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To be a safe harbor 401(k) plan, you only have to make safe harbor contributions to NHCEs. However you have to follow the document. If the document says that HCEs will get the safe harbor contribution, then they have to get it. They can't retroactively eliminate it even for HCEs since that would be a prohibited cutback.

In my experience - what a provider will accommodate - and what is allowed under the regulations - are two different things. Particularly when using a more streamlined vanilla efficiency service model provider like ADP (which has its place) there are limitations. If a plan wants a more custom design, they need to find a provider willing to do it, and it may be more expensive.

What Bill said. Also, if you haven't already, check to see if the participants have been given the option to purchase the policies from the plan, rather than having them surrendered. Presumably the plan language would give them this option.

Not surprisingly (because I think FTWillilam is so awesome) they can do them all year long. The fees are very modest. I'm actually a little embarrassed I misinterpreted all of their caveats about processing deadlines at the end of January. In hindsight those deadlines obviously only related to hitting the 1/31 deadline. Thanks everyone!!

You will need a lot more information about the old company, the new company, the plan sponsored by the old company, the disposition of that plan after the dissolution of the old company, the disposition of that plan after the formation of the new company, a plan sponsored by the new company, the employees of the old company that become employees of the new company, and more. This is a complex situation the needs a careful review by legal counsel with expertise in plans involved in business transitions. There are rules and guidance spread throughout various IRC sections related to business transactions that can be complex and can have a bearing on the analysis. For example 1.415(f)-1(c)(2) points to a determination of a predecessor employer at an employee-by-employee level: "Where plan is not maintained by successor. With respect to an employer of a participant, a former entity that antedates the employer is a predecessor employer with respect to the participant if, under the facts and circumstances, the employer constitutes a continuation of all or a portion of the trade or business of the former entity. This will occur, for example, where formation of the employer constitutes a mere formal or technical change in the employment relationship and continuity otherwise exists in the substance and administration of the business operations of the former entity and the employer." This example is not definitive but does illustrate the type of issues that, depending on the facts and circumstances of reforming the business, could impact a plan. A change in an EIN of a plan sponsor happens routinely in business transactions and also is not definitive. Ultimately, risk of mishandling a plan or plans could rise to the level of disqualification of the old plan or a new plan, the cost of which would make seeking competent legal counsel a bargain.

And a class prohibited-transaction exemption sets the conditions for a purchase from the retirement plan. https://www.federalregister.gov/documents/2002/09/03/02-22376/amendment-to-prohibited-transaction-exemption-92-6-pte-92-6-involving-the-transfer-of-individual https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/exemptions/class/PTE77-8.pdf

Based on your description, I agree with you. But how is the policy ownership listed? Was it set up correctly as the qualified plan?

Is this company hiring a retirement plan administrator? I might know someone who is interested. 🙂

@Bill Presson is correct that addressing the transition for sending payrolls to the new recordkeeper is among the very first topics to discuss among the old recordkeeper, new recordkeeper and payroll, and having a work plan agreed to by all parties before the blackout notices go out can eliminate a lot of anxiety. It is worth noting up front that, while not ideal, by default the fallback if the work plan does not work out is having to deal with some late payroll deposits. Having a work plan demonstrates a good-faith effort was made and if stuff happens to derail the work plan, everyone needs to focus on the big picture of completing the transition as accurately and as timely as possible. So what should be in the work plan? At a very high level: The old recordkeeper will need some time to prepare the participant demographic and plan accounting conversion records. The records for this process will be available after the old recordkeeper completes the processing the last payroll for which they are responsible for investing. The new recordkeeper will need some time to have in place sufficient information to accept payroll records and process any activities associated with payroll records. This may include calculating a match or posting principal and interest amounts for loan repayments. Minimally, the new recordkeeper needs an employee identifier (ID or SSN), and name, but almost certainly will gather additional information. The new recordkeeper also will need to have investment elections in place. This will involve a detailed discussion of setting up the investment menu and working out process of mapping old fund elections to new fund elections, or completing an investment re-enrollment (with a default fund). A plan to address dividend and interest received during the blackout also should be discussed. Payroll will need to make any adjustments to synchronize the payroll data interface with the specifications needed by the new recordkeeper. All processes and file formats should be fully tested before starting kicking off the conversion. The client needs to be prepared to fill in potential gaps in the records for circumstances such as when a participant terminates employment during the conversion. Everyone should be prepared to provide a complete, 100% to the penny reconciliation of all funds leaving the old recordkeeper, funds received by the new recordkeeper and any payrolls processed during the blackout period. The fastest conversion we have done for a plan with more than 100 participants - measured from the old recordkeeper generating data files to the new recordkeeper going live - was 2 hours. More realistically, the typical conversion takes 3 to 7 business days. The overall conversion planning and execution takes 10-12 weeks. Done right, this is a lot of work and the client should be prepared to pay for it. Done right, participants will start out with a feeling of confidence in the plan and the new recordkeeper.

The defaults from your preapproved document provide might only increase the limit to $7,000 if the limit was previously $5,000. You could still go straight from $1,000 to $7,000 but the amendment might need the sponsor's signature. Distributions less than the force out limit are not 411(d)(6)-protected, so there is no anti-cutback issue. It does to me too - but it is actually straight out of the preamble to the proposed LTPT regulations. Here is what the IRS said: https://www.federalregister.gov/d/2023-25987/p-37

Personally, I don't think you need to amend to $5,000 in order to take advantage of $7,000. The caveat would be if there are any other elections that need to be made in order for the limit to be $7,000. If all you need to change is the limit, I have no issues jumping from $X to $7,000, as $7,000 takes the place of $X (its irrelevant that point). We are also amending the cash-out to $0 when increasing the force-out to $7,000. If we had a client say no to removing the cash-out, I wouldn't lose sleep on going from less than $5,000 to $7,000. BTW, there was a webcast a few weeks ago on LTPT that said a plan amendment to eliminate the LTPT issue (like amending to reduce hours of service or going with elapsed time) could be done operationally now as long as the amendment is done by the S2.0 amendment deadline. That feels a bit aggressive to me.

Frankly, the solution is at the beginning of the process and not start until the new RK is ready.

Like Andy H., I am retiring tomorrow, January 31. These message boards have been a great source of knowledge and information, and I thank the folks who make this possible! Best wishes and good luck to everyone!

...and you probably know that you probably need an authorization; sometimes you can fax it to them while on the line, or else have the trustee/owner on the line as well. No fun at all, except to the extent that you get satisfaction in doing things right and doing other folks' jobs.

No, not what I said or meant.

Best of luck. Couple of suggestions: 1. Do you have any information on a servicing agent or office? Might be best to try them first and have them link you to the right person at the company home office. 2. If you have to call the home office blind, ask for the advanced planning or qualified plan department. They probably aren't the ones issuing 1099s, but someone there is more likely to understand your dilemma. They might be able to pull a string or two.

Some (not all) plan administrators will record a beneficiary designation that now would be ineffective—because it lack’s the spouse’s consent, on the plan’s form and notarized—but could become effective—because the spouse later might die, become divorced, or otherwise become no longer the participant’s spouse. If the administrator allows this, one might intensify a warning that naming a beneficiary other than the spouse will have the hoped-for effect only if the current spouse becomes no longer the participant’s spouse before the entitlement to the plan’s death benefit occurs. If it would be difficult or burdensome to obtain the spouse’s consent in a form the plan’s administrator would accepts as valid under ERISA § 205 and the plan’s governing documents, a participant might assume a risk about whether the marriage ends before the participant’s death.

I always assumed that controlled group rules apply. I imagine using a different name or ID number would make it easier to "get away with" but...

The red forms are Copy A for the Internal Revenue Service Center. A Form 1096 is used Annual Summary and Transmittal of U.S. Information Returns is used to send these forms to the IRS. Hopefully, you also also have been preparing the Form 1096 and sending the red copies to the IRS. To answer your question, you can send the participant copies (Copy 1, Copy B, Copy 2, Copy C) and the payer's copy (Copy D) on plain paper. There are two reasons for using the red forms: it is scannable by the IRS, and it protects against submission of multiple copies of the same form for the payee. Typically, if a TPA is preparing the Form 1099R's on behalf of the plan and the plan is the Payer. There is a threshold for mandatory electronic filing is reduced to 10 forms for form filed in 2024 (including filing forms for the 2023 tax year), and the count is based on almost all 1099's and W2's. The plan as the Payer may not reach this threshold, but most companies will. https://www.irs.gov/filing/e-file-information-returns It is possible to file forms directly with the IRS using their IRIS Taxpayer Portal. You need to have a TCC (Transmitter Control Code) to do this. The IRS says this can take up to 45 days to get, although anecdotally they have been obtained much faster than that. FYI, there are service providers that mirror the FT fulfillment service who continue to print/mail/ and send everything to the IRS for a nominal fee.

Thank you all. Bill - The policies are owned by the ABC Co. 401k Plan & Trust. These policies predate me by to decades so I am going on the assumption (scary) that since the policies are owned by the plan, they were set up correctly as qualified assets. Belgarath - they did have that options and non wanted to purchase the policies Now I have the pleasure of spending time (hours?) on hold with the insurance company in the hopes to find someone who will listen and understand enough to process these the right way.

Let me guess - the doctor never engaged counsel (ERISA or corporate) to review the agreement he signed with the larger organization because why would he need one? What could go wrong? Why would he spend the extra money? This is why.

Attribution of ownership for purposes of determining who is an HCE, key employee, or required to take an RMD without regard to whether they have separated from employment, is determined under IRC 318. 318(a)(2)(B)(i) reads: Qualified plan trusts are specifically exempt from this attribution. The participant in your example is not considered a 5% owner for the purposes mentioned above.

I don't think signing a participation agreement, on its own, would stop the doctor's practice from continuing to sponsor its own 401(k) plan; it would just participate in two plans, both within an ASG, with the corresponding compliance testing issues. With that said, there probably is some sort of contractual arrangement between the doctor's practice and the larger organization. It may have rights, obligations, restrictions, etc. (e.g., "during the term of this agreement, doctor's practice shall not maintain a qualified retirement plan other than through its participation in large org's plan") with contractual remedies if breached. This is obviously outside the scope of the 401(k) plan compliance alone, but could come into play if the doctor "disregards" the participation agreement. As Lou notes, "I didn't read or understand what I signed" usually is a poor defense, especially if counsel was involved at the time.

It sounds like you are TPA to the Doctor's plan, I would recommend the Doctor engage his own ERISA attorney to review the matter and see what needs to be done. Which may or may not involve a VCP filing for 2023 and or 2024 to get the IRS blessing on any fix that may be required.. I will say "I didn't read the document I signed and didn't understand what it does" is probably not going to be the best defense for Doctor A, but then I'm not attorney so don't construe this as legal advice.

It's a loan. What do you propose calling it that would not lead to discussions like this? I'm not exactly sure what is wrong with "this sort of discussion thread."

Andy - Yes, without having the pressures of a work schedule, I now attend morning Mass. And taught myself how to play the psaltery, so they even get a little extra music for the morning. Wonderful instrument, wish I had discovered it earlier. I seem to recall one of the questions I worked into the Nondiscrimination answer book went something like "Andy's Heart Nut Company..." May God grant you many years of wonderful retirement.

Going to climb up on my soapbox for a minute. These penalties are asinine beyond belief, and the authorities should be thoroughly ashamed of this. Totally inexcusable. I don't object to "reasonable" penalties for compliance failures, and to be a little bit fair (although it pains me) the IRS is usually pretty reasonable if good faith efforts have been made. But the assumption of guilty until proven innocent just frosts me, particularly when the penalties are all out of proportion to the severity/effects of the violation. Climbing down now. A long, steep climb...