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IRS Notice 2024-2 provides some guidance on this. Specifically, I want to see if you disagree with my reading of Q&A L-2: Q. L-2: If an employee designates a matching contribution or nonelective contribution as a Roth contribution, for which taxable year is that designated Roth matching contribution or designated Roth nonelective contribution includible in the individual’s gross income? A. L-2: A designated Roth matching contribution or designated Roth nonelective contribution is includible in an individual’s gross income for the taxable year in which the contribution is allocated to the individual’s account. The preceding sentence applies even if the designated Roth matching contribution or designated Roth nonelective contribution is deemed to have been made on the last day of the prior taxable year of the employer under section 404(a)(6) of the Code. It seems clear to me that the meaning of this is that "allocated" in this context means "contributed." So if in July of 2025, a profit sharing contribution is made on a Roth basis, even though it is "allocated" for 415 purposes to the 2024 plan year, it is nevertheless TAXABLE to the employee in 2025. Any agreement/disagreement/other thoughts? Thanks.

Or worse if as the original post noted some have terminated their 415 limit is $0 there is an allocation for them. I have had to have this conversation with a client before. It is most likely a bad idea to fund such an old allocation years later.

The proposed change will be more restrictive than the existing provision and would defer the availability of the distribution for small account balances, so the existing provision is a protected benefit. I expect that the existing provision would be preserved for current participants, but the new provision could be applicable to new participants.

The thought process the IRS used to develop the rules applicable to the Roth Match and Roth Nonelective Contribution was to treat the contributions as if they were put in a participant's account as a regular contribution and then reclassified as Roth through an in-plan Roth rollover. This approach would make the year of taxation the year in which the rollover occurred and reportable on Form 1099R. The IRS also uses similar logic in the recently released rules for corrections applicable to Roth Catch-Up contributions. In these rules, there is a pre-tax catch-up in a High Paid participant's account, it can be corrected by treating it as an in-plan Roth rollover in the year in which the rollover occurs and reportable on Form 1099R. So I agree that the taxable event occurs when the dollars are deposited into the participant's account.

That is a good question, but it goes deeper than that. Often the trustee claims to be a non-discretionary directed fiduciary (and often claim they aren't a fiduciary - but that is a topic for another thread.) Our practice as R/K and custodian, and the entity directly responsible for directing the institutional trustee, was to not process distributions, as there was no fiduciary to authorize them. Even in those cases where processing distributions was outsourced to us (i.e. the plan sponsor need not be involved except to provide term dates and we'd handle the rest), we would refuse to process distributions as our authority was under an on-going delegation from the fiduciary - that evaporates when there is no active fiduciary to continue the delegation to us (and yes, our agreements so specify). So "freeze" may not be the right term, and the trustee may not have been acting with authority, but rather not acting as not having continuing authority.

As @justanotheradmin notes, you need more information about the DFVCP and your role. Here are some things to consider: Does the plan sponsor have in hand the Schedule SB Actuarial Information and all of the related attachments for each plan year? If not, who will coordinate gathering this information from the actuary? Does the plan require an audit for any of the plan years? If yes, does the plan sponsor have in hand the completed audit report for each year? If not, what role if any, might you have in working with the auditors? When filing retroactively under DFVCP for more than 2 years past due, the plan will have to use a current year form to report the earlier years AND will have to use the prior versions of any Schedules that needed to be attached to the original filings for each year. See https://www.askebsa.dol.gov/FormSelector/ to get a flavor for how this works. In some ways, this is the tip of the iceberg, so you may get drawn into things like determining if appropriate fidelity bond coverage was in place, or tracking participant counts, or filing Form 8955-SSA, ... A reasonable fee not based solely on hours spent, but also includes recognition of the knowledge and expertise you bring to the process.

well how much are you actually doing? sending them a link to the DFVCP page and telling them how to answer the questions? and then telling them to click okay and follow the instructions to make the online payment? Seems like that's just an email, or maybe a phone call if they like someone to be with them while they click on things. Assuming you are charging for preparing the 5500s themselves, and marking the DFVCP forms, I don't see how it would be much more. If you charge by the hour for extra assistance items, maybe one hour?