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If a nonowner employee is a participant at any point during the plan year, Form 5500-SF should be used.

As an attorney, the iron-clad "attorney-client privilege" is full of holes as applied to employee benefits law. The reason is that the courts consider the attorney's client to be the participants and beneficiaries of the plan and not the employers retaining those attorneys. There are exceptions, of course, that I do not want to drag out and confound this forum with. That being said, the attorney's notes and communications to HR officers and top executives of the employer are generally not protected by privilege. Consequently, both the real client and the attorney are better served by not creating excessive notes that can be discovered by a disgruntled participant with an axe to grind. This fact argues strongly in favor of a document retention policy and strict adherence to it. That being said, however, plan documents, restatements, amendments, SPDs, participant communications and the like should most probably be retained forever (or pretty close to it).

The Treasury department’s rule provides: “A distribution is treated as necessary to satisfy an immediate and heavy financial need of an employee only to the extent the amount of the distribution is not in excess of the amount required to satisfy the financial need (including any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution).” 26 C.F.R. § 1.401(k)-1(d)(3)(iii)(A) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(k)-1#p-1.401(k)-1(d)(3)(iii)(A). Consider that how much tax is “reasonably anticipated” leaves room for defending plausible assumptions. For example, if one uses the middle of the seven marginal Federal income tax rates (24%) and the middle of the nine New York State income tax rates (6.25%), that results in a combined marginal income tax rate of 30.25%. If one assumes many hardship distributions might attract the extra 10% Federal income tax on a too-early distribution, that’s 40.25%. For New York City employees, one might assume (even looking to a middle range) almost 44%. If one assumes the marginal income taxes are 40.25%, to meet a $10,000 hardship need calls for a $16,736.40 distribution. A New York City employer I worked with had data to prove its employees’ marginal income tax rates averaged (some years ago) greater than 50%. Yet, the plan’s administrator restricted the gross-up to no more than double the hardship need. If not already done, consider redesigning the claim form so the claimant specifies the deemed hardship need amount and her desired gross-up amount; and self-certifies that the sum is “not in excess of the amount required to satisfy [the] financial need[.]” I.R.C. § 401(k)(14)(C)(ii). With this, a plan’s administrator might limit a hardship distribution to what results from using the lesser of the claimant’s requested gross-up or an outer limit estimated on marginal income tax rates, perhaps recognizing that an employer does not know each individual’s circumstances. If such an outer limit is set for a reasonable range, the amount of such a gross-up alone, without other facts, should not set up that the employer/administrator had “actual knowledge” that the gross-up was more than what 26 C.F.R. § 1.401(k)-1(d)(3)(iii)(A) allows.

Re your first question only - not necessarily. If the bond is increased to at least the full amount of the non-qualifying assets, and you meet enhanced SAR requirements, you could still avoid the audit. Take a look at DOL regulation 2520.104-46 for detailed info on the subject.

Forever as you never know what will come later and bite you in the derrière

Hi Peter - I haven't given this an exhaustive reading, but it appears to me that re question #1, the most potentially useful changes (for what I perceive as the majority of practitioners on this board) are #'s 2, 4, and 6 under Q&A-3. Self-correction is now allowed under 2 and 4, and the correction period for Significant failures is no longer limited to the "3 year" period. I didn't have a "wish list" so I have no comment on your question #2. As to question #3, I've never had a real rule of thumb - it has always been facts and circumstances, as we don't do a lot of VCP submissions. Someone who deals with them on a more regular basis could doubtless provide you with some thoughts on this. Being of an essentially conservative nature on these issues, I guess if the Self-Correction is "gray" I'd at least tell client they should check with ERISA counsel as to whether they believe VCP is indicated, or if they are comfortable with Self-Correction.

Well, theoretically (or maybe practically) speaking, an employer might not want to match these higher catch-up contributions, either for financial reasons or considering it "unfair" to younger catch-up eligible employees, or both. Possibly other reasons I haven't considered. I'm feeling particularly antiquated myself these days, so I need some reprogramming. Our son was discussing a new "smart" TV with us the other day which I'm not smart enough to understand, and I informed him that he was (A) going to go to the store with me to tell me what I should buy, and (B) he was going to set it all up for us at our house. With what it costs to raise your kids, there needs to be SOME small return on the investment...