Leaderboard

Won't the annual additions deadline still matter?

I'm thoroughly confused. The only effect of the employer filing bankruptcy is that a Bankruptcy Trustee may be appointed who should become the plan fiduciary for purposes of terminating it and distributing assets. In any event, absent the bankruptcy trustee assuming responsibility, the existing plan fiduciaries remain the plan fiduciaries . Interestingly enough, the OP indicates an active plan fiduciary, but also the pendency of an application under the DOL's Abandoned Plan program - and those two facts are inconsistent. In order to have a QTA appointed, one must documents efforts to contact an existing fiduciary, and only if they can't be found, or are unable to continue as fiduciary, will a QTA be appointed. In any event, if a plan fiduciary exists, it's a fiduciary decision to approval or not requests for distributions, considering many factors but including a diminishing pool of assets/participants to pay ongoing fees. If the choose not to all distributions (a good idea, IMHO) then some "action" should be taken to effectuate plan termination and minimization of fees - else the DOL, when the denied participant complains, will question the fiduciary. If the plan is "abandoned" under the DOL criteria, then by definition no fiduciary exists until a QTA is appointed. Where I used to work, I was the QTA, and we would have a plan to bulk distribute benefits so as to reduce fee impact. Often; however, the fees were due to us (a r/k), and we would waive those fees as to charge them might be perceived as egregious or greedy, and reputational risk outweighs revenue. So, bottom line, who's the fiduciary NOW, and in any event allowing distributions is a fiduciary decision....

If, for example, the plan sponsor Tom describes declares a nonelective or matching contribution based on 2023 compensation but doesn’t pay that contribution into the plan’s trust until February 2025, the contribution counts against the annual-additions limit for whichever limitation year includes February 2025. If that limitation year has also other annual additions—for example, for a nonelective or matching contribution paid or accrued in that year and counted in that year, there could be a bunching effect.

That the employer is a debtor in a chapter 7 liquidation bankruptcy does not by itself undo a fiduciary’s responsibility to administer a retirement plan according to the plan’s governing documents, ERISA’s title I, and other Federal law. But: A bankruptcy trustee or her eligible designee [see 29 C.F.R. § 2578.1(j)], as the plan’s administrator, might consider: whether the bankruptcy trustee amended the plan (for example, to cut optional distributions); whether special circumstances make it prudent to use the maximum period (90 + 90 = 180 days) to process a participant’s claim [see 29 C.F.R. § 2560.503-1(f)(1)]; how a fiduciary’s duty of impartiality relates to the fiduciary’s responsibility. A retirement plan’s directed trustee (if any) should not follow what otherwise might be a proper direction until the trustee has satisfied itself that the direction is given by the person that has authority to direct the trustee. This is not advice to anyone.

@Tax Cowboy I think ERISAPedia has a marketing tool for this as well. They data-mine 5500 and give you lots of options. Its been a while since I demo'd it, but it was pretty flexible.

The rules attempt to address the various combinations of plan document provisions and administrative policies, and the interplay of each combination with a participant's personal taxation. One scenario is where the plan doesn't have any provisions about allowing Roth catch-up contribution for a High Paid employee. The correction procedure in this scenario is to treat any amount that would be a catch-up contribution for the employee as an excess deferral using existing correction rules (e.g., timely refunding of the excess plus earnings). If the plan has provisions for deemed Roth catch-up election and the plan accepts a pre-tax elective deferrals in that should be treated as Roth, then the plan can use the new correction methods. One of the new correction methods says that the amount that needs to be treated as Roth can be put in a Roth account in the plan (applying the deemed election) and the amount is included on the employee's Form W-2 as Roth for the year. This has to be done before Form W-2 are issued and will require the plan informing payroll of the amounts. The other correction method says that the amount that needs to be treated as Roth can be put in a Roth account in the plan (applying the deemed election and treating the amount as an In-Plan Roth Rollover) and the amount is reported to the participant on a Form 1099R. Either correction must be made by April 15th. This is just an example of some of the rules. The rules also address scenarios such as treating amounts as catch-up after failed ADP testing (including the 6 month ADP test deadline for EACAs), 415 excess amounts, excess amounts over employer-provided limits (versus 402(g) limits). Getting all of this sorted out among payroll, recordkeepers, and High Paid participants by January 1, 2026 is going to be a major challenge. The IRS did what is could with Notice 2023-62 to delay implementation, but the IRS could not retract what Congress wrote into law. The motivation in Congress was meeting the law's overall revenue impact and was not based on the implications of implementing the law. In 2025, the burden now falls on service providers, plan sponsors, and participants to try to get this to work.