" on these BenefitsLink message boards. An outstanding servant and leader in his profession, Mike was awarded the Edward E. Burrows Distinguished Service Award in 2017 by the ASPPA College of Pension Actuaries, which is "presented annually to a pension actuary who has gone above and beyond in forwarding ethics, education, beneficial legislation or regulations that enhance the private pension system or the professionalism of enrolled actuaries within the private pension system." We will miss him so much!

Yes. Safe harbor non-elective is considered to be the same as profit sharing for 410(b) and 401(a)(4) purposes.

It’s with sadness that I learned about Mike Preston’s passing when Linda called me yesterday. Anyone who was fortunate to spend any time with Mike, knew he was truly a unicorn. Technically brilliant, razor sharp intellect, generous, open and honest (even on uncomfortable subjects), always supportive, witty (very dry). I always enjoyed hearing him laugh! As I look at the comments on Benefitslink, and having shared news with other colleagues, I heard the comment over and over again “Mike saved my bacon!” Rather than repeat his expertise and prowness to which all have provided testimonials, I wanted to share some stories of Mike. Mike, always a fan of the keyboard shortcuts, would do his best to get me to follow his lead. As an exercise, he gave me an excel spreadsheet to do some calculations on. I was so slow using the mouse instead of the keyboard strokes, that he never asked me to do that calculation again. He never gave me any grief about this and I continued to work with him for the next 9 years. Looking back on that, he was fully supportive and allowed me the freedom to show my abilities, even though they differed from his. When Sal Tripodi was touring, a group of us would gather together to socialize, enjoy an adult beverage and have discussions about movies. When Mike joined us, he would initially try to engage Sal in more shop talk. We would tease him and ask him what movies he’s seen. We finally got him to engage on the movie “Crouching Tiger, Hidden Dragon”. That was a pretty fun moment when he was describing the fighting scenes to us. Mike was also a fan of the Sopranos. Mike would start grooving and moving to “Woke Up This Morning.” While they were traveling they asked me if I would record an episode for them. I remember Linda telling me that the tape also included some of my girls tv shows that included the Bernstein Bears, etc. She said Mike was wondering if I was trying to send him a message. We laughed at that. When my wife and I started our journey to begin a family, Mike and Linda were fully supportive. As I would later find out, Mike and Linda went down a similar journey without success. Without Mike and Linda’s full support, we would not be parents of twin girls. I feel fortunate that Mike and Linda have met my girls and know how much their support means to us. Mike, you will always be in our hearts. I’m thankful for our time together. Frank Suzuki

I don't think it's a coincidence that your set of roles for this hypothetical adviser matches with the list of persons described in Circular 230. With regards to providing written advice to a taxpayer, Circular 230 § 10.37(a)(2)(vi) instructs that a practitioner must "Not, in evaluating a Federal tax matter, take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit." I read this, perhaps expansively, to mean that a practitioner may not discuss the subject of "getting away" with questionable transactions. Under that guideline, I would find it inappropriate to discuss the capabilities (or the lack thereof) of the IRS to detect this issue. Even were I not myself subject to Circular 230, I would still not discuss it, as the only possible result of bringing it up would be to serve to encourage them to illegally treat the distribution of excess deferrals and earnings thereon as a qualified Roth distribution. My job is to help my clients get the tax results they desire, within the bounds of law and regulation.

Is there anything in this particular plan document that says a loan becomes payable in full immediately upon the employee becoming a union member (or more generally, transferring to an excluded class of employees)? Usually I would only see that kind of provision apply upon termination of employment, but I suppose it could happen. Absent that, I don't think so. The employee continues to repay it through payroll deduction (assuming that's what the loan policy says). Transferring to an excluded class means you are not entitled to future contributions. Loan repayments are not contributions.

(and hopefully the plan's document "guarantees gateway" as needed for those with only the SH allocation prescribed)

I've had this discussion over the years with several people and do have some thoughts to share. first, if the plan and/or QDRO procedure provides for a freeze, I think the plan terms control. Of course, if the participant must receive a distribution (e.g., an RMD), the plan can't interfere with those legal limitations or mandates. Of course, the purpose of a freeze for a divorce is to protect the nonparticipant spouse, who is presumed (whether it is accurate or not) to be a nonworking wife, if the participant is dastardly and wants to drain the account before she can get a hold of half his account. While I have all kinds of thoughts about stereotypes, paternalism, and the like, I agree with David Schultz about it not being the plan's place or responsibility to control the participant's behavior. Further, in many (if not all) jurisdictions, when you file for divorce, the court issues a court order requiring the couple not to impair any potential marital assets. So, usually, once the divorce is final, the participant is likely in contempt of court if he or she raids the plan, and there are remedies for that which the court can impose. The former spouse has no rights at all to the participant's plan interest in absence of a QDRO. And, the Supreme Court said in one case that it is inappropriate to use a QDRO to state that the spouse has no rights to the participant's account, as that is the status quo. So, if you do put a hold on the participant's account, when does the hold end? When the participant shows you his/her divorce decree? that requires a sharing of information that is really not the business of the employer/plan administrator. And, if it is decided in the first five minutes of the divorce process that the nonparticipant spouse is not interested in sharing in the participant's benefits, the presumed protection of the nonparticipant spouse is not needed. So, from a practical standpoint, the plan administrator really doesn't have access to or shouldn't have access to enough information to know when the hold should be started and when it should end. For no other reason than the practicality of the hold (or lack thereof), I recommend that they plan only place a hold on the account during the period between the provision of the proposed QDRO to the plan, and the determination by the plan that the QDRO does or does not quality. The nonparticipant spouse should use his or her lawyer and the courts to control the behavior of the participant vis-a-vis their marital assets.

I think the fundamental question is: Is there ANY language in your plan documents that authorizes the Plan Administrator (or any other party) to freeze a participant's account based only on knowledge that a DRO is being discussed? In most states, the filing of a divorce petition results in an automatic stay preventing the parties from unilaterally taking/transferring marital assets. If the participant does something improper - prior to the plan being aware of an actual DRO - then the court can deal with the participant's improper actions. It isn't the plan's place to intervene; the court can do that. The plan's duty is to follow its terms and provide benefits to participants, not to protect either party in a divorce proceeding. My belief is that such freezes are an operational failure (not acting within the plan terms) and potentially a fiduciary breach. I'd tread carefully (or preferably not at all).

While I did not know Mike personally, I did benefit from exchanges with him. My prayers and condolences go out to his family.

The QACA safe harbor contributions themselves cannot use 6-year graded vesting. But, there could be other employer contributions such as profit sharing that could use that vesting schedule.

If the plan has reached the point of filing a Standard Termination Notice, you must inform the PBGC that the enrolled actuary's certification of sufficiency (Schedule EA-S) is no longer valid. The plan sponsor should then initiate a distress termination by issuing a new Notice of Intent to Terminate to participants and to the PBGC (which is a recipient of NOIT's in distress terminations but not in standard terminations). If the Standard Termination Notice hasn't yet been filed, the PBGC doesn't yet know "officially" about the termination. A distress termination NOIT should be issued. It goes without saying that you should apprise the PBGC personnel with whom you have been communicating about the client's altered circumstances.

If those 401(k) successor plan rules did not apply to owner-only plans then they could circumvent the pre-59.5 in-service distribution prohibition rules at will. Unless there was some specific investment he could in IRA rather than 401(k), what was purpose for terminating in the first place? If no other distributable event per RBG, I think he must wait 12 months from the distribution.

Yes.

I second that. This is a huge loss to the retirement benefit practitioners community. Let him rest in peace and condolences to his family.

I'm sure Nike has this trademarked or something, but it would be fun to have this on our client engagement letters - the endless amounts of time we spend because the client is trying to "get around" something they have to do, or won't do what we tell them to, etc., etc. - wouldn't it be great if we could contractually point to "JUST DO IT!" Just one of those pleasant daydreams...

There is no change to the question asking about the number of active participants. There is a new line item (6g(1) on the 5500, 5c(1) on the 5500-SF) which asks about the number of participants with account balances at the beginning of the year, and that new item is the one used to determine whether the plan is required to have an audit.

Also, you don't fully describe the error, in particular the errant contribution. If the error was not made, would that have resulted in more of a contribution allocated to other participants (we contributed $X to be allocated to those eligible based on pay) or simply would that contribution amount not been made at all (we wanted to contribute X% of pay for those eligible)? If the former, then the defect likely warrants correction where someone (employer, TPA, shared) makes the plan whole by funding, and then such is allocated. If the latter, participants have not been harmed, this is simply an inadvertent error the plan sponsor can choose not to recover.

1. you can't make it more restrictive retroactively. We are past 2/1/2024 so that ship has sailed. Pick a date in the future. And depending on the circumstances, an amendment can make someone no longer eligible, but that's a whole other conversation. 2. to apply or not apply to existing employees depends on how the amendment and document is written. I've seen it done both ways.

Each covered service provider is responsible for disclosing to the plan sponsor of any fees it receives from any source other than from the plan sponsor. If the broker account provider is receiving payments from the participants' accounts or from investments held in the participants' accounts, then the broker account provider is responsible for disclosing all such fees to the plan sponsor. If all of your fees are paid by the plan sponsor, then you have nothing to disclose. https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/final-regulation-service-provider-disclosures-under-408b2.pdf

The root cause for this scheme seems to be that the plan lacks cash available to give to the participant to make the loan. If so, then the scenario should start with the business making a cash contribution the plan sufficient to cover the MRC which would put the plan in the position to issue a loan check. That would provide a documented trail of the sequence of events. The idea of writing a check to himself is a stretch in an attempt to circumvent the lack of availability of cash in the plan. This supposes that there is $50,000 in the business checking account (for the contribution) that would cover a check to his personal bank account (for the loan). If there are not separate checking accounts, would a bank even cash a check from an account payable to the account upon which it is written? If the bank will not honor the check, is it a valid financial transaction? Trying to net the contribution and loan into a single transaction is vulnerable to an interpretation of events, and the IRS likely will have its own view of what transpired. Consider that the IRS could view the result of the net transaction as if the business funded the contribution by the having participant give the plan a promissory loan note secured by his vested balance in the plan, and then consider the potential consequences. @Lou S.'s suggestion to have a clear paper trail is on point. If the plan has the cash to make the loan, the paper trail should methodically step through the participant takes the loan, the participant makes the proceeds of the loan available to the business, and the business funds the MRC. If the plan does not have the cash to make the loan, the paper trail should include methodically step through the business funds the MRC, the participant takes the loan, and if necessary, the participant makes the proceeds of the loan available to the business. This is not advice of an kind, nor a recommendation. Frankly, this whole scenario has a whiff of a business in trouble and possibly with a plan that it cannot afford. Prudence would add taking steps to evaluate how assure the business and the plan can function within common norms.

IMO, no. These investments/tail-wagging the dog scenarios are almost always problematic.

If they were all NHCEs you can probably self correct by retroactive amendment to conform the document to the actual match contributed for the Plan year if they all got more than the match formula even if it's not uniform since with will clearly be non discriminatory if the extra natch only when to NHCEs.

As C.B. Zeller implies, you have to read the plan document because there is a small chance that your plan contains a 5-year suspense account provision instead of a cash-out and buyback provision, in which case you would have to vest the suspense account. Also, you do not provide a full description of potentially important facts. If the individuals were a substantial portion of the workforce and they terminated in connection with a winding down or shrinking of your business, you could have what is called a "partial termination" that would require full veting.

Ha, let's hope that practitioner weighs in to set us all straight, Kenneth. Agreed, the distributions already made will just be recharacterized as taxable income. Here's an overview of the approaches that I've posted: https://www.newfront.com/blog/the-dependent-care-fsa-average-benefits-test Correcting an ABT Failure Where HCEs Have Already Exceeded the Reduced Limit In some situations, employers will not discover an ABT failure in time to impose a reduced HCE contribution limit prior to HCEs contributing to the dependent care FSA in excess of that limit. For example, suppose the ABT pre-test results show that HCE elections must be reduced by 20%, resulting in HCEs who elected the $5,000 maximum having to drop to $4,000. If those HCEs have already contributed $4,375, there is a $375 excess that must be made taxable income before the last day of the plan year. There are two basic approaches to converting excess HCE dependent care FSA contributions to taxable income: Refund/Return: The employer can distribute the excess contributions back to the HCEs through payroll as taxable income subject to withholding and payroll taxes by the end of the year, thereby reducing the amount available in the HCEs’ dependent care FSA account balance. Note that this approach will not work for HCEs that have already received reimbursement of the excess amount. Recharacterize: The employer can recharacterize the excess contributions as taxable income subject to withholding and payroll taxes without directly refunding the excess to HCEs. The downsides of this approach are that the employer will need to a) take the withholding and payroll taxes from other income, and b) inform the HCEs that they may take a distribution of the excess contributions (which no longer have pre-tax status) from the FSA without the need to submit qualifying dependent care expenses. With either approach, the employer will need to coordinate with the FSA TPA to ensure proper administration of the correction. As always, the employer will need to take action before the end of the year to ensure a passing result as of the last day of the plan year.

Other than asking a good CPA... Perhaps this will help a bit? And I believe you can maybe deduct a theft loss on a Form 4684? But this is way out of my area of knowledge. My deepest sympathy to the poor lady with a loser of a Son. Theft losses A theft is the taking and removal of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and must have been done with criminal intent. The amount of your theft loss is generally the adjusted basis of your property because the fair market value of your property immediately after the theft is considered to be zero.

It is fair to recognize that for excess deferrals that are not a 401(a)(30) violation (i.e. the excess is not known to the plan), the participant has the responsibility to report the excess and to choose how much of the excess is in each of the plans. It the participant does not provide this information, neither plan will know about the excess and each plan will not be able to account for the amount of the excess. Each plan doesn't know what the plan doesn't know. If the participant does inform a plan that it holds an excess deferral, then that plan's recordkeeper should ask for information about the amount of the excess and the type of deferral (pre-tax or Roth) that is in that plan. Then recordkeeper should properly account for the excess going forward. Note that the reg says "For this purpose, if a designated Roth account includes any excess deferrals, any distributions from the account are treated as attributable to those excess deferrals until the total amount distributed from the designated Roth account equals the total of such deferrals and attributable income." If there is no separate accounting, then the first dollars out are a refund of the excess plus earnings and are not eligible for rollover. (This is similar to what is done for RMDs.) As evidence that @Lou S.'s odds on how this is reported are fairly accurate, I observe that I have never seen a conversion data request that asks for the amount of excess deferrals that are in a participant's account.

Breakfast will always be chancy without Mike pulling my bacon out of the fire. RIP Mike ?

In this morning’s psalms and canticles, I’ll include prayers for Mike Preston and his family.

My sympathies to Mike's family and friends. He was always someone whose responses I knew I could trust. I always was proud of myself when his response was what I thought might be the correct answer! He will be sorely missed.

See Reg. 1.402(g)-1(e)(8)(iv): "(iv) Distributions of excess deferrals from a designated Roth account. The rules of paragraph (e)(8)(iii) of this section generally apply to distributions of excess deferrals that are designated Roth contributions and the attributable income. Thus, if a designated Roth account described in section 402A includes any excess deferrals, any distribution of amounts attributable to those excess deferrals are includible in gross income (without adjustment for any return of investment in the contract under section 72(e)(8)). In addition, such distributions cannot be qualified distributions described in section 402A(d)(2) and are not eligible rollover distributions within the meaning of section 402(c)(4). For this purpose, if a designated Roth account includes any excess deferrals, any distributions from the account are treated as attributable to those excess deferrals until the total amount distributed from the designated Roth account equals the total of such deferrals and attributable income." Short version as I understand it: Excess Roth deferrals and related income are taxable and cannot be rolled over. Shorter version: less like a loophole, more like a snare.

So very sorry to get this news. Mike Preston was one of my favorite people in the industry. When we both practiced in Southern California, we spoke often, and he was always kind, always patient, always ready to explain to a nonactuary what I needed to know. When I attended actuarial sessions and discussions he led at ASPPA and other conferences, I was always impressed with his knowledge and leadership. My heart goes out to his wife, Linda, and their family. I will miss him!

Separate penalties for each plan filed under the DFVCP program.

Absolutely. Given the 9/15 drop dead date, we work backwards from there given the situation (solo plan, few employees, larger plan) for the time needed to complete the valuation, establish the trust/custodial account, execute plan documents, draft and review plan documents and come up with our approximate due date for the client to engage us for a prior year effective date. Don't want a sales rep selling a 2023 plan on 9/13/2024!

Well the DB plan has a minimum required contribution which may be larger that the Schedule C net income. In that case your income for the year is $0 (probably) and you may have a nondeductible required contribution to the Plan. Depending on when it's deposited you might be able to kick the can into next year by designating different years for MRC and deduction.

If I'm not mistaken I believe court cases have sided with participants, if they have proof they were in the plan, where the plan sponsor has not retained records to document the entitlement to and payment of benefits. I also think what DOL may view as a reasonable record retention and destruction policy would be much more stringent than what a plan sponsor or practitioner may consider. This is my non-legal practitioner memory from reading stuff over the years, and maybe my contextual memory is incorrect.

I may be conservative on this, but I always advised clients that if a business owner took a loan from the plan with the intention of loaning those funds back to the plan sponsor, and then immediately did loan the money to the company, the IRS would have a very strong case to claim that this was an indirect loan to the plan sponsor which is a prohibited transaction. At a minimum, the business owner (after taking the loan from the plan) should loan a different amount at a different time and under different repayment terms if trying to establish that these two transactions were independent and totally separate.

Sounds like there's no "cash" to begin with.

Look for the term "Forfeiture Break in Service" in your plan document. That's what ours uses. After 5 Breaks in Service the non-vested funds are forfeited. I'd guess the first Break in Service was 2019. Forfeiture in 2024 is right on track.

The QACA employer safe harbor contributions have to vest over no more than 2 years, but it can be 2 year cliff if I recall correctly. as Belgarath points out other employer contributions such as a profit sharing contribution could use a different schedule such as 2/20 if provide in the document. God bless the job security of piece meal retirement legislation that brings us multiple different vesting rules for different types of plans and sources or money.

Or they could consider terminating the plan now and creating a Qualified Replacement Plan. It might not eat up all of the excess, but it could shelter some of it from the 50% reversion tax. The enrolled actuary can make the calculations to determine if this is worthwhile, which includes a reasonable estimate of how the 415 limit might increase.

Not necessarily. Did plan have provision to allow in-service at 59.5? Even so, the plan still was terminated and that is the event triggering the successor plan rules. Starting a new plan would not be w/o risk, so I would proceed forewarned.

Here is a link to a case with similar facts: https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/individual-not-liable-for-taxes-penalties-on-ira-distributions-obtained/1psdb I don't think the participant would be entitled to a theft deduction. The tax basis in the IRA is considered to be $0 since the income has not been subject to income taxes - unless there are non-deductible contributions.

I can only speak from the perspective of an attorney who has been involved in the preparation of pension and retirement orders for the past 37 years. There are a number of factors in play. 1. In most cases the most valuable assets owned by the family unit are the equity in the marital home and their pension and retirement assets. You cannot treat them lightly. An Alternate Payee's loss of benefits can be financially catastrophic. 2. Most lawyers, and I do mean MOST, have no idea of the complexity if this area of law as applied to the vary narrowly focused question: "How to I make sure my Alternate Payee client receives the proper share of the Participant's benefits." They are, for the most part, ineducable. 3. Most of the judges in my State have had minimal experience as family lawyers. They have been prosecutors or criminal defense lawyers, personal injury lawyers, or even real estate, corporate, tax or administrative lawyers. As competent as these lawyers may be, they don't understand family law, and the nuances are entirely lost on them. 4. I advise my attorney colleagues to have the QDRO's prepared, approved by the parties, and ready to initial and sign at the same time they sign the Marital Settlement Agreement ("MSA"), and then present it to the court at the final hearing and get the certified copy in the mail to the Plan Administrator ASAP. Even before that happens, I suggest that at the earliest possible moment they send a "Notice of Adverse Interest/Claim" to every Plan Administration they can identify, the purpose of which is to give them "actual notice" that a QDRO is or will be on the way. 5. Plan Administrators have a fiduciary duty toward both Participants and Alternate Payees. See 29 U.S.C. § 1104. 29 U.S. Code § 1002(8) defines "beneficiary" as follows: "(8)The term “beneficiary” means a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder. See 29 USC 1132(c) for penalties imposed upon a Plan Administrator for failure to provide information to a Participant or a Beneficiary. Pursuant to 29 USC 1132(a)(1)(B) a Participant or an Alternate Payee (who is classified as a beneficiary), can sue "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan". 29 USC 1132(e)(1) states that: "(e)Jurisdiction: (1)Except for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, fiduciary, or any person referred to in section 1021(f)(1) of this title. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions under paragraphs (1)(B) and (7) of subsection (a) of this section." 6. What does all of this mean? If you are a Plan Administrator and receive "actual notice" that a DRO is coming your way, you attorney will counsel you to put a freeze on the Participant's benefits until the matter is resolved by the parties or by the state court. Failing to implement a freeze may get you involved in a lawsuit that you may very well lose. I have seen this happen at least 100 times. Defined benefit plans will not commence the payments of benefits to a retiree. 401(k) plans will not permit loans, or hardship withdrawals, or in-service withdrawals or post termination withdrawals. 7. It is a rare case that a Participant is happy about paying pension or retirement benefits to an Alternate Payee. One of the ways to avoid may some of all of such benefits is to DELAY the entry of the QDRO by any means possible. See attached a Memo I recently prepared recounting the consequences of delay. I would welcome anyone with additional scenarios that I may have missed. DSG CONSEQUENCES OF DELAY 04-15-24.pdf

Sounds correct if it is a retroactive corrective amendment under EPCRS rev proc 2021-30 which does allow correction for early entry via amendment if the correct parameters are met. But there are a lot of ifs there.

So sorry to hear this. I go back to PIX days.

Yeah I think it's borderline and could reasonably be interpreted as a change in residence each time depending on the specific facts and circumstances. Here's my thoughts I've posted on this issue: https://www.newfront.com/blog/spouse-relocates-outside-u-s-moves-u-s-2 Spouse Moves Into Country In this example, the employee’s spouse is moving into the country from an area where the plan does not provide full coverage. The employee’s spouse therefore will have a change in residence affecting eligibility for the plan. This means that the employee may change his or her election to cover the spouse upon the spouse’s change in residence to the U.S. Spouse Moves Out of Country In this example, the employee’s spouse is moving out of the country to an area where the plan does not provide full coverage. The employee’s spouse therefore will have a change in residence affecting eligibility for the plan. This means that the employee may change his or her election to revoke coverage for the spouse upon the spouse’s change in residence outside the U.S. What is a Change in Residence? There’s no formal definition or exact timeframe to determine “residence” that applies here. The analysis is based on all facts and circumstances. In other words, if the spouse is going somewhere on vacation, there’s no permitted election change event. If the spouse is changing residence for some period to the foreign country, then relocating to reside back in the U.S., there will be permitted election change event upon each event. This isn’t very precise, but it’s also generally not an issue in practice. The employee will certify to the change in residence in most cases, and there is no reason for the employer to question that certification unless the employer suspects fraud. Fraud would likely only be an issue if the employer had reason to believe that the dropping/re-enrolling request was really a based on the spouse’s short vacation.

Average compensation is used to determine an individual's 100% of comp 415 limit. If you have a high enough limit when the plan starts, from historical earnings, then having future net after-pension earnings go to zero isn't usually an issue. You just need to manage the timing of funding so that current non-deductible contributions can be deducted in the subsequent year. Depending on SE earnings in future years, you might be playing that time lag game consistently. You've got apples and oranges you're juggling. You need to make sure that (1) minimum required contributions are funded by 9/15 of the following year (or off-calendar equivalent) and (2) the deduction does not exceed the SECA adjusted net SE income and nothing that is not deductible is contributed during the year.

You follow the plan terms but you need to test the total allocation for the year.

Also - its not as simple as the spouse cashing the check or sending it to their IRA. the estate got a 1099-R showing the gross taxable amount. it needs to be amended. and the check voided, and then a new check issued for the spouse's distribution. It's as if a W-2 was issued to the wrong person. just sending money to the right person and giving the right person a W-2 doesn't fix the tax situation for the wrong person. The IRS is still going to think the estate has those $$ as income and is going to want to see the taxes on it. The Form 945 is only one part of it. and yes, the IRS can send the $80,000 back, but it will go back to the PLAN, not the spouse. That's part of unwinding the incorrect distribution. Also- the plan has a responsibility to make sure the distribution occurred correctly. the estate signing over the (likely stale) check to the spouse or their IRA does not accomplish that at all. Given that the amount involved sounds substantial, the correction should really be handled carefully.

I'm with Bird, do the steps correctly to best protect the sponsor and plan, don't skip step because you think it gets you to the same spot. 1 Loan to participant in accordance with the Plan's loan program. 2 He can do want he wants with the money, including loaning it to the corporation. Let him work out those details with his CPA and or attorney. 3 Have the Plan Sponsor make the MRC (presumably $50K in this case). That way you have a clear paper trail should the IRS audit the plan.