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Most plans and/or recordkeepers are able to specify that distributions of less than (x) won't be charged a fee, etc., etc. - perhaps you could look into this for future distributions. But, I have a slightly different take on things. You are being paid a negotiated fee as a TPA to do a job - among your functions is to make sure the client complies with the plan provisions, IRA and ERISA, etc. The recordkeeper has to do just as much work to process a distribution of $50 as they do for $5,000 (well, maybe not quite - no mandatory withholding, for example). But, the service costs money, and it seems reasonable to me to charge for it. Honestly, some of the very small distributions to participants turn out t be a ton of work, because the checks sometimes go uncashed, whereas the larger check rarely go uncashed. Having said all that, I do understand your feelings on the issue. And I think many TPA's (us included) often undercharge for our services. Sometimes a tricky balancing act.

yeah, the plan is compliant and the recordkeeper makes the bucks.

When was the failure (if any) described above IDENTIFIED by the plan’s sponsor/administrator?

If they both have money in the plan and are both still employed, it’s 2 and 2.

@Lou S. is correct that you want the EIN on the 1099s to be the same as the EIN used to make the tax deposits AND the EIN used to file the Form 945 Annual Return of Withheld Federal Income Tax. TPAs and recordkeepers do not all use the same approach, but as long as the EINs are used consistently, there should be no problem. That being said, here is a word of caution - avoid using the plan sponsor's EIN. If the plan sponsor files a Form 945 for tax deposits for other payments that are not plan distributions, the plan sponsor likely will get a notice from the IRS that the Form 945 amount does not match total tax deposits reported to the payees. It can consume a lot of time trying to straighten this out. As examples where this can be a problem, the instructions to the Form 945 say: All federal income tax withholding reported on Forms 1099 (for example, Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.; Form 1099-MISC, Miscellaneous Information; or Form 1099-NEC) or Form W-2G, Certain Gambling Winnings, must be reported on Form 945. We are sitting here in January 2025 preparing forms for distributions made in 2024. Hopefully, the tax deposits made during the year did not use the plan sponsor's EIN.

If plan is not on a recordkeeping platform, use PenChecks for plan distributions that require withholding

After filing formal claim, if you get nowhere I would go to DOL first, the last thing a plan sponsor wants is a disgruntled plan participant or beneficiary complaining to the DOL. A follow up "threat" of such to the Plan Administrator may move them to action. An ERISA attorney could also help but legal counsel is not free. Good luck.

I have a client with a former employee who worked a half day in 2024 as a substitute. The employee was eligible and they have a safe harbor non-elective provision. The 3% contribution would be ~$15. My understanding is the letter of the law so to speak requires the $15 deposit. I have an ethical issue asking the client to make this deposit when the force out distribution will generate a fee from the record keeper (or us the TPA) that exceeds the balance of the account. Me: Client you need to make this deposit. Also Me: Thanks that is my money now as a fee. Is there a standard practice for how to handle these types of situations?

Is the plan administrator insistent on distributing the account? Because it seems to me that the simplest correction would be to keep it in the plan and adjust the plan's recordkeeping so that it is correctly coded as a Roth rollover. If the issue is that the plan does not permit Roth rollover contributions, then I would look at doing a correction by retroactive amendment to allow Roth rollover contributions back to 2018. In that case, self-correction* would be fine if the participant is a NHCE, but I would want the reliance of VCP if the participant is a HCE to make sure I did not inadvertently create a benefits, rights or features failure. * If self-correcting by amendment, I would be ok with treating this as an insignificant failure that can be corrected at any time, because it a) only affected one participant, b) involved an amount of money that is presumably small in relation to total plan assets, and c) has no tax consequences since there has not been a distribution.

All -- Thanks for your responses. To answer questions: Lou S/Bri -- The plan administrator is expected to take the position that this is an eligible inadvertent failure under SECURE 2.0 that can be corrected pursuant to IRS Notice 2023-43, Q&A-8. Lou S -- In researching the matter, the 2018 rollover check indicated it was a rollover from IRA. The check did not indicate it was from a Roth IRA. Written plan notes suggest the plan administrator verbally confirmed the rollover came from a traditional IRA. The participant -- this week -- has presented the plan with documentation that clearly shows the rollover was from a Roth IRA. Peter -- The error was identified this week when the participant called to inquire why he didn't have a Roth Rollover Contribution balance (Answer: Because the plan administrator was under the mistaken belief that the rollover came from a traditional IRA). I believe -- unless there is guidance to the contrary -- that this error can be self-corrected. I'm just not sure whether the distribution must be made in cash to the participant (i.e., not eligible for rollover; not a qualified distribution?), or whether the plan can treat this as an ordinary distribution and allow the participant to make an affirmative election (i.e., receive a cash distribution or roll back into a Roth IRA). I was leaning toward a cash distribution pursuant to EPCRS, but Bri has me wondering if the plan can treat this like an ordinary distribution and allow the participant to elect cash or a rollover to the Roth IRA). . . . And I have not found guidance in helping with this issue. Thanks all for any additional thoughts.

Even if all other conditions for self-correction are met, the correction must be “within a reasonable period after the failure was identified.” The IRS’s Notice sets up that “a failure that has been corrected by the last day of the 18th month following the date the failure is identified by the plan sponsor will be treated as having been completed within a reasonable period after it is identified.”

Circling back to this. I brought this up in a webinar with Derrin yesterday, and he said no. The withdrawal is separate from the election to defer and can't be conditioned on an affirmative election of 0%. He cited 401(k)(4), benefits cannot be contingent on an election to defer. The more I think about the more sense it makes. The permissible withdrawal is an option for employees who were auto-enrolled, but nowhere does it say that you have to opt out of deferrals to exercise the option. Best practice is to provide the participant requesting the withdrawal with the tools to change their deferral rate, and to explain that they have to make an election to stop or change the deferrals. Otherwise, they get the distribution but the deferrals continue. In theory, you could incorporate an optional affirmative election feature on the permissible withdrawal form or process make it as simple as possible. That might be a possible issue for RK/payroll though.

Then seems like 2 and 1 to me.

I think if you want to do this with IRS blessing since it well past the 2 year self correction mark, you would be looking at VCP with the suggested correction be that the plan disgorge the funds back to a ROTH IRA since it was not supposed to accept rollover funds from a ROTH IRA in the first place. Assuming the participant can provide the documentation that the funds did actually come from a ROTH IRA originally. What documentation did the Plan get in 2018 to suggest that it was from a traditional IRA and an allowable rollover in?

Great question! The EOB says in Chapter 8 Coveage Testing Part C., Average benefit percentage test, 2. Computing benefit percentages, 2.i. Certain distributed amounts must be included in benefit percentage: 2.i.2) Corrective distributions of excess deferrals under IRC §402(g). Whether to apply the rule described in 2.i.1) to excess deferrals under IRC §402(g) is less clear. Treas. Reg. §1.415(c)-1(b)(2)(ii)(D) provides that excess deferrals which are distributed by the April 15th deadline under IRC §402(g)(2) are not treated as annual additions for §415 purposes. However, Treas. Reg. §1.402(g)-1(e)(1)(ii) provides that the excess deferrals of nonhighly compensated employees (NHCs) are excluded from the nondiscrimination test (i.e., the ADP test) under §401(k), but the excess deferrals of the highly compensated employees (HCEs) are included in the ADP test. With the difference in treatment between HCEs and NHCs for nondiscrimination testing purposes, it is recommended that excess deferrals made by HCEs be included in the benefit percentage, even if they are distributed by the April 15th deadline. The short version of the logic that leads to this conclusion is it the excess is included in the ADP test, the excess should be included in the ABT. Note that the analysis admits that this is "less clear" and the conclusion is "recommended" which will leave up to the plan and the practitioner to decide if they embrace this interpretation. The most conservative approach is to include the excess deferrals.