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I doubt the US government prosecutes a false-statement crime beyond outrageous situations. The indictment’s charge against Marilyn Mosby for her false statements to her deferred compensation plan seem related to other circumstances, including frauds against financial institutions and the US Treasury’s lien for unpaid Federal taxes, with an outstanding balance more than $69,040. The convict was a Maryland State’s Attorney, Baltimore’s prosecutor. (Someone who ought to have a deeper-than-common understanding about needs for truthfulness in signing a penalties-of-perjury statement.) She suffered no reduction in her $247,955.58 [2020] salary. She was not unable to work because of a lack of child care. She did not state an interruption in her husband’s income. (Nick J. Mosby is the president of Baltimore’s City Council.) Her coronavirus-related distributions were $90,000. The two amounts and the timing suggest an absence of a relation to a coronavirus-related change. I’ve seen no suggestion that Baltimore’s deferred compensation plan service provider, Nationwide, did anything wrong by processing the participant’s self-certifying claims.

Nobody knows what that means. Are you a TPA, advisor...?

Never underestimate the value of employee relations and participants' perception of the integrity of the company or the plan's service providers. We work with more than a dozen recordkeepers and none of them would push back on posting an expense reimbursement if it is available under the plan document. Trying to fix this with a few extra buck in a bonus just pushes the hassles on to payroll (not to mention the hassles when payroll does not report the bonus correctly when reporting plan compensation). On the other hand, tell a participant that their account was dinked $100 for an expense that was due to a setting that was missed during a change in the investment platform would not be received well. The participant likely will respond that the $100 less in their account will translate into $2,000 (or more) less money that will be available to them when they retire. (Yes, some participants read the communication material they get bombarded with.) Another participant just as likely will say $100 would get them dinner and see a movie. Own it, clean it up and let participants know the company is a responsible steward of the participants' money in the retirement plan.

I think this (paying back to the plan to avoid a taxable event so the entire amount could be rolled over) was more important before the QPLO rules. Since the participant terminated employment, it should be treated as a Qualified Plan Loan Offset (QPLO), and the employee has until extended tax filing deadline for the year of the offset to use other funds as a rollover. So, seems to me that there's nothing much to be gained from a tax perspective by depositing those funds back to the plan to repay the loan. Maybe easier administratively somehow by having it all directly rolled over in one lump sum, I suppose. Maybe I'm missing something here...

You can give them the guidelines on Plan permanency rules and let them make the decision if they want to implement a plan and what kind. Then you as a service provider need to decide if you are comfortable with providing administration for the decision they make or direct them to seek other service providers. While the IRS views any plan in existence for 10 years to be permanent, plans can (and do) terminate in shorter time frames but it would be a facts and circumstance determination whether the IRS would view the Plan as qualified or not based on the Plan permanency rules. Based on your facts, I agree with you that this seems to fit well with in the regs of a plan that is NOT intended to be permanent but I've certainly seen plans over the years, even ones that have gotten DLs on termination, (though not for many years) that fit your fact pattern and i have not yet seen the IRS come to disqualify one. Though that is purely anecdotal and I am not suggesting you propose audit roulette to the client, just an observation. Interestingly I don't think the Plan permanency rules apply to SEPs so that might be an alternative for them if demographics work if you and/or they are not comfortable with the risk of a qualified plan

I think because the IRS has no consistent definition of "fringe benefits," as pointed out by JRN and others above, it's up to the plan administrator to interpret the plan in a consistent manner as to what items are or are not "fringe benefits" for purposes of a plan definition of compensation that excludes them.

I have not yet noticed an increase. But if others are seeing it, I wonder if it is because employees feel more comfortable knowing that their personal situation isn't going to have to be disclosed to their employer. I'm sure there will be some who request them just because they know they can get away with it. I'd be curious to see the various reasons for an increase.

An AP is not a separate participant. For ERISA purposes, the AP is a beneficiary. Even a “separate interest” is part of a single benefit. I am not addressing your question directly.

This seems like a lot of fancy dancin' for an innocent mistake. The sponsor should consider just saying "look we didn't mean this to happen, sorry" and maybe throw a few extra bucks into a bonus. Yes, it's probably possible to make additional PS contributions, and yes, it might be possible to reimburse expenses (but that seems like a long shot to me). But it's likely to be a big hassle.

To fit Paul I’s suggestion about classifying a payment as something other than a contribution: The plan’s administrator might want its lawyer’s advice about whether the amounts to be restored to participant accounts might be a restorative payment. 26 C.F.R. § 1.415(c)-1(b)(2)(ii)(C) https://www.ecfr.gov/current/title-26/part-1/section-1.415(c)-1#p-1.415(c)-1(b)(2)(ii)(C). That classification might fit if the plan’s administrator arguably breached ERISA § 102 or § 404(a)(1) in communicating (or failing to communicate) the plan’s provisions, or arguably breached a fiduciary responsibility in instructing the service provider. A fiduciary’s breach need not be proven or conceded; it is enough that there is “a reasonable risk of liability[.]” If a restorative payment meets the reasonable-risk condition, is allocated to restore the harm that follows from the fiduciary’s arguable breach, and meets further conditions the rule specifies, it is not an annual addition. Thus, it does not count in measuring a § 415(c) limit. Likewise, it might not count in a coverage or nondiscrimination test to the extent that the test looks to annual additions. Because the participant does not control a restorative payment, it should not be treated as an elective deferral, and so should not count for a § 402(g) limit, or for a coverage or nondiscrimination test that looks to elective deferrals. This is not accounting, tax, or legal advice to anyone.

The loan policy should specify if terminated employees can repay loans and on what terms. It should also specify when the loan defaults - typically the grace period is the end of the quarter following a missed payment.

What is "comp-to-comp" ? A pro-rata allocation? If the existing one is pro-rata with a last day provision, I would say yes, they need a new plan if they want everyone in their own group and no allocation conditions.

There are many different types of payments that are reported on "a 1099." You can read about some of them here: https://www.irs.gov/businesses/small-businesses-self-employed/a-guide-to-information-returns Distributions from retirement plans and IRAs are reported on 1099-R. Payments to independent contractors could be reported on 1099-MISC or 1099-NEC.

Many plan administrators and their third-party administrators, recordkeepers, and other service providers limit their communications to describing what the plan’s administration will or won’t do, and avoid suggestions about what an individual should do. Suggestions that might be sensible if a domestic-relations lawyer or an estate-planning lawyer presents them could be inapt or unwise for a nonlawyer service provider to present. That might be especially so when a service provider routinely warns that it does not provide tax or legal advice. Further, a service provider might have much less than complete information about an individual’s facts and circumstances.

In theory that would be allowed. But keep in mind that a) the carrier probably has minimum employer contribution requirements, b) if this is an ALE, they would be exposing the company to "B Penalty" liability because the offer would be unaffordable for most, and c) the Section 125 uniform election rule may present an issue from an NDT perspective (overview here: https://www.newfront.com/blog/designing-health-plans-with-different-strategies). Also note that you can have a substantive eligibility condition of up to one month (referred to as a "bona fide orientation period") before application of the 90-day waiting period. You just have to be careful to coordinate that with the employer mandate limited non-assessment period rules if it's an ALE. More discussion here: https://www.newfront.com/blog/aca-first-day-of-the-fourth-full-calendar-month-rule

Some suggest that a revision (whether a restated SPD, or a summary of material modifications) need explain only those plan provisions that are “material”. “Material” is awkward legalese for “it matters” (to inform some choice a participant, beneficiary, or alternate payee could make). If a plan is amended to discontinue contributions and get ready for a single-sum final distribution, some provisions included in an otherwise boilerplate plan amendment might never apply.

Some churches allow both § 403(b) and § 457(b). If an employee is 50 or older, eligible for both plans, and has enough compensation, this might allow elective deferrals up to $61,000 [2004]. That’s in addition to nonelective and matching contributions (if any), if those are provided under a plan other than a § 457(b) plan. This is not accounting, tax, or legal advice to anyone.

Why would a church plan use a 457(b)? Or (f)? There are useful opportunities to select the group covered in a church 403(b) since these plans are exempt from Title 1.

The EOB has a fair amount of discussion about a mistake of fact that includes some tenuous references to sources. The discussion most on point with this thread says: "1.b. Tentative contribution for employee who fails to accrue benefit for plan year is not subject to return under mistake of fact. The Joint Committee on Employee Benefits of the American Bar Association posed this question to the IRS in an informal technical session conducted in 2001. Suppose an employer, for budgetary reasons, deposits monthly to the accounts of participants in a 401(k) profit sharing plan. It is determined after the close of the plan year that some participants don’t qualify for the contribution because they fail to satisfy the plan’s last day employment requirement. May the funds revert to the employer? The IRS’s response was that the funds could not revert to the employer because the IRS doesn’t view estimates as a mistake of fact." Looking collectively at the various sources that dealt with mistake of fact situations, it seems the IRS says "we will recognize it when we see it, and we will let you know if we see it."

If an employer requests a return of an amount the employer says it contributed by a mistake of fact, it is the plan’s trustee—or, if the trustee is directed, the plan’s administrator—that decides whether the contribution was made by a mistake of fact. ERISA § 403(c)(2)(A)(i) [29 U.S.C. § 1103(c)] does not define what is or isn’t a mistake of fact. No Labor department rule interprets this. No Treasury department rule interprets this. Plans’ fiduciaries differ widely in their interpretations about what is or isn’t a mistake of fact.

If I may add a couple of points -- An unfunded church plan that doesn't meet the criteria for a section 457(b) eligible deferred compensation plan is subject to IRC §457(f). Deferred compensation is then included in taxable income when the right to the compensation is no longer subject to a substantial risk of forfeiture. Earnings credited after vesting are taxable when actually or constructively received. Church plans are not exempt from IRC §409A, which imposes significant restrictions on plan design and severe penalties for violations. It is therefore important to consult knowledgeable counsel before adopting an unfunded plan.

FWIW my recollection of the "mistake in fact" determination is that it is very narrow - the example given by the IRS was having a wrong DOB. I could be wrong but I thought they even said something like overestimating comp was not a mistake in fact. The narrow definition is a typographical or mathematical error. That is, if the comp was off by a decimal point, that is a mistake in fact, but putting money in for someone who is not eligible is "a screw up" to quote someone who posted on this in 2007.

The owner will deduct his/her pension contribution on the Schedule 1 Form 1040 line 16.

See 1.401(l)-2(d)(5) (the 401(l) is an "L"). https://www.law.cornell.edu/cfr/text/26/1.401(l)-2 It looks like you calculate the amount of the integration level using the 80% SSTWB + $1 (see 1.401(l)-2(d)(3) which has a maximum excess allowance of 54%. The integration level is pro-rated over the number of months (which I understand includes the partial month) in the short plan year. This is your calculation to get to $90,780.71. The last sentence in 1.401(l)-2(d)(5) says "No adjustment to the maximum excess allowance is required as a result of the application of this paragraph (d)(5), other than any adjustment already required under paragraph (d)(4) of this section."

Actually, I think you want line 31 for a sole prop as your starting point. You might find this publication useful. https://www.irs.gov/publications/p560

If a church seeks to design an unfunded deferred compensation plan that is not a § 457(b) eligible plan, the church should get its expert lawyers’ advice about whether a condition for the participant’s “future performance of substantial services”: is legally enforceable under each state law that would or could govern the employment, is proper under the internal law of the church, and provides enough risk that the condition might not be met, and enough confidence that the church or the church-related charitable organization would enforce the condition, so that the condition is a substantial risk of forfeiture within the meaning of § 457(f)(3)(B). Some conditions designed to protect interests of a profit-seeking business, or even of a nonchurch charitable organization, might be inapt regarding a church’s wider purposes (or might be contrary to a church’s beliefs about human dignity).

An unfunded deferred compensation plan is designed in ways that do not meet part 2 (participation and vesting), part 3 (funding), and part 4 (fiduciary responsibility) of subtitle B of title I of the Employee Retirement Income Security Act of 1974. For each of those parts, an exception excuses “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees[.]” To meet that exception, a nongovernmental ERISA-governed plan limits participation to such a “select group”. But a church plan (see below), which is not ERISA-governed unless it elects to be so governed, does not need the select-group exception if ERISA title I does not apply. A church plan is a plan that a church, a convention or association of churches, or an organization controlled by a church (or a convention or association of churches) establishes or maintains for a church’s employees. A church plan does not include a plan for employees of an unrelated trade or business. A church plan might include a plan established or maintained by an organization that is sufficiently controlled by, or associated with, a church. Before assuming a plan is a church plan, get an expert lawyer’s advice about whether the plan is sufficiently established and managed by the church, not merely a church-related organization. Also, a plan should obey the internal law of the church. Even if there is no ERISA title I need to limit participation, there are tax law, wage-payment law, contract law, and other reasons to limit participation under an unfunded deferred compensation plan. For more information on these points, see 457 Answer Book and ERISA: A Comprehensive Guide, both published by Wolters Kluwer in convenient internet formats. This is not accounting, tax, or legal advice to anyone.

To answer some of the questions... This is a pooled plan, so no single participant individually is overdeposited. They look at their payroll for the month, multiply it by the percentage, and deposit that amount. Which is fine unless someone doesn't meet the hours requirement (in this case, someone left and came back so I told them the person was still eligible... but they ended up only coming back part-time and didn't meet 1,000 hours). "Forfeiting it" and holding it to credit the 2024 allocation is just a paper entry. I'm not sure there is an issue with non-deductible contributions because non-profits don't deduct. While almost a quarter of a century old (!!), I did find this discussion on these boards: https://benefitslink.com/boards/topic/4781-deduction-for-contributions-sec-404/ Kevin Donovan writes that it isn't applicable to an NFP, though there is a dissent where the Pension Answer Book is referenced (noted that the PAB has no citation)... and no further discussion. But since the PAB was brought up, I found an old copy (like, 10+ years old), and Q12:13 "Does the excise tax imposed on nondeductible contributions apply to tax-exempt organizations?" says that there is no excise tax applies if the entity has always been tax-exempt (there are additional caveats and such), citing IRC 4972(d)(1)(B), 4980(c)(1)(A), and a PLR 200020009. While I now believe that an excise tax doesn't apply, this is not a bad idea in general (if they were a for-profit) because the deposit was made due to a reasonable error in estimating compensation (well, eligible compensation). Thanks for the great answers, everyone. I think I'm going to suggest just leaving it in the plan as an excess deposit since there is no penalty to do so. Hmmm, I wonder if that will come back to bite me later when the NFP decides to front-load a large amount 'to be used next year'... nah, that would never happen, right?

Jakyasar: The statute defined "real estate agents" and "direct seller". The people who work for a broker in any other capacity are almost certainly employees. That would include the secretarial staff and a marketing manager who is not compensated as set forth in the statute. There are people who work for brokers that handle advertising and marketing materials like VistaPrint Booklets Brochures Business Cards Forms Checks Door Hangers Flyers Gift Card Holders Key Card Holders Magnets Table Tents Packaging Insert Cards Custom Postcards Presentation Folders Whose job is it to make decisions about the employment status of someone like this? A Plan Sponsor is at risk if he/she makes the wrong choice. "Employees" get 7.65% employer contributions to FICA and Medicare, the same health insurance and pension benefits as the other "employees", Worker's Comp coverage, sick leave and annual leave and all of the other fringe benefits. Independent contractors get none of them. Realtors tell you that the R in their logo stands for "Republican". That that may provide understanding of how section3508 came to be enacted during the Presidency or Ronald Reagan.

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

I don't believe you can use 1099 compensation for Qualified Plan purposes. If they were "statutory employees" they would be receiving a W-2 and Box 13 would be checked.

If I may chime in: for the sales associates, there is a statutory contractor provision in the Internal Revenue Code that treats them as independent contractors. In all likelihood, Jane and Mary are common law employees of Joe's business and would have to participate in any qualified plans the business establishes.

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

Jakyasar: I am not an attorney but are you opining on this from an employment arrangement or for Qualified Plan purposes. The final rule, which takes effect March 11, 2024, only revises the Department’s interpretation under the Fair Labor Standards Act (FLSA). It has no effect on other laws—federal, state, or local—that use different standards for employee classification. For example, the Internal Revenue Code and the National Labor Relations Act have different statutory language and judicial precedent governing the distinction between employees and independent contractors, and those laws are interpreted and enforced by different federal agencies. The FLSA does not preempt any other laws that protect workers, so businesses must comply with all federal, state, and local laws that apply and ensure that they are meeting whichever standard provides workers with the greatest protection. For Qualified Plan purposes the FLSA doe not impact what we have know to be employee versus independent contract under Common Law Rules. The facts that provide evidence of the degree of control and independence fall into three categories: (i) Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job? (ii) Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) (iii) Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

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]

The IRS does not have a clear definition of "fringe benefits”. Rather, "fringe benefits" is a business term. Almost any form of wages other than regular pay can arguably be considered by an employer as a "fringe benefit" in interpreting their 401(k) plan document. The Employer should adopt a written policy regarding whether to include "jury duty pay” as compensation under the Plan or exclude the pay” as a “fringe benefit”. You can go either way. But adopt a policy and then be consistent in how you apply the policy.

Again I would be shocked beyond belief if the IRS took the position that a transfer of Money Market shares was not considered a contribution "in cash" as once again money markets are considered cash equivalents and designed to have a fixed 1.00 share equivalent. I suppose if we get to a point where "breaking the buck" becomes somewhat commonplace, then money markets will no longer be considered cash equivalents, until that day comes though I personally would not give it a second thought. Though if you are super concerned then I would recommend you advise your clients to sell money markets for cash, transfer the cash to the Plan, and then buy whatever investments they want in the Plan, including perhaps repurchasing the money market. It's not like they are transferring bitcion, bars of silver or some other form on floating value currency.

At risk of telling you something you already know but I would stress to your client while sending the new rules that the determination of who is an employee or independent contractor is (and always been) an objective determination. It isn't always easy to make the determination but it is always been about objective tests. It isn't something you get to decide or negotiate with the people who you do business with.

Your local court system will usually pay a very paltry fee to a juror, sometimes as little as $15 an day. Payments by an employer for the time that an employee is on jury duty is not extra compensation, it's just compensation for time that an employee would otherwise be at work but is not. Compensation is what shows up on the final W-2 at the end of the year. If an employee has a salary of $50,000 a year and 4 days of his time during the year is spent on jury duty, his salary is still $50,000 a year. Like annual leave or sick leave or compassionately leave etc. I Don't understand how a plan can exclude that sort of fringe benefit.

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. 😢

Money Markets are considered cash equivalents. I doubt there is any IRS auditor who would raise even one eyebrow at the contribution being made in the form of a money market transfer to the Plan.

Peter, the issue is that minimum required contributions to defined benefit plans must be satisfied by cash contributions. You cannot satisfy funding obligation by contributing property.

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.

Without thoroughly researching, my guess would be that the excess that is not allocated to participants would be a non-deductible contribution subject to the excise tax and that it would be deductible in the following year when allocated.

I get the idea these are self-directed accounts? If so, you have an overdeposit error to one person's account and we would typically "forfeit" it (using that term loosely) and apply it to the next contribution for someone else. If deposits are made after the end of each month it should not be an overage for the whole year although I guess it is possible. One way or another, the money should stay in the plan and be used against a future contribution. I'm honestly not sure about excise taxes when having what essentially becomes a "pre-deposit" when there is no deduction problem. If you had too much money in the plan before the end of the year on a plan-wide basis, I think I'd be inclined to carry it as a liability, use it up the next year, and move on.

The 1/3 test uses 414(s) compensation. The 5% test uses 415(c) compensation. For purposes of the gateway, BOTH may be measured either over just the period of plan participation, or over the plan year. This is because the option to use participation compensation for testing does not come from 414(s); it is found in the definition of "plan year compensation" in 1.401(a)(4)-12. If your system is excluding the pre-entry compensation for the 5% test, you may have it coded incorrectly.

I'll guess and say ahasan is looking at the top heavy rule where a more-than-1% owner with compensation over $150,000 is a key employee. Section 416(i)(1)(B) says to use section 318 ownership rules. Put another way, use the same rules that are used to determine a more-than-5% owner and also to determine HCEs.

Depends upon the specific provisions of your document. The 5% test is based on 415 compensation, but your document CAN limit that 415 compensation to the period of eligibility. So you may be able to exclude 415 compensation prior to the date of participation, or you may need to use full year compensation. You'll need to check the specific document 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.

Normally, the county of the court pays jury service comp. Perhaps you could add some context or more description to your inquiry?