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If you call a lack of guidance hypochondria then sure I'm a hypochondriac. We've seen the IRS side in favor whatever their deepest convictions are of the meaning of something (whether we agree with them or not (best example was that QNECs couldn't be funded with forfeitures)) with zero regard for what is practical and/or. So I'll feel better when I hear it from them. Now if you'll excuse me I have a hang nail and I believe it requires some stitches so I've just called an ambulance 🤪.

Peter, there are definitely a lot of open questions. Section 305 does seem crystal clear on removing the three-year limit for significant errors. I.e., if a plan administrator discovered a significant error going back 10 years for which the correction is clear under the IRS's current guidance, then the employer can self-correct now. I think Congress also tells the IRS in Section 305 (although this is not as clear) that it wants IRS to publish principles-based correction guidance, perhaps so that if an error is not precisely included in any of the prefabricated corrections, an employer could proceed anyway with SCP by applying the newly articulatyed general principles. Whether the IRS will give this part of Section 305 an expansive interpretation, e.g. providing general guidance regarding what to do about missing data or documents, for example, is uncertain. Regarding the requirement of having established procedures, as well as the issue of whether having a VCP compliance letter is important for deal work, I think this may make attorney involvement in correction even more attractive than it has been in the past. An attorney can advise, or even give an opinion, in some cases, that self-correction "should" be available, and that a particular correction "should" fix the error. And that advice will be protected by attorney-client privilege. And unless in such a case the accountants (in the case of a large plan) can require the plan administrator to inform them of counsel's opinion (and I don't think they can) and the fact that they applied SCP, the advice and correction could remain secret. Moreover, unless the acquirer in a deal specifically asks whether the plan has used SCP in, say, the preceding 5 years (as opposed to what I typically see, which is just that the plan sponsor has no reason to think that the plan has failed a document or operational qualification requirement), maybe the employer is good to go. I'm not saying this is the most conservative course or that it is what all, or even most, employers will want to do, but it does seem to me to be a possible course of action under Section 305. But to go down this route the employer would definitely need a lawyer to be in charge and have all the experts working for the lawyer, as often do now anyway. Finally, regarding your point, AKowalski, I totally agree that a broad interpretation of Section 305 really puts the ball over in the DOL's court, if they devote the resources to dealing with it. I have always thought that EPCRS should work the way Section 305 now seems to require, for two reasons. First, the penalty of disqualification is inappropriate in many ways (that I will not go into here) for the types of errors that can be corrected under SCP as broadened by Section 305, even if one gives Section 305 its broadest possible effect. Second, in difficult cases, VCP's can involve a lot of practical compromise between the plan sponsor and the IRS, and because the VCP compliance agreement is confidential, neither the DOL nor the participants are informed of what the compromises were. And the IRS works solely from correspondence, and may not have seen all of the employer's cards, even though the employer may have been able to provide the penalties of perjury representation without risk.

I really like profit sharing only plans, even more now than ever. Nice to pair up with a cash balance plan. And why bother with participant-directed investments. Ah, life is easy.

Actually, it has to - contractors aren't employees.

If the plan’s administrator has not yet instructed a distribution to an alternate payee and has not yet instructed a segregation of accounts between the participant and an alternate payee, consider doing now whatever notices and other procedural steps ought to have been done when the administrator first received the domestic-relations order. Further, the administrator might want its lawyer’s advice about whether to allow the participant a reasonable time to present whatever factual information or legal argument the participant wishes to present to assert that the order is not a qualified domestic-relations order. In my experience, few participants assert that a court’s order is not a qualified domestic-relations order.

I never started a thread like this for any other legislation. This is different. It's insane. It's impractical. I promise you when I tell clients they have to auto enroll and auto increase participants they are not going to start a plan. Heck half of my new start-ups are SH Match based on the idea that participation will be lousy. That and the fact that automatic enrollment is completely beyond the <50 population. I have clients with 300 employees who could not handle auto enrollment (generally because they have enormous amounts of turnover). We are not overreacting. IT is every bit as bad as we say.

And don't forget your plan is top-heavy since the owner once made a contribution I'm assuming the top heavy ratio is 100% since the employees haven't been given the opportunity to defer.

They already have a plan. And based on your post, the employees are likely already eligible.

My gosh, thank you for sharing this! This list is amazing, and I'm sure took you lots of time. MUCH appreciated.

Agree with Gilmore. It seems many of the new provisions of SECURE 2.0 as relate to the young are making it easier to extract from one's retirement savings. I'm not saying there are not valid reasons for doing so, but the trade off is reducing life savings. Compounding returns over long periods, as we all know, is the secret....if there is a secret....to meeting retirement savings goals. Perhaps short term tax revenues and political favoritism trump long term savings?

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.

I'm assuming with all of the new inservice distribution options that retirement plan "leakage" isn't a concern anymore?

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

Are you asking who makes the final decision, or who decides for the company whether to treat an error as properly corrected? The second question is a practical matter that every company will have to resolve for itself. With respect to the first question, the IRS would generally be the final arbiter of whether self-correction was properly completed if/when they happen to notice the issues on audit. In theory, there could be a fiduciary or ERISA breach underlying just about any operational or documentary failure, which would need to be separately corrected to the extent possible under DOL procedures (which are rather lacking in this regard). The DOL could determine that a self-correction was insufficient under IRS procedures and therefore give it no credit with respect to the underlying ERISA/fiduciary breaches (to the extent that it would receive credit in the first place), and thus impose further penalties. There could also be a participant lawsuit, but that would generally be grounded on Title 29 ERISA violations, not on breaches of the tax code, and in any event, EPCRS corrections technically offer no protection against participant lawsuits (except, perhaps, to the extent that the participant has been substantively made whole as part of the correction) regardless of whether the correction complied with EPCRS.

Hi BG - I THINK that the date in Peter's PDF that you are referring to is for SECURE 310. The hardship certification issue at hand is SECURE 312, which I read as being effective for plan years after the date of enactment - so for calendar year plans, effective 1/1/2023.

I don’t read new § 401(k)(14)(C) as precluding a service arrangement under which a service provider processes hardship claims “within a framework of policies, interpretations, rules, practices and procedures” instructed by the plan’s administrator. See 29 C.F.R. § 2509.75-8/D-2 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-A/part-2509/section-2509.75-8.

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

Earlier legislative history included this paragraph: In the case of each of these types of plans, the proposal provides that the Secretary may by regulation provide for exceptions to the plan administrator's ability to rely on participant certification where the plan administrator has actual knowledge to the contrary. The Secretary may also by regulation adopt procedures to address misrepresentation. So it's hard to say exactly what is permitted without having received any Treasury Department guidance.

Oh believe me, I'm all over adopting this. No way it makes sense for the client to incur the extra time and expense (and embarrassment) of validating these things.

Form was filed a few months late but no correspondence has been received yet from the IRS. Although it's my understanding that penalty relief can be applied for even after the IRS has sent a letter assessing penalties, there always exists the possibility that the DOL may instead send such correspondence, at which time the option to obtain penalty relief disappears. As such, it would appear that the best approach would be to file an amended return at this time (i.e., before the feds contact the client) via the IRS penalty relief program for EZ forms - agreed? Thanks in advance for all assistance.

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.

I always recommend using the relief programs provided.

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

Whether a plan allows or precludes a before-retirement distribution is the plan sponsor’s choice. Whether a plan’s administrator must, may, or must not rely on a claimant’s certification turns on how much or how little discretion the plan’s governing documents grant. (A typical IRS-preapproved document likely grants a user plan’s administrator discretion about whether it relies on or ignores these certifications.) The Internal Revenue Code of 1986 provisions for relying on a claimant’s certification permit it for each of: an eligible distribution to a domestic abuse victim, an emergency personal expense distribution, a hardship distribution, a qualified birth or adoption distribution, an unforeseeable emergency distribution (under a government employer’s § 457(b) plan). A Federal or State prosecutor may pursue a claimant for a false-statement or theft-by-deception crime. But such a prosecution seems rare. (On January 13, 2022, a Federal grand jury charged Marilyn J. Mosby with four false-statement crimes. An indictment is not a finding of guilt. An accused is presumed innocent until proven guilty in later proceedings.) I doubt the Internal Revenue Service could tax-disqualify a whole plan if its administrator lacked actual knowledge that the claimant’s certification was false, and the administrator relied no more than the statute allows.

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.

The offset balance includes interest through the date of the offset. If the loan was suspended under the CARES Act, then repayments were probably supposed to have started in January 2021, which means it probably defaulted on the last day of the calendar quarter following January 2021, which would be June 30, 2021. You could issue a 2021 1099-R, which would include interest through June 30, 2021, but that would mean they would have to amend their 2021 tax return. Or, you could self-correct the loan under EPCRS, which allows you to report it in the year that it was corrected. If you're correcting it by defaulting the loan and reporting it in 2023, then it will include interest through 2023.