Leaderboard

I think the question that needs to be asked is: was this person terminated? If they were why weren't they offered distribution paperwork before now (assuming the plan document would say they can make a distribution shorty after termination)? If they though they could come back were the still employed but just not working? Once this non-plan question is settled you have an easy answer- follow the plan. If they were terminated years ago they don't get the 100% vesting because of death. If they weren't terminated years ago but terminated due to death they are 100% vested. So I don't think the most important issue here is one the plan's document or retirement rules can answer I think it is a facts and employment law question. When did this person terminate? Answer that question and you get the right result.

Safe harbor contributions can be reduced or eliminated under certain circumstances. Since HCEs don't have to get the safe harbor in the first place, you can reduce or eliminate their contributions without losing the plan's safe harbor status. IRS issued Notice 2020-52 to address how this could be done in the context of COVID relief, and to grant some special flexibility during that period. Is it possible your client took advantage of this mid-year modification in 2020? If so, there should be a plan amendment, and related notices.

Hey now, the HCE isn't making that choice, the Employer is. But yes, if you look at the AA for a pre-approved plan you can often find the language right there in the SH section, the Employer "may" elect to provide a lesser allocation to HCEs. So it's an ongoing option each year.

I remember calling banks back in the late 80's/early 90's. They got very annoyed with the calls after the first 10-12.

Luke Bailey, I see no reason Congress could not have legislated § 414(v)(7)’s restriction to a self-employed individual with more than $145,000 in §§ 1401-1402 self-employment income attributable to the trade or business that is the plan’s sponsor or participating employer. I’m unaware of a Congressional document suggesting the provision Congress might have intended is anything different than the provision Congress enacted. I doubt there is much lobbying interest in pursuing a law change to restrain choices of self-employed individuals. But we can imagine extending § 414(v)(7)’s Roth-ing to self-employed individuals might be among the possibilities the next time Congress seeks revenue gainers to balance a reconciliation’s Revenue Effects scorecard.

Why do we still have to work so much now that we have the inernet, Bill?

Yes, it appears that PBGC is concerned with sufficiency, although they are concerned that benefits are calculated properly as well. If your offset was calculated properly but the DC not funded correctly (not sure how that goes) maybe this flies past PBGC and the client only needs to hold their breath on IRS audit for three years. If selected for PBGC audit, then they might scrutinize the situation more closely, but as it pertains to if the benefits were calculated in accordance with plan terms, not if those benefits were or were not discriminatory. BUT, that's not to say that the PBGC can't or won't contact IRS and tell them they should investigate. Maybe all those chances are slim, and if everyone can sleep at night for the next 3-5 years, go for it.

Sounds more like she decided to keep his balance in the plan and not even offer a distribution. If the employee terminated then that's the opposite of being nice. Also, with a balance >$5k, it was HIS choice to make to keep balance in or take it out. As ESOP Guy hit the nail on the head, the question is a facts and circumstances "was there a termination of employment?" How was it recorded in payroll, was the person offered COBRA, were any other termination of employment benefits offered? If the facts and circumstances and plan provisions steer to not fully vesting but the employer wants to do so, the plan can always be amended to provide such assuming this was not a highly compensated employer.

The plan's named Trustee has responsibility for delivering asset reporting to the Plan Administrator, the frequency can be monthly, quarterly or annually as needed by the PA (or its designated/contracted TPA) to properly administer the plan. The Trustee and Plan Administrator could, but need not, both be the Plan Sponsor. If the Plan Sponsor is neither, it still has the obligation to oversee each in fulfillment of their fiduciary duty. The consequences of lack of required financial reporting is a fiduciary lapse. Participants are not required to keep (or provide) copies of their own brokerage statements any more than they are required to keep their "regular" quarterly statements. It's a good idea but not a requirement.

Agreed, but relevant to both your points, Peter, I wouldn't completely disregard the possibility that there are folks at Treasury and IRS who are embarrassed by the mistake and will work with staff on the hill to bring consistency to this provision.

Was the employee's vested account balance at the time they last performed services for the employer less than $5,000, and does the plan contain a provision requiring the involuntary distribution of vested account balances of less than $5,000 upon termination? Did the employee have 5 consecutive 1-year breaks in service after the time they last performed services for the employer and before they died? If the answer to both of these questions is no, then I think it's clear that the account should become 100% vested upon the employee's death. If the answer to either question is yes, then a forfeiture may have occurred upon the employee's separation from service, or after 5 consecutive 1-year breaks in service. However, if the dollar amounts involved are not large, and the employer is concerned that the issue may not be entirely clear and wishes to avoid a potential dispute with the employee's beneficiary, the employer might choose to explicitly grant the additional vesting and pay out the full account balance.

Both were calendar year plans due 7/31/2023 both filed 7/20/2023

Somehow I seem to find the use of "fair or decent" adjacent to "we leave to the Members of Congress" to be quite humorous, if not distressing....

thanks for the answers! Definitely answered my question! In terms of what the IRS should do though...definitely close the mega back door roth, and probably just detach retirement plans from employment entirely since people should be treated fairly inter-company, not just intra-company.

When I first noticed this in reviewing the bill back in January, I figured it was a drafting error, but one that couldn't be solved administratively. That is still my view. Does anyone think it's not an error, e.g. there is some technical issue with having it apply to self-employment income. I don't see it, but maybe I've overlooked something.

Ha. Yes, one way to look at it is you skip a year if transitioning from SIMPLE to K. If the 401(k) is the first ever plan, they give you the Year 0 $ for a welcome bonus.

Because it's an employer contribution, and all employer contributions are pre-tax. Roth is a specifically made at the election of the employee. You can choose to convert it to Roth (and pay the tax on it). Roth is §402A, completely different section of the tax code than employer contributions. There is no provision under 402A that allows for QNEC.

Andrew, I understand your concern that you did not get all the money in the 401k you were expecting. However, the funds that were supposed to go into the plan you received as cash compensation. In other words, you received the pay AND received a 50% QNEC. Seems like a scenario I could live with. If there was any missed match, you would have received 100% to the plan also. You are correct that the QNEC is a Pre-Tax. The Pre-Tax QNEC is per IRS code, so no choice in the matter. I hope I have answered your questions. If not, let us know. Thanks

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.

Because the credits are intended to encourage employers to establish new plans, they are not available if the employer has maintained a qualified plan, simplified employee pension or Simple IRA plan for substantially the same group of employees in any of the three taxable years immediately preceding the first year for which the credit is allowable. IRC §45E(c)(2) and (f)(4).

Yes, it is that time of year again – the annual tax lament, to the tune of “Yesterday” by the Beatles. Remember, it is only when the final line is truly sung from the heart that one can appreciate the scope of anguish and angst that the artist is attempting to convey… Yesterday... Income tax was due, I had to pay... All the funds I tried to hide away... I don't believe, I'll eat 'till May. Suddenly... I'm not sure that I am fiscally... Ready for responsibility... Oh yesterday, came suddenly. Why, I Owed so much, I don't know, I couldn't say May be Forms were wrong, how I long, for yesterday. Yesterday... Seemed like prison time was on its way... Now I need a place to hide away... While keeping IRS at bay. Why, I Owed so much, I don't know, I couldn't say May be Forms were wrong, how I long, for yesterday. Yesterday... Taxes due, I filed come what may... Losing all deductions that's my way... Of giving IRS my pay. mm - mm - mm - mm - mm - mm - mm.