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It would be very, very unusual for such a policy to be for the benefit of anyone besides the insured participant. It is possible to buy what is essentially "key man" insurance which is an asset of the pooled account (i.e. proceeds would be shared by all) but I wouldn't generally entertain that as a possibility. If you can find something from way back when that showed it came from the owner's account that would be ideal.* IMO life insurance CVs should be included in the val reports, including the 5500. I know of some (back in the day) who would show the premiums as an expense and then not include the CVs on the val/5500. (Based on a misunderstanding of what a "fully insured" contract is.) But going back to the smaller policy, you say premiums are being paid. Are they being taken from that participant's account or treated as an overall "expense" or investment of the plan? *This whole scenario/description is very worrisome and I have to wonder if it was totally botched.

Your comment made me curious, as I almost never see plans with a lookback month election. I went and downloaded the 2021 schedule SB data set from EFAST and did a quick pivot table on the applicable month code. The blanks are probably yield curve elections, I don't know how the other numbers got in there. Anyway, it seems like an election to use the 4-month lookback is not entirely uncommon, which I suppose makes sense—the benefit of using a lookback month is that you can determine your funding liabilities earlier in the year, so why not go as early as possible? But still, use of the month containing the valuation date is the overwhelming popular favorite. And for those plans, they could switch to the yield curve without IRS approval.

If the plan sponsor has not previously made an election to use the segment rates for a month other than the month containing the valuation date, then they may make an election to use the yield curve without IRS approval. Once they have made an election—either to use a lookback month, or to use the yield curve—that election can only be revoked or changed with IRS approval. See also rev. proc. 2017-57.

I agree with Bill, Insurance may be purchased on a participants life as a general trust investment, "key person coverage". This coverage is for the benefit of all participants and not solely for the benefit of any one participant. As a general trust investment the cash value would be included as the other investments on the Form 5500 as Bird points out. Upon the termination of the Plan the life insurance would be allocated per the Plan Document. I am assuming that the life insurance is owned by the Plan and the beneciary is also the Plan and would be curious as to why the owner feels he/she is entitled to the cash value. If the owner has been paying the PS 58 cost it may not be "key person coverage", however, if this is coverage as "key person" there would be no PS 58 cost reported. I would also like to see any minutes or fiduciary reporting that this investment, in the life insurance, was purchased as a general trust investment.

Good point. I think the difference is that an election to use the yield curve would also require a revocation of the prior election to use an alternate applicable month. It would have been nice if the IRS had addressed this in the rev proc, as it's not really clear either way.

Our understanding is different. The example seems to indicate that you can always change to full yield curve, although I admit, it doesn't mention the lookback Example 1 – Plan liabilities are valued using the corporate bond yield curve for the 2016 plan year, the segment rates for the 2017 plan year, and the corporate bond yield curve for the 2018 plan year. The change from interest rates under the corporate bond yield curve for the 2016 plan year to the segment rates for the 2017 plan year is made through a revocation of an election to use the corporate bond yield curve, which requires the approval of the IRS, in accordance with § 430(h)(2)(D)(ii) and § 1.430(h)(2)-1(e). The change from segment rates to the corporate bond yield curve for the 2018 plan year is an election to use the corporate bond yield curve, which does not require the approval of the IRS, in accordance with § 430(h)(2)(D)(ii) and § 1.430(h)(2)-1(e).

I've never seen it in a pooled DC plan. As Bird says, "back in the day" I did see it used occasionally in a DB plan, the theory being that it would provide plan assets in the event of a key person death, ensuring that the plan had sufficient funds to pay promised benefits if the business suffered losses due to the death of the key person. That was so long ago that I don't believe the lever or the inclined plane had been developed...

I wouldn't completely dismiss the possibility of the policy being key man especially in a pooled plan. I do think the existence of the other policy would tend to support that they were intended as individual coverage. But there has to be something to show that the premiums were taken only from the insureds' accunts.

The client can work with the PEP to merge the client's existing 401(k) into the PEP. Essentially, the client will adopt the PEP's version of a Participating Employer Agreement and coordinate with the PEP the transfer of assets to the PEP. If the merger and transfer will take more than 3 business days, then a black-out period will be required. This model is being by one of the larger PEPs which also happens to be a payroll provider: https://www.plansponsor.com/in-depth/mechanics-moving-pep/

RBG is spot on, compliance testing is accrual basis and aligns with corporate and individual tax reporting. Cash basis accounting just impacts how it all is reported on the 5500.

I agree with all of the previous replies, but I wanted to point out that another thing that might be worth considering are the terms of the promissory note evidencing the loan. It could theoretically be considered by the IRS to be a part of the "terms of the plan" which might actually conflict with the plan document or other items. Therefore, when deciding on amendments including as applied to plan loans, it is also advisable to take the time to consider the wisdom of also taking a look at the terms of the promissory note and revising them for prospective loans to make them consistent with the terms of the plan and the plan loan policy document.

It shouldn't have an impact on testing. You already include receivables in testing. If you report on a cash basis, your reporting just wont line up 1:1 with testing if you have receivables.

This list doesn't include items that were or could be effective before 1/1/2024 and likely is missing some. These are rules to follow starting in 2024 that could be considered "must make" changes should they be needed: change in attribution of stock between parents and minor children. make retroactive discretionary amendments after plan year end and by the due date of the tax return to increase benefits. The plan may put in: emergency in-service withdrawals up to $1000 with no 10% excise and opportunity to repay. withdrawals for victims of domestic abuse with no 10% excise tax up to the lesser of $10,000 or half the account, and opportunity to repay. eliminating RMDs from Roth. allowing in the RMD rules for the surviving spouse to be treated as the deceased employee. The plan may add to its existing plan design: a match and add matching contributions on student loan repayments. involuntary distributions with a cash-out limit to $7000 from $5000. If the need arose, the plan could: use separate top-heavy testing for non-excludable and excludable employees. Given the plan design presented, the plan should not have to worry about LTPT employees. Given recent IRS guidance, non-Roth catch-ups are allowed for everyone (and given universal availability of catch-ups any restrictions on High Paids to Roth-only likely are not allowed).

Makes sense. The compensation was made available to the person on 9/29, a date before the effective date of participation which is the earliest date any salary deferral could be effective.

In the 1990s, another lawyer and I worked on a plan for a company with several national restaurant chains. The IRS reviewer would not approve anything that would allow an employee to make a cash-or-deferred election on the portion of her wages from cash tips. But an employee might consider a wage reduction that’s a big percentage (perhaps up to 100%) of her net wages, after tax withholding, paid by the employer rather than collected as cash tips. But sometimes that net wage after tax withholding is $0.00. The practical challenges vary with the restaurant. If many customers use only payment cards and no currency, the employer might control those payments. But if many pay tips in currency, more is beyond the employer’s control. I don’t know whether the tax law, or the IRS’s views, have changed since I worked on this issue. And here’s a BenefitsLink discussion: