Leaderboard

So you're suggesting to act counter to published guidance regarding excess deferrals, and have the employer alter payroll records to hide what actually happened to fix an employee's issue? I wouldn't do it, but you have fun with that.

Time. It takes longer (perhaps depending upon automation capabilities) to do an amendment/SMM than it does to perhaps have a "canned" paragraph or three that can be used to communicate the change in a less formal manner.

There isn't a 415(c) refund deadline discussed in the code or regs. The concept only appears in EPCRS. And under the newly-expanded EPCRS regime, an eligible inadvertent failure can be self-corrected within a reasonable period after it is identified. So go ahead and refund it now, with earnings. But the sponsor should have reasonable practices and procedures in place to prevent such failures from occurring again - for example, maybe not depositing contributions until after their compensation for the year is known.

Gilmore - my concern with a 12/31/2024 amendment would be the effective availability of Roth contributions, within the meaning of the 401(a)(4) regs. HCEs would have their catch-ups automatically reclassified as Roth in order to comply with the new rule. However most non-HCEs would not have any opportunity to make a Roth election if the amendment were adopted very late in the year. Putting the Roth option in the plan before the beginning of the year also allows the disclosures for the 2024 plan year to accurately reflect the options that will be available, instead of requiring later amendments. This also goes to Peter's question about the complexity of this amendment from a document provider's perspective. Besides merely checking a box, safe harbor notices and 401(k) election forms (maybe other notices as well) will need to be updated to reflect whichever options are chosen.

Lay out the options for the client and let them decide. Talk to whoever is spearheading the past filings and see what they suggest. FWIW, I'd also suggest filing all the past and current filings at the same time with the appropriate audits under DFVC Program as you suggest.

If you're referring to the requirement that most new 401(k) plans be EACAs starting in 2025, as added by SECURE 2.0 sec. 101, there is no exception for large plans. As I read it, for any plan year in 2025 or later, if any 401(k) or 403(b) plan does not contain EACA provisions, it fails to be a qualified CODA, unless it meets one of the exceptions in 414A(c). The only exceptions are for SIMPLEs, plans established before 12/29/2022, governmental and church plans, plans sponsored by businesses less than 3 years old, and plans sponsored by businesses which normally employ no more than 10 employees.

This seems like a lot more trouble than just having the plan issue the refund directly to the participant with the appropriate 1099-R.

Under to-be-published Notice 2023-62 (which the Bakers and C.B. Zeller flag for us), the Internal Revenue Service makes our queries practically irrelevant. “[U]ntil taxable years beginning after December 31, 2025, (1) those catch-up contributions [made on behalf of § 414(v)(7)-restricted participants] will be treated as satisfying the requirements of section 414(v)(7)(A), even if the contributions are not designated as Roth contributions, and (2) a plan that does not provide for designated Roth contributions will be treated as satisfying the requirements of section 414(v)(7)(B).” Further, the IRS practically confirms: Self-employment income does not count to determine whether a participant is § 414(v)(7)-restricted. An employer and an administrator may treat a non-Roth election as a Roth election if needed for a catch-up deferral to meet § 414(v)(7). Some non-aggregation tolerances for a multiemployer or multiple-employer plan about a participant who has more than one participating employer.

Interesting Bri. Actually what I was thinking was something like this. My first year with the company I work 1000 hours so I'm a "regular participant" and I also have 1 year of vesting. Under the plan's 6-year graded schedule I am 0% vested. For the next three years I work less than 1000 hours. My co-worker for the last 3 years worked 500 hours each year, then works a year with 1000 hours. Now after 4 years we are both "regular participants" but now my co-worker (who used to be my friend) is 60% vested and I'm still 0% vested, even though over the last four years we've essentially worked the same number of hours, just in different sequence.

My company does 60 days. During that time we send information about the plan and auto-enrollment so people have an opportunity to enroll themselves or opt out before the salary deferrals begin. (Our default deferral percentage is only 3% and we worry that people will allow themselves to be auto-enrolled at 3% as opposed to affirmatively electing a higher percentage.) We have a very low opt-out rate and no complaints. We also allow permissible withdrawals for people who somehow miss all our communications. The "pay decrease" is not an issue for most people because of the accompanying decrease in tax withholding.

If you file the 5500 without the audited financials, there is a chance that EBSA may bounce your filing. Since your client has not filed Forms 5500 for multiple years, let it get its ducks in a row and file all of the under DFVC for all of the years. The reason is that the penalty for filing late is capped and filing the multiple years simultaneously will likely result in your client hitting the cap under the program. Then there will be no more never filed or late Forms 5500. Now, that would be very nice, don't you agree?

I would agree with CuseFan to the extent of the current state of the rules for EPCRS. However, I disagree with CuseFan to the extent he posits the option of amending the plan prospectively and hopes that the sponsor does not get caught since the client would be at risk for the period between the date of the plan's restatement and the later of the adoption or effective date of the prospective amendment. The issue is what did the original plan document provide: a 3% SHNEC or matching contributions? If the original provided for the 3% SHNEC, in addition to the question of why the plan even bothers to be treated as safe harbor, since more than 3 years have elapsed since the restatement took effect, you would need to do a VCP to ask for the plan to be retroactively amended for how it has actually been operated. If the plan original plan docuent provided for matching contributions, you would do the VCP filing and ask for the plan to be retroactively back to the original effective date to conform to its actual operation. Interestingly, one of the SECURE 2.0 Act provisions greatly expands the availability of self-correction. While you could decide to wait until the IRS issues a new EPCRS Rev Proc, you are playing a dangerous game of hoping that the IRS does not knock on your client's door in the interim. Bottom line: do the VCP filing and get it over and done with.

Amend your plans by the end of 2025. https://benefitslink.com/src/irs/n-23-62.pdf

Refer the hospital to its expert ERISA attorney, who may also need to bring other lawyers with different expertise into play. As EBECatty says, this sounds like a complex question with many, many issues.

For the first few that we received before AndrewZ posted the NAPA article we have already sent a reply to the IRS on our clients' behalf (they signed a 2848). Today I am sending out a correspondence to all of our clients for whom we FIRE'd 8955s since January alerting them to this issue and giving them the opportunity to have us respond directly or they can take a wait and see. We are a small firm so, while an annoying waste of time, we can manage.

Until the plan’s sponsor no longer desires a § 401(k) arrangement. (Or until Congress has changed the law, and that change has become applicable.)

I'm a little puzzled by the date by which a discretionary amendment must be adopted, and the real life effects of this fun stuff. First, my understanding is that adding Roth is a discretionary amendment, and as such, should be eligible for amendment by the end of the year in which it is operationally implemented - so in this case, by 12/31/2004. CB, why is it that the NHCE wouldn't have the ability to make a Roth election, if it is operationally implemented and communicated as of 1/1/2024? I'm missing some crucial piece here. Thanks! (P.S. - it would certainly be nice if the IRS would opine that you could do this operationally and make it part of the SECURE/2.0 amendment by 12/31/25...) Excerpt from RP 2016-37: 04 Except as otherwise provided in sections 15.05 and 15.06 of this revenue procedure, the deadline for the timely adoption of an amendment for any pre-approved plan is determined as follows: (1) In the case of an interim amendment, an employer (or a M&P sponsor or VS practitioner, if applicable) is considered to have timely adopted the amendment if the plan amendment is adopted by the end of the remedial amendment period described in § 1.401(b)-1(b)(3) (determined without regard to the extension under section 15.03 of this revenue procedure). See section 2.07 of this revenue procedure. (2) In the case of a discretionary amendment (that is, one that is not an interim amendment described in section 15.02), an employer (or a M&P sponsor or VS practitioner, if applicable) is considered to have adopted the amendment timely if the plan amendment is adopted by the end of the plan year in which the plan amendment is 21 operationally put into effect. See section 8.02(1) of this revenue procedure for examples illustrating this deadline.

Effective for plan years beginning in 2023 and later, the audit requirement applies to plans with at least 100 participants with account balances on the first day of the year. The 80-120 rule still applies, so if the plan filed as a small plan in 2022, they would not have to have an audit until they have more than 120 participants with account balances on the first day of the year.

If there's no plan (or trust) established, then that 200000 is just more personal or business assets, right? So I'm not sure where VCP comes into play, since there's no plan. I think he just amends the return, pays the taxes, and tries again next year.

I don't believe this is a self correction issue if by self correction you mean get a plan installed for 2022 and take a valid deduction. You have no plan by the due date it was required to be adopted.

Besides unwind the deposit because he didn't have a plan, and file an amended tax return not taking the deduction? And/or refer him to qualified ERISA counsel?

For a participant loan to get its prohibited-transaction exemption, the loan must “[b]ear a reasonable rate of interest[.]” 29 C.F.R. § 2550.408b-1(a)(1)(iv). The same rule provides: “A loan will be considered to bear a reasonable rate of interest if such loan provides the plan with a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances.” 29 C.F.R. § 2550.408b-1(e) https://www.ecfr.gov/current/title-29/part-2550/section-2550.408b-1#p-2550.408b-1(e). That standard is nonsense. Among a few reasons, there is no loan a commercial lender makes under terms similar to a typical participant loan. None of -1(e)’s three examples describes a loan that meets the rule. Plans’ fiduciaries, often with little or no advice (because many service providers deny providing tax or legal advice), have specified ways to set an interest rate for a participant loan. The prime-plus-two setting many plans use is not in any administrative-law document. IRS employees described it in a telephone forum. (You can read the nonliteral transcript: https://www.irs.gov/pub/irs-tege/loans_phoneforum_transcript.pdf.) Whatever was spoken was preceded by a warning that a speaker’s remarks “should not be considered official guidance[.]” (A Treasury rule excludes the remarks from even the nonprecedential authorities one may use to support a tax position.) Further, the IRS employees did not say they spoke, even unofficially, for anything of the US Labor department. A value of the prime-plus-two setting might be that, because so many plans use it, it might be impractical for either government agency to enforce against it. Before looking to the Moody’s measure, a fiduciary might consider whether loan-taking participants are as creditworthy as the corporate borrowers the Moody’s measure refers to.

Yikes. My first comment is that this is a mess. They need an accountant to unravel all these errors. First, the administrator should not have accepted the excess contributions unless provided by the plan document. This could be a disqualification issue depending on the plan provisions. Second, the administrator should have returned the contributions directly to the executive. The company should not have returned them. I am afraid they could be construed as an additional payroll payment to the executive Third, the administrator could have kept the excess contributions, but the executive could not have deducted them and instead paid the appropriate taxes. Of course, the plan would have to permit excess contributions. Fourth, I am not sure that the earnings should be returned to the company. I believe they belong to the assets of the plan and should be distributed among plan assets. I can also see an argument that the earnings on the excess contributions should be distributed to the executive, but taxes withheld. There are errors due to actions by the executive, company, and administrator and I don't have the answer as to who gets what when unwinding this mess. The main goal is to be sure that all participants are not hurt. At this point I will revise my advice to they need an accountant AND attorney to unwind this mess.

It's facts and circumstances. The IRS has informally said they are good with Prime +2% but if you can justify Moody Bond Rate as reasonable based on rates commercially available by banks in the Plan Sponsor area then that's might be OK. As far as I know there is no stated safe harbor interest rate but some rates are less likely to be challenged by IRS or DOL than others.

I do not think that the correct dates are shown on the original question. DOH = 10/21/20 DOT = 8/25/20 (assume that this is a typo and the DOT = 8/25/21)? DORH = 11/1/21 DOT = 4/25/22 With this change, there are no years of service for the period beginning 10/21/20 to 12/31/2020. Assume there is a year of service from 1/1/2021 to 6/30/2021 (assume 1,000 hours or more in the 6 months). She enters the plan on 7/1/2021 and terminates on 8/25/2021. Assume a month of service for July and August. She was rehired on 11/1/21 and has a month of service for November and December for a total of 10 months of credited service. (No service for September and October). Terminates after 4 months of service in 2022. In summary, 2020 - no service, not in the plan. 2021 = enters the plan on 7/1, total service for the year is 10 months. No information was provided on the vesting schedule or accrued benefit formula. 2022 = terminates with 4 months of service, No information how the partial year is treated. Was there additional vesting? accruals? And no, I would not advise the plan sponsor not to rehire her. For all you know there is a medical reason like having a baby or a stroke. I don't want to be responsible for the plan sponsor being sued, do you?

You don't say what the prior document had for that provision, so this might be a forever lack of compliance. However, why would a 403(b) plan have a 3% SHNEC (without a match) when there is no ADP testing? Assuming no matching contributions have been made, having that provision is not the problem. The issue is whether the document, in its current form, supports the 3% contribution. Maybe there is an discretionary QNEC provision that supports this, whether an adoption agreement selection or a plan default option. If not, I suspect the proper correction is a VCP to ask for retroactive amendment for compliant provisions, or the employer could decide to amend the plan prospectively and hope IRS doesn't look at the past as they struggle to manage their current (8955-SSA) and future (SECURE et al regulations) issues while dealing with a potential government shutdown later in the year.

Isn't it up to the Employee to catch and then request from which plan they want the refund? It's not up to the Employer to fix, it's only the Employer's responsibility to distribute the requested excess amount when requested by the Employee.

We posted at the same time Bri... I would agree with 1/1/2022 if term date was 8/25/2021. Here is the language in our document. I would guess other documents are similar. This is one of those sections that you just have to commit to understand and memorize.... just my two cents. It comes up more than I want it to. Rehired Eligible Employee Who Had Satisfied Eligibility. An Eligible Employee who satisfies the Plan's eligibility conditions, but who incurs a Separation from Service prior to becoming a Participant, subject to any Break in Service rule, if applicable, under Section...., will become a Participant on the later of: (1) the Entry Date on which he/she would have entered the Plan had he/she not incurred a Separation from Service; or (2) his/her Re-Employment Commencement Date.

Only if the plan covers anyone born in 1974 or earlier with sec. 3121(a) wages of more than $145,000 in 2023.

This is a very difficult situation that does not lend itself to easy answers. Owning 51% of a subsidiary on its own is not enough to form a controlled group, but the various stock exclusion and other rules can easily change that outcome depending on how the other 49% is owned. Even if not a controlled group, the JV could be covered under the hospital's benefits but would form multiple-employer plans (both retirement and welfare). Medical JVs in my experience are often affiliated service groups, which combines the employers for retirement and some other Code purposes, but not all welfare purposes, so you could have a single-employer retirement plan and a MEWA for medical benefits. Watch out if the hospital is self-insured; running a self-insured MEWA can be a crime depending on the state. If the other 49% owners also have separate medical practices, those could be ASGs as well, expanding the affiliated group to those practices. The hospital is probably tax-exempt, whereas the JV probably is not, so you may need different plan types depending on whether the hospital's plans are only permitted for tax-exempt organizations.

Luke is asking the right questions here - specifically, I think, whether the closing agreement addressed minimum funding. If it said that the plan is not subject to the minimum funding standard, then that's all you need to tell the IRS to bug off. If it wasn't addressed, then I think you still have an argument, but you might have to convince them. IRC 6059(a) requires an actuarial report (i.e. schedule SB) for each plan to which section 412 applies. IRC 412(e)(1) says that section 412 applies to a plan which was qualified under section 401(a). If the closing agreement provided that the plan was not considered to be qualified under 401(a) for the year in question, then I think you can point to this to say that it was not subject to 412 and consequently not required to file a schedule SB. Hopefully you answered the question on the 5500 about whether the plan is subject to 412 (line 11 on the 5500-SF, or part II on the schedule R) as "no." If you indicated on the 5500 that the plan was subject to 412, that would explain why the IRS thinks you owe them a schedule SB. You might consider filing an amended 5500 in that case.