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I agree - all those provisions that sound great for enhancing overall retirement plan coverage just make things more complicated and error-prone for the small and unsophisticated (from an HR perspective) employer that they serve as a detriment. Fewer employers will want to adopt these plans, fewer providers will want or be able to serve these plans, and administrative costs will increase, wiping out the short term tax credit savings. I've been in this business for nearly 40 years, have done both DC and DB in terms of administration, plan documents and compliance, and remember when DBPs were the complex animals no one wanted any more. Now, DBPs and CBPs look pretty simple compared to the modern and continually evolving 401(k) plan environment. Maybe all the heads of the states' with those new mandatory retirement plans met in a NYC pizza parlor and conspired with the Federal government to make 401(k) plans so damn complicated that no small employer would dare set one up and thereby drive all their employees into the mandatory state plans, just saying.

Yes. I am semi-retired and moving more and more towards retired. I don't want to deal with the part-time/permanent stuff and this auto contribution stuff, and I'm thinking that my typical micro clients don't want to either. I get it, and if I had not been in business but just worked in government I would think it's all great. I forget the description for this - behavioral economics? - and I guess it works, but not all companies have 10,000 employees. I might sound like a neo-con but I'm pretty far from it, but being in the trenches does give one a different perspective.

One uses a summary of material modifications to disclose something that otherwise would be in a summary plan description. The Labor department’s rule calls a plan’s administrator to “furnish a summary description of any material modification to the plan and any change in the information required by section 102(b) of [ERISA] and § 2520.102-3 of these regulations [see a subsection quoted below] to be included in the summary plan description[.]” 29 C.F.R. § 2520.104b-3(a) (emphasis added) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-F/section-2520.104b-3#p-2520.104b-3(a). The required contents of a summary plan description include “[t]he name, title[,] and address of the principal place of business of each trustee of the plan[.]” 29 C.F.R. § 2520.102-3(h) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-B/section-2520.102-3#p-2520.102-3(h).

Plan participants need (or at least, are required to receive) that information regarding the investment of their benefit funds, so I'd say yes.

Auto enrollment is, of course, a good thing in that it helps get eligible employees enrolled and participation rates go up. But, if participation rates go up, so too does the cost of the Employer match. So, yes . . . requiring auto enrollment could affect small employers' willingness to start new plans.

You still need to comply with 415 limits and the overall employer deduction limit is going to be capped at 25% of pay under 404. Just because you have a match instead of a profit sharing doesn't get you around the limits. That said if you have a REQUIRED match in the document it might force you over the 404 limit on deductible contributions and force a nondeductible contribution subject to an excise tax which might be one reason some "solo-k" documents don't allow matching. For example say you have a document that that requires you match deferrals dollar for dollar with no cap. And have the following set of facts - W-2 owner (only employee) pay $20,000. W-2 401(k) contribution $10,000 Employer required match $10,000 The match is clearly required by the document and clear not in violation of 415 limit so it has to be made. But compensation is only $20,000 so the 25% deductible limit on employer contributions is 25% or $5,000. Therefore $5,000 of the match would be required but non-deductible and also subject to a 10% excise tax. Not an ideal result and not a set a facts you'd be likely to see but just an extreme example of what could be allowable and still get you a bad result.

Also, if it's only the owner, what difference does it make if it's matching or non elective? The 415 and 404 limits will impact both the same.

Then you are a reading a document that doesn't allow for matching contributions. A Solo-K is simply a marketing term describing a 401(k) plan that covers only the owner. But often times it just has has limited document choices about that is offered in the document and may not offer everything that might be allowable under the code.

If allowed by the plan document.

A qualified plan document is a qualified plan document whether for one employee/participant or 10,000. As many have echoed in this forum, a "solo 401(k)" or "solo-k" is just a marketing term for provider's product. If you have an owner-only participant, you'll likely want pre-tax deferrals, Roth deferrals, catch-up deferrals, discretionary profit sharing and employee voluntary after-tax contributions. If you are hoping to do for 2022 you need to hustle because document and salary deferral election will need to be signed by 12/31, and that only works if unincorporated sole proprietor, unless getting big bonus on 12/31 from which to defer.

Yes, that is likely the best path forward, and many payroll providers and recordkeepers have 360 degree integration, although I think some payroll providers stay 180 so their bundled product can maintain an administrative edge. Still, keeping all relevant information current and accurate in payroll records is a challenge for both larger employers with HR departments because of sheer volume and smaller employers without the dedicated resources to handle in real time. Thankfully (hopefully?) we now have a technological savvy generation that can tackle this, but it doesn't matter how great the technology is if the system inputs are incomplete or inaccurate - or as our generation says, garbage in garbage out. Another thought - will these changes accelerate consolidation of the provider market, driving out smaller recordkeepers and TPAs, while the 500 gorillas Fidelity and Vanguard et al get even fatter?

As you might be aware, these bills are "scored" in Congress with respect to their cost over a 10-year period. From the government's perspective, plan contributions are a cost because they reduce the amount of taxable income. Things like the Rothification of catch-up contributions are revenue raisers because they increase the amount of tax revenue, and offset the cost of the increased contributions. I heard it explained once that if you're looking for any deeper meaning behind the various numbers or limits, you're going to be disappointed. What ends up in the law is just whatever scored well enough to fit within the budget of that particular bill. In this case, maybe they wanted to do 5 years of extended catch ups, but that would have been too costly, so they settled on 4. It's hard to know exactly how the sausage gets made unless you're inside the factory.

Yes, you can do this, and there shouldn't be any need to do two amendments. Most preapproved plan documents have a checkbox in the adoption agreement for special entry conditions, something like "Any eligible employee employed on ____ will become a participant on ____."

Is it 401(k) money? If so I sincerely doubt that the plan allows in-service withdrawals prior to age 59½, unless there is a hardship or some other special circumstance. If it's rollover money, or seasoned employer contributions (not safe harbor), then go ahead—plan doc permitting of course.

Agree with Ms Bri. I don't have a reg cite, but look here: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-notices Midway down the page is this: Notice when the plan is amended When the plan is amended or when the information in the Summary Plan Description (SPD) has changed, participants should receive a Summary of Material Modifications (SMM). The SMM would generally include changes to the following: name and address of the employer, plan sponsor, plan administrator, trustees; collective bargaining agreements; vesting; eligibility for participation & plan benefits; circumstances which may result in plan disqualification; circumstances which may result in denial or loss of benefits or ineligibility; plan year-end date; and benefit claim procedures and remedies available for denied claims. The SMM must be provided no later than 210 days after the close of the plan year for which the modification was adopted. The SMM or changes in information in the SPD don't need to be furnished separately if the changes or modifications are described in a timely SPD.

CuseFan, your observations remind me of a business story. (I’m about three years older than you and, like you, went into the biz in 1984.) In the 1990s, a mid-size employer (about 20,000 employees) told my client, a growing recordkeeper, it could not be considered unless the recordkeeper alone would receive all salary-reduction agreements and the recordkeeper’s computer would feed all deferral instructions into the paymaster’s computer. The employer’s paymaster would never receive any paper, and would not lift a finger for any data entry. The paymaster would not look for errors. (How could it? The paymaster had no source information.) The recordkeeper had to indemnify the employer against all deferral errors, and for any failure in keeping records. That setup won’t work for small-business employers. But is integration of recordkeepers’ and payroll-service providers’ software a way forward?

I agree you wouldn't need a VCP for this and that the plan's fix is just to fix the 1099-R and notify the participant that the rollover of the RMD was made in error. As far as the assertion that the plan did nothing wrong, I think the distributing plan should have known that a portion was an RMD and provided a tax withholding notice and election for non-periodic payments (e.g., W4-R) on the portion that was not eligible for rollover. I would not expect a participant to know these things. There is a penalty for not providing that withholding election notice. There is also the fact that they didn't withhold at the default rate of 10% on the RMD - so the employer could be held to accountable for that amount if the participant doesn't pay the tax. (In practice, IRS rarely catches plans and assesses these penalties). I am not absolutely sure it is going to be an excess IRA contribution for 2022 (and there is still time to remove it before the end of the year, if necessary). It is certainly not a rollover contribution for 2022 - but if the RMD amount is less than $7,000 ,it is at least conceivable that all or a portion of the RMD could be recharacterized by the participant from a rollover contribution to a regular IRA contribution if the participant didn't already contribute the $7,000 max to an IRA (including the RMD amount) and had the 2022 earned income necessary to support that regular IRA contribution. The participant would probably need to contact the IRA provider to find out how they could recharacterize the RMD portion of the contribution and how they can get the RMD removed from their account (either to avoid an excess contribution, or if they didn't want to make the regular IRA contribution to that account).

Unless there's something else we don't know about, I would be optimistic. For one, they are applying the post SECURE Act penalty to 2013-2015, which is wrong. It also appears that you filed for relief prior to getting the CP283, so you should be eligible to correct those years.

Then make sure what the amendment says. If the amendment was specific for that eligibility, then you don't get anything else, unless top heavy.

When the Internal Revenue Code of 1986 becomes amended by this week’s Consolidated Appropriations Act, 2023, many provisions that permit a before-retirement payout, including a or an: eligible distribution to a domestic abuse victim, emergency personal expense distribution, hardship distribution (for a deemed hardship), qualified birth or adoption distribution, or unforeseeable-emergency distribution (under a governmental § 457(b) plan), permit reliance on the claimant’s written statement that she meets the tax law’s standard for the kind of distribution requested. (A plan’s administrator may not rely on such a “certification” if the administrator has actual knowledge that the claimant’s statement is false.) Let’s leave aside the public policy discussions about whether it’s wise to allow early access to savings purposed for retirement income. And let’s leave aside discussions about whether a self-certification regime invites a claimant’s incorrect, or even false, statement. Do you see any disadvantage, from the administrator’s perspective, of allowing these self-certification regimes?

Sole Proprietors don't receive W-2 from their sole proprietorship, they have earned income that is reported on Schedule C. Since you said he has S-corp pass through income I'm going to assume you mixed up Sole Prop and S-corp. But who knows maybe he has both for some reason. The answer to your question that the accountant should be able to tell you is to increase in 415 limit he'll need to pay himself higher W-2 wages (or have higher earned income if it really is sole prop) instead of dividend or distribution income from the S-corp. I mix up the correct term on distribution/dividend because I'm not a CPA but his CPA should be able to tell you.

Happily retired but enjoy reading benefitslink to reconfirm my decision.

Secure (1.0?) might have already brought a number of those into the plan as of January 1, 2023...at least for eligibility for 401(k).

The deduction limit for employer contributions (not including deferrals) is 25% of compensation. I know you only have one participant here, but in general, the limit is measured by adding up the compensation of all participants who benefit under the plan, and multiplying that by 25%. An individual participant can get more than 25% of comp as an employer contribution, but the total contribution for all participants should not exceed 25% of total compensation for all participants.

I would add a well thought out amendment to the vesting schedule would cover this fact pattern. In the last 5 or so years I have had two clients amend from a 3 year cliff to a 6 year graded schedule. I asked for a change to the amendment before it was signed that makes it clear that we will look to a person original hire date to determine which schedule they will be on if they are rehired. Both of these firms have thousands of employees and they have a lot of rehires. It was decided it would be easiest to track if we looked to original hire date to decide which vesting schedule to use. If the amendment is silent on the topic I would agree with Cusefan that the years of service should apply to the new vesting schedule is the most reasonable way to read things.

Hello, I want to ask for your thoughts on Secure 2.0 Section 109 Higher Catch-up Limit To Apply At Age 60, 61, 62, and 63. Am I understanding that at age 64+ the higher catch-up amount is no longer allowed? Seems like that is exactly what the wording says, but just seems odd. Is there a reason for only allowing a 4 year window? If you are age 64+ in 2025 then this has no impact on you? Or am I missing something? Thank you

Those who like sausage and respect the law should not watch either being made.

Always! I think the prior service counts but applies to the current vesting schedule.

Agreed, and someone coming in early is almost never is an HCE these days because of the lookback rule, and not too many come into an employer as an owner unless it's a spouse or other family member.

Thanks to everyone.

For S2.0 the provisions came from three different house and senate bills. I believe the increased catch up was included in two out of three bills, but they used different years and different number of years. The final provision was likely a combination of a compromise between house/senate bills and cost of the provision.

That seems to be the case. The concept seems similar to the special catch-up contribution limits for 457(b) plans where you get certain catch-up opportunities only for the three years before normal retirement age.

I guess you get a boost in the deferral max for a few years leading up to the traditional 65 retirement age.

This is a classic: What does the plan document say? A question like this is almost always answered by the document. So much so the guy who trained me in this business would throw you out of his office if you asked him this question and you didn't have the document in your hand (started in this business in 1991 so it was all paper) and you couldn't show him what parts of the document you looked at. Since he was 100% vested I think the Rule of Parity needs to be factored in and I think this person will most likely not lose any years of service for vesting. See this conversation.

The ASD is essentially when the participant gets money out of the plan. So you can maintain life policies for terminated participants as long as they don't take their money out (as a lump sum or an annuity). With that said, the policies still have to meet the incidental rules to avoid having the full premium be considered a taxable distribution. For a terminated participant, that's difficult because there are no new contributions. You'll also see in 10.08(a)(4) and (5) some exceptions to that incidental rule. I'm always fascinated with the language in the documents that say "in these circumstances, you can just ignore the incidental rules" because they never clarify why you can do so. It's because when you don't satisfy the incidental rules, the entire premium you pay is an in-service taxable distribution.

That is important as you don't want plan and IRA issuing 1099R for same taxable distribution. The Plan Administrator should write letter to IRA custodian explaining the error. The IRA custodian may not be able to distribute out to the individual w/o tax reporting, in which case the request should be to return to the plan which can then make the proper RMD distribution. Agree with bito too that this was indeed a plan/administrator/trustee/custodian mistake/problem/issue because the plan is required to split the distribution and properly satisfy its RMD requirements under the terms of the plan. Therefore, whichever entities/functions made this ill-advised lateral should fix it before the IRS recovers and runs back for a game winning TD against the Patriots, I mean the participant.

So funny, but I was in the middle of typing my response that it might slow down MY creation of new plans... Honestly, I haven't bothered to keep up on SECURE 2.0, as my mentality has been that I'd deal with it when it passed. Now I'll apparently have to deal with it. Retirement looks more attractive than it did a couple of weeks ago, but I can't QUITE do it yet.

Exactly Bird! Just to allow me to contribute?

EmployER contributions are required so yes they must be made and accepted.

Sounds like you would share based on whatever the allocation rules are then.

1. is the plan top heavy? 2. Is everyone in their own group? She has some flexibility perhaps, in amount, but if both are yes, you will probably get at least the TH and a gateway bump.

It's the government and they're here to help you.

It's effective for taxable years beginning after 12/31/2022. Don't think it will matter when it's adopted.

My two cents and to quote some famous people on the boards..."what does the plan say"? I would think if the DB and or SEP balances are effectively "rollover" balances in the 401(k), then unless the Plan Doc states something different for the origin of the rollover source funds, the rollover assets can be rolled out according to the plan in-service provisions for that money type.

@austin3515 you can speak to them without the POA, they just cant speak to you. You can give them proof of mailing without the POA, they will record it / fix it, they just wont give you any information.

You are past the time to make a 2021 PS allocation.

Safe harbor is required by statute within 12 months of the plan year end. So 2021 SH amounts may be deposited currently. Tax deductible deposits are due by the extended corporate tax deadline. So a contribution now for the 2021 SH can't be deducted on the 2021 return. Annual additions for the prior year are due within 30 days of the extended tax deadline. So if these SH amounts are going in now, they can't be 2021 annual additions, either. But hey, maybe having 2 years' worth of SH amounts in your annual additions helps this year. (And good luck if it was meant to be there as 2021 annual additions for that year's testing.) And I punt on the issue of someone not having any 2022 415 comp but needing a 2021 SH amount to post as a 2022 annual addition. Punting works better than a schoolyard lateral play.

I never heard it called the popcorn method but you can assume a 3% prior year NHCE rate and thus do 5% in the first year.

Beyond thinking about when someone might have met a service condition to become eligible for allocations of one or more of the three kinds of contributions, remember too that “[a] cash or deferred election can only be made with respect to an amount that is not currently available to the employee on the date of the election.” 26 C.F.R. § 1.401(k)-1(a)(3)(iii)(A) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(k)-1#p-1.401(k)-1(a)(3)(iii)(A).v If an employee is only now considering a § 401(k) election, one imagines the election might apply only to 2022’s 4th, 12th, 24th, or 26th pay period. The business organization might carefully check its records to discern whether it hired two employees or admitted two partners. “For purposes of [the same section’s] paragraph [about when cash or another taxable benefit is currently available to the employee or deemed employee], a partner’s compensation is deemed currently available on the last day of the partnership taxable year[.]” 26 C.F.R. § 1.401(k)-1(a)(6)(iii) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(k)-1#p-1.401(k)-1(a)(6)(iii). Thus, a partner might, in 2022’s remaining two business weeks, elect a § 401(k) deferral regarding the whole of the partner’s 2022 compensation (if the partnership’s tax-accounting year ends with December’s end). I see nothing on the face of § 1.401(k)-1 that restricts which kinds of partnership interests get the last-day provision quoted above. A partner need not be a capital-interests partner; one could be a profits partner, or even a guaranteed-payments partner. The retirement plan’s measure of compensation and when it became available must be logically consistent with all the partnership’s tax returns and tax-information returns.

Are there any NHCEs getting the squeeze here?