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1. I hated this provision from the moment I heard about it. We shouldn't be anywhere in this mix. 2. How does Congress think an emergency savings account as part of a plan is going to be cost effective? Not sure about others, but we're not planning on giving away our time. 3. I don't know the answer, Peter, but did I mention I hate this whole idea?

Unbelievable. Some of these "advisors" need a swift kick. And the boots of the kicker should have crampons.

I just had to laugh at this - not because david doesn't speak the truth - but rather 1) it's a "deselection game" being a recordkeeper, in that whether a plan sponsor want's a capability or not, advisors/consultants design RFPs with everything legal (and some that aren't) and if you can't check the box "yes, we can do that" you run the risk of being "deselected" and 2) we've already gotten inquiries from advisors through to our sales people asking when we will have this available..... We don't like this (Christmas Club accounts are impossible to administer in a recordkeeping shop) but we dislike catch-up Rothification even less (as do payroll providers).

unrelated question...why is she not eligible in her own plan? We're in the small plan market where the plan is normally set up specifically to try and maximize/benefit the owners, so I'm curious as to the reasoning.

I agree, the summary says separate top heavy testing, while the language in the language in the act simply says that otherwise excludable employees may be excluded while determining if 416(c)(2) has been satisfied. 416(c)(2)(A) says that you meet the requirements for a TH plan if each participant who is a non-key gets an employer contribution of not less than 3% 416(c)(2)(B)says that the percentage in (A) for any year shall not exceed the percentage of contributions made to the key employee with highest percentage for the year. The language in the act is pretty clear, if you are subject to TH minimum contributions, you don't have to give it to otherwise excludable employees. Nothing in the act discusses separate TH testing. I also think that the industry (practitioners and regulators) does a poor job of explaining these rules and the exceptions to participants. This is often due to paraphrasing very technical language into something more understandable by to the average participant. Even the IRS website has language like "There's no need to do top-heavy testing for a safe harbor 401(k) that receives only elective deferrals and safe harbor minimum contributions." I think we need to draw a very distinct line between top heavy testing (is the plan TH or not) and meeting the required minimum if you are TH.

I had not really followed this provision, but having reviewed the above and reviewed the statutory language, I agree with C.B. Zeller, except I don't think there's as much wiggle room as he holds out hope for. Rev. Rul. 2004-13 says that if you let folks in early in your safe harbor plan, but don't give them the safe harbor contribution, that may be OK for 401(k) and (m) (because you can disaggregate under 1.401(k)-3(h)(3) and ADP/ACP test the early includeds), but goes on to say that this means your real plan (i.e., the single plan you have before you notionally disaggregate for testing) is not really exclusively safe harbor, so if your plan is, but for 416(g)(4)(H), top-heavy, and you let in some folks early and take advantage of 1.401(k)-3(h)(3) to not give those folks the safe harbor contribution you're making for the rest of the participants, then it's still top-heavy. 416(c)(2) as amended by Secure 2.0 Section 310 is telling you that if you are top-heavy for any reason (just garden variety top-heavy or top-heavy because you are a partly safe harbor 401(k) that falls out of 416(g)(4)(H) on account of Situation 4 of Rev. Rul. 2004-13, i.e., you're disaggregating under 1.401(k)-3(h)(3)), you don't have to give the early includeds the safe harbor minimum. I don't think it says anything about not losing 416(g)(4)(H) protection if you include some folks early. I think the Groom summary, which at least for Section 310 just follows the Senate Finance Committee summary nearly verbatim, mischaracterizes the effect of the statutory language. Moreover, if what Congress intended is what the Senate Finance Committee implies is the effect of the provision, I think the statutory language is too great a miss for IRS to get there through an interpretation. Would need a technical correction.

Yup.

The 4/1/2022 distribution is for the 2021 distribution calendar year. It uses the 12/31/2020 account balance.

General rule - if the employer and employee are not paying FICA/Medicare or SECA (self-employed FICA/Medicare) taxes on the income it is not earned income and not considered compensation for retirement plan purposes.

pbgc time chart.pdf Attached is a great chart for PBGC termination. For non-PBGC, 15 days is for 204(h) notice - plan freeze. There is no termination notice deadline.

Bird, I though they made ROTH Conversions irrevocable a few years back. I agree with Cuse fan but it seem like the conversion itself is an excess IRA contribution and you would withdrawal the excess from the ROTH under the IRA procedures +/- G/L for withdrawing excess IRA contribution before the due date of the tax return.

I think they have made this needless complicated and introduced the potential for errors from: the participant, the payroll departments, the payroll company, the TPA, the custodian, and the educational materials and or deferral election forms and systems. That's not to say that these errors will happen but there is the potential for them at multiple steps in the process.

I am positively giddy about my status of being more-and-more retired. Sorry to gloat. Good luck making lemonade out of rotten lemons.

We already had a CPA telling our client that he'd have to have automatic enrollment/escalation in 2025. Completely ignoring the grandfathering... One of the aspects of this business that I hate - you have to spend a lot of time responding to foolishness. Oh well, I suppose that some of my questions to our health insurer are stupid questions, so perhaps I'm just as bad. But in the fantasyland that I've constructed for myself, I never ask stupid questions. And all my answers are brilliant. (Took me a long time to construct this magical place.)

Isn't this something the accountant should be answering, as the tax professional, rather than asking benefit plan practitioners? Unless maybe there are more knowledgeable accountants on this forum who can chime in?

You need to use the control group's non-excludables in your denominator, so if you have husband HCE as only person covered in plan A, then that plan will fail coverage and need to be aggregated with wife's company plan B.

I agree it is a stupid provision. I can't imagine why any small employer would want to mess with this, and we would certainly discourage them from doing so. I'd ALMOST be willing to bet that we won't have anyone who decides to implement this.

here is the John Hancock info I received: Changes to IRS forms and income-tax withholding Effective January 1, 2023, the IRS is mandating changes to the way John Hancock (payer) collects federal tax withholding information from plan participants (payees). The changes vary based on your plan type and the distribution type requested by the plan participant. Defined contribution plans For nonperiodic payments that aren’t eligible for rollover (e.g., hardship distributions and required minimum distributions), participants may elect a federal tax withholding other than the default 10% (which remains the default if the form isn’t returned), including 0% withholding, by completing Form W-4R. For eligible rollover distributions, participants may elect a federal tax withholding greater than the default 20% (which remains the default if the form isn’t returned) by completing Form W-4R. Defined contribution form availability Our automated forms will be updated and available for use on January 3, 2023, the first business day in the new year. Visit the plan sponsor website to download the forms as needed. The prior versions of the forms will be accepted through March 31, 2023. Starting April 1, 2023, the old forms will no longer be valid and accepted. Defined benefit plans Starting January 1, 2023, all tax withholding information for defined benefit plans will be collected using IRS Form W-4P and Form W-4R. The new Form W-4P is completely revised and requires participants to input specific information to determine their federal tax withholding for periodic pension and annuity payments. Participants can still elect to have no federal tax withheld from these payments. Form W-4R will be used for nonperiodic payments and eligible rollover distributions in the same way as defined contribution plans (outlined above). Defined benefit form availability Our automated forms will be updated and available for use on January 3, 2023, the first business day in the new year. Visit the plan sponsor website to download the forms as needed. For periodic pension and annuity payments for participants whose paperwork was generated prior to January 3, 2023, John Hancock will accept the prior version of the form until January 31, 2023. If you have any questions or want additional information, please contact your John Hancock representative.

I agree with this wholeheartedly. I try to avoid using the term "top heavy test" for this very reason. I prefer "top heavy determination" or "satisfying the top heavy minimum" depending which piece is being discussed.

Austin, I agree with your analysis. Section 310 isn't effective until 2024, so that gives some time for IRS to elaborate on how they intend to interpret it, or for Congress to pass a technical correction.

If enacted in 2022 would it mean that 401(k) plans could be set up for sole proprietors in 2023 for 2022 on account of this: Section 317, Retroactive first year elective deferrals for sole proprietors. Under the SECURE Act, an employer may establish a new 401(k) plan after the end of the taxable year, but before the employer’s tax filing date and treat the plan as having been established on the last day of the taxable year. Such plans may be funded by employer contributions up to the employer’s tax filing date. Section 317 allows these plans, when they are sponsored by sole proprietors or singlemember LLCs, to receive employee contributions up to the date of the employee’s tax return filing date for the initial year. Section 317 is effective for plan years beginning after the date of enactment of this Act.

It's the IRS interpretation. In RR 2004-13, they said If that interpretation still stands, then a plan which has different eligibility for deferrals and safe harbor match would not satisfy 416(g)(4)(H). There are 3 sections of SECURE 2.0 that affected sec. 416 and I don't think any of them would require the IRS to change this interpretation. SECURE 2.0 sec. 310 amends sec. 416(c)(2) to say that employees who have not satisfied the minimum age and service requirements of sec. 410(a) do not have to be considered when determining if the plan satisfies the top heavy minimum. That's great, but it does not help with respect to employees who have satisfied minimum age and service but who otherwise are not getting a top heavy minimum under the safe harbor match plan (maybe because they did not make any deferrals). SECURE 2.0 sec. 121 amends 416(g)(4)(H) to state that "starter" 401(k) plans are not considered top heavy. Not relevant here. SECURE 2.0 sec. 125 amends 416(g)(4)(H) to state that a plan shall not be considered a top heavy plan "solely because such plan does not provide nonelective or matching contributions to [long-term part-time employees]." Again, not relevant here since the concern is with employees who have satisfied the minimum age and service requirements. This does help in the case of a plan that normally applies age 21/1 year of service eligibility for deferrals and safe harbor match, but now has to allow LTPT employees to participate for deferrals. However, for a plan that allows immediate entry for deferrals but has a 1 year of service requirement for match, it would not fall under this exception since it does not "solely" not provide a match to the LTPT employees. Again, I hope I am wrong and the IRS comes down with a favorable interpretation.

Congress intended to allow plan sponsors of small top-heavy plans to allow their hardworking employees to contribute from their date of hire. If the IRS does not bear this in mind when analyzing this language it would be most unfortunate working Americans. To me if you are exempt from (A) and (B) you have met the requirements. If there is any doubt about this the IRS needs to tell us ASAP since these LTP rules are effective 1/1/2024. Just so everyone understands the implication of CB Zeller's conclusion, this new rule is practically worthless for safe harbor MATCH plans trying to avail themselves of the exemption: That's because if you have immediate eligibility for 401k and a 1 year wait for the match, now anyone with more than a year has to get the 3% top-heavy minimum. No one in their right mind would do this. IF they would they would just have the 3% nonelective. Not a single solitary top-heavy safe harbor match plan will amend to liberalize 401k eligibility if relief does not apply. Not sure what the point was.

Without digging into the rules on this, my gut feeling is that you are going to have to preserve the existing distribution options on the accrued benefit as of the date of the amendment. In other words, the life annuity (assuming the plan defines the normal form of benefit as a life annuity) amount at normal retirement age can't be less than $1,888. Likewise for any other optional forms of benefit. Chances are with one more year of accrual, the accrued benefit under the new definition of actuarial equivalence will be far more than $1,888 so you really won't have to worry about it ever.

No. Age 72 applies for individuals whose date of birth was on or after July 1, 1949 (i.e., attained age 70½ on or after January 1, 2020). Based on the date of birth of 11/11/1949, age 72 applies, so the first distribution calendar year was 2021 and RBD was 4/1/2022.

Well, maybe. The reason that safe harbor match plans which have earlier entry for deferrals than for the safe harbor match are not exempt from top heavy is not because of anything explicit in the law; it's because the IRS interprets the term "solely" as it appears in sec. 416(g)(4)(H) to not include a plan where only a portion of the employees eligible for deferrals are eligible for the safe harbor match - see rev. rul. 2004-13. SECURE 2.0 sec. 310 says that you do not have to look at employees who have not met the minimum age and service requirements of sec. 410(a) when determining if the plan satisfies the top heavy minimum; however it does not modify the definition of top heavy plan in 416(g)(4)(H). The new law is certainly an improvement with respect to employees who have not met the minimum age and service requirements, for other employees, celebration may be a bit premature. We should wait and see what the IRS says.

Does the S-corp have enough cash to increase his W-2 via year-end "bonus"? (That may raise other tax issues ... but it would allow a higher contribution.)

My concerns revolve around participant education. I think the payroll vendors can figure out how to code their systems to allow deferrals to continue similar to age 50 catchups, but it will come with time, expense and plenty of mistakes for stopping a deferral when they should have continued. Some recordkeepers currently allow simultaneous elections (1) "regular" deferral (Pretax and/or Roth) (2) "catch up" deferral (pretax and/or Roth) that are withheld that the same time - I don't like that programing, I prefer one election that just continues if you are catch up eligible. So in this programming instance there will potentially be four elections (1) "regular" pretax (2) "regular" Roth (3) Age 50 catch up Roth (will an existing catch up pretax election automatically switch to Roth?? or is a new election required??) (4) Age 60-63 catch up Roth. Or for recordkeepers that just have one election on file, participants need to be educated about how to make a deferral election of non-catch up pretax/Roth and catch up Roth and the payroll systems need to be smart enough to handle it. I think this can be overcome, but from a participant election perspective, just sounds confusing and that will lead to mistakes.

Correct. K-1 from an S Corp is payments for being an owner. It's like getting a dividend check for owning stock in IBM. It's not earned income.

In theory, yes. Yeah, that's a problem. Try hard to find them. If enough money is involved, consider filing under VCP to get some sort of blessing for what you do, although, again in theory that does not bind the participants under ERISA.

What we really need is to push to eliminate the 5558 all together and just make the deadline for 5500's and SSA's 10/15 (or the equivalent for off-calendar).

No Penalty letters yet but a lot of letters denying extensions this week. We mailed 12/31/2021 extensions in bulk via certified mail that show with usps tracking that they were delivered prior to the 7/31 deadline. The stamp on the certified mailer back however shows a receipt date of 8/8. The IRS appears to be rejecting them all one by one as attempted to file late. They were postmarked and delivered on time. This appears to be a logging error with IRS where we now have to dispute timing. 12/126 have forwarded letters so far this week. Just waiting on the second wave for the late filer penalties. What a waste of time.

Unfortunately, this problem goes way back. I had a client that had this happen two years in a row about 10 years ago. Got a 2848 signed and waited on hold for a live person. That took care of the issue and even got an apology. But, the damage was already done. Even if it's a mistake, no one likes getting a penalty letter from the government. After receiving the second letter, their Board started looking for a new TPA and moved the plan. I contacted ASPPA about it at the time. They went to the IRS about it, but not much changed. Most of our clients received the letter "approving" the extension of their calendar year 2021 returns around the first of November. I haven't heard of anyone receiving penalty letters yet.

It is the famous IRS notice generator issue. It takes time for the extension to be entered into the system. Last I heard, it was still mostly a manual process. The process has been even slower the last few years. If the return is recorded before the extension, a late notice is generated and mailed automatically. There is also a delay between when the 5558 is entered and when the system recognizes the extension.