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A few further observations: A service provider’s agreement might provide the accounting method the service provider uses in assembling information into a draft Form 5500 report for the plan administrator’s review. If the agreement specifies cash accounting, a service provider might decline to provide service on a different method. Or, a service provider might offer accrual accounting for an extra fee. Paul I describes a mainstream outlook about a relationship between an adviser and an advisee. But some professionals have a more nuanced outlook, recognizing that one’s client might have its own sensible reason for not following advice. Some don’t object to a client’s informed choice, if the resulting act or failure to act is not a crime. If a service provider’s relationship with a referral source is more important than the relationship with the plan’s sponsor/administrator, a service provider might suggest alternative accounting treatments as a way to appease a referral source. A payer’s Form 1099-R report is on what was paid in the year reported on. Even if Plan 2’s administrator assumes a distribution payable in Plan 2’s Form 5500 report on 2025, Plan 2’s payer would report the $3,500.00 on a 2026 Form 1099-R report. This is not advice to anyone.

Just to add to what Paul said - you will never get an in-kind transfer from one RK to another. All the shares are held in omnibus accounts.

CAFA, are you asking about an incentive to elect against covering one's spouse (what Chaz describes), or about making an employee's spouse ineligible if the spouse is eligible for other health coverage? If it's about making a spouse ineligible, one guesses that Medicare might be treated differently than employment-based group health plan coverage.

Onboarding a plan requires attention to extremely granular detail that is customized to the plan provisions, the deconversion processes of the existing service providers including potentially the recordkeeper, TPA and investment firms, the client's internal administrative support including payroll, HR systems, and funding procedures, and to the you as the new service provider including everything needed to provide continuity of the rights and privileges of all of the plan participants. Coordinating all of this commonly takes 10-12 weeks, and starts with working out a detailed work plan in the first few weeks with all of the parties involved. The time for asking your questions is at the beginning of the conversion process and the people you need to ask are the client and the existing service providers.

Peter lays out the basis for arguing that the plans were closed out in 2025, and makes it clear that this is solely the plan's fiduciaries' (read client's) decision. I expect most practitioners would say don't sweat the $0.50 for Plan 1 and writing off the $0.50 with no adjustment to the 1099R, most would say it is really pushing it where the amount is $3,500 that was not closed out until 31 days after the end of the plan year. From the perspective of a service provider, I would explain to the client that it is their decision to make and their fiduciary responsibility and accountability for the consequences of their decision (unless you are a 3(16) provider). I would let the client know I disagree with the Advisor and I only would be willing to prepare a final filing for 2026 along with a 1099R for the residual payment. If the client chooses to follow the Advisor's "promise", then the Advisor can help the client find someone who is willing to close out everything for 2025. The plans are closing so there is no future work for you on those plans. If your relationship with the client is ongoing, keep in mind that if the client chooses to follow the Advisor's advice over yours, that says something about the relative value of your relationship to the client. This is also true about any relationship you may have with the Advisor.

I believe, off the top of my head, that HHS has informally stated that an opt-out/cash-out incentive does not violate the MSP rules if it is available to Medicare-entitled employees on the same terms as other employees. But my recollection is that the informal guidance was provided many years ago so I recommend checking to see if it has revised its thoughts or has issued more recent guidance.

Indeed, no sense creating a MDO for everyone else to fix one mistake.

The Instructions for a Form 5500 report generally allow a plan’s administrator (see I.R.C. § 414(g)) to report financial information on a cash, modified-cash, or accrual basis of accounting for recognition of transactions (if the administrator uses one method consistently). If an administrator reports with accruals, it might recognize a dividend receivable (for the amount, if any, not paid to the plan’s trust by December 31) and a distribution payable as at December 31, 2025 (for the follow-on increment of the final distribution not paid until January). Consider that a plan’s administrator, not a nondiscretionary service provider, decides the method of accounting. Likewise, the administrator decides how accounting principles apply to a set of facts. Even if an administrator made all preceding years’ reports on the cash-receipts-and-disbursements method of accounting, an administrator in its discretion might find that accrual accounting fits for an intended plan-termination year and facts like those you describe. If an administrator lacks enough knowledge about generally accepted accounting principles, it might seek a certified public accountant’s advice (even if that professional will not audit, review, compile, or assemble any financial statements or other report). This is not advice to anyone.

2 separate one-person calendar year plans terminated and distributed assets in 2025. Both plans received interest/dividends at the last moment that were not able to be distributed by 12/31/25 and ended up with balances. Plan 1 was $0.50. Plan 2 was $3,500.00. Both plans managed to zero out by 1/31/26. Both plans have asked to incorporate those amounts into 2025 distributions with the following implications: Form 1099-R's would be amended 2025 Form 5500 would be Final I think we can live with doing that for Plan 1, but Plan 2 is more questionable. We are more comfortable with a 2026 Final 5500 but the client was promised (by the Advisor) that would not be necessary. Just looking for thoughts on whether there is a de minimis for this situation of when to combine it for prior year?

We just finished a brutal plan conversion. The plan was on Guideline and went to accrue during our blackout. All of the conversion assets were sitting in cash for 31 days, which is absolutely unacceptable to me. For those who are more familiar with the recordkeeping side, could you help me understand how this could happen? The RK said they didn't have all the conversion files, blah blah blah. 1) How many plans are converted in kind vs sold ->Wire->Reinvest? -And why aren't all plans in kind? 2) What can I do in the future to prevent this from happening? Just send the RK daily emails asking for updates when money is in motion? What is your guys process?

Im assuming this is not the first year filing a return for the plan, and you filed an SF for the prior year? If so, you can continue to file an SF until you cover more than 120 participants and meet the other eligibility conditions (total of eight conditions). See instructions to the 5500-SF, page 3, Who May File Form 5500-SF, for all conditions.

Sounds like you have an AckID then, so you can prove that it was filed. I would start with EFAST support, but when it comes to issues beyond what can be found in the instructions to the forms, they usually refer you to Office of the Chief Accountant at the DOL at 202/693-8360.

But are there some participants who might perceive a retroactive amendment as unfair because they obeyed the then-stated 10% limit and might have desired to do more?

Client has 105 account balances (125 participants) at the beginning of the plan year. I am assuming we can use the 80-120 rule to continue filing the 5500-SF until the number of account balances exceeds 120 as of the beginning of the plan year. Any input would be greatly appreciated.

Bigger picture questions: Why in this day and age would a plan have a 10% deferral limit? Was this an HCE? If not, could plan be amended retroactively to allow for that extra 2% deferral?

If the custodian of the current brokerage account also handles IRAs, and as @Peter Gulia said if the document allows (if it doesn't you can amend), then you may be able to do in-kind distribution by simple transfer of the account from plan to IRA. Even so, a market value of the distribution and rollover will need to be determined and reported on a 1099R.

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There is much to like in Paul I's sense about avoiding an ordering regarding previously-taxed amounts if a corrective distribution would not be a Roth-qualified distribution.

Not catch-up eligible. Good call out though and I should have included that fact in the original post. I think it was just an error from the payroll provider.

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If I understand the issue, the plan limit is 10% of the sum of the pre-tax and Roth deferrals for the year, the excess deferrals are excess amounts that must be refunded. The correction is to make a refund so the total of deferrals remaining in the plan are 10% of compensation. The correction method does not specify any requirement on whether that the refunded excess amounts must reflect proportion of pre-tax and Roth deferrals that were originally made into the plan. The plan also has no guidance. With the lack of specific guidance, its on the Plan Administrator to decide how the plan will address the situation. The PA needs to keep in mind that this type of operational decision establishes a precedent for future occurrences. One consideration for the PA to keep in mind is the time and effort involved in making the refund. Operationally, refunding from pre-tax first before refunding any Roth is far less complicated than either refunding pro-rata or refunding Roth first. Consider that refunds of Roth get into issues like tax basis accounting, possible taxation of earnings paid from the Roth account, and year of taxation. If these are not concerns for the PA or the PA is a masochist, then the PA could consider asking the participant to specify how much to refund from each account.

You have probably already thought about this, but I will ask... Is the participant catch-up eligible? Could that be the reason the payroll system allowed this individual to exceed the document limit of 10%?

Check the documents governing the plan to discern whether the plan allows or precludes a distribution made by delivering property rather than paying money. If need be, amend the plan to allow a distribution of property. Instruct the broker-dealer to redeem or sell the window account’s securities other than the one that’s untradeable. Apply the money raised as the plan ordinarily does. Instruct the broker-dealer to re-title the remaining securities account as the distributee’s individual “taxable” account, no longer held regarding the retirement plan. Report one or more Form 1099-Rs so a report includes the fair-market value of the untradeable security. That a security no longer trades on an exchange (or never traded on an exchange) does not by itself mean that the fair-market value is $0.00. Even a petition, involuntary or voluntary, of the issuer’s bankruptcy, even for a liquidation bankruptcy, does not necessarily make common stock shares worthless. The plan’s administration should not deprive the distributee of the value of the untradeable security. Even if untradeable now, it might later get an offer. This is not advice to anyone.

If the point you ask about isn’t in the IRS’s correction procedures, consider: Remove the excess from the elective-deferral non-Roth and Roth subaccounts in the same proportions that the participant contributions (including the incorrect amounts) had been directed to those non-Roth and Roth subaccounts. That way might approximate what would be the account had the incorrect amounts not been taken from the participant’s pay. And it might lessen a participant’s opportunity to make an after-the-fact tax-treatment choice. Yet, this might be merely one of a few ways to correct the failure. This is not advice to anyone.