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I think it is a legit ongoing plan expense, especially if the change resulted in lower ongoing fees to participants. If such fee reductions are percentage-based, then it would be appropriate to charge on a pro-rata basis, IMO. Having said that, I think I'd urge the sponsor to pay.

I would say it depends on the reason for the RK conversion. Was is necessary because (1) the RK dropped the client, (2) because the employer did a fiduciary due diligence RFP which resulted in a decision to change RK, or (3) some discretionary decision which may have originated for some reason? I think (1) definitely and (2) likely could be situations where these conversion fees could be paid from the plan. If (3), I think not. If the fees are substantial, then getting legal counsel to opine might be warranted. If the fees are not substantial then I say play it safe and do not pay from plan unless clearly supportable (1).

About the defined-benefit pension plan, a prudent fiduciary might put the benefit-waiving participant’s distribution last. Even if the plan’s fiduciary assumes all other participants’ pensions are knowns, the amounts needed to satisfy them might not be. And even if those amounts are certain, the expenses of the plan’s administration might not be completely known. Ending a plan often results in unexpected investment expenses and charges, and generates accounting, actuarial, and legal issues beyond those that are usual for a continuing plan. For an individual-account (defined-contribution) plan with pooled investment, your method of not paying any final distribution until all will be determined on the same valuation (perhaps a special valuation) seems wise. For an individual-account (defined-contribution) plan with participant-directed investment, it sometimes can work to pay claims for final distributions as the plan’s administrator receives them—if, among other conditions, all professionals and other service providers have been paid in advance (or the plan’s fiduciary prudently finds that a plan-expenses reserve is enough to meet all expenses). Further, a professional or other service provider might protect itself by being unwilling to provide services unless those of the participants who are fiduciaries assent to take their distributions last.

Peter, we do it automatically as part of the participant statements that we provide. The calculations are built into our admin software, so it's not a big deal.

Agree w/Peter and think on DB you must pay the "benefit waiving" owner last as it must be after all other participant liabilities have been satisfied, and also agree with the wisdom on the pooled account issue, I think there has to be a liquidation date at which all accounts are valued and then distributed.

Thanks for the responses. Here is what I did. first, I had the plan designed as "automatically passes TH test" . I have designed SH plans that way, but this is not a SH plan. Just a PS plan. I eliminated that and the system made corrections. Second, one employee technically was terminated (retired) 11/30/2020. He received a year end bonus that payroll counted as 2021 compensation. So he is removed from the equation. Third, the last employee was given a 3% TH contribution. Still employed as of the end of 2021 but below the hours requirement. I learned he should still get the TH minimum. Make sense?

Sure. But I've said multiple times and multiple ways that it is unlikely to be a problem. Assuming they are whole life policies, the CUMULATIVE limit is 50% of contributions. Maybe I'm making an unwarranted assumption, but I get the idea this is a one year bump, and it seems unlikely to put them over 50% of cumulative contributions. If they've been doing this for years, then yeah...

My spreadsheet goes to 120, although that table goes only to 110. (Limit to 3 decimals? No way.) 80 68.6052744 81 65.5978053 82 62.7009606 83 59.9159730 84 57.2396120 85 54.6642242

Yes. I'll bet you also check to make sure the right people got the right contributions; what a thought!

The family rules for 409(p) are way broader than normal family rules. Take your quote a lineal descendant of a brother/sister means nieces and nephews are caught up in that kind of definition.

The modified attribution rule is set out in section 409(p) of the code itself. See 409(p)(3)(B) and 409(p)(4)(D) (and some other references throughout).

I believe this is the correct answer. Section 6.02(5)(c) Special exceptions to full correction, recovery of small overpayments. (e) is similar.

What "requirement" are you referring to? Benefit accruals? Assuming this is a calendar year plan and you are terminating on July 31st, and assuming your plan requires a 1000 hours to accrue a benefit, then yes, the 1000 hour requirement is still relevant. Termination date isn't really relevant, but the freeze date is. If accruals were frozen before anyone earned 1000 hours, then no accrual for 2022. If your question was about minimum funding requirements, then it depends on if it is a beginning of year valuation, or an end of year valuation, and it depends on your hours assumption used in the valuation. There is room for creativity, but you just can't ignore it.

Is the aggregation group top-heavy and using the 5% DC contribution to satisfy 416? Is that what is causing concern? Because I don't think there is anything magical about 3%, 5%, x% allocation being used in a floor offset combo from a non-discrimination stand point.

Doesn't specifically help here but the current legislation being considered will give plan sponsors leeway to not recoup overpayments. Congressional sentiment seems to be that participants should have to cough up corrections to plan sponsor's (or their providers') mistakes, although the context of that is more in the repayment of years of excess pension payments rather than a $30 lump sum excess. Personal opinion - $30 is immaterial to plan, neither the plan itself nor any participant was harmed as the excess $30 should never have been in there to begin with, so just move on. They could ask for it back, make the plan whole by depositing the $30 from the former participant or the employer, forfeit the incorrect/errant contribution and maybe return to employer (mistake of fact mentioned above) or reduce a future contribution - that's a big circle of professional time costing way more than $30 to get everyone where they already are (except maybe the payee has $30 less). Sometimes practicality and (im)materiality needs to win out over strict legality.

I don't know if he started in 2021 he might not have known the deferrals weren't ROTH until he got his W-2 and filed his tax return. I mean the deductions came out and were showing 401(k), and the statements were showing it going in to the ROTH source. How is the employee supposed to know for sure that the payroll coding is wrong? It might have been his accountant who brought it to his attention. Now if this has been going on multiple years all bets are off.

Take a look at Rev. Proc. 2021-30. I recall there was something about overpayments under $250.

Peter, having worked with a lot of plans like these with my former employer, I don't think that simply being able to provide the statement is an issue. The big admin software providers have a solution for it. The bigger issue is timing and capability top get the right data into the LII. Many TPAs with plans like these (SDBA plans, or platforms with some SDBA's) only do an annual valuation and may get the statements from the client anywhere from January 1st to October 15. Having the ability to provide the LII through the software and being able to get the data into the system for an accurate LII are two very distinct issues. This is the kind of issue that makes me very happy to have moved away from the "20 different RKs and 20 different SDBA providers" type of practice. It started getting a little iffy to me when the DOL went after brokerage windows in FAB 2012-02 (before the revised FAB after the industry outcry)

I agree than an amended W-2 needs to be filed. This is a payroll tax issue so I would not drag the plan into it by reclassifying the deferrals as pre-tax. My thoughts are that the employee bears a little responsibility for not speaking up about deferrals being deducted pre-tax so the employer shouldn't be responsible for all the penalties and interest.

JSample, but isn't this an employer mistake and not the employee mistake? It's fine for the employee to pay the taxes owed but the employer should be paying any penalties, interest and tax preparation fees the employee incurs dues to the employer error.

Have the employer talk to the employee. Explain what happened and offer two options. 1) amend W-2, tax returns, owe taxes... 2) have the recordkeeper move the contribution plus earnings from Roth to Pre tax, ask the employee to live with the small amount in the 401k bucket, start processing the Roth contributions correctly, give them a $100 gift card to their favorite restaurant, call it a day.

I count at least six fields of law—agency, contracts, employment, healthcare, tax, and ERISA. (Some involve combinations of Federal laws and State laws.) Seeking an integrated solution that considers the wideness of the issues is why a physician might want her lawyers’ advice and negotiation.

Agree the existence of an ASG seems unlikely without some common ownership. However, also consider whether or not the doctor might still really be the employer of his former employees. If he is still responsible for hiring, training, assigning tasks, and supervising these people, and if he still has the power to fire them, then he might still be their employer, regardless of who signs their checks.

Yes, I think we've run into that as well. I did a quick google and found this Q&A from Guardian. Some other sites had similar type of info. Apparently, the insurer can provide the W2 (if negotiated/policy provides) or otherwise must provide the necessary info to the employer for proper payroll reporting and issuing W2s. https://guardianlife.custhelp.com/app/answers/answer_view/a_id/69/~/do-i-receive-a-w-2-form-for-disability-claim-payments%3F

There is what's required, and then there is what's wise. Send them some type of notice.

The ERISA 204(h) Notice you are referring to does not apply to profit sharing plans - only to pension plans. See ERISA 204(8)(B) and IRC 4980F(f)(2).

That was my thought - how was it reported to IRS and correcting it there. Will also require employee to file amended tax return, so employer should do the right thing and cover any associated costs including interest and penalties on additional taxes owed. Seems like it's OK at the plan level.

Can you amend the W-2s?

What each of “he” and “she” needs is to get work from a good estate-planning lawyer. To get candid, unconflicted advice, each needs his or her own lawyer. Planning of the kind your post describes is mainstream, and need not be expensive. That’s especially so for a client who is intelligent, educated, and well organized. Much of what one might seek can be accomplished by supporting a retirement plan’s, IRA’s, or non-retirement investment’s beneficiary designation or transfer-on-death registration (or a bank account’s pay-on-death registration) with a premarital agreement or after-marriage consent and a trust (whenever and however created) to provide the differing beneficial interests a retirement plan’s, IRA’s, or investment’s beneficiary regime does not provide. (I’ve never seen an employer’s retirement plan that restricts a beneficiary to an income-only distribution. And many or most retirement plans do not determine income in the sense of the fiduciary accounting concept of distinguishing between income and principal.) For an ERISA-governed retirement plan, a good estate-planning lawyer would recognize that a premarital agreement alone is not enough for a qualified election (with the spouse’s consent) to negate an ERISA § 205 survivor annuity or death benefit. For a governmental retirement plan, one would look to the plan’s provisions (which often are, but might not be, stated or explained in a comprehensive document or summary) to discern whether the plan provides a participant’s spouse a survivor annuity or other death benefit, whether one may elect out of that benefit, and what is required for a valid opt-out. To simplify some planning and implementation steps, a participant entitled to an ERISA-governed retirement plan’s distribution might consider a rollover into a non-ERISA plan or IRA. Likewise, one might consider a rollover from a non-ERISA plan into an IRA. (There are several creditor-protection, investment, expense, and other factors that, depending on the surrounding facts and circumstances, might point in other directions.) Of the three retirement kinds—ERISA, governmental or church, or non-plan IRA, an IRA is most likely not to apply a protection for a spouse in the IRA’s administration. (For a non-ERISA plan or IRA, that a protection is not applied in a plan’s or an IRA’s administration does not defeat whatever rights a spouse has under one or more States’ laws.) For a trust that provides a surviving spouse income but not principal, one could design a trust so a trust’s beneficiary is treated as a designated beneficiary for a retirement plan’s or IRA’s minimum-distribution provisions. While the proposed rules do not yet apply (and are not even effective), one might design and document a trust to follow both the proposed and current rules. If the spouses ever will or might reside in a community-property State (or otherwise invoke a community-property law), either or both might want a premarital agreement that undoes community property for some or all of the property interests. If any State’s law for a spouse’s elective share might apply (which is almost everywhere in the USA if community-property law does not apply), either or both soon-to-be spouses might want a premarital agreement that undoes a surviving spouse’s elective-share right. If either would-be spouse imagines a possibility of divorce before death, he or she might want a premarital agreement to specify what property division applies on the divorce. Either would-be spouse might want a premarital agreement to specify how the spouses share or divide household and other living expenses. If you have access to 403(b) Answer Book, 457 Answer Book, Governmental Plans Answer Book, Roth IRA Answer Book, or SIMPLE, SEP, and SARSEP Answer Book, my Beneficiary Designations chapter in each book gives a reader further details on many of these points. Beyond the property-rights, tax, and other law issues involved, a good lawyer can help her client with practical aspects of the planning. This calls for foresight when the planning must or should consider the circumstances and personalities of his-and-hers families.