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There are two failures here: the missed deferral opportunity, and the failed ADP test. The QNEC used to correct the MDO is limited to the 402(g) limit. The cite on that is rev. proc. 2021-30 appendix B.02(1)(a)(ii)(B)(1) A QNEC included in the ADP test under the 401(k) regs does not have a similar limitation. However, this is a very unique situation, and as you have explained the numbers give a result that is wildly disproportionate to what most of us would consider to be a reasonable outcome. If this were my client, I might try to apply under VCP to amend the plan for 2020 to a 4% safe harbor non-elective contribution, and then use the 3% QNEC on top of that for the MDO.

The short answer to the question is yes. A plan can force distributions after the later if NRA or age 62. As pointed out, the distribution is ‘probably’ not an RMD for those who aren’t at the RBD under the law. So using 4/1 isn’t really relevant and you could use any date, such as last day of PY in year after stating age 72. Not a major hurdle - it’s an eligible rollover distribution subject to 20% withholding if not rolled over. I say probably because even though the (a)(9) regs allow a plan to disregard the non-5% owner exception and just use an age, I don’t expect them to expand that to using an earlier age. Another issue is what the terms of the plan provide. If the plan uses age 70 1/2 and doesn’t use the non-5% retirement exception, then no issue. But if the current plan incorporates by reference (a)(9) or uses the retirement exception, then you may have an anti-cutback issue - at least in one jurisdiction. The right to defer payments until the RBD under the plan terms may be a protected benefit. This article does a good job explaining the case and why many think it’s an erroneous decision. https://www.groom.com/resources/court-extends-anticutback-protection-to-post-normal-retirement-age-pension-distributions/

Peter, this is exactly what we are struggling with. The terminal illness provision is not a basis for a distribution on its own. So if the participant is a terminated vested who is 47 years old, wants to cash their benefit out, and meets the terminal illness definition, if we want to help that participant preserve their ability to repay and to get the exemption from the 10% penalty, it seems to me that we, as the payer of a distribution, should offer to take a doctor's certification that the participant meets the Act's definition, and report the distribution on box 7 of IRS Form 1099R as Code 2 - early distribution, exception applies. Now, how he repays it is another question. Do we have to let him repay it to our plan? As you note, if he wants to repay it to his IRA, what is an IRA provider going to require as proof that it was distributed under this Section? Something from us? His 1099R? We were going to do essentially what you did - add a provision that includes the terminal illness definition and repayment. Thanks, Peter. You're one of the great contributors to this site, BTW.

For a really large plan, especially a MEP or PEP, forcing RMDs earlier than required for deceased participants is attractive. Managing all of the different types of beneficiaries and timing requirements can become a challenge in a really large plan. So many participants fail to designate a beneficiary, and that results in a lost participant account. The big question is whether a plan document dictating an RMD earlier than 401(a)(9) causes the amount to be ineligible for rollover. That surely can't be ok, as it is not in the best interest of the participant/beneficiary. If the RMD is paid our earlier than required by 401(a)(9) it seems appropriate to apply mandatory withholding and assume the entire payment is rollover eligible. Appreciate further feedback and comments on this.

To be clear, Kelsey said that in her opinion it should be OK as long as the class is otherwise OK to exclude. In other words, you can't invent a new division B that just happens to be all your LTPTs, base the exclusion on service, or a disguised service exclusion. She also said that we have no idea if the IRS guidance will allow the exclusion of LTPT by class. Just adding a bit more context here since it was an opinion answer rather than here is what will or is likely to happen.

The loan limit applies within a controlled group of employer's retirement plans, so I think he is OK. I know there is some aggregation if the person is the business owner on the 401(k) side because he is also considered the "owner" of his 403(b) but not sure if that is only a 415 issue. If he is an owner I'd dig deeper, otherwise I think he's good to borrow.

As J noted - not only CAN they do this, they MUST do this.

"This requirement effectively restricts employers to making the QSLP match on an annual basis, even if the plan’s regular match is made more frequently, such as on a payroll period or quarterly basis." Is this really the case? I read the provision to say that you can't set the deadline for claiming the match at, say, 30 days after year end - you have to give participants at least three months to submit a claim (and could allow even longer than three months if desired, but I'm not sure that would be a great idea!). In my mind, that doesn't preclude you from funding it more frequently, it just means you may have to do a true up if a claim for an additional amount came in after the end of the year. Doesn't the part in the provision of the Act that allows for funding of the match on the student loan payments on a different frequency seem to allow for this? I guess it's just another thing we need guidance on!

On the surface, it seems like an attractive plan design feature to have a mandatory lump sum distribution at a retirement age that is earlier than the RMD age in an attempt to avoid all of the complexity in determining the benefits payable under 401(a)(9). Practically speaking, there is no foolproof way of completely avoiding the RMD rules in a 401(k) plan. Consider, we cannot prohibit an eligible participant from making deferrals based on age, which means dollars can flow into the plan in each year for an active participant who is RMD eligible. If these dollars are credited to the participant at the end of the plan year, then the dollars could be part of the calculation of an RMD (for example, where the participant terminates in the following plan year, or elects to begin taking RMDs, or elects to take an in-service distribution).

In writing January’s plan amendments, I wrote a definition for a terminal-illness distribution (referring to the subparagraph of the Internal Revenue Code), and added that defined term to the plan’s provision accepting repayments. There is a logic gap in the statute: None of § 401(k)(2)(B)(i), § 403(b)(7)(A)(i), § 403(b)(11), and § 457(d)(1)(A) sets up a terminal illness as a reason for allowing a distribution. A plan might pay a distribution—which the distributee might want to treat as fitting § 72(t)(2)(L)—without the plan’s administrator deciding anything about whether the distributee has, or even has documented, a terminal illness. Rather, a distribution might be provided because the distributee reached age 59½ or has a severance from employment. It’s awkward to ask a plan’s administrator to receive evidence when the administrator has no current need to consider the evidence administering the plan’s provisions. But a distributee who wants to preserve § 72(t)(2)(L)’s excuse from a too-early tax or a right to repay an amount into an eligible retirement plan must “furnish[] sufficient evidence to the plan administrator[.]” http://uscode.house.gov/view.xhtml?req=(title:26%20section:72%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section72)&f=treesort&edition=prelim&num=0&jumpTo=true A distributee might argue that having furnished the evidence is enough, even if the distributing plan’s administrator never considered the evidence. An administrator might keep in its records the evidence received. I have not yet considered what evidence an administrator should require before a plan accepts a contribution a participant claims is a repayment of an amount from a terminal-illness distribution.

I don't think a QNEC to pass ADP/ACP is limited by 402(g), only 415. But I'm not sure what an equitable solution would be is you took this to VCP.

Why in Heaven's Name would you do that? Because participants are good investors or the costs go down?

I agree with comments above. I doubt there is any kind of deliberate plan to hold retirement assets on the part of custodians. Since Fidelity was mentioned, I will comment that if a scenario fits into their cookie cutter model, it will go quickly and smoothly, otherwise they are as hard or harder to deal with as anyone. No props to them from me. I'll also add that in our little corner of the plan world, our clients' plans often say that participants can't get their money until after the end of the year, AND after all contributions have been deposited. That is often misunderstood as some kind of arbitrary case-by-case decision.

From a tax perspective, sure. But the payment would be taxable income (FITW and FICA) to the participant, same as if the employee used after tax income to make their loan payment. Federal and state labor laws might or might not be an issue. Not my area(s) of expertise.

May I ask why not doing a conversion? Cusefan has very good points and then some to the reasoning of terminating. This way, you will continue with the very high deduction limits, not to worry about prior distribution adjustments, establishing new salary history etc etc. Simply do the conversion at end of the year with the (A+B) method - only permitted method. Of course, I have no idea what the facts and circumstances are here so everything I am saying above is from my point of view.

Out of curiosity, did you show the assets and liabilities netting to zero on the financial summary section of the 5500? (With the amount also listed on the Transfers of Assets section for 2022?)

If the legal documentation said they were merged 12/31, then for that brief time in 2023 you had two trusts but one merged plan, I think you're good.

You are correct; it's not cross-referenceable. But, even back when we created our own notices, I did not even think about forceouts having to be in the notice. And if FTW doesn't include them, that's enough cover for me. I always thought of (G) (below) as describing when they could get money from the plan. We all have bright, or fuzzy, lines of ridiculousness and this is on the ridiculous side for me. (Not saying you are ridiculous, but if someone from the government tried to make a case about this...) (G) Withdrawal and vesting provisions applicable to contributions under the plan;

yes, sounds like standard successor plan issue, (which means no distributable event). I suggest contacting the PEP to get a copy of the plan document. There should be a section in there about termination of participation in the PEP by a employer and I would bet it mentions spin-off to a stand alone plan and possibly even use the term successor plan. The ones I've seen from PEPs seem to be fine in those regards.

FWIW, Ms Kelsey Mayo spoke on this at ASPPA yesterday and she said that she believes a class exclusion can be used if it's legitimate and not just a cover for everyone that works 500-1000 hours. The examples she used were job description and location.

Our discussions with a variety of payroll providers usually starts with them responding with "Huh?" and goes no further. The problem we see is that most client provide the payroll files extracted from their provider to us (a recordkeeper) without modification - hence no ability to add the student loan match on the "normal" file. That creates an issue. While still in discussions (and awaiting guidance), our plan sponsors seem to think they'll just do an annual match for these people, despite doing a payroll by payroll match for deferrals. We have a problem there. Possible BRF, possibly timing (and testing considerations), partly a "we're not going to do that this year (after having done the match for everyone else). Our clients range from plans in the mid 5-figures to over a billion in assets, so, we have varying levels of sophistication (or lack thereof). GUIDANCE PLEASE! (if the IRS is listening)

I don't think you need to change either but the question then becomes is it eligible for rollover and subject to the 20% mandatory withholding if before the date stated in the regs?

What? New "forfeitures" in a DC plan simply are internal transfers from the participant account to a plan holding account. They are not a distribution, contribution, or income. If forfeitures are used to reduce employer contributions from the forfeiture account, you would reduce contribution shown by the forfeitures reallocated.