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of course they could roll the proceeds to an IRA, avoid the 20% withholding, and then turn around and raid the IRA without mandatory withholding.

the OP says "contributing". If the ER portion of DC has not been contributed yet, then there is a lot of flexibity. If it has been contributed in 2024 then there is flexibility too. Even if the dedcution for 2023 become limuted to 31% It is definitely worth it to do a retro plan from 415 perspective. It is time to get an actuary engaged.

Each plan can set its own rules about what is or is not acceptable documentation for a hardship withdrawal. I suggest that you direct your question to your plan's Plan Administrator. The contact information for the Plan Administrator should be in your Summary Plan Description (SPD). If you don't have or cannot easily find your SPD, you may start with asking your Human Resources or Benefits Departments. If the plan has a web site, the contact information (and a copy of the SPD) may be readily available. Some plans do not require formal documentation and allow a participant to self-certify the need for a hardship. These are relatively new rules which some companies have decided to use, but the plan documents and the SPD have not yet been updated to communicate this change. When you reach a contact, you may want to ask if the plan now permits self-certification. It is worth asking to save time having to jump through hoops trying to gather paperwork.

Make sure the owners know that the no pre-65 distribution rule also applies to them as well as any "executives" then might hire.

26 U.S. Code § 3405 - Special rules for pensions, annuities, and certain other deferred income (c)Eligible rollover distributions (1)In general In the case of any designated distribution which is an eligible rollover distribution— (A)subsections (a) and (b) shall not apply, and (B)the payor of such distribution shall withhold from such distribution an amount equal to 20 percent of such distribution. (2)Exception Paragraph (1)(B) shall not apply to any distribution if the distributee elects under section 401(a)(31)(A) to have such distribution paid directly to an eligible retirement plan. (3)Eligible rollover distribution For purposes of this subsection, the term “eligible rollover distribution” has the meaning given such term by section 402(f)(2)(A).

If the plan is going to attempt to argue that there was no intention to change to elapsed time when the restatement was made, then the plan likely will need additional documentation beyond the prior documents and administrative practices have always had an hours requirement. For example: Have all communications to participants about the plan amendment referred to the hours requirement? Look at the language in the SPD or Summary of Material Modifications, emails or memos to participants describing the restated document, and description of plan provisions on a plan website. Also look at any summary of plan features in required notices that may have been sent to participants such as Automatic Enrollment Notices, Safe Harbor Notices, QDIA Notices or 404(a)(5) disclosures. Is there written documentation any discussion of a change to elapsed time in Board meetings, Plan Committee meetings, exchanges of information with the recordkeeper, payroll or plan's legal counsel about changing the eligibility requirement? If there is none, then a total absence of any discussion of such a change also can be an important point supporting the position that no change was intended. Assuming that this information supports the position than there was not intention to change to elapsed time, the plan may consider providing the information to and engaging with the auditor. If you are new to the business and find this situation pretty intimidating, you should tell others who are involved with the plan who have experience with these situations, and those who can speak for the plan. The auditor will communicate directly with the plan administrator, and it is possible that the plan administrator also is feeling intimidated. Given the potential stakes, consider a recommendation to involve an ERISA counsel, ERPA or experienced plan consultant to provide input and guidance.

Emme: You need to deal with the plan with respect to the payment of benefits on the death of the participant. The plan will be looking to pay benefits to someone, and someone else may be claiming those benefits. You need to take measures to make sure that benefits you hope to be yours are not paid to some death beneficiary while you get matters relating to your domestic relations order straightened out and submitted to the plan. There are various approaches to this, but you should not rely on any informal contact you have had with the plan concerning your claim for benefits.

You have said that you are dealing with a QDRO so that means the Plan is governed by the Employee Retirement Income Security Act of 1974. And you used the word "pension" so that suggests that you are dealing with a defined benefit plan. The Pension Protection Act of 2006 permits the entry of a post mortem (after death) QDRO. See https://www.law.cornell.edu/cfr/text/29/2530.206 Tell you lawyer to check out these cases: Thomas v. Sutherland at https://scholar.google.com/scholar_case?case=1601430218420084129&q=Thomas+v.+Sutherland+&hl=en&as_sdt=20006 where the U.S. District Court in Utah held: "Although there is no case law precisely on point, the supporting material suggests that this is the appropriate result. The Code of Federal Regulations provides that a DRO does not fail to be treated as a QDRO solely because of the time at which it is issued. 29 C.F.R. 2530.206(c)(1). This includes orders issued after the participant's death, and occasions where a divorced spouse no longer meets the technical definition of a "surviving spouse" under the terms of the plan. 29 C.F.R. 2530.206(c)(1)(ex. 1 & 2). In addition, the Eighth Circuit has found that a domestic relations order can be qualified posthumously if notice is given and the order is filed during the eighteen-month period permitted under ERISA to secure a QDRO. Hogan v. Raytheon, 302 F.3d 854, 857 (8th Cir. 2002). Although different than the case at hand, the trend has been to enforce the terms of an otherwise valid QDRO as it was intended to be enforced, so long as notice was given and the order was filed during the period permitted under ERISA." See also, Yale-New Haven Hospital v. Nicholls, 788 F.3d 79, 85 (2d Cir. 2015) where the Court held that two nunc pro tunc Orders issued after the death of the Participant were valid QDROs. Said the Court: “Domestic relations orders entered after the death of the plan participant can be QDROs. In the Pension Protection Act of 2006, Congress made clear that a QDRO will not fail solely because of the time at which it is issued, see Pub. L. No. 109-280, § 1001, 120 Stat. 780 (2006), although several of our sister circuits had already reached that conclusion, see, e.g., Files v. Exxon Mobil Pension Plan, 428 F.3d 478, 490-91 (3d Cir. 2005) (finding that a posthumous order constituted a QDRO), cert. denied, 547 U.S. 1160 (2006); Patton v. Denver Post Corp., 326 F.3d 1148, 1153-54 (10th Cir. 2003) (same); Hogan v. Raytheon Co., 302 F.3d 854, 857 (8th Cir. 2002) (same); Trs. of Dirs. Guild of Am.-Producer Pension Benefits Plans v. Tise, 234 F.3d 415, 421-23 (9th Cir. 2000) (same).” ....and Miletello v. R M R Mechanical Inc., 921 F.3d 493 (USCA 5th Cir. 2019) I can provide his with other case citations and theories for asking for a post mortem QDRO if the Plan is not under ERISA. You attorney should have no problem obtaining a QDRO for you share of your late spouse's benefit, UNLESS, there was a delay that would cause you to lose benefits, for example, if your ex remarried and then retired his new spouse would be entitled to the survivor annuity benefits and you would not. Good luck, David

If the distributee is employed and perceives that Federal income tax withholding on the eligible rollover distribution might result in too much paid-in toward the year’s Federal income tax, the individual might evaluate whether to lower withholding from wages for the remainder of the year. While the plan’s administrator and its service providers might not present such a suggestion, the certified public accountant might consider it.

Would there be a problem with balances (of terminated participants) under $1000?

My understanding here is that the seller's health FSA did not terminate prior to closing. So there was an overlap period from March-June in which the entities were part of the same controlled group. The best way to handle would have been to continue health FSA coverage through the end of the plan year either through the seller's FSA or by rolling elections/balances to the buyer's health FSA. That approach is outlined by the IRS in Revenue Ruling 2002-32. Here's an overview of the rules that apply in that approach: https://www.newfront.com/blog/merger-acquisition-rules-health-fsa-2 2024 Newfront M&A for H&W Employee Benefits Guide However, it does not appear that's going to be the approach here. Instead, the seller health FSA will simply terminate mid-year. In that case, because there was a period in which the seller health FSA was sponsored by an entity in the buyer's controlled group, the salary reduction contribution limit is going to be applied across both plans combined for the plan year. I think the only viable way to interpret that restriction is that the employee's election with the buyer health FSA will have to be reduced by the amount of the employee's election under the seller's health FSA. So, for example, an employee who elected $1,000 with the seller's health FSA will be restricted to a contribution limit of $2,200 under the buyer's health FSA. The other options would be to base the reduction on YTD contributions (doesn't make sense to me because it's not tied to actual benefit received), or YTD utilization (seems overly complex and not closely related to the salary reduction contribution limit that's governing here). This approach is consistent with the statutory change to §125 made by the ACA which says that an employee "may not elect" to have contributions in excess of the limit. Here's the relevant cites: IRC §125(i)(1): (i) Limitation on health flexible spending arrangements. (1) In general. For purposes of this section , if a benefit is provided under a cafeteria plan through employer contributions to a health flexible spending arrangement, such benefit shall not be treated as a qualified benefit unless the cafeteria plan provides that an employee may not elect for any taxable year to have salary reduction contributions in excess of $2,500 made to such arrangement. IRS Notice 2012-40: https://www.irs.gov/irb/2012-26_IRB#NOT-2012-40 All employers that are treated as a single employer under § 414(b), (c), or (m), relating to controlled groups and affiliated service groups, are treated as a single employer for purposes of the $2,500 limit. If an employee participates in multiple cafeteria plans offering health FSAs maintained by members of a controlled group or affiliated service group, the employee’s total health FSA salary reduction contributions under all of the cafeteria plans are limited to $2,500 (as indexed for inflation). Section 125(g)(4). However, an employee employed by two or more employers that are not members of the same controlled group may elect up to $2,500 (as indexed for inflation) under each employer’s health FSA.

WDIK has the correct code cite. In addition, the instructions to Form W-4R state (emphasis added): Of course, this assumes that the distribution in question is an eligible rollover distribution. Is it? If this is a 401(k) hardship distribution, for example, that would not be an eligible rollover distribution and the 10% (not 20%) automatic withholding could be waived.

Agree. Further, the RMD is not eligible for rollover, and under the RMD is included in first distribution rule, it appears that the RMD must be taken before the in-plan conversion. So, yes, the RMD would be based on the full 12/31/2023 balance' If he did not take the RMD before the in-plan conversion, don't we have an ineligible rollover to the DRA (of the RMD amount)?

If you want help, you're going to have to provide a lot more information than you have provided. There are about 175, 000 pension and retirement plans in the United States and they do not all have the same procedures. I'm not sure what OC means in your post but I assume it's "other counsel". It is clear that your lawyer doesn't have a clue. If you want to call me at 301-947-0500 I can very likely tell you what you need to do and send your attorney a template for a motion asking the court to enter the qdro without the approval of your former spouse and or his or her attorney. You are going to need to have in hand the exact name of the 401K plan and the Judgment of Absolute Divorce that the court signed giving you an interest in that plan. David Goldberg

i get this strategy, I'm just questioning the age at which it's being done.

With Roth accounts in 401(k) plans not being subject to the RMD rules, some people without other taxable income other than Social Security are looking to reduce prospective current year income below the threshold that triggers taxation of their Social Security benefits. Add in the potential exemption of earnings from taxable income from the Roth accounts, this may be an attractive option for someone who is betting on living longer than their average life expectancy. There also are individuals who see the sun setting in 2025 on the Tax Cuts and Jobs Act provisions and they are anticipating a hike in their personal rates.

I'm certainly no investment expert or tax strategist either. I have sometimes seen a strategy where part of the "diversification" is that the "aggressive" investments are converted to Roth, on the theory that if they hit a home run and get big returns, it'll be tax free. The conservative investments remain as pre-tax.

You say the plan covered nuns. Was it a church plan? If so, it is not required to file Forms 5500 or 8955 unless it elected to be covered by ERISA, which very few church plans do.

Some retirement plans provide no claim for which finding the presence or absence of a participant’s or other claimant’s disability is relevant. And even for a plan under which disability sometimes might be relevant, a distribution might be provided for some other reason. Some payers interpret the Form 1099-R Instructions to suggest one need not report that a distributee is disabled if the plan’s administrator made no such finding. (Even when a plan’s administrator decided nothing about disability to approve the claim for a distribution, some administrators instruct a payer that a distributee is disabled, considering this a courtesy to support the distributee’s tax return.) Disability is one of several situations in which a fact or finding that need not, or even cannot, be shown in a Form 1099-R report can be relevant to a distributee’s Federal income tax treatment. A distributee decides how to state her tax returns.

Got an answer to the question below from my partner who does more submissions than I these days. Apparently you type in "determination" instead of Form 5300 on pay.gov. in order to get the 5300 form. Unbelievable. Every other form, including 5307, you are asked to fill in the number of the form or the Agency. Type in 5300 and you get a blank. Type in the IRS and you get other forms, like the 5307, but not the 5300. ___________________________________________ I am going to submit an individually designed 403(b) plan under the new procedure that allows for this. The IRS website says to use pay.gov. To my surprise, pay.gov only has a 5307 available. It seems that the 5300 has not been loaded into pay.gov. but that is a form for qualified plans, too. Any ideas?

And consider that the Secretary of the Treasury has no authority to interpret ERISA §§ 401-414.

No, ma’am. He paid tax on the conversion but he didn’t take a distribution based on the 12/31 balance. So he still has to do that. I’m a little baffled at the tax strategy of someone taking RMDs doing a Roth conversion, but that’s not my call.

The IRS has said in conferences that they believe letting having the employer receive funds from the plan and then writing the check for a distribution is unacceptable. That being said, some employers have done it although the rationalization on its acceptability is a bit murky. There was a temporary regulation that implied this was permissible. See Q&A 16 in https://www.ecfr.gov/current/title-26/section-35.3405-1T (which was "reserved" when the regulation became final). Some practitioners felt this Q&A made it acceptable for the employer to be involved with making both the distribution, while others felt that this Q&A made it acceptable only for the employer to submit the tax withholding. Some practitioners took the stance on the question of whether there was a prohibited transaction is it would not be if and only if the employer did not benefit from having had the funds pass through an employer's account. Those who took that stance cautioned employers to hold the cash for the least amount time it took to issue the distribution, and to not put the funds in an account that earned interest. Treasury 31.3495(c)-1 Withholding on eligible rollover distributions; questions and answers Q&A 5 answers: Q-5: May the plan administrator shift the withholding responsibility to the payor and, if so, how? A-5: Yes. The plan administrator may shift the withholding responsibility to the payor by following the procedures set forth in § 35.3405-1, Q&A E-2 through E-5 of this chapter (relating to elective withholding on pensions, annuities and certain other deferred income) with appropriate adjustments, including the plan administrator's identification of amounts that constitute required minimum distributions. Prudence says do not involve the employer in writing distribution checks. Should circumstances result in the employer receiving and depositing a check in an employer's account, then the employer should as quickly as possible write the check to the participant or to the trustee/custodian who routinely issues distribution checks, and the employer should document all of the circumstances, the actions taken to have the distribution issued, and if needed, any steps taken to give up any interest earned on the amount while in the funds were in the employer's account.

You are too foolish or too cheap to hire a lawyer to help you. Instead you have posted 23 questions on this blog without any idea what you are talking about. So my expectation is that you will never recover a dime. There are lots of people on this blog who would like to help you. But you have worn out your welcome.

RTFD per David

What role does Fidelity play - custodian, trustee? For what services are they contracted and does that include distribution processing? I have seen where the employer is the distribution processor and the custodian forwards funds. The employer then cuts check, withholds and remits taxes if necessary, and does the 1099R reporting. I'm not saying it's a best practice or even recommended, but I have seen it done in the past, and can work if employer really knows what they're doing or has a good accountant to assist.

Take a look at the rules for correcting missed deferral opportunities for plans with auto-enrollment. They are very generous for the plan, and the IRS admitted the leniency was because the IRS like auto-enrollment. There also is a three-month rule which can reduce the cost of a corrective action. Do keep in mind that if there is a match involved, the missed match plus earnings are more likely to be required. Take care in pointing fingers at any one particular party, and do so only after carefully reading not only the plan documents but also each service agreement with each service provider. Ultimately the responsibility and accountability for the proper operation of the plan falls on the shoulders of the plan fiduciaries. Also document a timeline of events of what should have happened and what did happen, and note any causes of delays. This is invaluable should the plan fiduciaries attempt to recoup anything from any of the service providers. As some have noted above, deferrals are a payroll function which may not have been under the control of the Custodian, and if the Custodian was not in a position to accept the deferrals, there were alternatives available until Custodian fixed its problems. Stick to the facts, take advantage of the breaks available to auto-enrolled plans, and work with the service providers to right the ship.

Consider that a writing (even a little email) stating or describing a nonelective contribution might be among the “documents and instruments governing the plan[.]” Consider too that what the plan’s governing documents provide is only one of several lanes a claimant might drive in. Among others, a disappointed participant might pursue one or more of the other legal and equitable remedies ERISA’s title I provides. Those can include remedies for miscommunication. The plan sponsor, the plan’s administrator, and other plan fiduciaries each will decide how much risk one wants to assume. If the employer wants to evaluate how relevant law applies and which risks to assume or manage, it might call in a lawyer. This is not advice to anyone.

Just in case: the 10% penalty under IRC 72(t) is a tax, not withholding. "Medical disability" can be a vague phrase. The cross-reference for its definition is IRC 72(m)(7); it's not up to the employer to decide if the person meets the IRC definition of "disabled".

How do you enter into a collective bargaining agreement and not keep a copy? Yes you can file a late 1099-R, as you have discovered, penalties apply. The participant is probably fine as the taxable amount will be $0 if it was properly rolled over. But the plan has a duty to file the 1099-R and supply to the participant. At most he'd need an amended return showing ~$1.5M distribution, but report it as non taxable rollover.

I’m not where I can look up a bunch of stuff, but related to item #1, I can’t imagine anyone agreeing to benefits and wages as part of a collective bargaining agreement and not knowing exactly what that agreement said and where a copy was kept. What a stupid way to run a business.

But to get that waiver, the distribution has to be a taxable distribution. If the money is rolled to an IRA, the exemption is lost. Might need to be a lump sum distribution (as opposed to partial) but I’m not where I can look that up.

1. were deferrals withheld? but not sent in? in that case you have late deposits. See VFCP, and Form 5330, and look up late deposits to retirement plans 2. were deferrals not withheld? but they should have been? In that case you have a missed opportunity to defer. See EPCRS, if there were deferral elections, or no deferral elections, or match or no match, the actual amount will vary, but it all covered in the IRS's EPCRS rev pro. Note: the custodian not being ready isn't a valid excuse. Plans encounter this all the time, and purposely pick a special deferral start date farther out, that is written into the plan document, for this very reason. The give service providers time to get set-up with all the info from the sponsor. Even in the event of an unexpected delay, there is no reason why the deferrals couldn't have started on time, and the plan open up a temporary account, such as brokerage/checking/savings account etc in the name of the plan into which to deposit the deferrals. Then they would be deposited to the trust on time, and then once the regular custodian is ready, the money can be transferred to there.

If deferrals started with payroll but couldn't be deposited because of the custodian, you have late deposits. Simply deposit the payments along with the lost earnings, file the 5330 and decide if you are going to though the DOL late contribution program or not. If the deferrals didn't start you can calculate a QNEC on the missed deferral opportunity and deposit that, but I think you might just be able to self correct and start the deferrals 3/22 as the delay was "short" and folks have 9 months to catch-up the missed deferral opportunity.

Did they do a formal board resolution declaring the contribution? I believe that can make a difference but a lawyer could clarify that more if needed. Did they allocate it or deduct it? But most likely if it isn't required by the document my understanding they can change their mind. But given how angry people might be it might be better to talk to the plan lawyer and not count on free advice here.

No 10% penalty if taken from the plan if on account of separation after age 55. 1099-R code would be 2. Plan's NRA doesn't matter in this case, just the age at which he separates service.

Ignoring the public relations issue with the employees for the employer changing their mind after notifying the employees they would be getting a PS contribution, unless it's required by the plan document then it's not required to be made. They could give a supplemental notice something like - we regret to inform you but the prior notice of a 2023 contribution was distributed in error, there will be no PS contribution for 2023 - something like that. That said I am not a lawyer and I don't know if the initial notice created a de facto contract obligating the employer to the PS contribution when they notified employees. Were corporate minutes filed approving the contribution? Have they filed a tax return claiming the contribution?

Perhaps this is picky, but it seems very likely the plan document already answers the original question. If it does not, that might be indication of a document that needs fixing.

The earliest the employee could have become eligible would be 10/1/2023. So you are doing well. To be more specific, did the employee work 1000 between 7/26/2022 and 7/25/2023? If so, 10/1/2023 entry date. Needs the 3% sh from 10/1/2023 to 12/31/2023 if plan specifies participating comp. If no 1000 hours the first year of service, then does plan shift to plan year? it could be possible the employee is not eligible 10/1/2023, but worked 1000 hours in 2023 to become eligible 1/1/2024. I don't see a path to 7/1/2024 unless employee turned age 21 in 2nd quarter of 2024..... and had the required hours prior to age 21.