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The 6,500 in catchups don't count towards the 415(c) annual additions limit. So that total is really just the 20,500 plus 1,100.

Yes In theory. In practice you may have some trouble with payroll taxes.

A TPA friend of mine who still does a lot of ADP testing mentioned that this section of SECURE 2.0 could sink a lot of plans: Section 603, Elective deferrals generally limited to regular contribution limit. Under current law, catch-up contributions to a qualified retirement plan can be made on a pre-tax or Roth basis (if permitted by the plan sponsor). Section 603 provides all catch-up contributions to qualified retirement plans are subject to Roth tax treatment, effective for taxable years beginning after December 31, 2023. An exception is provided for employees with compensation of $145,000 or less (indexed). This is for 2024 so there is time to provide guidance but a lot of plans get around having to return excess deferrals to HCEs after a failed ADP test by recharacterizing deferrals for some HCEs as catch-up. Would this no longer be possible if the deferrals were all regular 401(k) as catch-ups would need to have been Roth?

Off course!

Pun(s) intended?

My best understanding at this point is that employees who worked 500 hours for 3 consecutive years from 2021 through 2023 will enter plans on 1/1/2024. Then, employees who work 500 hours for 2 consecutive years 2023-2024 will enter plans 1/1/2025, and any two consecutive years after that will enter the plan the following year.

Yeah that's a bummer. Happens all the time unfortuantley. The spouse's general purpose health FSA is unfortunately disqualifying coverage for both the spouse and you. Spending the health FSA down to zero doesn't change that. The health FSA will remain disqualifying coverage for both you and the spouse for the full plan year. The only exception would be if the spouse revokes the health FSA (permitted election change event needed) or terminates (and doesn't elect COBRA for the health FSA)--in which case you could prospectively start HSA contributions on a prorated limit basis (HSA eligibility is determined as of the first day of each calendar month). Here's an overview: https://www.newfront.com/blog/hsa-interaction-health-fsa-2 I recommend notifying your employer not to make the ER HSA contribution because you are not HSA-eligible. You can revoke your EE HSA contribution election for any reason (you don't need a permitted election change event), so you'll also want to do that, too. Here's an overview: https://www.newfront.com/blog/hsa-contribution-election-changes-2 If you still have HSA contributions deposited before they can be stopped, I recommend working with the HSA custodian to take a corrective distribution. That will avoid a 6% excise tax that would otherwise apply for the excess contribution. Here's an overview: https://www.newfront.com/blog/correcting-excess-hsa-contributions Slide summary: 2023 Newfront Go All the Way with HSA Guide

I'd also surmise that the change in sponsorship comes with assuming all the plan's assets AND liabilities (meaning, the pending receivable contributions).

One of the chinks in the armor of SCP is that employers are supposed to document how they will prevent this error from happening again. We, of course, explain this to them, but I don't believe they all do it. Or, if they do, they then don't follow the procedure...

Gilmore - I hate to be cynical, but tax revenues may be more important than leakage at this point in time.

At least since the 1990s, some plans have used no-substantiation and self-certification regimes for hardship claims. In a February 23, 2017 memo, the IRS openly recognized no-substantiation regimes. (The memo, although addressed to IRS examiners, was announced to practitioners with some fanfare in the Joint TE/GE Council’s 2017 meeting, and with news reporting by Bloomberg BNA, CCH/WoltersKluwer, and others. Further, the memo is codified in the Internal Revenue Manual, which anyone may read.) The memo describes a set of circumstances for which an IRS examiner is instructed not to request source documents to substantiate a hardship. Some of us see Congress’s Act as a next logical step. tege-04-0217-0008.pdf

My read of 414(v)(7)(B) is that if you have any participant who is at least age 50 with compensation above the limit, then you have to allow Roth if you want to allow catch-up contributions at all.

The Act’s text is: “The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee’s certification, and for procedures for addressing cases of employee misrepresentation.” New Internal Revenue Code of 1986 § 401(k)(14)(C) is in effect for plan years that began or begin after December 29, 2022. The tax-qualification condition’s tolerance for an administrator to rely on a claimant’s certification is not conditioned on the Secretary of the Treasury having made regulations. Rather, Treasury may make regulations to restrain an administrator’s reliance on a claimant’s certification “where the plan administrator has actual knowledge to the contrary of the employee’s certification[.]” Those regulations, if made and not contrary to Congress’s delegation or other law, could constrain an administrator’s reliance on a certification. But until Treasury makes regulations (and the statute specifies “regulations” rather than IRS subregulatory guidance), an administrator may rely on a certification if the administrator has no “actual knowledge to the contrary of the employee’s certification[.]” rely on hardship certification.pdf

Form 5500-EZ is solely within the jurisdiction of the IRS, so the DOL will not come asking about it (and if they do, you can politely tell them to take a hike). However, this means that if the IRS assesses penalties on a late 5500-EZ then it is too late to apply for relief.

Yes, the new practice can adopt the plan as the plan sponsor. Have old EIN adopt as participating ER.

The Senate Finance Committee’s EARN Act would have prohibited recharacterization. That prohibition was not in the final law. With the ability to have in-plan Roth rollovers, seems like a pre-tax excess contribution could be converted to a Roth catch-up. Then the question is which year is it taxable. I’d say the year of the conversion just as though there had been a distribution of the excess. Of course this is just an interpretation and we’ll hopefully have IRS guidance before this goes into effect.

While the start-up credit isn’t available, the automatic enrollment credit is in IRC 45T and it does not include the requirement that the plan cover at least one NHCE.

Bri, this may be as good a time as any to start what will likely be a long-running debate on whether VCP will be the rare exception going forward, replaced almost entirely by SCP, in light of SECURE 2.0 Sec. 305, which seems to be effective on enactment.

There is nothing in the law that requires plan administrators to permit self-certification, or for that matter to allow hardship distributions in the first place. Even if they do choose to permit self-certification, the plan administrator may not rely upon it if they have actual knowledge to the contrary.

1. Very glad I don't do this type of admin work any more. 2. I think this is certainly a government objective, make tested plans ridiculously complex to administer and "incentivize" sponsors into SH designs. 3. All you need is a Fidelity or Vanguard or the like to tell IRS, DOL and/or Congress that they can't ready their systems in time and this will all get pushed back another year or two. Or, God forbid, maybe they will be the only ones ready in time and we'll all be retired or working for them. 4. Good luck

It ain't going to be fun. The solution? Buy lottery tickets!! Odds of winning are about 1 in 320 million or so, and the jackpot is 600 million or so. So if you buy 320 million tickets, you are guaranteed of winning and making a huge profit so you can retire!! (I'm using government accounting mathematics.)

It's going to take more than a year to sort all of this out won't it? Maybe it's just me but I predict a ton of people making catch-ups on a pre-tax basis who were only eligible to make Roth catch-ups. I just don't think payroll software is programmed with a "lookback" feature to determine who is pre-tax catch-up eligible or not. I can't think of a single other payroll item where a "lookback" is required. It may sound simple but the mere act of a payroll software program going into a prior year to look at year-to-date pay (415 pay in particular no less) to check for this catch-up eligibility seems incredible. OK fine maybe ADP and PayChex will pull this off, but I just can't see Quickbooks doing it. This is really going to be an operational disaster.

Might push more plans toward Safe Harbor design.

I think we're going to see a few owners paying themselves $144,999.99 in salary this year.

It sounds as if there will no longer the ability to recharacterize deferrals under a failed ADP Test unless they were originally contributed as Roth Deferrals. For many plans this will basically mean the plan has no value and should be terminated since it is only by recharacterizing deferrals that the HCE can make a reasonable deferral.

IRC 414(v)(7)(A) (as added by SECURE 2.0) says that if a participant exceeds the comp limit, paragraph 414(v)(1) (which covers all types of catch-up contributions, including ADP catch-up) does not apply unless the contributions are designated Roth contributions "made pursuant to an employee election." The election to treat a deferral as a Roth contribution must be made at the time of the contribution, 1.401(k)-1(f)(1)(i). It's not unreasonable to read these together to say that if the deferrals were not contributed as Roth at the time they were made, then they could not be used for catch-up, including for ADP catch-up. If IRS wants to allow pre-tax deferrals to be retroactively recharacterized as Roth catch-up to avoid their having to be distributed from the plan on a failed ADP test, they will need to provide some guidance.

...and it's probably, as CBZ indicated, *immediate* upon rehire. (As opposed to waiting for the plan's next normal entry date for newly eligible folks.)

I’m not aware of anything in title I of the Employee Retirement Income Security Act of 1974 that requires a retirement plan’s administrator or trustee to provide a distributee the convenience of withholding for a State’s income tax. However, if a plan’s practice is not to withhold for State income tax unless law that governs the payer compels withholding, the plan’s administrator might consider whether a summary plan description and forms for requesting a distribution should furnish this information. Beyond the disclosures, notices, account statements, and reports that ERISA, by statute or a rule, requires, a fiduciary has duties to communicate further information a prudent fiduciary should know someone needs to protect his or her interests in the plan. A plan’s administrator must communicate with no less “care, skill, prudence, and diligence” than a prudent person who is experienced in administering a similar retirement plan would use.

While WCC’s explanation of the tax credit make this point needless: If a plan is not ERISA-governed (because, for example, there is no employee beyond an owner or deemed owner), unpreempted State law (for example, a wage-payment law) might preclude an automatic-contribution arrangement.

For services about an individual-account (defined-contribution) retirement plan, here’s a few key due dates, and whether each is (or isn’t) adjusted under the Treasury department’s rule about a return or payment due on a Saturday, Sunday, or legal holiday. For Form 5500 reports, the Labor department follows Treasury’s rule. January 15, a Sunday, is adjusted to Tuesday, January 17. March 15, a Wednesday, is not adjusted. April 15, a Saturday, is adjusted to Tuesday, April 18. If a Federal tax return is due on a Statewide legal holiday of the State in which the filer resides or a holiday of the District of Columbia, the return is timely if filed by the next day that is not a Saturday, Sunday, or legal holiday. 26 C.F.R. § 301.7503-1. In 2023, the District of Columbia’s Emancipation Day is observed on Monday, April 17. D.C. Code § 28-2701. Internal Revenue Code of 1986 § 7503 might provide no adjustment for something a retirement plan provides—for example, a corrective distribution—rather than an act the Internal Revenue Code commands. June 29 (180 days after 2022 ended), a Thursday, is not adjusted. July 29 (210 days after 2022 ended), although a Saturday, is not adjusted. See 29 C.F.R. § 2520.104b-3 (Summary of material modifications to the plan and changes in the information required to be included in the summary plan description). July 31, a Monday, is not adjusted. September 15, a Friday, is not adjusted. October 15, a Sunday, is adjusted to Monday, October 16.

The rule of parity allows you to disregard eligibility service before 5 consecutive 1-year breaks in service for an unvested participant. If this person has a vested balance in the plan then they probably entered the plan immediately upon re-hire, regardless of how many 1-year breaks in service occurred.

Sure you can have auto enrollment if your plan document allows it. No, you can't take the start up credit for a 401k plan where the only participant is the owner - see Code Section 45E(d)(1)(B): (B) Plan must have at least 1 participant Such term shall not include any expense in connection with a plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee.

416(i)(1)(B)(iii)(I) says that sec. 318(a)(2)(C) is applied by substituting "5%" for "50%." In other words, take anywhere that "50%" appears in 318(a)(2)(C) and mentally replace it with "5%" when you're thinking about who is a 5% owner for sec. 416 purposes. What 318(a)(2)(C) says, is that if you own at least 50% (but we're treating it as if it says 5%) of a corporation, then you are deemed to own a proportional share of any stock owned by that corporation. Based on the facts presented, I don't think this section applies to your situation. Ordinary spousal attribution under sec. 318 applies, and so each spouse would be considered to own 10% for 416, and consequently for 401(a)(9), purposes.