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$3.4 M @ 62 w/ 10 Years of Participation and Ave Comp > $265K (2023 limits) Lots of variables as you said.

Yes. Financial information is only one part of the return.

It's going to be deducted on the 1040 so I'm not sure it matters which account it comes from as long as they keep good records and the accountant can follow it for deductions and you're able to support it to the IRS in the event of an audit. If it was me, I'd do it from the LLC bank account.

Did you check your base document? Many of them have paragraphs regarding "irregular compensation" or some term similar. It's typically under the elective deferral section in the base document and gives you some flexibility on what compensation you withhold deferrals from even if the compensation isn't explicitly excluded in the adoption agreement. I've seen wording like this is many base documents. Regardless of the definition of Compensation shown in Article I, the Administrator may adopt a uniform policy, for purposes of determining the amount of a Participant's Elective Deferrals, of disregarding some or all items of Compensation which are not regularly paid in cash or cash equivalents to the Participant, such as premiums for group-term life insurance. In addition, Participants' deferral election forms may optionally provide a separate election, or for no elections permitted, or for a default deferral percentage of 0%, with respect to all or a portion of Compensation that is not paid on a per-payroll-period basis (e.g., bonuses, commissions, etc.), and may optionally provide that a Participant's failure to make any such separate election shall result in no deferral being made from such irregular Compensation.

In simple terms, that could possibly get you in trouble, it's essentially based on funding for the lump sum equivalent of the 415(b) maximum annuity. The age, service,salary of the participant and actuarial factors of the plan among other variables can all impact it.

Yes. Unless it qualifies as a 1 person plan with less than $250,000 in assets. Whether you report an EOY balance and/or contributions will depend on whether you use the CASH or ACCRUAL method of accounting.

I think if you have a loss, the DOL calculator for earnings is used to calculate the tax but I'm not 100% sure. The Fed underpayment rate might be the correct one, they might be the same, I don't remember. But if you are talking about $25K for a max of 50 days, like I said what is that? 3% is $750 and 15% of that is $112 that probably on the high side. I think the cap on the penalty is something like 25%. So your clients max exposure is likely under $150 even with the penalty if the IRS imposes. Your fee to calculate the lost earnings and prepare the form are probably going to be more than any excise tax in this case.

I'm not, and I doubt many TPAs are, for two reasons. First, the 5330 extension request is not automatically granted like the 5500/8955-SSA extensions are. Second, even if the filing extension is approved, that does not grant extra time to actually pay the excise tax. We file the 5330 as soon as possible. My understanding on this has always been that if the IRS wants to penalize you for late filing, they'll let you know. Issue 1 is real, but not material. I would never advise a client to ignore the issue (or to do or not do anything else, for that matter) based on perceived audit risk. Issues 3 and 4 are related in my mind. I would let the client know what the rules are and what corrective action should be taken (lost earnings, Form 5330 filing), and what our fees would be to do the work. If they want to be reimbursed for that expense by going after the recordkeeper whose delay caused the issue, that's between them and the recordkeeper in my mind. I don't think you get off the hook quite that easily here. I think in this situation it would be considered reasonable to use the Fed underpayment rate to determine lost earnings, but I don't have a citation or guidance off the top of my head

If he is not working then he can start his SS benefits at any age from 62 up to age 70. The younger he starts the less he receives since his life expectancy will be longer at age 62. The older he starts the more he receives since his life expectancy will be shorter at age 70. Theoretically, the present value of his benefits are the same no matter what age he starts; but PV computations are speculative based on uncertain COLA rates, discount rates, actual life expectancy and other factors. You can get hit my a bus tomorrow morning and PV computations will be of zero value. A personal story will illustrate the issue. Based on the year of my birth I could begin to receive full unreduced benefits at age 65 and 10 months. Or I could start at age 65. At 65 the payments would be $1900/month. At 65 and 10 months the payments would be $2017/month - and extra $117/month. If I started at 65 and 10 months I would lose $19,000 in benefits. The additional $117 a month from waiting until 65 and 10 months would take 162 months to recoup - 13.5 years. So I started at 65. So in addition to looking at how much a spouse will receive, think about how much will be lost if you wait. Most people who address this issue spend their time calculation how much more you will receive at age 70 without mentioning how much you will lose by waiting to age 70. Do the math.

I take it that it was the client that decided not to listen to the advice given by the legal team, and not the case of the legal team not listening to your advice. I am surprised that the legal team believes that a hold harmless agreement provides your firm sufficient protection. I cannot imagine this agreement would protect your firm from involvement should the participants (or the DOL or IRS) sue the plan to get them their top-heavy contribution. But, like Lou, I am not a lawyer. Some things are clear. The plan cannot avoid being top-heavy by refunding contributions to key employees. The IRS will not recognize this as a cure and likely, if discovered, will tell the company to make the top-heavy contribution or have the plan disqualified for not following the terms of the plan. Leaving the earnings on the deferrals in the plan is a bizarre decision. The earnings do belong in the plan, as do the contributions. If the company wanted to make this look like a correction, it failed. All correction methods require the earnings to be taken out of plan alongside any refunds of excess amounts. This only highlights the company's disregard for compliance. If you or others in your firm hold almost any professional designations or belong to professional organizations (e.g., CPA, EA, ERPA, QPA, QKA, ... or AICPA, ASPPA, NAPA, PSCA, ...), you are subject to a code of professional ethics. I strongly suspect that your professional credentials and membership are at risk for not only following the company's direction but also preparing replacement documentation that masks the facts. It would be interesting to hear from others on BL their opinion on the application of professional ethics codes in this situation. And now for the really tough decision. On a personal note, I would not prepare or put my name a test showing a $0 contribution for the owner. I also would not falsify any information on a 5500. If your employer or the legal team believes these actions are acceptable, then let them prepare and put their name on it (and you can take comfort that you can find work, including remote work, at a reputable firm within a week). This is not advice, and is somewhat overly dramatic, but there are some realities here that cannot be ignored. May you be at peace with whatever is your decision on how to respond this situation.

There is no safe harbor for a large plan. You need to segregate and hold in the trust to be considered timely. I believe the timing is the same as depositing payroll tax withholding. Generally I think the DOL allows 3 days on large plans but can apply an earlier standard if the company routinely meets an earlier deadline. So I'd say all were late. Isn't the tax though something like 15% of the earnings? If the total was $25K and the longest was 50 days how much lost earnings are we talking? You can ask for a waiver of penalties for reasonable cause but I don't think the late penalties on this one would be very much.

I'm not a lawyer, but it sounds like fraud. I wouldn't touch it.

Also note the maximum LS changes depending on when it is paid - and with CBPs that is usually the concern, the maximum lump sum as opposed to the maximum benefit. Effen gave the correct general stock answer and that is the starting point but unless you check all the boxes - 10+ YOP, FAE >= $265K, NRA 62 and distribution at age 62, then you're looking at something different. And if you're looking into the future, then IRS limit increases come into play, as could post-65 actuarial increases. Assemble all the facts and future expectations of the situation you're dealing with and then you can craft an answer/approximation/range that applies most appropriately to that situation.

On another note Peter - (not that a TPA wouldn't anyway) - but we found that most of the big 401(k) vendors (i.e. American Funds, VOYA, Empower, John Hancock, etc.) required us as TPA to have E&O insurance or we couldn't service plans on their platform. That's been the case for quite some time. We are a small non-selling TPA.

This is a very common error and falls under "Missed Deferral Opportunity" Typically a QNEC and lost earnings are calculated and deposited, and there is a make-up for any missed match. You will want to read Appendix of Revenue Proc 2021-30 https://www.irs.gov/pub/irs-drop/rp-21-30.pdf More general information about EPCRS is available here: https://www.irs.gov/retirement-plans/epcrs-overview

I suggest learning more about the group of employees that had the failure including at what point in the plan year did the failure occur, how long did the failure last, and what is the current employment status of each affected employee. Part of the decision for which correction is applicable also should consider any requirements to send a notice to participants. You did not specify that the plan uses auto-enrollment but it is likely it does given how you otherwise described the situation. There are multiple correction methods which include some very lenient provisions for plans with auto-enrollment, including no funding of the missed deferral as long as the deferrals are started by 9 1/2 months after the end of the plan year in which the failure occurred. There is a brief exclusion rule - a close relative to the 3-month rule - that also avoid funding the missed deferral if the deferrals are started within 3 months of the beginning of the failure. There is a reduction of the 50% to 25% if the correction is made within 3 years. Note that none of these work for individuals who have terminated employment. The 50% funding will apply to them. You are correct that any match will be funded at 100% along with earnings. These comments are in some ways an oversimplification of the rules, so please do some homework before your call tomorrow. You should have some better news for the plan sponsor.

I think CuseFan is on target. Assuming the plan is not a Safe Harbor, it is worth highlighting the clarification that separate discretionary matches could work if no HCE can get a higher rate of match compared to any like NHCE. Conceivably, the plan could exclude HCEs from any match and then allow different groups of NHCEs to have differing match levels. A company may wish to do this if it wishes to reward different locations/profit centers/classifications based on performance or profitability. (I wouldn't want to risk the Safe Harbor with this approach.) A little bit more aggressive approach would be to limit HCEs to the lowest match rate among all of the match rates for any NHCEs. This may allow the HCEs to get some match but still get by coverage and nondiscrimination tests. (It likely would make sense for the HCE match to be made no more frequently than annually.) If the plan then allows for after-tax contributions, there likely will be room in the ACP test to let HCEs take advantage of this opportunity. Like CuseFan, I invite any insights on potential barriers to this approach or to any likely points of operational failure.

Looks like her benefit is a percentage of his basic amount (full benefit) based upon her commencement age, but like I said, delve into SS website as it has lots of great info. When a husband dies does his wife get his Social Security? These are examples of the benefits that survivors may receive: Surviving spouse, full retirement age or older — 100% of the deceased worker's benefit amount. Surviving spouse, age 60 — through full retirement age — 71½ to 99% of the deceased worker's basic amount.

As a control group all participating employers are deemed a single employer so I do not think a different formula for one or more employers works. Also, I think that any discretionary match must preclude the possibility that any HCE could get a higher rate of match compared to any like NHCE (i.e., one who defers the same percentage), which would prohibit participating employer(s) from having their separate discretionary matches unless such employer(s) have only NHCEs. If I'm wrong on any of this, I hope one of my esteemed and more knowledgeable colleagues with respect to this subject matter will set us straight.

You reference two years here, 2022 and 2023, but as far as 2022 goes, that ship has sailed. There is no opportunity to defer in a corporate setting other than through a paycheck.

Yes. To be clear, you file the form that is required for the reporting period. For a calendar year plan, if the plan only covered the owner during 1/1/22-12/31/22 it is a one participant plan and you are required to file on an EZ.

That responsibility is satisfied through these requirements being spelled out in the SPD, which we all know every participant thoroughly reads, understands and remembers - LOL! The legal responsibility is satisfied, but it would be a good employee relations practice to remind such participant of those provisions.

Just to put some practical in this.... Chances are that if a plan has a $1000 cash-out limit, it's because they don't want to deal with rollover IRA issues - and those concerns may still be valid. As a practical approach - as a recordkeeper that provides prototype documents, we will "default" those who have $5000 to $7000 (unless clients tell us otherwise), and default those at $1000 (or less) to stay at $1000 (or less) (unless they tell us otherwise). We actually don't have any plans with anything between $1000 and $5000 (out of about 6000 plans)

Keep in mind that the LTPT rules were designed by the Legislative Branch and not by the IRS. Part of the design was to provide LTPT employees access to salary deferrals without disrupting existing rules for qualified plans. One of the features of the LTPT rules is the employees who are LTPTers are excluded from all of the testing applicable to existing qualified plans and most importantly from coverage testing. We have not yet heard from the IRS about how classification exclusions (other than bargaining and NRAs with no US income) will operate with respect to LTPT employees. It does not make sense that a classification such as job title or geographic location is overridden by LTPT as long as that classification is not discriminatory. If a plan covers employees in Oklahoma and excludes employees in Florida, why should an LTPT in Florida be allowed to defer? The fear in Congress is the potential situation in this example is where most of the Florida employees are LTPT employees and the classification provides a way of not allowing them to defer. But, Congress wants LTPT employees to be able to defer. If everyone in the classification is excluded from participation, that sets up an issue where the LTPT employees would be considered Excludable in coverage testing even if they defer, but the FT employees who are otherwise eligible for the plan except for the classification would be considered Non-Excludable, Not Benefiting. This could be an incentive to use the LTPT rules. Let's see how imaginative the IRS will be when providing guidance on this topic.