Leaderboard

The small employer startup credit of IRC § 45E has a requirement that the plan cover at least one participant who is not a highly compensated employee. However I believe the original question was about the auto-enrollment credit of IRC § 45T, which does not contain the same requirement. The requirements under 45T are that the plan be a qualified employer plan as defined in 4972(d), that the plan include an EACA as defined in 414(w)(3), and that the employer is an eligible employer as defined in 408(p)(2)(C)(i). Scanning each of those sections, I do not see anything that would restrict the ability of an employer to claim the credit merely because their plan does not cover any NHCEs.

Hourly is the way it would need to go. But, you'll want to know up front what the estimate is. They can't give a reasonable estimate until they look at everything to even know what the problems are. That initial review could easily be $2,000-$3,000 just to determine what is broken and how to fix it. Fixing it could easily be twice that much. TPAs historically undercharge for their work so you will likely find someone to do it for less. But if I was going to do it (which I'm not), I would get the review costs up front as a retainer and go from there.

We have form letters that we wrote for both incoming and outgoing assets. We are gettlng lots of requests from fund holders for a qualification letter before they will issue rollover distributions or accept rollover distributions. We insert the plan name, participant name and the last four of the SSN into the qualification letter. For the incoming asset letter, we specify if the plan takes pre-tax money only or pre-tax + Roth deferrals. (Probably going to need to edit that part once we start seeing Roth employer money.) The letters are signed by the PA. We have not seen any pushback with the content of the letters, other than sometimes they complain that the letter says John Doe, versus John J. Doe. For our purposes, when we get an incoming rollover check, we look for a 5500 and check the feature codes to see if the plan intends to be a qualified plan.

Even if one might find and get some records from CWM or a receiver, your client might consider whether it wants CWM’s records. Consider that those records might have little, no, or even adverse value. The linked-to news reporting suggests CWM might have been used for some frauds. How likely is it that your client would discern which of CWM’s records are true and correct, and which are false or incorrect? If it helps any, this hyperlink is to the Securities and Exchange Commission order that bars Mr. Couture from association with any securities-related business. https://www.sec.gov/files/litigation/admin/2022/34-96392.pdf With other information, the order shows the District of Massachusetts’ docket number for United States v. James Kenneth Couture—No. 21-cr-10172-NMG (D. Mass.).

I do not believe that correct. While I won't claim to be of the "pension elite", I think I am on solid ground here: SECURE 2.0 §125 modifies IRC §416(g)(4)(H) (which provides that a plan that consists solely of contributions under 401(k)(12) (safe harbor match or NEC) shall not be top heavy). The SECURE 2.0 change adds the following language to this subsection: "Such term shall not include a plan solely because such plan does not provide nonelective or matching contributions to employees described in section 401(k)(15)(B)(i)." §401(k)(15)(B)(i) makes reference to employees who are solely eligible to participate because they are LTPTs. Separate from the above, 401(k)(15)(B)(ii) provides that an employer may exclude all EEs who are solely eligible to participate because they are LTPTs from the vesting and top-heavy minimum contribution requirements. Put these together and (1) there is no top-heavy contribution requirement for LTPT EEs and (2) the exclusion of LTPT EEs from receiving a safe harbor contribution does not eliminate the top-heavy exemption for plans that would otherwise be exempt. There may be a myriad of reasons to expand "traditional" eligibility to include the employees who would otherwise be LTPTs; however, doing it to prevent a safe-harbor (match or NEC) plan from losing the top-heavy exemption due to LTPTs not receiving a safe harbor contribution is (thankfully) not one.

It doesnt say that which is very disappointing thing. So top-heavy sh match plans really get no benefit. I think that is widely acceptd by the "pension elite" (Watson, Ferenczy, etc). At least I recall they said as much in their articles and webinars.

A receiving Plan might fail to follow their document and create an operation failure by not accepting a "rollover" contribution. Sure, qualified ROTH assets create a receiver issue, but the initial obligation has always been on the paying Plan to ensure that the receiving Plan is itself qualified! That form used to be part of our distribution package, a certification by the receiving Plan Administrator that their Plan is itself qualified. @justanotheradmin try flipping the script on them and ask that they provide a reciprocal "qualification letter", then you know what form and content must be acceptable to them!!

It's also mentioned in the 2023 version of the ERISA Outline Book. 2.f. Higher catch-up limit for ages 60 - 63. Section 109 of the SECURE 2.0 Act of 2022 increases the catch-up limit for individuals who are age 60, 61, 62, and 63, effective for taxable years beginning after December 31, 2024. The limit is only increased for these specific ages. The increased limit for plans other than SIMPLE IRAs and SIMPLE-401(k) plans is the greater of $10,000 or 150% of the regular 2024 catch-up limit. Because both of these amounts are indexed for COLAs, the $10,000 threshold will not be applicable because the indexing of 150% of the 2024 catch-up limit will always exceed $10,000.

Agreed - we routinely recommend that the employer have this option in their plan - if they never use it, no harm, no foul, but it is there. Sometimes, they still don't want it there, as they do not want participants to have any expectation of a profit sharing contribution, but that's unusual.

Okay, so the LTPT employees don’t get the top-heavy, I get that. What about the rest of the normal employees? Where does the law or regs say this “plan” still consists of only SH an deferrals? I haven’t done that research yet.

It is totally fine to have a "profit sharing" feature in a 401(k) plan and not use it.

Might the plan’s financial statements, including the notes, fully disclose the IRS’s examination and that the plan might have been tax-disqualified as at the financial-statements date and for the year then ended (and for preceding years too)? If so, might such a narrative let the independent qualified public accountant find that the plan’s financial statements are fairly stated?

Lou S. correct it only applies to each employee who is not a Highly Compensated Employee (HCE) who is eligible to participate in the Plan. It would not apply to Owner-Only Plans.

I'm pretty sure the Plan must cover at least 1 NHCE to be eligible for the credit.

Yada yada yada. No need to be so thoughtful about this; if the receiving plan won't accept the assets because of their own ignorance, so be it. I'd be happy to explain to the disgruntled participant that they have created their own barrier that need not exist.

Nope, at least not if you want to have a safe harbor match and you might be top heavy. For top heavy purposes, you are allowed to disregard employees who are eligible "solely" because of LTPT rules. If you start letting in employees other than those you absolutely have to, then you can no longer ignore them for top heavy. SECURE 2 says you don't have to give the top heavy minimum to otherwise excludable employees, but the mere fact that they are participants means you lose your top heavy exemption for being a safe harbor plan. So your employees who have completed a year of service will now have to get a top heavy minimum. Or, you will have to include the otherwise excludable employees in your safe harbor match. But either way, the employer is going to be on the hook for more contributions.

A big issue is estate will almost always need to get an EIN and it might be the entity that pays taxes on the distribution. The estate gets the 1099-R in its EIN for example. This process can slow down paying the distribution while they get this all worked out. If it causes the plan to be open another year it can cause plan fee to be higher. Whoever is in charge of the estate needs to hire the right tax people to help them. The deceased didn't do anyone any favors by not having a beneficiary election and allowing it to go to the estate. The extra legal, tax advisor fees plus possible extra taxes could be a real bummer.

They're being silly. Good stuff here: https://www.irs.gov/retirement-plans/verifying-rollover-contributions-to-plans#:~:text=It's not necessary for the,a rollover contribution is valid.

I suspect that this particular provision was written well before the final bill was passed, and before the huge inflation adjustments that took effect for 2023 were known. In hindsight, we can see that the $10,000 limit is not likely to ever apply. The increased catch-up limit goes into effect for 2025. I suspect the exact dollar amount that applies for 2025 will be revealed in Fall 2024 when the IRS publishes the annual inflation-adjusted limits for 2025.

If the only nonelective contribution is an even percentage of compensation for all participants, that formula meets the requirements of the 401(a)(4) design-based safe harbor. There is no maximum under 401(a)(4), but of course the 415(c) limit and 404(a)(3) maximum deduction limit need to be considered.

1.401(k)-(3)(b) reads: "(b) Safe harbor nonelective contribution requirement (1) General rule. The safe harbor nonelective contribution requirement of this paragraph is satisfied if, under the terms of the plan, the employer is required to make a qualified nonelective contribution on behalf of each eligible NHCE equal to at least 3% of the employee's safe harbor compensation." I did not find a reference to any maximum percentage. Apparently, you can give NHCEs as much fully-vested, restricted-withdrawal safe harbor non-elective contributions you want subject to regulatory 415 and annual additions limits. Assuming this is true, it does lead to a question of whether every NHCE must receive the same percentage, or could the SHNEC percent vary among the NHCEs as long as no one gets less than 3%.

This is the text from the link justanotheradmin posted. Notice 2016-16 doesn't say "or vice versa" in the final bullet point below, but the commentary on the website does. Prohibited mid-year changes The Notice provides the following list of “prohibited mid-year changes” that may not be made to a safe harbor plan, unless the change is required by applicable law or court decision. A mid-year change increasing the years of service for the vesting schedule for a safe harbor plan consisting of a Qualified Automatic Contribution Arrangement (QACA); A mid-year change to reduce or narrow the group of employees eligible to receive safe harbor contributions; however, this does not limit the ability of the employer to amend a plan mid-year to change eligibility service crediting rules or entry date rules for employees who have not yet become eligible to receive safe harbor contributions; A mid-year change to the type of safe harbor, for example, a change from a traditional safe harbor to a QACA, or vice versa;