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It does, but the influence is not only in one direction. On one side, we have clients that want to pay admin fees out of pocket, particularly when they realize that the fees often are charged to participants based on account balances and the owners and senior employees have the biggest balances. On the other side, we have clients take the attitude that they have the plan so employees won't gripe about not having a plan and the plan also helps with recruiting. They figure the employees should pay for the cost of administration.

These are very thought-provoking questions, and bring out of the shadows and into the light some of the nuances of being a fiduciary versus trying very hard not to be fiduciary. In our business, we are not a 3(16) administrator. As you allude to, even being a limited fiduciary will not fully isolate us from the fiduciary mandate that "if you see something, you must say something". We take every precaution we can to educate and inform the plan fiduciaries about their responsibilities, and to document that it is a plan fiduciary that ultimately is making a fiduciary decision. If these proposals are adopted, we will have to be able to explain them to plan fiduciaries. We are compensated for our work strictly based on our fee schedule which has no links to investments. We offset our fees with any revenue we receive from sources other than the plan sponsor. When we participate in a vendor selection process, we educate the client on any revenue streams that each vendor and each investment has available. I expect there will be a lot of resistance to these proposals from investment professionals involved with ERISA plans. Generally, the structure of compensation within that profession is interwoven with the revenue streams from the assets held in a plan such as commissions, trailing commissions, 12b-1 fees, other forms of revenue sharing, finders fees, expense charges based on AUM and other similar sources. This puts an investment professional in the untenable position of explaining how being rewarded for doing their job well is simply a by product of not acting in their self-interest and always putting the best interests of the plan ahead of personal reward. Try as they might, investment professionals are not omniscient about global financial markets, perfect investment performance is elusive, and the near-term performance of investments based on the advice of the most successful investment professional can fluctuate significantly.

How would the proposed investment-advice rule affect you? On October 31, President Biden and Acting Secretary of Labor Julie A. Su announced that she will propose a new rule to interpret whether a person provides investment advice that makes the person an employee-benefit plan’s fiduciary. The same rule would interpret also whether one is a fiduciary regarding an Individual Retirement Account or Annuity (IRA), a health savings account, an Archer Medical Savings Account, or a Coverdell education savings account, even if the account is unconnected to an employment-based plan. (Whether a rule would be or might become contrary to law is beyond this explanation.) To go with those interpretations about investment advice that makes one a fiduciary, the Secretary will propose changes for five class prohibited-transaction exemptions (PTEs). These matter because both section 406 of the Employee Retirement Income Security Act of 1974 (ERISA) and Internal Revenue Code of 1986 (I.R.C.) § 4975 make it a prohibited transaction for a fiduciary’s advice-giving to affect her compensation, business, or other personal interest. Under a 1978 government reorganization plan, the Labor department’s rules, exemptions, and interpretations are authority not only for ERISA-governed employee-benefit plans but also for accounts subject to a tax-law consequence under or regarding I.R.C. § 4975. BenefitsLink’s news pages link to the prepublication texts and some news releases and articles. Eight hyperlinks are posted in the October 31 news. The proposals are not yet published in the Federal Register. If published soon, the 60-day comment period would end in early January. And without waiting for a request, the Labor department expects to schedule a hearing in mid-December. What’s in the proposals? Here’s a few key points: Investment advice that makes one a fiduciary includes a recommendation of any investment transaction or any investment strategy. That applies for someone in a business that regularly involves investment-related recommendations, or who “represents or acknowledges that they are acting as a fiduciary when making investment recommendations.” The proposed rule’s explanation of a recommendation aligns with uses of that word under securities law and insurance law. A recommendation need not be about securities; it would be about any kind of investment property, including an annuity contract, even a fixed annuity contract, and a life insurance contract, unless it has no investment element. An investment adviser is a fiduciary only “to the extent” it renders investment advice. For example, a securities broker-dealer or insurance agency that presents a rollover recommendation might be a plan’s or IRA’s fiduciary only when it forms and presents a particular recommendation. One might be a fiduciary only for a day or two. For example, a one-time recommendation to rollover a payout into an IRA could make the recommender a fiduciary, but her responsibility might end when the distributee accepts or rejects the recommendation. Responsibility for one-time advice also might apply to a suggestion about how another fiduciary selects or monitors designated investment alternatives, or about whether to allow a brokerage window. That a person is not (or is no longer) a fiduciary under ERISA or the Internal Revenue Code does not excuse the person from duties under banking, commodities, insurance, or securities law. The revised best-interest exemption (PTE 2020-02) would let a Financial Institution—such as a bank, trust company, insurance company, securities broker-dealer, or registered investment adviser—and its Investment Professionals provide self-dealing advice if they don’t put their interests ahead of the Retirement Investor’s interests and don’t put the Retirement Investor’s interests below the Financial Institution’s or its Investment Professional’s interests. Some changes would widen which persons can get relief. Some changes would tighten disclosures. Among other changes, a Financial Institution and its Investment Professional must confirm in a written disclosure that they act as fiduciaries. A change would require a Financial Institution’s yearly compliance reviews to check “that [t]he Financial Institution has filed (or will file timely, including extensions) Form 5330 reporting any non-exempt prohibited transactions discovered by the Financial Institution in connection with investment advice covered under [I.R.C. §] 4975(e)(3)(B), corrected those transactions, and paid any resulting excise taxes owed under [§] 4975[.]” If the Labor department adopts its proposed change in PTE 84-24, an Independent Producer who recommends an unaffiliated Insurer’s annuity contract could get a fully disclosed commission or fee if the exemption’s protective conditions are met. What’s the big change? The Insurer “would not be treated as a fiduciary merely because it exercised oversight responsibilities over independent insurance agents under the exemption.” And the Insurer “only would be required to exercise supervisory authority over the independent agent’s recommendation of [the Insurer’s] products.” Another proposal would change PTEs 75-1, 77-4, 80-83, 83-1, and 86-128 so each provides no relief for a self-dealing transaction, including conflicted compensation. Instead, a fiduciary must meet the conditions of the best-interest exemption. This is only a quick and short look at a few of the many points in the proposals. For more information, read the source texts. Or, post your query in this BenefitsLink discussion.

I just want to point out that I don't think there's any formal guidance on the 5500 issue, but I believe that most practitioners do take the position that if the pre- or same-day merger resolution says 12/31, then the fact that the actual consolidation of assets occurs after that date does not prevent the conclusion that there was only one plan as of 1/1.

WASHINGTON The Internal Revenue Service today announced cost of living adjustments applicable to dollar limitations for pen (irs.gov)

I agree if the plan merger occurs on 12/31/2023, but the OP only says 12/31/2023 is the end of the transition period and does not specify the effective date of the merger. The cautionary point is to make sure the plan has documentation that the merger date is no later than 12/31/2023 and not some date in 2024. The OP also explicitly says the Company B plan recordkeeper will liquidate the assets (most likely because the investment menu in the Company A plan differ (but we don't know that from the information provided).

Here are some questions for our BenefitsLink neighbors. If the Labor department’s proposed rule becomes a final rule and becomes effective and applicable, what effects would the rule have on your business? Is there a service you now provide that you would stop when the rule becomes applicable? Is there a service you don’t now provide that you would develop and offer? If you’re a recordkeeper or third-party administrator, would the rule change any aspect of your relationships with investment brokers and advisers? If you provide services as a § 3(16) administrator, are you ready to defend claims that you knew an investment adviser breached and you didn’t do enough to remedy that other fiduciary’s breach? And how about your own business: (1) Even as only a third-party administrator, do you sometimes help an employer select a participant-directed plan’s “menu” of investment alternatives? Or do you as a part of your business help an employer select a recordkeeper and that choice means taking on some of the recordkeeper’s or its affiliate’s investments? (2) Do you get any compensation, however indirectly, you would not get unless the plan made a choice under #1? If #1 and #2 are yes, are you an investment-advice fiduciary? If you are, which exemption do you use to cure your compensation conflicts?

Movement of assets has nothing to do with a short PY. If the plan merger occurs on 12/31/23, then: There is no Plan B one day later. ALL of the assets belong to Plan A immediately. There is no requirement to liquidate any of the Plan B assets.

It sounds as if the Company B plan is merging into the Company A plan. Is there a corporate resolution or other similar documentation of the plan merger? Assuming yes, what was the effective date of the merger? If the date is 12/31/2023, then the asset transfer on 1/15/2023 is the administration of the plan completing the merger. If the formal merger date is after 12/31/2023, then there were two plans in existence up to the formal date of the merger. This scenario would strengthen the argument that the Company B has a short plan year in 2024 along with all of the reporting and compliance requirements applicable up to the date of the merger. Lou is correct that you should be good with the transition through 12/31/2023, but if the merger is not formally documented or the documentation creates a short plan year, that will be a PITA.

No, that in and of itself will not effect transition rule testing. It's just going to be a reporting issue with how you treat it and whether or not a you are going to need a short year 5500 for the 1/1/2024 - 1/15/2024 "Plan Year" for the B Plan. It might depend on if you are using cash or accrual reporting and what date your merger is effective.

Fundamentally, this is not a payroll issue. Student loan repayments are paid to the loan service provider. A student may have multiple loans from multiple loan service providers. Participants are submitting a claim in which case the participant controls the timing of that claim, and that can be up to 3 months after the close of the plan year. There is no payroll related involvement with respect to participant compensation nor is payroll involved with the loan repayments. It will be interesting to see if large recordkeepers think there is a sufficient population of plans and participants who wish to use this feature, or will the bulk of the administration be left to individual plan sponsors to build their own internal solutions.

Ahh... so my reference actually has nothing to do with the employee terminating and recieving a severance package. Got it!

Well, I'm going to argue until I'm forced into submission.

I thought the same, but Kelsey corrected me, it is "12 month periods" not "plan years" or "consecutive years". Arguably, the "overlapping" periods are still consecutive because there is no period with less than 500 hours in the sequence.

Check the plan's definitions of: Disability, because the plan's requirements to be considered may be different from the definition was using to make the disability payments. Hours, because the plan may provide for crediting of hours while the participant was considered disabled under the plan. Compensation, because the plan may have rules about whether the payments made by the firm are considered as compensation.

Section 112 of SECURE 1.0 says for LTPTs: (D) SPECIAL RULES.— (i) TIME OF PARTICIPATION.—The rules of section 410(a)(4) shall apply to an employee eligible to participate in an arrangement solely by reason of paragraph (2)(D)(ii). (ii) 12-MONTH PERIODS.—12-month periods shall be determined in the same manner as under the last sentence of section 410(a)(3)(A). The last sentence of section 410(a)(3)(A) says: For purposes of this paragraph, computation of any 12-month period shall be made with reference to the date on which the employee's employment commenced, except that, under regulations prescribed by the Secretary of Labor, such computation may be made by reference to the first day of a plan year in the case of an employee who does not complete 1,000 hours of service during the 12-month period beginning on the date his employment commenced. This is the language that gives rise to the ability to shift the eligibility computation period to the plan year starting within the participant's first 12 months of employment. If the plan provides for the a shift in the eligibility computation period for LTPTs, then an LTPT very likely will have the eligibility service to enter the plan before the LTPT employee's 3rd anniversary of employment. I have not seen anything that requires the plan to apply the same eligibility service computation period to all employees. If there is no such requirement, then the plan sponsor may consider using the anniversary date ECP for LTPTs and the shifting rules for non-LTPTs. Given the lack of guidance, the recommendation is for a plan sponsor who chooses to take this route of having differing rules minimally to adopt a formal eligibility service policy for LTPTs in anticipation of a future plan amendment. This is all dependent on the availability of data and systems to be able to do the eligibility determinations correctly.

Does a plan that excludes 100% of its eligible NHCEs have a "processes and procedures" problem which might cost the ability to even USE EPCRS here?

I spoke with Ms Kelsey about that because I don't agree with her interpretation. the rule says three "consecutive years" for 500 hours. It doesn't say overlapping years.

I don't think I have ever seen a SHNEC allocation condition that excludes key employees. I have seen SHNEC allocation condition that excludes HCEs. "Key employee" is a term of art used to determine if a plan is top heavy and there are several criteria based on ownership percentage, officer status and compensation, plus in some cases the total number of key employees may be limited to a subset of employees who meet the criteria. Top heavy provisions and related definitions often appear in a separate section of the plan document, and it the case of pre-approved plans, in a separate section of the basic plan document. If this plan is using the top heavy definition of key employee as an allocation condition, then the plan will have to specify the year of the determination of the key employees. Top heavy testing is done as of the last day of the prior plan year, so key employees for that test are determined based on ownership in the prior year.

They are Key Employees. They own more than 5% of the employer or they own more than 5% of a participating employer.

An example that was presented at ASPPA Annual used 1/31 PYE, 2/1 & 8/1 entry dates, and switch to plan year after the first period. Employee was hired January, 2021 and worked more than 500 but less than 1000 in the first computation period and the 2021 & 2022 Plan Years. Participant enters 2/1/2023.

The ADP testing would not need to include the NHCE if they weren't offered the plan. See page 86 on Rev Proc 2021-30 https://www.irs.gov/pub/irs-drop/rp-21-30.pdf "(g) The methods for correcting the failures described in this section .05(2) do not apply until after the correction of other qualification failures. Thus, for example, if, in addition to the failure of excluding an eligible employee, the plan also failed the ADP or ACP test, the correction methods described in section .05(2)(b) through (f) cannot be used until after correction of the ADP or ACP test failures. For purposes of this section .05(2), in order to determine whether the plan passed the ADP or ACP test, the plan may rely on a test performed with respect to those eligible employees who were provided with the opportunity to make elective deferrals or after-tax employee contributions and receive an allocation of employer matching contributions, in accordance with the terms of the plan, and may disregard the employees who were improperly excluded."

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.

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.

Is it a preparer of the 5500 or the auditor? If it's the auditor, run!