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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.

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 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.

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 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.

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 😁

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.

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.

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.)

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.

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.

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

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 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!

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 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.

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.

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.

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.

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!

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...

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.

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.

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.

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.