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Might this speak to your question? “The account balance is increased by the amount of any contributions or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date. For this purpose, contributions that are allocated to the account balance as of dates in the valuation calendar year after the valuation date, but that are not actually made during the valuation calendar year, are permitted to be excluded.” 26 C.F.R. § 1.401(a)(9)-5/Q&A-3(b) (emphasis added) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-5.

It's not truly disaggregation, where you would treat it as two separate plans as you might be used to with 410(b) and 401(a)(4). Rather, what the new law says is that employees who have not met age 21/1 year of service can be disregarded when determining if a DC plan has satisfied the top heavy minimum. So it doesn't matter if there are any otherwise excludable key employees, you just ignore all of the under 21/under 1 year employees when determining who is entitled to a top heavy minimum. Where it gets weird is with the safe harbor match. The IRS ruled (in rev. rul. 2004-13) that a plan which different eligibility for deferrals and safe harbor does not consist "solely" of deferrals and match meeting the safe harbor requirements, which is the rule to be treated as not top heavy under IRC 416(g)(4)(H). That clause wasn't affected by the new law. So presumably a plan with different eligibility for deferrals and match is still treated as top heavy, and subject to the top heavy minimum. The fact that they don't have to give the top heavy minimum to otherwise excludable employees doesn't change this, it just means that employees who are not otherwise excludable (over 21/1 year of service) will have to get the top heavy minimum. The top heavy minimum for these people could be satisfied by their safe harbor match contribution, or if they don't get any safe harbor (or enough safe harbor, because they didn't defer enough or not at all), then by an additional employer contribution.

It's going to be deducted on the 1040 so I'm not sure it matters which account it comes from as long as they keep good records and the accountant can follow it for deductions and you're able to support it to the IRS in the event of an audit. If it was me, I'd do it from the LLC bank account.

By way of illustration, here is a list of coverage and exclusions from our policy. Coverage: Miscellaneous Professional Liability (typical errors & omissions) Information Security & Privacy Liability (protection of data and privacy) Personal Injury Liability (someone gets injured) Website Media Content Liability (information presented on website) Privacy Notification Costs (remediation if breach of data privacy) Regulatory Defense and Penalties (legal representation) PCI Fines, Expenses and Costs (more data protection) Consequential Reputational Loss (loss of business from hit to reputation) Electronic Crime Endorsement (electronic funds transfers) Fraudulent Instruction Coverage (fraudulent instruction by someone outside the firm) Telecommunications Fraud Endorsement (fraud by a third party using our telecommunications services) Exclusions: War and Terrorism Exclusion Endorsement War And Civil War Exclusion Generally, any willful act of fraud or collusion on our part is not covered, and any consequences of providing incorrect or incomplete information, or a failure to provide information is covered. As sign of the times, It is striking how much greater detail there is in more recent policies related to privacy of data and to fraudulent transactions. In addition to coverage amounts, the underwriting process is influenced by business structure, number of staff, professional credentials of staff, number of clients, scope of services, data security and gross revenue. If you are talking with people looking to enter the business, inform them on business structures that best avoid exposing their personal assets to the financial risks of the business, and emphasize that E&O insurance is like health insurance, auto insurance and life insurance - you hate to pay the premiums but you will be thankful you have the insurance if when you need it.

Top heavy minimum is required. Rev. rul. 2004-13 example 2. Now if the employer had a separate profit sharing plan, they could make the contribution to that plan without triggering the top heavy minimum, because the first plan would still consist solely of deferrals and safe harbor contributions, and in the second plan no key employee gets a contribution. It seems silly, but that's the way the top heavy rules are written/interpreted...

For EZ it's technically the IRS penalty relief program not the DOL DVFC program but yes you essentially have it correct. https://www.irs.gov/retirement-plans/penalty-relief-program-for-form-5500-ez-late-filers For PBGC see instruction when to file. https://www.pbgc.gov/sites/default/files/documents/2022-premium-payment-instructions.pdf It's typically the later of the normal dead line or 90 days after the adoption.

The smart ones do. I had malpractice coverage when I owned my own TPA from 1986-1998 and our trust company that I merged into did as well. Haven't been an owner since the mid 2000's but I'm pretty sure the firms I've worked with since then have the coverage as well.

This is the part your client needs to focus on. Whatever payrolls exist from 10/1-12/31, you need to allow the participants to defer from them. So if the payrolls are on the 15th and the end of the month, you've got an extra few weeks to make things work. If the first payroll in October is 10/6, it's a much shorter time frame.

Why does an owner-only want a safe harbor plan?

First, as always, check the plan document to see if it says what to do regarding incorrect contributions (it may have general instructions as opposed to specific match-related issue). Absent plan instructions, I would forfeit the incorrect excess match and any related earnings, leave in the plan and use according to plan instructions.

Your comment made me curious, as I almost never see plans with a lookback month election. I went and downloaded the 2021 schedule SB data set from EFAST and did a quick pivot table on the applicable month code. The blanks are probably yield curve elections, I don't know how the other numbers got in there. Anyway, it seems like an election to use the 4-month lookback is not entirely uncommon, which I suppose makes sense—the benefit of using a lookback month is that you can determine your funding liabilities earlier in the year, so why not go as early as possible? But still, use of the month containing the valuation date is the overwhelming popular favorite. And for those plans, they could switch to the yield curve without IRS approval.

It shouldn't have an impact on testing. You already include receivables in testing. If you report on a cash basis, your reporting just wont line up 1:1 with testing if you have receivables.

This list doesn't include items that were or could be effective before 1/1/2024 and likely is missing some. These are rules to follow starting in 2024 that could be considered "must make" changes should they be needed: change in attribution of stock between parents and minor children. make retroactive discretionary amendments after plan year end and by the due date of the tax return to increase benefits. The plan may put in: emergency in-service withdrawals up to $1000 with no 10% excise and opportunity to repay. withdrawals for victims of domestic abuse with no 10% excise tax up to the lesser of $10,000 or half the account, and opportunity to repay. eliminating RMDs from Roth. allowing in the RMD rules for the surviving spouse to be treated as the deceased employee. The plan may add to its existing plan design: a match and add matching contributions on student loan repayments. involuntary distributions with a cash-out limit to $7000 from $5000. If the need arose, the plan could: use separate top-heavy testing for non-excludable and excludable employees. Given the plan design presented, the plan should not have to worry about LTPT employees. Given recent IRS guidance, non-Roth catch-ups are allowed for everyone (and given universal availability of catch-ups any restrictions on High Paids to Roth-only likely are not allowed).

EZ. Both are 2% S Corp shareholders so you treat them as partners.

Yes. Financial information is only one part of the return.

$3.4 M @ 62 w/ 10 Years of Participation and Ave Comp > $265K (2023 limits) Lots of variables as you said.

As a control group all participating employers are deemed a single employer so I do not think a different formula for one or more employers works. Also, I think that any discretionary match must preclude the possibility that any HCE could get a higher rate of match compared to any like NHCE (i.e., one who defers the same percentage), which would prohibit participating employer(s) from having their separate discretionary matches unless such employer(s) have only NHCEs. If I'm wrong on any of this, I hope one of my esteemed and more knowledgeable colleagues with respect to this subject matter will set us straight.

ERISA-Bubs, you do not say how long the plan has allocated revenue sharing using a formula that is contrary to the 404(c) disclosure, nor do you indicate which method was approved by the plan administrator for use by the plan. If there is documentation of an approved method and the plan actually has been using that method, then you are dealing with a miscommunication in the disclosure. Correcting the disclosure and issuing a new disclosure may be sufficient. If there is documentation of an approved method and the plan actually has not been using that method, then there is an operational issue that could have accumulated over time to be more than only pennies per at least some participants. It should not be too onerous to so look at participants within the funds that paid the most revenue sharing to see if how much of an impact using the incorrect method had on those participants. If it does have an impact, then you can consider making whole the participants who were did not get the full benefit of the revenue sharing on their investments, plus a little more to bring them up to the level of other participants who improperly received revenue sharing amounts that they should not have received. Keep in mind that if you know there is a problem and you do something reasonable to correct it, you are will be better off in the eyes of a DOL or IRS agent than if you know there is a problem and you ignore it. If the issue truly is pennies per participant, a creative fix may be as simple as skewing some of the next revenue sharing allocations to in favor of those participants who had a shortfall.

EBECatty, the way I read both the DOL Fact Sheet and the FAQs, any correspondence or related action by IRS is not going to disqualify you from DFVCP. Only a DOL letter will do that. So let's assume you are successful under DFVCP. You should be. The IRS "guidance" on the topic, which is just what it says on its website, would seem to say that it will probably abate penalties once you demonstrate success under DFVCP. My guess is that you would be successful here as well, but I am not aware of anything in the IRM or anywhere else that discusses this situation, and of course dealing with IRS is often a demanding process on something like this.

Not the way I see plans written. If you find the definition of the Year of Service the 12 month period is just the period you look to see if the person worked 1,000 hours. Here is an example: The term "Year of Service" means, with respect to any provision of the Plan in which service is determined by the Counting of Hours Method, a 12-consecutive month computation period during which an Employee is credited with at least a specified number of Hours of Service with the Employer.. So the 12 months is the period you ask did they work 1,000 hours. It doesn't require you to work all 12 of the months. It is a computation period as it says. I typically explain it to my clients this way: We just look to see if 1,000 hours was worked during that time frame we don't need them to work all 12 months. Check some of your client's documents and see if that isn't how it is defined.

Luke is asking the right questions here - specifically, I think, whether the closing agreement addressed minimum funding. If it said that the plan is not subject to the minimum funding standard, then that's all you need to tell the IRS to bug off. If it wasn't addressed, then I think you still have an argument, but you might have to convince them. IRC 6059(a) requires an actuarial report (i.e. schedule SB) for each plan to which section 412 applies. IRC 412(e)(1) says that section 412 applies to a plan which was qualified under section 401(a). If the closing agreement provided that the plan was not considered to be qualified under 401(a) for the year in question, then I think you can point to this to say that it was not subject to 412 and consequently not required to file a schedule SB. Hopefully you answered the question on the 5500 about whether the plan is subject to 412 (line 11 on the 5500-SF, or part II on the schedule R) as "no." If you indicated on the 5500 that the plan was subject to 412, that would explain why the IRS thinks you owe them a schedule SB. You might consider filing an amended 5500 in that case.

Hello - I reached out to CMS with the exact same question last week and they confirmed that, YES, they do expect the employer or TPA to attest for the self-insured period (even though the webform does not specifically address a partial reporting period). This was the response: "You are correct - the employer plan sponsor of the group health plan should attest on its own behalf for the pre-fully-insured period of time from 12/27/20-12/31/21. And while you are also correct that the GCPCA webform does not have a specific place to enter the dates covered by the attestation when it is less than the entire period from 12/27/20-12/31/23 (or whatever date in 2023 the GCPCA is submitted), the Departments understand that any given attester may only be attesting for a portion of the time covered by the attestation. Similarly, the attestation may be made by an issuer or TPA for reporting entities that were only a client of the attester for a portion of the attestation period, or may only cover a subset of covered plan benefits or agreements covered by the written agreement with the plan, such as when the attester was not under contract with the entities listed on its reporting template for the entire attestation period (the case here when carrier attests for your client), or when the attester only covered some plan offerings while other entities provided the network for other plan offerings. In any of these cases, other entities may attest for the same plan for the remainder of the time period covered by the attestation, or for other product offerings of the plan, as the case may be. That said, if you client wants to indicate in the "Other" column of the webform the dates covered by its attestation, it may do so. We plan to address this when we update the Instructions in early 2024 as we are getting asked this question a lot. We will also address it during our upcoming GCPCA webinar on September 28." Hope that helps!

There is no grace period. There are a few thoughts: Try to work with Empower to preserve the next day timing. We have been successful doing this if the conversion manager is knowledgeable and cooperative. It works particularly well if the payroll file is transmitted the day before the payroll date so Empower can run their edits and validations overnight and you can fund the next day. If the conversion manager does not know how to make this happen, complain to the Empower sales executive that made all of those wonderful promises about reaching Nirvana. The auditor does not have the authority to say when a deposit is or is not late. The authority belongs to the IRS/DOL. The auditor can disagree, but the Plan Administrator is signing the Form 5500 and answering the compliance question about late deposits. The client should be able to show they are funding as quickly as they can within the constraints imposed on them by the recordkeeper. If there is a change in recordkeepers and as a result there is a change in the timing of deposits from next day to 2-3 days due to the new recordkeeper's procedures, there likely will be no push-back from the IRS/DOL. If there is, appeal it to the agents manager with a full explanation of the circumstances. If the manager in intransigent, you could even take it to Tim Hauser, the Deputy Assistant Secretary for Program Operations of the Employee Benefits Security Administration (EBSA). He says he wants to hear when the DOL is being unreasonable and his contact information is publicly available. If there is a late deferral as part of the transition process, the world will not end and any financial impact will be minimal. Good luck!

Agree with Zeller why does owner only need a SH? If there are future employees to worry about set it up a regular 401(k) for 2023 and make safe harbor effective for 2024. If they really need safe harbor for 2023 sounds like you have 2 options. Withhold the contributions starting October 1 and deposit as soon as the contract is setup with possible late 401(k) deposits or open a bank account in the name of the Plan to hold the deposits until the they can be transfer to American Funds and allocated to participant accounts.

You don't need to be enrolled. You just need DOL Credentials yourself to submit the file. The software you have can probably walk you through the process.

I would not recommend putting all of the different kinds of distributions available under the plan on one election form. It may, however, be helpful to the participant if there is a single description of all of the kinds of distributions that are available along with highlighting some of the decision points the participant should consider in choosing the type of distribution. The description would then point to the appropriate form tailored to each kind distribution. This is an approach that is similar to existing procedures for requesting a distribution, although as you note, the number of choices has expanded significantly. Arguably, the SPD should fulfill this function, but we should acknowledge that SPDs can be unwieldy, or blandly generic and less detailed than may be needed if there are many choices available to the participant. Some reasons for keeping forms separate are: Different types of distributions can require different information. Often a participant looking to take a distribution fills out question of every section on a form in fear of leaving out something that causes the request to be denied or delayed. Some distributions may require attachments providing additional information. For example, a disability payment may need a physician's statement, a death benefit may a death certificate, or if self-certification is not allowed for hardships, documentation of the financial need may be needed. The tax circumstances can be different, and the tax rates and excise taxes can vary by the kind of distribution. Any tax election accompanying the distribution election would need to be coordinated with the selected kind of distribution. The plan will need to decide how far it will go to inform the participant of the consequences of the participant's choices. Personal tax circumstances will vary from one person to the next. Personal financial circumstances also will vary. An individual who has reasonably stable finances may be more inclined to use a kind of payment that allows for repayment or restoration of the distribution to the plan. If the plan attempts suggest to the participant how to optimize the consequences of a distribution and the suggestions result in otherwise avoidable taxation or penalties, the plan can expect some participants to seek to be made whole because the plan did not fully inform them.

The AICPA has an Employee Benefit Plan Audit Quality Center of CPA firms that in their words "serves as a comprehensive resource provider for member firms to support you in the performance of your Employee Benefit Plan Audit practice." CPA firms that qualify for membership are peer reviewed and have demonstrated expertise in auditing retirement plans. While many national firms are on the list, you will find many more regional and local firms that have a specialty practice focusing on plan audits with expertise that rivals that of the national firms. Attached is a list of EBPAQC member firms as of August 23, 2023. The list includes the city and state of each firm, the name of a contact, and for many a link to the firms website. The list also is available sorted by state. Good luck! EBPAQC-Firm-Members-By-State.pdf EBPAQC-Firm-Members.pdf

It would be very, very unusual for such a policy to be for the benefit of anyone besides the insured participant. It is possible to buy what is essentially "key man" insurance which is an asset of the pooled account (i.e. proceeds would be shared by all) but I wouldn't generally entertain that as a possibility. If you can find something from way back when that showed it came from the owner's account that would be ideal.* IMO life insurance CVs should be included in the val reports, including the 5500. I know of some (back in the day) who would show the premiums as an expense and then not include the CVs on the val/5500. (Based on a misunderstanding of what a "fully insured" contract is.) But going back to the smaller policy, you say premiums are being paid. Are they being taken from that participant's account or treated as an overall "expense" or investment of the plan? *This whole scenario/description is very worrisome and I have to wonder if it was totally botched.

If the plan sponsor has not previously made an election to use the segment rates for a month other than the month containing the valuation date, then they may make an election to use the yield curve without IRS approval. Once they have made an election—either to use a lookback month, or to use the yield curve—that election can only be revoked or changed with IRS approval. See also rev. proc. 2017-57.

Depends on if they've got a minor child inducing a controlled group despite the non-involvement.....that law goes away soon but not for 2022.

You're correct that the fix for this is to have the participant repay the amount that was in excess of the available limit, with accrued interest. However, the bigger question to me is why did the brokerage house accept direction from an individual who is not a trustee?

I think it's pretty simple. You need to ask whether they are going to (or should) treat the 5% as self-employment income under IRC sec. 1402, which determines whether it's subject to SECA. If yes, then check the plan document, which will probably say that a person with SECA (a self-employed person or individual (SEI)) is covered and their 1402 self-employment income is their compensation for plan purposes. Whether what the individual earns is self-employment income will depend in part on the type of partnership (general, limited, LLC taxable as partnership) and the terms of the partnership agreement.

That is not necessarily a universally held opinion. The other point of view would be that the employer, i.e. the controlled group, has already adopted the plan, and while it may take the form of a participating employer agreement, it is really an amendment to allow a previously-excluded class to participate. That said, I don't think there is a problem with amending a safe harbor plan to bring in a class of previously-excluded employees mid-year, and I agree it would be advisable to do it before 10/1 to cover yourself under either interpretation.

I agree with your interpretation, in fact I think it's the only reasonable interpretation. Instead of 10/1, say we have someone who enters the plan on 1/1 - which is always a holiday. If they were allowed to defer from the previous paycheck, they would have contributions in the plan not just before their entry date, but actually in the prior plan year, which is problematic for lots of reasons.

I suggest providing these details to the recordkeeper. They should be able to zero out the participant's account and move the money (including any earnings) to a company account or forfeiture account within the plan. You can then deal with how best to apply the dollars in the plan that are due to the payroll error. Any recordkeeper that has been in the business for even a short while has had to deal with payroll errors where too much money is in the plan that doesn't rightfully belong to any participant.

I take it that it was the client that decided not to listen to the advice given by the legal team, and not the case of the legal team not listening to your advice. I am surprised that the legal team believes that a hold harmless agreement provides your firm sufficient protection. I cannot imagine this agreement would protect your firm from involvement should the participants (or the DOL or IRS) sue the plan to get them their top-heavy contribution. But, like Lou, I am not a lawyer. Some things are clear. The plan cannot avoid being top-heavy by refunding contributions to key employees. The IRS will not recognize this as a cure and likely, if discovered, will tell the company to make the top-heavy contribution or have the plan disqualified for not following the terms of the plan. Leaving the earnings on the deferrals in the plan is a bizarre decision. The earnings do belong in the plan, as do the contributions. If the company wanted to make this look like a correction, it failed. All correction methods require the earnings to be taken out of plan alongside any refunds of excess amounts. This only highlights the company's disregard for compliance. If you or others in your firm hold almost any professional designations or belong to professional organizations (e.g., CPA, EA, ERPA, QPA, QKA, ... or AICPA, ASPPA, NAPA, PSCA, ...), you are subject to a code of professional ethics. I strongly suspect that your professional credentials and membership are at risk for not only following the company's direction but also preparing replacement documentation that masks the facts. It would be interesting to hear from others on BL their opinion on the application of professional ethics codes in this situation. And now for the really tough decision. On a personal note, I would not prepare or put my name a test showing a $0 contribution for the owner. I also would not falsify any information on a 5500. If your employer or the legal team believes these actions are acceptable, then let them prepare and put their name on it (and you can take comfort that you can find work, including remote work, at a reputable firm within a week). This is not advice, and is somewhat overly dramatic, but there are some realities here that cannot be ignored. May you be at peace with whatever is your decision on how to respond this situation.

Yes. Unless it qualifies as a 1 person plan with less than $250,000 in assets. Whether you report an EOY balance and/or contributions will depend on whether you use the CASH or ACCRUAL method of accounting.

Yes. To be clear, you file the form that is required for the reporting period. For a calendar year plan, if the plan only covered the owner during 1/1/22-12/31/22 it is a one participant plan and you are required to file on an EZ.

and here it is (in part):

I just watched a recorded webcast where it was said the IRS could (would?) waive excise taxes if self corrected within 180 days. Given you're within that time period (and still the same tax year) I would do that. Worst case, I believe, is a 10% excise tax if corrected timely.

The trustee is, or should be, the owner of the account(s), and the participant's role should be limited to directing investment transactions. Accordingly, the trustee should get, or be able to get, statements on the accounts and definitely should not have to rely on the participant(s). Since financial advisors and/or behemoths such as Fidelity have a strong presence in this end of the market, it is no surprise that the accounts are often set up incorrectly.

Hey now, the HCE isn't making that choice, the Employer is. But yes, if you look at the AA for a pre-approved plan you can often find the language right there in the SH section, the Employer "may" elect to provide a lesser allocation to HCEs. So it's an ongoing option each year.

The plan's named Trustee has responsibility for delivering asset reporting to the Plan Administrator, the frequency can be monthly, quarterly or annually as needed by the PA (or its designated/contracted TPA) to properly administer the plan. The Trustee and Plan Administrator could, but need not, both be the Plan Sponsor. If the Plan Sponsor is neither, it still has the obligation to oversee each in fulfillment of their fiduciary duty. The consequences of lack of required financial reporting is a fiduciary lapse. Participants are not required to keep (or provide) copies of their own brokerage statements any more than they are required to keep their "regular" quarterly statements. It's a good idea but not a requirement.

I think the question that needs to be asked is: was this person terminated? If they were why weren't they offered distribution paperwork before now (assuming the plan document would say they can make a distribution shorty after termination)? If they though they could come back were the still employed but just not working? Once this non-plan question is settled you have an easy answer- follow the plan. If they were terminated years ago they don't get the 100% vesting because of death. If they weren't terminated years ago but terminated due to death they are 100% vested. So I don't think the most important issue here is one the plan's document or retirement rules can answer I think it is a facts and employment law question. When did this person terminate? Answer that question and you get the right result.

Safe harbor contributions can be reduced or eliminated under certain circumstances. Since HCEs don't have to get the safe harbor in the first place, you can reduce or eliminate their contributions without losing the plan's safe harbor status. IRS issued Notice 2020-52 to address how this could be done in the context of COVID relief, and to grant some special flexibility during that period. Is it possible your client took advantage of this mid-year modification in 2020? If so, there should be a plan amendment, and related notices.

Andrew, I understand your concern that you did not get all the money in the 401k you were expecting. However, the funds that were supposed to go into the plan you received as cash compensation. In other words, you received the pay AND received a 50% QNEC. Seems like a scenario I could live with. If there was any missed match, you would have received 100% to the plan also. You are correct that the QNEC is a Pre-Tax. The Pre-Tax QNEC is per IRS code, so no choice in the matter. I hope I have answered your questions. If not, let us know. Thanks

So you're suggesting to act counter to published guidance regarding excess deferrals, and have the employer alter payroll records to hide what actually happened to fix an employee's issue? I wouldn't do it, but you have fun with that.

If you're referring to the requirement that most new 401(k) plans be EACAs starting in 2025, as added by SECURE 2.0 sec. 101, there is no exception for large plans. As I read it, for any plan year in 2025 or later, if any 401(k) or 403(b) plan does not contain EACA provisions, it fails to be a qualified CODA, unless it meets one of the exceptions in 414A(c). The only exceptions are for SIMPLEs, plans established before 12/29/2022, governmental and church plans, plans sponsored by businesses less than 3 years old, and plans sponsored by businesses which normally employ no more than 10 employees.

Isn't it up to the Employee to catch and then request from which plan they want the refund? It's not up to the Employer to fix, it's only the Employer's responsibility to distribute the requested excess amount when requested by the Employee.

This seems like a lot more trouble than just having the plan issue the refund directly to the participant with the appropriate 1099-R.