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for Vestwell (Remote / New York NY / AZ / PA / TX / Hybrid)View the full text of this job opportunity

In the year the stand-alone plan joins the PEP, are you running two short plan year compliance tests, one for the final stand-alone plan and one for the period of time when they join the PEP through year end? In the year they join a PEP, are you collecting three census data from the employer - stand-alone period, PEP period, and annual data?

A client established a 401(k) plan as of January 1, 2020, for which it never obtained a fidelity bond. The plan administrator filed Forms 5500-SF 2020-2022 and 5500s for 2023 and 2024, and correctly check the "No" box for the question of whether during the plan year the plan was covered by a fidelity bond. The client recently obtained current and retroactive fidelity bonds for all years going back to 2020, and the question is, can, or should, the plan administrator file amended 5500s for plan years 2020-2024 to show that the plan was covered by a fidelity bond? Thanks for your time!

I wanted to make two other points so as to more fully inform this discussion: (1) To the extent that the plan document does not automatically cross-reference the Code and/or ERISA section so as to incorporate the current cash-out threshold by reference, the decision to increase the cash-out threshold from $5,000 (which was in effect until the SECURE 2.0 change became effective) to $7,000 is optional for the plan sponsor. The employer could simply leave the cash-out threshold at $5,000 and there is no issue. (2) The plan should adopt a procedure where it looks at whether participant account balances exceed the cash-out threshold once per year. If the account balance is below the threshold, then it should be automatically cashed out. This is a way to avoid the problem of missing participants. You should use it to the advantage of your client to avoid administrative hassles down the road. Turning to your initial question, the plan can allow a participant's account to atrophy to the point below the cash-out threshold and then cash it out. For that, see point (2). The other side of the coin is that the participant should be monitoring his or her account and either redirect investments from time to time, request distributions or rollovers. If it atrophies, it is the participant's responsibility to prevent that, not the plan sponsor's.

I agree with Peter that, from a plan document standpoint, an amendment to require mandatory automatic enrollment is likely within the remedial amendment period. However, because this is a mandatory requirement for plans that do not satisfy the grandfather rule or are church or government plans, there is an operational aspect to this that would require correction. Effective for the 2025 plan year, automatic enrollment should have been implemented for the plan's participants. For that, it would make sense to provide qualified nonelective contributions allocated to the accounts of participant who were not already making elective deferrals to the plan in the amount of the missed deferral opportunity, as per Rev. Proc. 2021-30.

Here's my take-- https://www.newfront.com/blog/the-550-carryover-vs-the-grace-period Important Note for Health FSAs Moving from the Grace Period to the Carryover: Employers generally should not amend a plan that offers the grace period mid-year to convert to the carryover for the current plan year. Employees may have made their elections intending to utilize their health FSA balance during the grace period by combining a year-one and year-two election for a high-cost procedure (e.g., laser eye surgery). IRS guidance suggests that this approach may be subject to non-Code legal restraints, such as an ERISA breach of fiduciary duty claim. Any such amendment to move from the grace period to the carryover should be made in a manner that ensures employees are aware of the change when making their health FSA elections at open enrollment.

Thank you guys!

Employer maintains an FSA plan that provides for a grace period. Calendar year plan. Regs state that if it has a grace period it cannot also provide for a carryover. The Regs state that it can be amended prior to end of year to change. So, under the Regs, a calendar year plan permitting a grace period in 2026 relating to 2025 could be amended to instead use a carryover to 2026 of unused 2025 health FSA amounts (as limited) if amended by December 31, 2025. I didn't think you could do it this late but the Regs state differently. However, Notice 2013-71 states "If a plan has provided for a grace period and is being amended to add a carryover provision, the plan must also be amended to eliminate the grace period provision by no later than the end of the plan year from which amounts may be carried over. The ability to eliminate a grace period provision previously adopted for the plan year in which the amendment is adopted may be subject to non-Code legal constraints." Can someone expand on what "subject to non-Code legal constraints" means? I have some thoughts but would like to hear from others.

As Bri suggests, Read The Fabulous Document; it might state provisions narrower than what might be provided without contravening ERISA or tax-disqualifying the plan. The IRS’s “LRM” guidance to sponsors of IRS-preapproved documents recognizes that an involuntary distribution might not be paid immediately after a participant’s severance-from-employment because the account then is more than the plan’s threshold, but might later be paid as an involuntary distribution because the account becomes less than the plan’s threshold. (I express no view about whether the IRS’s interpretation comports with applicable or relevant law.) Consider that a plan’s sponsor (or a plan’s administrator, or both) might prefer that the plan’s administrator lack discretion about when to direct an involuntary distribution. And consider that whatever provision is set, the plan’s administrator must obey the documents governing the plan (unless a provision is contrary to ERISA’s title I). This is not advice to anyone.

Many § 403(b) plans lack a service provider that’s obligated to inform the charity about a perception or suspicion that the plan’s elective-deferral arrangement does not meet § 414A.

you're providing the 3% Safe Harbor and the people with less than a year of service no longer get the THM (assuming you are going to make the "obvious" election here and adopt that new policy under S2.0). It is true that if you used the profit sharing piece anyone who has comp as a participant would need a small THM but I'd still opt for that scenario. Not sure if that helps.

The citation is likely in your plan document itself.

Why do I get the feeling this is happening for hundreds and hundreds of plans...

I just happened to be looking at this issue and my initial thoughts are: I doubt a plan provision can be made operative or inoperative, such as whether Catch up Contributions are allowed, based on the annual census data. That being said, I think you could accomplish the same, without violating the universal availability rule, by actually amending the plan each applicable year to add or eliminate the Catch-up Contribution feature (yes a PIA). I would think the same would apply in the S-Corp situation. Without looking into it too much, I think I agree with #3 as well. Spouse still an HCE, just not an HCI.

Because of differing ways of calculating COLAs, it looks like the 2026 SIMPLE IRA catch-up limit for plans with 25 or fewer employees (or bigger plans where the employer has elected the 1% extra employier contribution) is $3,850, while the catch-up limit where a bigger employer has not elected the extra 1% is $4,000. This is exactly the reverse of what Congress was trying to accomplish. Am I interpreting that correctly? Thank you!

for Michigan Pension & Actuarial Services, LLC (Farmington MI / Hybrid)View the full text of this job opportunity

for Keating Inc (Remote / Manhattan KS / Overland Park KS / Wichita KS)View the full text of this job opportunity

Internal Revenue Code § 414A(a)(1) provides: “[A]n arrangement shall not be treated as a qualified cash or deferred arrangement described in section 401(k) unless such arrangement meets the automatic enrollment requirements[.]” A plan might be amended to remove automatic-contribution provisions if the plan is amended to omit an elective-deferral arrangement. But how many plan sponsors want a plan only for an employer’s nonelective contributions?

thank you @Peter Gulia thoughtful insight as usual. I will mull it over, but I think can be on board with the argument that it is within the remedial amendment period.

I often find it confusing to determine eligibility for rehired employees. The plan’s eligibility conditions are age 21 and 1 year of service, with a monthly entry cycle. The rule of parity does not apply. Employee A was hired on 4/14/2022, terminated on 9/08/2022, and completed 590 hours. The employee was then rehired on 10/03/2023. If rehired 07/09/2023 what is the case of determining eligibility. In this situation, should eligibility be calculated from the original hire date or from the rehire date? Could someone also explain, with examples, how eligibility is determined for rehired employees who rehired within one year versus after one.

These days, for the most part, new plans must have an auto-enrollment feature. But can the ER stop the auto enroll after a few years? Or must it be in there forever? Does Secure address that?

Does anyone have a citation for the deadline to make an involuntary cash out of an account less than 7,000, other than that it has to happen after the participant was terminated? Not seeing any deadline requirements, wondering if a plan sponsor can theoretically let an account atrophy until it is eligible for cash out.

I reviewed the plan’s historical events and noted that it was previously top-heavy, requiring the Top-Heavy minimum contribution. For the 2024 plan year, the owners contributed $7,500 as deferrals, which were later reclassified as catch-up contributions. Since catch-up contributions are excluded from the calculation of key employee contribution percentages, they do not impact the top-heavy determination. For Safe Harbor (SH) contributions, the plan applies statutory eligibility. So, plan is lost the top heavy minimum exemption for the plan year. Deferrals require 3 months of service with quarterly entry dates. Although the plan permits profit sharing contributions, the client has decided not to provide them for 2024. The plan currently has three owners (each holding 33.33%) and two HCEs by compensation. The client’s intent for the 2024 plan year is to allocate a 3% Safe Harbor Nonelective (SHNE) contribution to this two HCEs to avoid top heavy minimum contribution if we allocate SHNE to other HCEs, however, they are key employees also. Is this allowable as general?

If the plan was not established before December 29, 2022 (or the plan’s elective-deferral arrangement began on or after December 29, 2022), the plan is neither a governmental plan nor a church plan, and neither the new-employer nor the small-employer exception applies: Are you sure there is, for tax-treatment purposes, a plan-document failure? If the plan provides an automatic-contribution arrangement because the employer presumes it will amend, retroactively, the written plan to meet Internal Revenue Code § 414A’s tax-treatment condition, shouldn’t such an amendment be within Congress’s (SECURE 2022) and the IRS’s remedial-amendment period? IRS, Miscellaneous Changes Under the SECURE 2.0 Act of 2022, Notice 2024-2, 2024-2 I.R.B. 316, 332-333 (Jan. 8, 2024), at Q&A-J1., https://www.irs.gov/pub/irs-irbs/irb24-02.pdf.

I think I have my own answer. The "start-up credit" in paragraph (a) of 45E is increased by the 45E(f). But it is still the credit under 45E(a). 45E(a) is for "qualified start up costs." And qualified start-up costs are defined to include only costs related to a Plan that has at least one NHCE. The key is that the 45E(f) credit is a 45E(a) credit and the Employer Contributions are therefor "qualified start-up costs" and subject to that definition. Not a straight line, but definitely would be foolish to claim the exemption; the line is not straigtht, but it only has a slight arc. Someone could probably argue this away but imagine arguing this applies to an owner-only plan when there is a pretty strong position to the contrary.