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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.

First, any person who is not an owner and is an independent contractor providing service to the business(es) is not an employee and cannot be covered under a plan sponsored by either business (other than a nonqualified plan). Any plans, whether defined benefit, profit sharing and/or 401(k) will have to satisfy coverage (and unless a safe harbor of some sort) and nondiscrimination. There are a plethora of design options, but if they want the simplest likely most efficient arrangement then a safe harbor 401(k) was likely the best option. However, having just terminated a 401(k) last year I believe they need to wait a year to adopt a new one. As long as non-owner employee is eligible and there are no other contributions then there should be very little administrative burden for the owners - timely remitting contributions and signing annual 5500 filings. If owners want more than salary deferrals and safe harbor (whichever type), then there are more design options that bring more complexity and the potential for nondiscrimination testing. If they are satisfied with the lower SIMPLE contributions, that is certainly an option as well.

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

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.

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

More happily retired every day. Sorry, just woke up from my nap 😁

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.

Correct. I anticipate plans will have to issue a 1099-R at year end for employer amounts contributed as Roth, the same as is done for in-plan roth conversions.

Bill Presson et al are correct. This package is easily accessed as unbundled. We (TPA) used to call it "Vanguard Newport" because Newport Group ran the investment admin that Vanguard did not (smaller plans than Vanguard will bundle). Ascensus bought Newport Group in 2022, hence the use of "Ascensus" to reference this package. Ascensus also has a bundled package (so more confusion) and a large (by acquisition) TPA organization named "FuturePlan." I work for FuturePlan as a 403(b) SME and Documents person. The firm I worked for (before Ascensus bought us) lost a very nice 403(b) plan to Ascensus bundled (nothing to do with Vanguard or Newport). We complained to the advisor who organized this and he responded that "it is all Ascensus anyway." This is not, of course, the way this actually works and I suspect he thought he brought a lower cost alternative to his client's attention. The plan sponsor/ client has been back to us several times for advice and help with their 457(b) plan, but has not thought "unbundling" would be worth entertaining at this point in time. I am not sure this helps "thepensionmaven," but information is often useful. If you have other clients with Vanguard (Newport, etc), it would be a good idea to discuss this and pre-empt a change which, I agree will focus mostly on cost and not service. Patricia

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.

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.

I like Cuse's suggestion to discuss with the estate representative whether they will be filing a claim, and if so, begin the process of determining between competing claims (culminating in an interpleader if required). Also, the estate may shed light on who the "natural bene's" of the descendent were. and if the named bene (the friend is not among them, that would raise suspicion in my mind). This one is a tough one. Not too much can be disclosed to anyone unless and until a determination of who at least a probable bene is - otherwise, it could be a release of NPI to a wrong party....

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.

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.

How much money is at stake? Might make a difference in the extent of the investigation/effort. Is the beneficiary form a legitimate PLAN provided beneficiary form? If yes, is this form available on a website for just anyone, or are the controls such that it would at least be very difficult for a criminal to obtain it? Is the website able to determine the IP address of the computer that was used to request the beneficiary form if requested on-line, assuming it was requested relatively recently? (I'm just tossing out random thought, as I'm a technological dinosaur, so I don't know what information can be legitimately gleaned.) It may sound silly, but perhaps start with the return address on the envelope, if it was sent by mail? If it is a legitimate address for the same person who is claiming to be the beneficiary, perhaps a search of public records could be initiated by a commercial service, to possibly find out if there is a relationship? Any way to check to see if the beneficiary's SS# is a legitimate #? Is there any basis for filing an interpleader request? Basically, I'd refer this to ERISA counsel anyway, so I'm no help!

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)

A tax-exempt entity eligible 457(b) plan is "unfunded" promise to pay. The employer, if they so choose, can never contribute a dime of the required nonelective contributions until it is time to actually make a distribution. Since the employer "owns" the funds, then unless held in a Rabbi Trust, the employer can deposit or withdraw funds from a corporate account that, while used as setting aside 457 funding, is nevertheless owned by the employer and can be used for any purpose. In my limited experience with tax-exempt 457(b) plans, most employers utilize your method of contributing to a "segregated" account, with various interest crediting methods, etc. But there's no deadline for the employer nonelective contribution deposits, although I believe it would be reported on the W-2 Box 12 for the year "allocated." You'd want to double-check that, as I'm not certain without checking myself. Perhaps some 457 experts on this board can provide you with additional (and/or better) information.

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!

I've always been comfortable with that approach, but I don't believe there's any guidance directly addressing it. There are rules prohibiting pre-payment in year one for year two coverage, but no such rule exists with respect to catch-up contributions in year two for year one coverage. It doesn't seem to implicate the Section 125 prohibition of deferral of compensation in the same manner as pre-payment, which is why I've been comfortable with clients using year two catch-up. Here's some materials I've put out addressing the issue if you're interested: 2023 Newfront Health Benefits While on Leave Guide https://www.newfront.com/blog/health-benefits-protected-leave-2

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!

I agree with CuseFan approach assuming this is an NHCE. Maybe a simple amendment that preserves the the 417(e) lump sum as of date of the request for participants who submit a request for payment in 2022 but is not processed until 2023 due to administrative delays beyond the participant's control. Oddly specific but I would think it would cover this situation and make everyone happy. Might be a question about whether such an amendment might take your document out of prototype status but I think the IRS would be OK with it. Especially if the plan is "well funded" and the participant has always be an NHCE.

The annuity starting date must be a date after the QJSA notice is provided (which required the benefit calculation) unless the plan allows retroactive annuity starting dates, which some do but I always exclude lump sums in such instance that I've seen. I think you are stuck with the 2022 rates for 2023 lump sum unless the retiring employee in question was NHCE and the employer wants to amend the plan to increase this person's benefit.

What was the reason for the delay? If the sponsor was pushing for it to be done in December, why didn't it get done? Was the participant late returning paperwork? I don't think you can process it now using the 2021 417(e) rates as you would not be following the terms of the plan.

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.

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.

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).

I'm going from MEMORY, such as it is, but I seem to recall that pre-2023 service is disregarded for eligibility under the SECURE 2.0 LTPT 2-year rule. But I'd have to re-read it - I don't have much confidence in my memory on this, as I wasn't looking at this specific scenario.

Peter knows what you want to know Arthur. And you know what the answer is too. He was pointing out that the CPA knows as well and that's why they are hesitant to act.

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.

The minimum funding standard of sec. 430 applies regardless of the owner's salary. Whether a minimum required contribution exists for a given year for a given plan is a question for the plan's actuary.

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.