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for Klaas Financial Asset Advisers (Madison WI / Rockford IL / Hybrid)View the full text of this job opportunity

Thanks for the response. Here are some additional facts that may or may not affect your answer. A participant can elect to defer or not to defer each year, but the election regarding the form of distribution (lump sum or installments) is made with the initial deferral election and, once made, is permanent and applies to all amounts deferred (i.e., a participant can't elect a lump sum distribution with respect to one year's deferrals and installments with respect to another year's deferrals). Each installment is NOT designated as a separate payment under the plan terms. I agree that there can be different times and forms of payments for separately identifiable amounts, but in this case I don't see how the amounts are separately identifiable, and I don't see much difference between this and the example of a violation in the regulations, where there is one payment schedule if a separation from service occurs on a Monday and a different payment schedule if a separation occurs on any other day of the week. In both cases, the service provider and service recipient have the ability to manipulate the time of payment by determining when the separation will occur.

I think there is a problem. Initially, @M Gerald's view seems problematic because the directors appear to be able to defer different amounts each year ("allows a company's directors to elect to defer a portion of their director fees") so there are no "consistent" amounts to support that take. @gc@chimentowebb.com's view seems more plausible because his view is premised on each year's deferral being a separately identifiable amount under a plan, which they are. The anti-toggling rules apply to each separately identifiable amount. It is very typical of deferred compensation plans that permit service providers to defer all or a portion of their compensation for an upcoming year to have separate elections for each of those "tranches". However, the installment form of payment with the 10 installment limit throw a wrench into this argument, at least to me, because with the 10-installment form of payment it does not seem that the director's are making different elections for each tranche. Also, because they are "installments," generally that would mean there are 10 equal annual installments (equal inasmuch as they can be with potential earnings/losses of principal in later years). So, the issue again comes back to there is no "consistent" deferral amount (plus the additional years of deferral after 10) that would support the installments. So, just spit balling here but there seems to be an issue because a separately identifiable payment type of argument doesn't seem to fit the OP's facts. I generally also agree with @Peter Gulia's sentiments but these facts involve a directors' plan ...

Thoughts about other ways: If the plan allows participant loans, might this participant prefer to borrow a needed amount, with an opportunity to repay over five years? If the plan provides (or might be amended to provide) a § 72(t)(2)(I) emergency personal expense distribution, might that be a partial fit for the participant’s needs? A distribution can be “for purposes of meeting . . . immediate financial needs relating to necessary personal or family emergency expenses.” I.R.C. (26 U.S.C.) § 72(t)(2)(I)(iv). Practically, this distribution is almost standardless, especially if the plan provides it on a participant’s self-certifying claim. Although $1,000 might be much less than the participant needs, it might be better than nothing. I.R.C. (26 U.S.C.) § 72(t)(2)(I) https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partII-sec72.htm. This is not advice to anyone.

Peter and Connie have the proper accounting of the facts.

for Pension Investors Corporation (Remote / Altamonte Springs FL)View the full text of this job opportunity

We have a participant who is asking if this situation falls under a Hardship: Due to a legal divorce, the participant has to move out of their house and needs a deposit for an apartment (first and last month's rent). It's not purchasing a primary residence, so I wasn't sure if this would apply. Thanks in advance for your input!

Sure, if there are no CB accruals then your gateway drops back to whatever your DC allocation itself will require, including potential TH.

We have a Cash Balance Plan that froze it's benefits early in 2025 (before anyone incurred 1,000 hours). Generally they have been making the 7.5% Profit Sharing contribution, in conjunction with the Cash Balance Contribution. My question is, with the Cash Balance frozen are they still obligated to make the Profit Sharing? Or is that back to a discretionary contribution and they can make any level since there's no Cash Balance contribution being made (there is no requirement).? Thanks in advance!

Here’s another way to think about this: Which adviser advises which advisee? How confident must a conclusion be to serve one’s advisee’s purposes? How much must an adviser explain to steer clear of malpractice and negligent-communication risks? Recognize that tax law consequences for an employee or service provider might not be entirely aligned with consequences for an employer or service recipient. Recognize that an employee or service provider often does not get the employer’s or service recipient’s indemnity if a plan does not get a desired tax treatment.

Those rules to interpret § 401(k), § 414(v) generally, and § 414(v)(7) particularly presume a reader has at least awareness of many other tax law conditions for eligible retirement plans. The Treasury department did what they could with what Congress enacted.

For a reader who might explore the uses, here’s Internal Revenue Code § 401(b)(3) (as compiled in the United States Code): (3) Retroactive plan amendments that increase benefit accruals If— (A) an employer amends a stock bonus, pension, profit-sharing, or annuity plan to increase benefits accrued under the plan effective as of any date during the immediately preceding plan year (other than increasing the amount of matching contributions (as defined in subsection (m)(4)(A))), (B) such amendment would not otherwise cause the plan to fail to meet any of the requirements of this subchapter, and (C) such amendment is adopted before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof) which includes the date described in subparagraph (A), the employer may elect to treat such amendment as having been adopted as of the last day of the plan year in which the amendment is effective. I.R.C. (26 U.S.C.) § 401(b)(3) https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapD-partI-subpartA-sec401.htm.

Realistically, I think the plan will end up having to deal with the messes. I can't think of any reason why a plan would not want to have the deemed Roth election for catch-ups for those required to have Roth catch-ups. The first line of defense is payroll. Hopefully, they can recognize when someone who is required to have Roth catch-ups hits the regular deferral limit with pre-tax deferrals and switch them to Roth deferrals if the plan has a deemed Roth election for Roth catch-ups, or stop their deferrals if the plan doesn't allow Roth deferrals. The easiest solution is for those required to have Roth catch-up to elect to have Roth deferrals during the year of at least their catch-up limit. That avoids a lot of problems. The IRS says the pre-tax amounts are not treated as catch-up until the correction has been completed. That means the 10% tax on late correction of the ADP test applies if the correction isn't done within 2.5 months, or double taxation of excess deferrals applies if not corrected by April 15. If payroll lets them have pre-tax catch-up and the plan has the deemed Roth election, it gets corrected in the plan. The correction method used will depend on when it is discovered. If it is discovered before the W-2 is sent, the W-2 gets adjusted to show the catch-up as Roth and the catch-up, adjusted for earnings is moved to the Roth account. If it's discovered after the W-2s are sent, it's corrected with basically an in-plan Roth conversion and the catch-up, adjusted for earnings, is reported on a 1099-R for the year of the correction. Without a deemed election, or if the plan doesn't allow Roth deferrals, the excess, adjusted for earnings, is distributed and reported on a 1099-R for the year of the correction. I agree, they are not the easiest regulations to read. https://www.federalregister.gov/documents/2025/09/16/2025-17865/catch-up-contributions

A mid-year prospective reduction or suspension of the safe harbor contributions for HCEs is addressed in Notice 2020-52. III. CLARIFICATION OF REQUIREMENTS FOR REDUCING CONTRIBUTIONS MADE ON BEHALF OF HCEs As described in section II.B of this notice, contributions made on behalf of HCEs are not included in the definition of safe harbor contributions. Accordingly, a mid-year change that reduces only contributions made on behalf of HCEs is not a reduction or suspension of safe harbor contributions described in §§ 1.401(k)-3(g) and 1.401(m)-3(h). However, a mid-year change that reduces only contributions made on behalf of HCEs would be a mid-year change to a plan’s required safe harbor notice content for purposes of section III.B of Notice 2016-16. Therefore, in order to satisfy the notice and election opportunity conditions of section III.C of Notice 2016-16, which apply generally to changes that affect required safe harbor notice content and are not reductions or suspensions of safe harbor contributions, an updated safe harbor notice and an election opportunity must be provided to HCEs to whom the mid-year change applies, determined as of the date of issuance of the updated safe harbor notice.1 https://www.irs.gov/irb/2020-29_IRB#NOT-2020-52

Just do an -11g amendment to bring the terminated people back in to the existing plan. Now that will mean the contributions for those people would be deductible in 2026 and not 2025. It your testing would work. Make sure vesting is addressed. You could explore doing a 401b3 amendment and it might work here instead. But I can’t promise that as I haven’t waded through everything. But if it does, the contributions would be deductible in 2025.

We have a prospect that has a current 401k Plan in place with safe harbor match, new comp profit sharing. The employer terminated several of the younger employees and now doesn't like the new comp allocation. Any thoughts about not making a discretionary contribution in the 401k, instead establishing a new retroactive PSP, grandfathering all current participants and not including a last day rule so those younger employees would be included? Is there a trap I'm missing?

Seems OK to me, espeically if each installment is a separate payment. Year 1 - I earn a right to a payment at separation. Year 2 - I earn a right to a second payment paid in the 2nd year after termination. Year 3 - I earn a right to third payment 3 years after separation, etc., etc. In other words, each year of service creates a separate deferred payment.

Are you actually trying to exclude existing participants from participating in the plan, or just excluding them from being eligible for a Safe Harbor Contribution?

I agree that this this sounds like it violates the toggle rule. It probably would be permissible if each year of service simply adds another installment without changing the value of the prior installments, e.g., going from $600,000 over 6 equal annual installments to $1 million over 10 equal annual installments.

I would like to chime in. Participants actual account balance is the sum of the actual assets in his account plus the value of the outstanding loan. Assets remaining after the loan - $25,000 Outstanding loan - $25,000 His account balance is $50,000 50% of this is $25,000 Less outstanding loan of $25,000 Remaining loan available is $0 You need to remember to add back in the loan since it is part of his account value before you determine the 50% of vested balance. Unless the asset value drops from the original time you took the loan, you should never get a negative answer.

for Retirement Plan Consultants (Urbandale IA / Des Moines IA)View the full text of this job opportunity

When I do a recordkeeper selection, I design the timeline so there’s eight months from the decision to the turn date. (Even if all needed tasks can be done in one month, there’s value in helping people feel comfortable with a change.) Timelines vary with a plan’s size and complexity, and with an employer’s size and complexity. Timelines also can vary with the conversion-out and conversion-in recordkeepers’ motives and how much they differ or align, or overlap.

There is a difference between a "mapped" conversion and an "in kind" transfer. In a mapped conversion, the new record-keeper/custodian and the investment advisor find similar funds in new record-keeper/custodian's line up, and the value in each investment at liquidation is immediately invested in similar funds at new record-keeper, avoiding the "Uninvested Cash while we wait for the by participant breakdown from old recordkeeper" problem. Not sure even 12 weeks lead time is sufficient. There are SO many issues to work out....loan repayments and contributions withheld during black-out, educating participants and in-house HR/payroll/finance staff on new systems and websites, and updating automated processes. At least 6 months is ideal, and all service providers need to participate.

My understanding is that you can amend to exclude them prospectively and that the document probably requires a 30-day advance notice to do so, even though they are HCEs. But check IRS Notice 2016-16 to see if you agree.

Just the usual 25% limit.