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There is no magic here. Generally, a Solo K is a 401(k) plan where the only employees that are eligible are the owner(s) and spouses (Note: This is not like stock attribution where other certain family members are considered HCEs). The terms of the plan dictate the eligibility and entry date provisions. Typically, the existing plan would be amended prior to other employees meeting eligibility. We alway mentor our clients to set up the plan assuming other employees may become eligible. We do this even when the employer states "we will never hire any employees" or " no one will ever work over 1,000 hours. There is no downside to setting up the plan in that manner, Experience and qualified plan wisdom prevails.

Ours (IRS pre-approved) specifically states that it is due for the plan year beginning AFTER the end of the plan year in which the document was adopted. So, assume calendar year plan, adopted in 2021, it would be due for the 2022 plan year. If adopted in 2022, then need to do one for the 2023 plan year.

Also worth noting that effective 2024, the community property attribution rule is changed. See Section 315 of SECURE 2.0.

Thank you for being troublemaker, opened up the conversation into a good one. I’m not always clear on what I ask If I decide to take over the case, I will amend the NRA to 62 in the document. Funding will be discussed with the client and adjusted accordingly. Thank you all for your input.

Missed people should get earnings. (If this is a pool, use the trust's earnings rate that everyone else got. Otherwise something similar to 401k missed earnings isn't inappropriate.) A less-easy option could be just to re-do the allocations as they would have been allocated, were those individuals included properly. Could make a big mess, though, in terms of adjustments due among participants (who won't like any explanation as to why funds would be shifted out of their accounts).

Confirm with document provider. I have heard some providers say 2022, and others say 2023. Mine is firm that it is 2022.

Maybe. Does this plan provide a 415-maximum benefit? If so, you are (probably) stuck with whatever the 415 regs apply for any commencement date prior to age 62. But, if the benefit is less than the 415-maximum benefit, using an Early Retirement date AND a generous early retirement factor can be useful. Example: Early Retirement at 55/20 with an ER reduction factor of zero, might accomplish the original goal. It's also prudent to know whether there are (or were) any other plans.

It's possible that even if there was a taxable distribution to the participant, the estate could be permitted to roll it over on behalf of the decedent. See the following case (kind of old but maybe still valid). https://cite.case.law/pdf/5871695/Gunther v. United States, 573 F. Supp. 126 (1982).pdf

It's possible this is "overthinking". Consider the use of an Early Retirement definition that addresses the needs of the plan sponsor.

Is this a stock purchase or an asset purchase? If a stock purchase, then the concept is correct. If this is an asset purchase then there are other considerations that I won't try to address.

There are clients with 30 employees who would screw up auto enrollment, I don't think its a size issue. I have had auto enroll clients with more than 1,000 employees and lots of turnover handle them just fine, with an issue here or there. And you know, if you need cash to pay for the ambulance for that hangnail, we have a provision for that in Secure 2.0 as well

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 🤪.

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.

I don't think this is an option. The way I read 414(v)(7)(B), it says that if you have anyone to whom subparagraph (A) applies (that is, anyone who is eligible for catch-up with prior year earnings over the limit), then paragraph (1) (which is the right to make catch-up contributions at all) does not apply to the plan unless anyone who is eligible to make catch-up contributions can make their catch-up as Roth.

The “reasonable period” does not refer to how long the failure remained undiscovered. Rather, it’s about how promptly the failure is self-corrected “after such failure is identified.” SECURE 2022 § 305 undoes the Internal Revenue Service’s time limit on which failures are eligible (if otherwise eligible) for self-correction. Congress’s statute provides no special definition for the word “inadvertent”. Merriam-Webster says inadvertent means unintentional or inattentive. https://www.merriam-webster.com/dictionary/inadvertent In VirtualTPA’s story, one might imagine the plan’s tax-qualification failure could have resulted from its administrator’s unintentional or inattentive lack of knowledge of the plan’s provisions. (Isn’t that a way many failures happen?) The administrator (the one responsible under ERISA and the tax Code, not the TPA) might not have known the plan compels an involuntary minimum distribution to a participant who was at a relevant time a more-than-5% owner. (I observe nothing about how responsibilities sort out between and among the participant, the administrator, and the third-person service provider.) If the Internal Revenue Service later pursues something under the IRS’s finding that a plan was tax-disqualified and not self-corrected, whoever asserts the failure was self-corrected must persuade a finder of law and fact that the failure was eligible for self-correction. One can imagine at least plausible, and perhaps persuasive, arguments that a failure of a kind VirtualTPA’s story describes was inadvertent. If it was, the passing of a few or many years does not by itself make a failure that otherwise was inadvertent necessarily less so. A plan’s administrator that errs by not knowing the plan’s provision that applies to a participant who was a more-than-5% owner might continue its ignorance for years or decades. Likewise, inattentiveness too sometimes persists over stretches of time. I concede there is a separate problem about whether the plan’s administrator had procedures reasonably designed to cause the administrator to administer the plan correctly. If an organization really wants rules obeyed, one must supplement written procedures with compensating controls designed under an assumption that some or many people won’t read the written procedures they are told to follow, especially if the rules are many or complex (or, worse, both). But I’ve never seen the IRS push such a point. Instead, the IRS treats the procedures condition as met, even if everyone strongly suspects no one read the procedures. We’re not getting the full facts of the story. If we had them, there could be a discussion about whether the failure was inadvertent, not egregious, and otherwise fits conditions for a failure that could be a subject of self-correction. But that a failure happened more than two or three years ago does not by itself make the failure ineligible for self-correction.

Maybe Peter but in this particular case it might be hard to argue the inadvertent part for someone who was a 5% owner who had been taking RMDs and then for some reason seems to have stopped "about 5 years ago" as the OP puts in their post. Your highlighted text is interesting. As for what the IRS will deem a reasonable time frame in practice I can't say for sure but looking toward existing current guidance on the IRS self correction program it seems like correction within 2 years would be deemed reasonable. Beyond that might get into some gray areas on reasonableness. Maybe the IRS will use one of their ever popular facts and circumstances approach unless they publish a bright line deadline in future guidance or maybe they will deem any self correction that is done is done in a reasonable time frame.

SECURE 2.0 will have to be reviewed to see if this is now a self-correction. HCE failing to take taxable income for 5 years may still require filing versus TPA admitting it misapplied the law and never notified him.

I don't know about you all but I find these discussions much more interesting and enriching compared to the "what compensation do I use to calculate the safe harbor contribution?" questions that make me feel like we're doing someone else's job of basic training their staff.

It is absolutely the employer/plan sponsor's decision on how to handle this. It is a discretionary decision (and discretionary 2023 amendment if done) to provide the retired participant with a lump sum that is more than what is otherwise statutorily required to be paid from the plan and impacts the funded status of the plan (and financial obligation of the employer), so in no way is this a decision that should be (or can be) made by anyone other than the employer. The employer's advisor(s) can provide advice concerning pros and cons and mechanics but the decision rests with the employer. Going back to the TPA service agreement, if some agreed upon service standard was not met and directly resulted in this situation, then maybe some restitution is warranted - but that is between the employer and TPA.

If an executive lacks a right to a nonelective credit until the employer declares it, such a credit counts against the executive’s deferral limit for her tax year in which the credit was declared.

We are missing information, that's for sure. The problem with SDBA as a TPA is that you have to rely on a trustee or sometimes participant to act.

FWIW at this point: the following is pasted from a past Q&A session between the actuarial "intersector" group and the IRS -- so not official guidance, but indicative of the IRS' view. 417(e) rates - lump sums and administrative delay: Assume lump sum due for Calendar Year plan is calculated and QJSA Notice sent to participant in November 2013 assuming an ASD of December 31, 2013. Plan has an annual stability period. Participant and spouse execute and return forms in December, but distribution is not made until January 15, 2014. Should distribution be based on 417(e) rates for 2013 or 2014? If 2014, must the QJSA notice be updated to reflect the benefits payable using those rates? What constitutes a reasonable administrative delay? Assume same facts, but that the election is not returned until January, followed by distribution, should it be based on 2013 or 2014 rates? IRS Response: The ASD determines the assumptions to be used. The statute says if the form is a LS distribution, the ASD is the date “all events have occurred which entitle the participant to such a benefit”, which would include return of signed forms. (This is not stated in the reg.) Thus if forms are signed and returned in December, and distribution is made in a reasonable period, 2013 assumptions should be used. If the forms are signed and returned in January, the ASD is in January and the 2014 rates must be used. Because the relative benefit amounts will have changed, new QJSA forms should be issued with the amounts based on 2014 rates. In this situation, it makes sense to clearly note on the election forms that the amounts shown on the form are only good if the forms are signed and returned by the end of the year. (“Reasonable administrative delay” is not going to be defined.)

Agree, it appears the question is essentially do you include the taxable S-corp medical insurance premium add-in, and absent any specific exclusion I think you do.

Disability benefits are ancillary, not part of the accrued benefit and may be amended (and eliminated, if desired) without issue. The only potential issue is if you have an existing disability claim or current disability stream of payments (like under a DBP). If your only concern in determination/definition of disability, no problem.

Might some other public or otherwise attainable recent records with the decedent's signature be accessed - such as a driver's license? You mention no claim from an estate, but is there an estate and, if there is, could the executor be requested to find and release a copy of decedent's signature? The claiming beneficiary could be asked to provide such supporting documentation, but unless such is provided through a certified third party you're essentially in the same situation.

It may be the RIGHT thing to do but I still think it must be via an amendment otherwise it may not be viewed by IRS as the LEGAL thing to do.

Just a guess. These are individual brokerage accounts for each participant, the guy who didn't take the RMD used to be the head hancho at the company and his golf buddy broker told him he didn't need RMDs because he's not a 5% owner anymore? But yeah as Jakyasar says, something doesn't sound right here.

Sounds like 267 is the right answer. Either use Box 1 plus the salary deferrals or use Box 5 plus the S-corp. medical

With a nongovernmental tax-exempt organization’s unfunded plan for select-group executives, there is no contribution; rather, there is a credit to the account the parties use to measure the organization’s unfunded contract obligation to its executive. (That many practitioners describe a credit as a contribution is understandable; even the Treasury department’s rules describe it that way.) A deferral under a § 457(b) plan counts against § 457(b)’s deferral limit for the participant’s tax year “in which the amount of compensation deferred is no longer subject to a substantial risk of forfeiture.” 26 C.F.R. § 1.457-2(b)(1). If an amount is not immediately vested, the amount “must be adjusted to reflect gain or loss allocable to the compensation deferred until the substantial risk of forfeiture lapses.” 26 C.F.R. § 1.457-2(b)(2). Unless a plan provides immediate vesting or a separate vesting time on each year’s forfeitable credits, either rule (or a combination of them) might result in a bunching of what counts against a year’s deferral limit. See 26 C.F.R. § 1.457-4(c)(1)(iv) example 3 (five years’ nonelective credits, adjusted for an investment gain, counted as a deferral for the year in which the amount becomes nonforfeitable). In my experience, this easily might overwhelm the vesting year’s deferral limit. To consider your question about whether a nonelective credit not paid over to a rabbi trust or other measurement investment until 2023 counts for 2022’s limit, one would evaluate whether the participant’s contract right to the deferred compensation became fixed and vested in 2022. What did (or does) the written plan (which 26 C.F.R. § 1.457-3(a) requires) provide? https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRf2be51fac065c2d/section-1.457-2 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRf2be51fac065c2d/section-1.457-3 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRf2be51fac065c2d/section-1.457-4#p-1.457-4(c)(1)(iv)

I am confused too, didn't the TPA provide the client with the RMD amount each year? Or, did they actually expect the client to determine his own RMD for a pension plan and withdraw? If the TPA provided the info and the client did not take it out after one year, did they inform the client about the issues? 5 years in a row is a bit too much of a stretch for not informing the client each year and continue administering the plan as if nothing is wrong. Hmmmm. Moreover, when the TPA did the annual work, didn't they notice that there were withdrawals missing? May be I am not reading the original post correctly!

It is not clear whether you are dealing with a defined contribution plan like a 401(k) plan, or a cash balance pension plan, a defined benefit plan. If the QDRO was accepted by the Plan Administrator (you didn't say), then the Plan Administrator would normally contact the Alternate Payee and ask how he wants to receive his share, either as a rollover to an IRA or other eligible retirement account, or as a direct taxable distribution (but no 10% early withdrawal penalty if the Alternate Payee is under age 59-1/2). The Alternate Payee does not "remove the monies". And what do you mean when you say "as far as we can tell"? Who is we? What is your relationship to the matter? Why don't you know whether or not the money was removed? Haven't you talked with the Plan Administrator? In all events the amount payable to the Alternate Payee per the QDRO belongs to the Alternate Payee. If he dies before it was rolled over or distributed to him it will pass to his named beneficiary if one was designated by him, or to the default beneficiary named in the plan documents (spouse, children, parents, etc.), or to the Alternate Payee's estate where it will become: (i) part of the Alternate Payee's testamentary estate if he had a Will, or, (ii) pass by intestate distribution to those beneficiaries set forth in state law. If you don't provide the facts in full and if you don't ask the right questions you will not get the correct answers. DSG

I'm a little confused by the timeline. Has it always been the same TPA? What does the TPA service agreement with the client say? Is the Participant being asked to pay the Plan Sponsor's VCP submission fee? If I'm the participant my response is here is my lawyer's phone number.

I too have a client at Vanguard. The investment advisor requested 2 quotes -- one for fully bundled (with Ascensus) and one on their TPA platform that allows us to draft the document, do the compliance testing, prepare Forms 5500, etc. Even though the combination of our fee with the unbundled program was larger than the bundled program, the client recognized the advantage of having us on the team. Good luck!

Is there anything different or special on administration of these other distributions (abuse, emergency, etc.)? Is there adjudication or are these self-certification? If it's only a matter of whether the 10% premature distribution tax applies, I don't see a huge reason for charging a higher fee. Personally, I think the majority of service providers will be increasing their fees in general because of this, not to mention general inflation, although this is all my opinion from the outside as I do not directly work on the inside nuts and bolts of these plans.

We too (as TPA) have (and have had) clients on the Vanguard platform with Ascensus. I hope this isn't anything new!

The QJSA notice is provided 30-180 in advance of the ASD, although you can provide closer to the ASD if the person ultimately waives the 30 day notice to get payment ASAP. If a claim for benefits was made, then the plan's claims procedures should be consulted for timing. Also, the TPA's service agreement should hopefully have some standards for this. This is not "administrative delay" in the context of the ASD and how the IRS interpret. I agree to can increase an NHCE retiree benefit without much issue but would do so via plan amendment.

I seem to recall there being open questions about the impact of fixed-amount (as opposed to percentage) subsidies for age-banded plans under the ADEA, although I haven't followed the issue closely. Do most agree this is not a concern?

Begarath is correct, the Act excludes service prior to 2023 in its 2-year rule.

Ascensus does a LOT of business unbundled. We've got a lot of clients with them. Send me a message and I'll put you in touch with the head of their TPA relationship group and he'll help you make it so.

Ultimately it's a decision of the Plan Administrator to interpret the terms of Plan and make a decision. That said unless the Amendment specifically states that the reduce hours requirement will only be applied prospectively to employees after the Amendment is signed then I would be inclined to interpret in favor of the participant that the 800 hours requirement would apply retroactively as of the adoption of the amendment.

Yes, absent a plan provision otherwise, one might assume the gross-up amount is money wages (and not a part of the fringe benefit). Even if the plan’s administrator will take advice from another practitioner, consider reminding your client that a finding should not treat highly-compensated employees more favorably than similarly situated (if any) non-highly-compensated employees. And beyond Internal Revenue Code §§ 401-414, an employer/administrator might consider whether its finding would be fair regarding similar gross-ups, and perhaps other kinds of gross-ups. Further, the employer might evaluate whether anything about the gross-up or a treatment of it violates the employer’s provisions for, or a desired tax treatment of, the fringe benefit, including as it applies regarding other employees.

Well, since the IRS doesn't really recognize scriveners errors, I'd say you are stuck with VCP? Maybe go the pre-submission conference route, if the IRS agrees to it? I really have no feel for what kind of leniency the IRS might allow in terms of fixing this without blowing up the TPG election for the other 10 plans. On an initial scan, doesn't seem like SECURE 2.0, Section 305, will bring you any joy either. Good luck!

Wow, this topic wasn't so popular! Anyway, what if I mentioned that the document for the plan covering 10 of the 11 controlled group members has the TPG election. Then maybe the other plan for the other entity simply has an improperly-completed AA document error?

Or, the agent doesn't understand the technical details. Possible that the policy had the cash value "stripped out" by the Trustee via a maximum loan, and deposited this into the annuity, leaving only the value of the Taxable Term Cost in the life policy, which was then distributed to the participant. No taxable distribution if the only value in the policy represents previously taxed TTC. Not saying this is what happened - only that it could have happened this way. Caveat - I have blessedly had nothing to do with life insurance in plans for well over a decade, so either things could have changed or my memory could be faulty. P.S. - I'm also making an assumption this participant is not self employed or an unincorporated partner...

So, the policy was surrendered while still owned by the plan and the cash value was deposited into the annuity while still owned by the plan? Then there's no distribution and no taxable transaction. It's no different than selling a mutual fund and depositing the money into a money market account. Also, to be clear about the broker's comments: there was no "distribution" (as we use the term) and the money wasn't "rolled" (as we use the term).

Yeah, we're definitely in a state of SECURE summary overload with everyone rushing to get their piece out, so missing relevant details or nuances is not surprising.

There are way too many unanswered questions here in my mind. What kind of plan are we talking about? Was the DRO sent to the plan? Was it accepted by the plan as qualified and thus making it a QDRO? If that happened why didn't the plan separate the funds? What is your relationship to this? Do you work for the plan? Are you the ex-spouse? If you work for the plan does the plan document say anything about this? It might tell you who the Alternate Payee's beneficiary is if they pass before the benefits are paid. I would recommend start by talking to the people in charge of the plan and start getting basic information like this.

I don't think it's really a software question. Did the amendment change eligibility for only new hires? or existing employees too? Were other participants let in on 7/1/2022 because of the 800 hour rule? or were they held out until 2023 being forced to wait until they had 800 hours in 2022 or by July of 2023? If the amendment said for new hires only, well then the first possible entry with the 800 hours would be July of 2023. if the amendment wasn't specific, I would err on the side of letting the participant in.

Here’s a rhetorical question about the two business owners and the certified public accountant: If several third-party administrators told the CPA the desired design is okay, why have the business owners not implemented the design with one of those TPAs?

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.