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If it's a 457(f) plan, it's likely going to be a short-term deferral exempt from 409A. Could the agreement be drafted such that the employer declares a discretionary contribution at the end of each fiscal year (at least for the first year ending 6/30/24)? I don't think you're necessarily constrained to defining the contribution in terms of "past" services. Under 457(f), it's likely going to be subject to the continued performance of future services to avoid forfeiture in any event.

I'd vote with you. No 5330, reflect the earnings in 2024 when received.

Because clients don't understand things and some advisors won't listen to reason? I agree that's the better solution. My best guess is that they want to get out of the safe harbor nonelective as fast as possible and go to the SIMPLE IRA with match because almost no one defers. It's SECURE 2.0 Section 332. The name of the section is "employers allowed to replace simple retirement accounts with safe harbor 401(k) plans during a year", but not vice-versa.

Avoiding unwelcome information about an employee’s living situation is among the reasons an employer/administrator might prefer that claims for a hardship distribution be processed from a self-certifying claim form.

Refund finally approved (of course.) So late that they have to pay me interest!

Agreed. If I remember, the prohibition of earlier NRAs (what IRS thought were artificially low NRAs) was to prevent manipulation of nondiscrimination testing - but maybe I'm off base. Doesn't change the answer though.

Given these plans are unfunded, "setting aside" funds just means the organization has some extra cash. It's not directly to the 457(f) plan now or in the future. Whatever contribution is to be made to the 457(f) plan can be completely discretionary. As @EBECatty rightly points out, you need a substantial risk of forfeiture prospectively to delay taxation to a future date (presumably vesting in a lump sum to stay outside 409A).

A 457(f) plan can be structured many ways, it could be in the form of DB SERP that takes into account average compensation and all years of employment, and may be offset by other employer-provided benefits. It could be an account balance plan where the employer books an annual contribution of whatever for the executive, there is no limit (other than overall reasonable comp & benefits for tax-exempts), so why would it matter what criteria the employer used to determine? 457(f) applies to any tax-exempt organization's NQ plan that provides benefits in excess of the eligible 457(b) limits. Whether exempt form 409A as a short-term deferral depends on the design. As a NQP it is also unfunded by definition, so if/when/how the employer wants to set aside any assets to cover this benefit doesn't matter, except when the time comes to pay the obligation. This would be a book expense until such time. If the employer was also wanting to allow the executive to elect to defer compensation into the arrangement then you have those timing issues, otherwise, no.

Let's start with generally the employee's termination date is the last day of active employment. Generally, because things like weekends, holidays, vacations, PTO and leaves of absence where employee does not perform any hours of service can complicate matters. Similarly, payroll practices such as salaried, hourly, and per diem among others also can complicate matters. Without going into all of the details for each situation, the employer and the plan need to have a policy on how each of these things will be applied in determining an employee's termination date, and that policy should be applied in a uniform and consistent manner.

the lowest safe harbor NRA is still 62.

Agreed, here's the cite-- IRS Notice 2002-45: https://www.irs.gov/pub/irs-drop/n-02-45.pdf III. Coverage under an HRA Medical care expense reimbursements under an HRA are excludable under § 105(b) to the extent the reimbursements are provided to the following individuals: current and former employees (including retired employees), their spouses and dependents (as defined in § 152 as modified by the last sentence of § 105(b)), and the spouses and dependents of deceased employees. The term “employee” does not include a self-employed individual as defined in § 401(c). See § 105(g).

An HRA can provide tax free benefits to current and former employee and their spouses/dependents. Owners with the meaning of Code Sec 401(c) are not considered employees for HRA purposes and therefore ineligible to participate.

Just to be argumentative, to put the Schedule C proprietor on the same playing field as an employee, they can make contributions during the year. The only possible problem is exceeding the 100% of pay limit and that is solved by removing the 415 excess.

If the employee had a legitimate termination of employment, took a withdrawal upon that distributable event in the year of age 55 or later, and then was later rehired, I would think the withdrawal still was exempt from the 10% because that's determined at the time of the withdrawal, no?

To think about how to classify a fee or other expense, one would want to know more about the plan and about what service was provided. Is the plan a health plan? A disability plan? A life insurance plan? Some other kind of welfare benefit? Or is the plan a defined-benefit pension plan? Or an individual-account retirement plan? Was the service about a health insurance contract? A stop-loss contract? Disability insurance? Life insurance? Fiduciary liability insurance? Some other casualty insurance? A fixed annuity contract? A variable annuity contract? And was the service truly advice to the plan? Or was it a service to an issuer or intermediary of an insurance contract?

Why are those few months really needed? Can’t we all just wait until January 1?

Hi Paul I, Thank you. I think I understand your response. That's a good definition from Lawinsider. Do you know why the DOL doesn't provide a definition for their terms on the Form 5500 Instructions like Insurance Services? The Form 5500 Instructions clearly differentiate between: 1) Insurance services expenses reported under codes like 22, 23, 66 on Schedule C. 2) Investment advisory and management fees defined under Schedule H instructions. There is no guidance or indication that insurance service fees from Schedule C should be co-mingled and reported as investment management fees on Schedule H Line 2(i)5. Unless explicit evidence can be provided from the actual 2023 Form 5500 Instructions stating otherwise, I believe the appropriate place to report insurance service fees from Schedule C would indeed be the "Other Expenses" line item on Schedule H Part II, not the Investment Advisory and Management Fees line. From what I can see from the instructions - it looks like these are maintained as separate expense categories throughout, with no suggestion that insurance service expenses should be treated as investment management fees. I just find it odd that Insurance Services and Investment Management services are being mixed. Am I wrong in this approach of the instructions?

The lawinsider.com dictionary defines insurance services as "any renewal, discontinuance or replacement of any insurance or reinsurance by, or handling self-insurance programs, insurance claims or other insurance administrative functions." You will see the term used in the Schedule A instructions. The Schedule C instructions include a service/compensation code 23 for reporting insurance services. The Schedule A instructions do seem to acknowledge that there is not a clear delineation between insurance and insurance services reported for some insurance products, including insurance products used as funding vehicles. I suggest using your best judgement on what and where to report expenses based on the documentation provided by the insurer.

If this person is re-employed then you need to follow the distribution rules as they apply to employed participants. If these are being reported with code 1 for premature that tells me the person is not over age 59 1/2 and these are now impermissible in-service distributions. If for some reason they are permissible then they are subject to the additional 10%.

Also depends on what your document says about how to correct the failure. Some give specific instructions and some are silent. You should prefer the document be silent. That way you have all the options available.

I think it depends on your amendment. Are you only correcting for the year of failure and bringing people in for just that year? If so I think you could do a QNEC of 3% plus the missed deferral opportunity which I believe would be the average ADP of the NHCEs for the year in question. If you are bringing them in as full participants because you expect ongoing failures, then yes you would have to give them the ability to deferral as well.

Depends. You can freeze a DBP, including a CBP, before accruals/credits are earned. If the plan has a 1000-hour requirement then you need to freeze before anyone is credited with 1000 hours. If there is no hours requirement, accruals are earned from day 1 of the plan year but you could freeze further accruals and limit to the portion of the year earned (for example, freeze effective 2/1 after a month's worth of credits have been earned). Unless it's an owner-only plan, you need to provide an advance 204(h) notice at least 45 days (large plans >100) or 15 days (small plans <100) prior to the effective date of the amendment. Such amendment needs to be adopted on or before the stated effective date or the adoption date becomes the effective date (i.e., cannot be adopted retroactively). Those are the relevant timing issues for executing the plan freeze, the employer's decision deadline is a function of these timing concerns and it's actuary's/TPA's lead time requirements for providing the necessary items (resolution, amendment, 204(h) notices).