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The Treasury’s Regulations Governing Practice before the Internal Revenue Service (reprinted as Circular 230) includes this: Requirements for written advice The practitioner must [when giving written advice on a Federal tax matter]— Not, in evaluating a Federal tax matter, take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit. 31 C.F.R. § 10.37(a)(2)(vi) (emphasis added). If that rule governs a practitioner’s advice-giving, it applies only for written advice, and only for written advice that evaluates a matter. Even if one follows the IRS’s assertions that the Circular 230 rules govern everything a once-recognized practitioner does that, however indirectly, relates to her practice before the Internal Revenue Service, § 10.37(a)(2)(vi) does not restrain one from providing truthful information, not advice, about nondetection or nonenforcement. Beyond those tax-practice rules, whether a lawyer must, may, or must not provide advice or information about nondetection and nonenforcement remains a subject of considerable academic and professional discussion. In summer semesters, I teach a law school’s course on Professional Conduct in Tax Practice. Here’s an edited excerpt from a reading list I give them: Jamie G. Heller, Legal Counseling in the Administrative State: How to Let the Client Decide, 103 Yale L.J. 2503 (1994) (suggesting a lawyer educate her client with full-picture counseling about the law’s provisions, practical application, potential nondetection, potential nonenforcement, and purposes so the client can make fully informed choices). Stephen L. Pepper, Counseling at the Limits of the Law: An Exercise in the Jurisprudence and Ethics of Lawyering, 104 Yale L.J. 1545 (1995) (suggesting modes of reasoning about whether it is appropriate for a lawyer to advise a client about potential nondetection or nonenforcement). Linda Galler, The Tax Lawyer’s Duty to the System, 16 Va. Tax. Rev. 681 (1997). Robert W. Gordon, Why Lawyers Can’t Just Be Hired Guns [chapter 3] in Ethics in Practice: Lawyers’ Roles, Responsibilities, and Regulation (Deborah L. Rhode, ed. 2000) (“Lawyers have to help preserve the commons—to help clients comply with the letter and purpose of the frameworks of law and custom that sustain them all; and their obligation is clearly strongest where there is no adversary with access to the same body of facts to keep them honest, and no umpire or monitor to ensure conformity to legal norms and adequate protection of the interests of third parties and the integrity of the legal system.”). Frank J. Gould, Giving Tax Advice—Some Ethical, Professional, and Legal Considerations, 97 Tax Notes 593 (2002). Michael Hatfield, Legal Ethics and Federal Taxes, 1945-1965: Patriotism, Duties and Advice, 12:1 Fla. Tax Rev. 1-56 (2012). Michael Hatfield, Committee Opinions and Treasury Regulation: Tax Lawyer Ethics, 1965-1985, 15 Fla. Tax Rev. 675 (2014). Milton C. Regan, Tax Advisors and Conflicted Citizens, 16 Legal Ethics 322-349 (2014) (suggesting that ethics or professional-conduct expectations ought to vary with whether a lawyer serves as an advocate or an adviser, and for advisers by the context in which an advisee seeks advice). John S. Dzienkowski & Robert J. Peroni, The Decline in Tax Adviser Professionalism in American Society, 84-6 Fordham L. Rev. 2721 (2016). Heather M. Field, Aggressive Tax Planning & The Ethical Tax Lawyer, 36 Va. Tax Rev. 261 (2017) (suggesting a lawyer “identify and implement her philosophy of lawyering” about tax planning). Michael Blackwell, Conduct Unbefitting: Solicitors, the SRA and Tax Avoidance, 2019-1 British Tax Rev. 31-54 (2019) (criticizing the Solicitors Regulation Authority for wrongly suggesting that a solicitor who facilitates tax avoidance necessarily breaches the SRA Code of Conduct). Rashaud J. Hannah, Betwixt and Between: A Tax Lawyer’s Dual Responsibility, 34 Geo. J. Legal Ethics 991 (2021). ****** I imagine few of us want to coach a client on getting away with the wrong thing. But there are situations in which law is ambiguous, or how the facts relate to law is ambiguous. And even when there is no ambiguity, there are circumstances in which some of us think it’s appropriate to furnish information and let a client decide what the client does or omits.

Luke, you are correct. Circular 230 sec. 10.37(a)(2)(vi) forbids a practitioner from taking into account "the possibility that a tax return will not be audited or that a matter will not be raised on audit." Section 10.37 is titled "Requirements for written advice." Does that imply that you can advise a client on this as long as it is not in writing?

I was told by someone who is an expert in this area of the law and whom I trust that it is against the ethical rules that apply to lawyers to counsel a client on the odds of getting caught. That may be in Circular 230. I have not had a lot of experience with this issue's being audited, but I tend to agree with CuseFan and I think a couple of key facts are (a) did the small employer that terminated the plan need the cash for some personal reason, e.g. to pay a debt or buy a house, and (b) did they start a new plan soon thereafter when their financial position improved? Those two facts would tend to cast doubt on the bona fides of what otherwise might seem a decent termination excuse.

And it walks like a rose

Congrats on your retirement. I'll be following you out the door at the end of this year (and 42 years in the CPA racket.) I'm basically just a lurker here but I try to read the board every day. It's an invaluable resource and I 100% echo your message of deep appreciation.

I never make that determination or negotiate nor attempt to, not my place as I have no clue about the biz structure. I know about the 20 step rule and also know enough for pass/fail smell test and also enough to make noise about it. At the end of the day, it is between the sponsor and the CPA. I can only either warn them about the dangers or not accept as a client. nothing else to do.

The Department of Labor just released its final rule (January 9th) on determining who is an independent contractor. Attached is a good summary of the rule. You are correct that the burden of proof is on the employer, and you may want to send Joe a copy as a courtesy FYI. At an opportune time before setting up any plans, consider having a conversation with Joe about the severe consequences of setting up the plans should the DOL decide that Mary and Jane are in fact employees and the IRS discovers that they are not included in the plans. If Joe still wants to move forward, you will need to give some very serious thought about whether you want to do business with Joe. Personally, unless Joe can provide documentation that Mary and Jane truly are independent contractors, I would not do business with Joe. DOL final rule adopts 'economic realities' test for independent contractors.pdf

The Senate Finance Committee - Secure 2.0_Section by Section Summary 12-19-22 FINAL describes Section 316: Amendments to increase benefit accruals under plan for previous plan year allowed until employer tax return due date. The SECURE Act permits an employer to adopt a new retirement plan by the due date of the employer’s tax return for the fiscal year in which the plan is effective. Current law, however, provides that plan amendments to an existing plan must generally be adopted by the last day of the plan year in which the amendment is effective. This precludes an employer from adding plan provisions that may be beneficial to participants. Section 316 amends these provisions to allow discretionary amendments that increase participants’ benefits to be adopted by the due date of the employer’s tax return. Section 316 is effective for plan years beginning after December 31, 2023. Under this provision, the plan could amend the plan before the due date of the tax return to increase the contribution rate enough to absorb the excess contribution. The description of the effective date in the summary arguably is unclear when can this provision could be used. Is it available in 2024 to amend a 2023 plan? Or, does the amendment have to be applicable to a plan year beginning after December 31, 2023? The language in the statute says "EFFECTIVE DATE.—The amendments made by this section shall apply to plan years beginning after December 31, 2023." This phrasing points to being able to first use this in a 2025 plan year to amend a 2024 plan year. 😢

Has anyone talked to Relius about when the 2024 specimen plan termination amendment is going to be available? I've just spent a very frustrating 1/2 hour trying to navigate their "ticket" system and telephone support when I couldn't get the ticket system to work. And the telephone option didn't work either... I miss the old days.

Here is my legal opinion and my opinion as a real estate broker since 1974: Real estate agents are classified as independent contractors by Federal law. See 26 USC 3508 at https://www.law.cornell.edu/uscode/text/26/3508 and see https://www.nar.realtor/advocacy/nar-issue-brief-real-estate-professionals-classification-as-independent-contractors I see no evidence that this code provision was changed by the new DoL FLS Rule that you can find at https://www.federalregister.gov/documents/2024/01/10/2024-00067/employee-or-independent-contractor-classification-under-the-fair-labor-standards-act

Haha I know you can handle it! Not sure if I told you, but it took me a while to figure out who "Bri" was and that he (not she as I thought) actually worked with me. But I was always impressed with your comments lol. You're one of the current and future Benefitslink stars! That's good because lots of the old ones are gone or getting quiet these days. But not all of them.....

Thanks to the guy that always claims to have minimal DB knowledge but who's comments I almost always (if not always) agree with! And thanks for all the humor and entertaining comments over the years!

See Notice 98-92 Example 5 (copy attached). The first plan uses the formula of 100% on the 1st 3% deferred and 50% on the next 2%. The second plan uses the formula of 100% on the 1st 4%. An HCE in the second plan deferring 4% will have a higher match rate than an NHCE in the first plan deferring at the same 4% rate. This is not allowed. not98-52.pdf

Note that in the case I worked on we interpleaded the benefit into court, and we felt that was as closing as we could come to distributing the benefit for purposes of the plan's obligation to make an RMD. Note that in addition to addressing this in the final regulations, as Peter suggests, the IRS might want to change the 1099-R Form and instructions to include interpleader.

I think you need to consider the intent of the rule, which is to avoid issues relating to valuation and capital gains taxes. So I don't think it is a problem. Frankly, it's probably harder to transfer shares than it is to redeem them and send a check, so it's a bit puzzling why someone would bother. It raises a small red flag about the titling. (I don't believe you can ACAT shares to and from accounts that are titled differently, at least not without a lot of paperwork.) [edit for typo]

It depends. If the express rule provides for the necessary flexibility, and the provisions that we want, then I'd vote for an express rule. The problem is, the express rule may not be what we want, or provide sufficient flexibility in all situations, in which case we might be better off leaving it to "good" judgment. The IRS has historically, in my experience, been very reasonable about waiving RMD penalties. Perhaps with the reduced 10% penalty, they may be less inclined to waive penalties - only time will tell. Now there's a useless noncommittal response for you...

On whether an employment-based plan’s administrator fails to administer the plan according to its governing documents (including a § 401(a)(9) provision) so that the IRS would tax-disqualify a plan on that ground, a fair reading of relevant tax law ought to allow some tolerance for situations in which the beneficiary is not yet decided. As Luke Bailey points out, we’ve not found a regulation, or even nonrule published guidance, that describes such a tolerance. A rulemaking project on § 401(a)(9) remains open. Further, the Treasury might revise its proposed rule to follow and interpret SECURE 2022 changes, and might invite another round of comments. For situations in which an administrator delays a distribution while deciding (or waiting for a court to decide) which person is the rightful beneficiary, would it be helpful or harmful for Treasury to put something in the regulations to recognize those situations? For example, a rule might say a plan is not tax-disqualified for failing to pay a beneficiary’s distribution when the plan’s administrator uses a claims procedure—with periods no longer than those permitted under ERISA § 503—to decide who is the beneficiary, or when a court proceeding to decide which person is the beneficiary is pending. BenefitsLink mavens, do we want an express rule? Or are we better off leaving this to good judgment?

If an excise tax would apply and no other remedy or accounting fits, the employer, the plan’s administrator, and the plan’s trustee each might want advice to evaluate whether a contribution was made “by a mistake of fact” so that, if within one year after the payment of the mistaken contribution, the trustee might return the mistaken amount to the employer.

If no one is hurt, that is, the minor children get the money from the IRA someway/somehow, does it make sense to ignore the error and let it play out?

I am not really sure what you are asking, but I think you are asking about the immediate annuity that needs to be offered because the plan is now paying a lump sum? The 417(e) lump sum needs to be the present value of the accrued benefit payable at NRD. It is not required to include any early retirement subsidies. However, the value of those subsidies needs to be disclosed in the relative value disclosures given to the participant with their election form. You must at least offer an immediate QPSA and QOSA, and any other options they are eligible for at the time of lump sum payment. If the plan does not contain any early retirement provisions for ages below ERD, you will need to add them. IOW, if the plan allows early retirement at 55/10, but the participant is 45, you need to know how to determine the immediate annuity at age 45. Typically, we would use the standard early retirement factors until Early Retirement Age (if otherwise eligible), then use the plan's actuarial equivalents (not 417(e) for ages below that, but that should be part of the window amendment. Then, for relative value disclosures you would compare the value of the immediate benefit using 417(e) factors to the value of the actual lump sum and disclose the difference to the participant. You have lots of options with this, but that is the way we typically do it. I believe you could also determine the lump sum based on the annuity at NRD, then divide it by the immediate QPSA factor using 417(e) rates and offer that as the immediate annuity, but you need to be careful about those who might otherwise be eligible for early retirement and your participant disclosures would need to explain that if they waited until they were eligible for an early retirement benefit that their monthly benefit might be significantly higher. We generally don't do it that way because of the inconsistencies, but if your plan doesn't have any early retirement provisions, that may be a simple solution. No matter what you do, you need to follow plan provisions.

Here are two IRS publications that discuss fringe benefits and neither mentions employer compensation for jury duty: https://www.irs.gov/pub/irs-pdf/p15b.pdf https://www.irs.gov/pub/irs-pdf/p5137.pdf The publications discuss fringe benefits that are not included in income and say everything else is not excluded. From the perspective of the plan, amounts paid for jury duty by someone other than the employer are not employer compensation and are not considered by the plan. Interestingly, many plans talk about jury duty in the definition of Hours of Service. For example: "Hour of Service" means (a) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties during the applicable computation period (these hours will be credited to the Employee for the computation period in which the duties are performed); (b) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, incapacity (including disability), jury duty, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation §2530.200b-2" While the above is not clearly dispositive, if the employer pays the employee for time the employee is on jury duty, it is not a fringe benefit.

Congrats Andy. Thanks for all the sharing of info. And putting up with my very dry humor over the years I only look in once and a rare while but at least I was inspired to look in at a good time. God bless on your retirement.

I was driven out by the (In)secure Act 2.0. I still lurk every day. It confirms my decision to hang up my ghosts. I got many a piece of good advice on these boards. Dave and Lois, you've provided an invaluable service and I'm eternally grateful for it.

Enjoy retirement Andy! You have earned it! I will also echo the appreciation for Dave, Lois and this forum . It is such a great resource for this community and I always enjoy meeting my fellow benefitslinkers in the wild!

(And of course, thanks for leaving me a bunch of plans to have to take over on! 😁)

Congrats Andy, enjoy for yourself what you've spent a career helping others attain - I'm jealous!

Thank you, AndyH, and thanks for reminding us all to recognize the amazing resource that Dave and Lois Baker have created for all of us. As I have moved between HR and TDA and back again I have benefitted from BenefitsLink and especially the forums to refresh my memory or to get up-to-speed on a new facet of retirement administration. Best wishes, AndyH, on your retirement, and gratitude to the Dave and Lois!

Congratulations on your retirement! Best wishes for fair winds and following seas in the years ahead. And thank YOU for the kind words, as well as for all of your contributions to these Boards over the years -- we're honored to have been part of your journey.

Congratulations! And we'd like to extend this Laurel, and Hardy handshake (sorry, my so-called sense of humor again). I have appreciated your commentary over the years. As with all such announcements, I'm very jealous, but nevertheless I very sincerely wish you a very long, healthy, and happy retirement! Take care.

When just out of law school and the only entity who hired women was the IRS who did hire me, we were soundly instructed to look at the law, not at the instructions to forms. Still a good rule to remember.

Amen!

In case anyone is interested in seeing the messages @justanotheradmin references, they are: Note that the Last Updated dates are respectively from 15 and 6 years before the 2023 form was made available to software developers. The P-230 tests a 5500 and should (but doesn't) check against Line 6a(1) for defined contribution plans as determined by the pension codes on Line 8a, and Line 5 for other plans. The P-230SF tests a 5500-SF and should (but doesn't) check against Line 5c(1) for defined contribution plans as determined by the pension codes on Line 9a, and Line 5a for other plans.

@justanotheradmin thanks for the update. This makes a lot more sense.

Thank you everyone for the comments. The software company has decided to update their reports! They do understand the rule, turns out that was not the issue. Turns out the EFAST system/filing software will give a STOP error if the beginning of year total participant count is above 120, but is being filed on an SF, or if using a Form 6600 but there is no Sch H + audit report. Even though under the new rules and instructions there shouldn't be an error for that. So the filing system hasn't caught up with the updated rules. So if you have plans that under the old rule would have been required to have an audit, but under the new rule are not required to have one, just be aware you may not be able to file the Form 5500 as you'd like until the filing system is updated. The vast majority of plans will not fall into this category, they will either be squarely audit or non-audit, so I do think its better to have the reports correct, and then the small minority of plans that end up with a filing issue can decide on an individual basis how they want to file as they approach the filing deadline. By then hopefully the filing system has been updated to align with the new rule. It is errors P-230 and P-230SF if anyone is that technical and wants to look them up. If others have already encountered either of those specific errors and want to share how they are handling them, I'd be curious. I know we are early in the tax season so I know not many 2023 Form 5500 for regular year ends have been filed yet.

nor have i, because its brand new, and the document providers are trying to figure out what to draft based on the limited guidance. Prior to the enactment of SECURE 2.0 in December 2022, the only option was that Safe Harbor Match was pre-tax. If the plan allowed, after the match is deposited the participant could convert to Roth Safe Harbor, via a roth conversion or a roth rollover. Otherwise, when the participant gets a distribution of the Safe harbor match amounts paid to themselves, its taxable as income, the same as any other pre-ta Now, with SECURE 2.0, if the plan document allows, and the participant chooses, when the Safe Harbor Match is deposited, it goes in directly to a Roth Safe Harbor source. The participant receives a 1099-R showing it as taxable based on the year it was deposited. See https://www.irs.gov/pub/irs-drop/n-24-02.pdf its taxable if the participant elects the contribution be made as roth. The income is reported on Form 1099-R. If the match is for 2023, and deposited in 2024, for the employee it is taxable as 2024 income. for the participant's tax impact, it doesn't matter what year the benefit accrued, only when it was deposited. the notice from the IRS goes into this, and is definitely worth a read, even though it's 80 pages.

This is correct. Starting 2023, it changes from eligible participants to participants with an account balance to determine the count for the audit trigger. Other than that, no changes.

Yes, to all the above advice. It might be prudent to do a little due diligence (and documentation) to make sure the plan was formally (and correctly) terminated. It cannot be both a merger and a termination. If the latter, then you know to step aside.

I'm not sure what your role is here but personally, I would let it play out - that is, don't waste much time on it, and let the sponsor (is this the new sponsor or the old) try to get the money. I seriously doubt the IRA provider will cooperate and it goes away. Any idea why this is even a "thing"? ...just saw ESOP guys response; we are in agreement on this.

My reaction to this are as follows: 1) Why are you involved? It sounds like you did your job and helped terminate the plan per their instructions. 2) I don't see how the plan sponsor has legal authority over the IRAs to direct anything. The IRA isn't part of any plan of theirs. That is the point of doing the force out to an IRA. They trustee no longer is responsible for the funds becasue they no long have any authority. I really question of the plan sponsor has a legal right to direct someone's IRA. You might want to ask a lawyer if you could be legally liable if you help them do this. I am shocked the IRA custodian is agreeing to do this. 3) I would not put any assets back into the old plan's trust if the old one has been fully paid out and the final 5500 was filed. The plan is gone. This sounds like a mess I would not want any part of if it were me.

Only if the plan allow and the participant elects it that way. Employer contributions, including safe harbor match, are contributed on a pre-tax basis. They only go in as Roth, in this case Roth Safe Harbor, unless the plan allows for employer contributions as Roth (new with SECURE 2.0) and the participant has chosen for them to be done that way.

Although ERISA § 403(c)(1) commands that a plan’s assets must never inure to the benefit of any employer, § 403(c)(2)(A)(1) excepts a return, “within one year after the payment of the contribution”, of a contribution an employer made “by a mistake of fact[.]” ERISA § 403, unofficially compiled as 29 U.S.C. § 1103 http://uscode.house.gov/view.xhtml?req=(title:29%20section:1103%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1103)&f=treesort&edition=prelim&num=0&jumpTo=true. Interpretations about what is or isn’t a mistake of fact vary widely.

You might get some help by using the Search feature above, with the search phrase "mistake of fact".

None that I'm aware of. The only recent change I recall to the audit rules is now you need more than 100 participants WITH ACCOUNT BALANCES and not just 100 eligible. Assuming none of the 80-120 rules comes into play.

For me, the "why not bring them in", aside from the politics of placing the retirement responsibility on the small business owner, is the pricing by TPAs (and rightfully so) of the Owner Only Plan to full pricing. The TPAs I work with generally have a discounted fee for Plans that have only an owner or owners. I fear this may be counter productive by that small business owner terminating or not starting, their Profit Sharing 401(k) Plan due to the increased costs to have this category of employee as a participant in the Plan for deferrals only.

There is a difference in the instructions for the Form 5500 between Line 5 Total number of participants at the beginning of the plan year Line 6g(1) Number of participants with account balances as of the beginning of the plan year (only defined contribution plans complete this item) The 2023 instructions for the 5500 line 5 [lightly edited] say: " For pension benefit plans, “alternate payees” entitled to benefits under a qualified domestic relations order are not to be counted as participants for this line. For pension benefit plans, “participant” for this line means any individual who is included in one of the categories below: 1. Active participants (i.e., any individuals who are currently in employment covered by the plan and who are earning or retaining credited service under the plan). This includes any individuals who are eligible to elect to have the employer make payments under a Code section 401(k) qualified cash or deferred arrangement. 2. Retired or separated participants receiving benefits 3. Other retired or separated participants entitled to future benefits 4. Deceased individuals who had one or more beneficiaries who are receiving or are entitled to receive benefits under the plan. " The 2023 instructions for the 5500 line 6g(1) say: "Line 6g. Enter in line 6g(1) the total number of participants included on line 5 (total participants at the beginning of the plan year) who have account balances at the beginning of the plan year. Enter in line 6g(2) the total number of participants included on line 6f (total participants at the end of the plan year) who have account balances at the end of the plan year. " Clearly Line 6g(1) is counts either a subset or all of the participants reported on Line 5. Participants who are eligible to defer but who do not have a balance at the beginning of the plan year are NOT included on Line 6g(1), but they ARE included on Line 5. The Form 5500-SF instructions are the same where Line 5a is the same as the Form 5500 Line 5 and Line 5c(1) is the same as the Form 5500 Line 6g(1). Note there is an EFAST2 edit check which may be contributing to the confusion: "Z-007 - WARNING - Fail when the total participant BOY count on Line 5 of the Form 5500, Line 5a of the Form 5500-SF, or Line 5a(1) of the Form 5500-EZ of the current submission does not match the total participant EOY count on Line 6f of the Form 5500, Line 5b of the Form 5500-SF, or Line 5b(1) of the Form 5500-EZ from the previous year's submission."

Here are the 2023 Instructions for Forms 1099-R. https://www.irs.gov/pub/irs-pdf/i1099r.pdf The line-by-line instructions are consistent with where you suggest reporting each of the numbers in their respective boxes, and the Table 1. Guide to Distribution Codes starting on page 15 shows that you can pair Code 1 and Code B in Box 7. Looks like you are good to go.

I suppose the document might say if the participants fail to give the trustees their investment instructions, there could be a provision that it falls back to the trustees' prudent judgment. And if a properly discloses SPD tells participant they can choose their own, and they then didn't go and choose anything.....

No employer contribution required if they are eligible to defer SOLELY as an LTPT. No safe harbor required, no match required.

I don't think it is that simple. The proposed regs say that the class exclusion can't be a "proxy for imposing an age or service requirement." I suspect it might be generally playing with fire to use this exclusion, if the purpose is to exclude LTPT employees. Other than the PIA for determining who is or isn't an LTPT, and having the hassle of offering them the deferral opportunity, it isn't otherwise a big deal as far as I'm concerned. No employer contributions required, exclude them for testing, top heavy, whatever. I'm oversimplifying, of course, and the PIA/hassle is potentially very substantial!

The penalty does not apply if “it is shown that [the] failure is due to reasonable cause[.]” But Congress set the amount.