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I say nothing about how, or even whether, some concept of a predecessor employer might affect a situation of a kind Old Reliable describes. Rather, I note only: Congress did not enact a definition of predecessor employer for Internal Revenue Code § 414A(c)(4)(A). The Treasury department has not yet interpreted what “predecessor employer” means for I.R.C. § 414A(c)(4)(A). I’m aware of other law that sets or interprets a concept of predecessor employer for other purposes or conditions. I don’t say anything about how those other uses might affect or influence any interpretation of I.R.C. § 414A(c)(4)(A). A plan’s sponsor or administrator might get its lawyer’s (or other IRS-recognized practitioner’s) advice and consider the range of possible and plausible interpretations.

The Labor department’s Voluntary Fiduciary Correction Program, at its § 7.6(b), suggests, indirectly, an opportunity to correct a fiduciary’s breach in paying, or allowing to be paid, from plan assets an expense that was not a proper plan-administration expense. While there are some further conditions and details, the correction is mostly about restoration or disgorgement, whichever is the greater recovery for the plan. https://www.govinfo.gov/content/pkg/FR-2025-01-15/pdf/2025-00327.pdf A VFCP no-action letter affords some relief from some ERISA title I civil investigation and civil penalties. I don’t know what might obtain tax law relief. This is not advice to anyone.

From ERISApedia. I assume it is cool to post this, lots of people post the EOB. Anyway, great textbook, I rely on it heavily! In short it is not as clear as I had thought. Mandatory automatic enrollment (MAE) does not apply to a plan year if, as of the beginning of the plan year, "the employer maintaining such plan (and any predecessor employer) has been in existence for less than 3 years." [Code §414A(d)(4)(A); Prop. Treas. Reg. §1.414A-1(d)(4)(i)] The proposed regulations do not define predecessor employer. The Section 415 regulations [Treas. Reg. §1.415(f)-1(c)(2)], which look to whether the new employer substantially continues the business of the old employer, might be a good starting point for making a good faith interpretation of the statute. Under those regulations, a predecessor employer is defined in one of two ways, depending on whether the company being evaluated continued the plan of the earlier company. In particular, the regulation provides that, if the current employer continued the prior plan: [A] former employer is a predecessor employer with respect to a participant in a plan maintained by an employer if the employer maintains a plan under which the participant had accrued a benefit while performing services for the former employer (for example, the employer assumed sponsorship of the former employer's plan, or the employer's plan received a transfer of benefits from the former employer's plan), but only if that benefit is provided under the plan maintained by the employer. On the other hand, if the current employer did not continue the prior plan (i.e., the benefits in the current employer’s plan were all accrued while the employees worked for the current employer): With respect to an employer of a participant, a former entity that antedates the employer is a predecessor employer with respect to the participant if, under the facts and circumstances, the employer constitutes a continuation of all or a portion of the trade or business of the former entity. Example 14.4.27 Fresh Foods swings open its doors on October 1, 2025, ready to serve the community, and promptly establishes a calendar year 401(k) plan. As a brand-new business, Fresh Foods gets to enjoy the "new kid on the block" exemption from MAE. This reprieve lasts until the plan year starting January 1, 2029. For now, the team can focus on stocking shelves and slicing compliance red tape. Example 14.4.28 Now imagine a twist: Fresh Foods, while newly incorporated, buys out Ed’s Good Groceries, which has been serving the same location since 2015. Fresh Foods also keeps many of Ed’s long-time employees. This changes the game. Since Fresh Foods continued Ed’s operations, Ed’s is likely a predecessor employer, and Fresh Foods can’t claim the new business exemption. The MAE rules kick in right away, applying from the moment the 401(k) plan is established.

I just don't see any basis for any sort of predecessor issues. My understanding has always been the only way that could happen is if the buyer maintains the plan of the seller, or some sort of spin-off. Are you saying that a straight asset sale, where the new buyer just so happens to hire some or all of the existing employees might somehow be considered not a new employer?

Under the Treasury’s proposed interpretation, an Internal Revenue Code § 414A(c)(4)(A) new-business exception is available “if, as of the beginning of the plan year, the employer maintaining the plan (aggregated with any predecessor employer) has been in existence for less than 3 years.” Proposed Treas. Reg. § 1.414A–1 A(d)(4)(i) (emphasis added). The Treasury’s notice of proposed rulemaking states: “Comments specifically are requested on whether guidance is needed to define the term ‘predecessor employer’ as used in section 414A(c)(4)(A) of the Code[.]” Internal Revenue Code § 414A(c)(4)(A) does not state or refer to a definition of predecessor employer. https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapD-partI-subpartB-sec414A.htm The proposed rule includes some interpretations about plan mergers. The proposed rule includes some interpretations about business mergers, and about other transactions that result in a different § 414(b)-(c)-(m) employer. But § 414A is not in any of § 414(b)-(c)-(m)’s lists of Internal Revenue Code provisions for which a § 414(b)-(c)-(m) definition of the employer applies. The Treasury proposes that a final rule (if published and effective) applies “to plan years that begin more than 6 months after” notice of the final rule is published. “For earlier plan years, a plan [is] treated as having complied with section 414A if the plan complies with a reasonable, good faith interpretation of [Internal Revenue Code] section 414A.” Observe too that a final rule the Treasury might make would be an interpretive rule, not a legislative rule Congress directed. A Federal court might be persuaded by, but does not defer to, the Treasury’s interpretation. At least for 2026, a plan’s sponsor or administrator might get its lawyer’s advice and consider the range of possible and plausible interpretations. More than one interpretation could be a substantial-authority interpretation. And even if one seeks the higher more-likely-than-not standard, more than one interpretation might meet that standard. This is not advice to anyone.

I think it very much matters if it was an asset purchase or a stock purchase. If your client bought the stock of the business through the LLC (i.e., the LLC owns 100% of the stock of the business that had been ongoing) then the employer is NOT new. If on the other hand it was an asset purchase, I believe there is no question that this is a new legal entity with a bunch of new employees and the 3 year exception would apply. The laws are all very clear on an asset sale not having any successor connections to the prior entity. Note that an asset sale might be for all of a business, or one sliver of a business. There is no requirement that they need to hire the same employees either.

Peter is being very non-alarmist (even though he is of course correct!). I would like to be much more alarming. Fix this immediately, it is super-duper bad. The Plan Administrator made a mistake; that's the plan administrator's fault and they need to pay the expense. At best you can take the position that this is a prohibited loan from the plan to the plan administrator, corrected with interest (etc). Get an attorney involved. This is very very problematic. probably eligible for self-correction under the new DOL Program, but absolutely needs to be corrected.

As I read the implications here: (1) the owner can afford to pay more into the plan, and (2) the 100% pay limit has not been reached. If my interpretation is accurate, the simplest way for the owner to accomplish his/her goal might be to amend the plan to unfreeze. Have I missed something?

Thank you so much for the reply, David. I really like the idea of buying a TPA firm. I’ve been looking online and in the forums. Thanks again for helping me while I figure out my next steps.

I just want to say thank you for taking the time to reply and for providing such great advice. I honestly didn’t think I’d hear back from anyone. I don't have any clients that would follow me. I do client‑facing work and handle onboarding plans for a full‑service 401k provider. I like the idea of buying a firm more than a start‑up. Occasionally, I look on Google for the sale of a TPA business and recently started looking here in the forums. Congratulations on the sale of your business and your retirement. I hope you’re enjoying it to the max.

Not for a large plan audit. Everything can be onde via email. I think you are referring to a plan being audited by the DOL/IRS, not an audit because the plan is a large plan. Totally different things.

C.B. Zeller, Thank you so much for taking the time to respond, this is very encouraging! We absolutely are doing are best to comply. I have some degree of concern about bureaucratic snafus, such as one or more of our delinquent returns attached to the transmittal form somehow becoming detached during manual handling, etc. I guess we just need to stay calm and take it one step at a time. Thanks again. I will continue to post updates here as they become available.

The first question that I would ask is the type of services you are providing for the client. If you are providing recordkeeping services, I recommend that you have a SOC Audit (aka SSAE-18) of your firm and your processes. The large plan auditor will be able to have some reliance on your recordkeeping processes when performing the audit. It will also help you to identify any deficiencies in your recordkeeping processes and address them. If you are providing compliance services only, the auditor is going to be looking at what you do in the course of your normal services, and essentially re-perform the plan tests and review the financial statements. The data listed by Marjorie above is a common ask for audits. You should have a draft 5500 for them to review when they start their audit. If this is the first year audit, expect them to be asking for data for the previous year. The auditor is then going to review the employer and/or Plan Administrator's policies and procedures regarding remitting contributions, their role in distributions and loans and the eligibility/enrollment process, etc. If the employer/PA is maintaining paper forms, they are going to either sample audit or fully audit that paperwork. If your firm is responsible for maintaining forms, they may ask you for copies. If the records are kept electronically, the auditor is going to sample or fully audit the electronic records. They will most likely ask to see participant statements. If your role is compliance only, most of these asks will need to be fulfilled by the recordkeeper. Most likely, the employer will need to obtain these records from the provider's website. The auditor is also going to want to review the SOC/SSAE-18 for the recordkeeping firm, review the (certified) custodial trust reports, compare trust reports from the recordkeeper to the custodian and possibly review SOC/SSAE-18 reports for software providers/other vendors (if applicable). You should ask for the SOC reports for the recordkeeper and custodian ahead of time. Many recordkeepers automatically post the SOC to the website for the sponsor to access. Read them over to see if there are any deficiencies. If there are any deficiencies on the SOC report, the auditor may ask what is being done to mitigate those by the employer (if possible). I would look up ERISA Section 103(a)(3)(c) and review to determine if your employer qualifies for this type of audit. If you know a CPA firm that audits a significant number of benefit plans, you may want to contact them and ask for a sample request list and see if they are available to take on new clients. Lastly, the DOL has published a lot of information concerning the selection of auditors and what is necessary for quality audits. I would google those articles, as well as those published by the AICPA concerning benefit plan audits.

Mathematically yes, how about the method, is that acceptable if yes, does it need to be adjusted by any interest adjustment?

We put together a binder with all documents requested and tabbed, locate the auditor in a closed room, limit any communication with anyone other than counsel, and any interviews they request should be in the presence of counsel. Not hostile - just managed.

If Person B has a QDRO, signed by a judge, that gives them 50% of the 401(k) benefit as of a specific date, and Person B agrees that this is reasonable based on the divorce decree, Person B should provide that QDRO (signed by Judge) to Ascensus. Ascensus, being a very large and professionally run company will distribute the funds correctly. Even if Person A is the Plan Administrator, Ascensus will not give them favorable treatment. Ascensus will follow the terms of the QDRO. If the DRO was not Qualified and signed by a judge, then it could be problematic. Because, Ascensus may send DROs to the Plan Administrator (Person A) to qualify and then get signed by a judge. Person A could cause unreasonable delays. But, if the QDRO is already signed by Person A as the Plan Admin and by a judge, then Ascensus should accept that as being qualified and act accordingly. Typically, taking the 401(k) account as of the date in the QDRO and splitting it 50/50. A well written QDRO, would give Person B 50% of the 401(k), plus earnings/losses (not including loans/distributions) through the date that Ascensus pays Person B. Ascensus would have an account set up for Person B that has approx. $180k as of the split date and then give earnings and losses on that $180k. If Person A took a loan or a distribution after the split date, all of those funds would be taken out of Person A's $180k balance. If the QDRO was written to negatively impact Person B, such as dividing the account as of the split date, but Person B does not get any of the gains/losses on the account for the last 5 years, then Person B should probably fight the original QDRO. But, this scenario is very unlikely. I don't think any judge would sign off on a DRO with such biased language. The valuation "each business day" is typical for 401(k) administration. The assets in all of the 401(k) accounts for all the employees will be valued at the end of market trading each day. There is nothing that the plan administrator can do to the valuation methodology Ascensus is using that would impact the money owed to Person B. If Person B believes that Person A is hiding assets, that seems to be a matter for their divorce attorney to handle with a family law judge in court/mediation. It would be separate from the QDRO related to the 401(k). Person B may want to fight and get more money out of Person A, but I don't know if the QDRO is the way to do it. From what was explained, it seems like the 401(k) part of the divorce is already settled. I am not an attorney and don't give any advice...yada, yada, yada.

Isn't this the technicality on the difference between Nx and N(12)x?

I've seen some combination of a letter explaining where the error(s) occurred on the forms and how it was caused by a third-party reporting service, corrections to the 1095-C coding on the Form 14765 that's included with the 14764/Letter 226J, and a corrected version of the 1094-C that was originally filed (e.g., correcting column (a) in Part III to say "Yes" to the MEC offer for all 12 months). In situations where the §4980H assessment was actually based on a simple reporting error, I've almost always seen a) the IRS agree to remove the penalty assessment without too much back and forth, and b) no penalties assessed for the coding errors.

Hi Corey, thank you for taking the time with the explanation and warning but my question was about the technique rather than the available options - they are always presented to the clients. I would never let the client go off too easily on any option other than the term, in the least, and always and strongly advise them to choose J&S, if married or have other beneficiary options. David, yes, I am aware of the 12/31/2024 but I was just providing as an example however, thanks for pointing it out, just in case. I am trying to confirm that it is ok the client can get 12x the payment in one shot rather than monthly withdrawals. It is a fight with them and at the end of the day, they do whatever they want despite my written CYA. All I am looking for is some suggestions/comments on the math technique.

Thank you Brian, that's helpful! I have another question for you, if you don't mind - if the ESRP is being triggered by reporting errors, do you see ALEs including supporting documentation in their response? Or is describing the corrections needed in the ALE's response enough? And if the error was the MEC offer indicator in Part III, column a of the 1094-C (i.e., incorrectly checked "no" to offering MEC to 95% of full-time employees), and supporting documentation is required, what type of supporting documentation is sufficient?

Consider buying into an existing TPA? That is, look for a TPA that has an owner who might be retiring 5 years from now. Get legal advice from attorney with relevant experience.

The last time I looked at it an accidental rollover from a 401(k) to a Roth IRA cannot be reversed or recharacterized. I haven't looked at this recently so the law could have changed but I don't think so. This could be done prior to 2017 or so but the Tax Cuts and Jobs Act of 2017 eliminated the ability to "undo" or recharacterize Roth conversions making this error irrevocable. You must treat the distribution as a taxable event, which will generally be reported on your tax return for the year the rollover occurred. So this will have to be included in gross income for the tax year the transaction took place. Not sure of the Form that should be used to this 4852 or 5498. Also, could be subject to early withdrawal penalty if an exception does not apply. Bottom line is the funds can’t be moved back into the 401(k) or into a traditional IRA. Once the month is in the Roth IRA, under current law, it stays

Husband/wife DB plan 404 limited in 2024 so set up a Profit Sharing plan where they maximized at 25% of pay. W-2 salaries for 2025: $280,000 and $100,000 In 2025 DB 404 limit came to $40,000. Would they be able to do the 25% of pay ($95,000) to the PS for 2025 or have to do something less?

Note that under ERISA a valid QDRO does not require the signatures of both parties. The essential legal requirement is that the order be issued or approved by a court of competent jurisdiction. However, judges normally insist on both signatures to confirm that the document accurately reflects the parties' divorce settlement before they will sign it…. having both signatures is the standard to avoid a contested court hearing but sometimes it is necessary to file a DRO only one signature (e.g., a former spouse refuses to cooperate, so the other spouse petitions the court to issue the order regardless of their lack of consent) but in these cases the judge usually requires that they show that the QDRO aligns with the existing court-ordered property division. If the OP wants to contest the property division, that’s a bigger issue than a QDRO

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