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This is a pet peeve of mine, you can't "fail" the top heavy determination (aka top heavy test). You are just top heavy or not top heavy. In this case you're top heavy. Not a failure. The actual rule is that in a top heavy DC plan, each participant who is a non-key employee must receive an employer allocation equal to at least 3% of their compensation, or a percentage equal to the highest percentage allocated to any key employee if it is less than 3%. This allocation may impose a last day rule, meaning employees who are terminated before the end of the plan year do not need to receive the top heavy minimum. The rule was modified by SECURE 2.0 so that employees with less than 1 year of service or who have not attained age 21 do not need to receive the top heavy minimum contribution. This is effective starting for 2024 plan years. Since your plan is profit sharing only with a pro rata allocation, you shouldn't normally have any issues with the top heavy minimum, as each non-key employee would receive the same percentage of employer contributions as each key employee. However a couple of things to watch out for: If the plan excludes any compensation for allocation purposes (for example, pre-entry compensation), that definition of compensation may not be used for the top heavy minimum allocation, even if it is a 414(s) safe harbor definition. The plan must use full year (415) compensation. If the profit sharing allocation has a service condition, for example, the employee must complete 1000 hours of service in the current year to be eligible for a contribution, then an additional top heavy minimum might be needed for participants who were active on the last day but did not complete the 1000 hours. Employees who are not participants (have not met the plan's eligibility requirements) do not need to receive a contribution.

that's for improperly excluded employees. OP states this is a failure to implement an employee elective deferral which is defined in .05(10)

I assume this has to do with how the Form 5500 is completed. It is an annoyance. If should be using full accrual accounting which would get the plan to zero no matter which date is used for the plan year. Technically, the plan year ended on the merger date but the trust continued. If the trust also was considered merged on the merger date, then the assets belonged to the new plan. If not, then the trust persisted after the merger date. What really matters is that if the Form 5500 has the Final Return box checked, then the ending balance on the Schedule H must be zero. The transfer of assets also is disclosed on Schedule H. Whether the plan year is entered as 10/2 or 10/15 is not a big deal, nor is the cost of professional time that the client could get charged for "discussing" the issue. And, by the way, the client can decide since they are signing the form under penalty of perjury (and it is okay if the audit report differs from the form as long as the difference is explainable).

IRS Notice 2024-80: "The Roth catch-up wage threshold for 2024, which under section 414(v)(7)(A) is used to determine whether an individual’s catch-up contributions to an applicable employer plan (other than a plan described in section 408(k) or (p)) for 2025 must be designated Roth contributions, remains $145,000." https://www.irs.gov/pub/irs-drop/n-24-80.pdf

Thanks Paul! Your comment made me think more about my response. I have always interpreted EPCRS (maybe incorrectly) that "elective deferrals" meant pre-tax and Roth. If this does not mean Roth, then I am curious how everyone else is correcting missed Roth deferrals? Are other practitioners following some other correction method? Thanks, curious what everyone else is doing. Page 93 Rev Proc 2021-30: (10) Employee Elective Deferral Failure. For purposes of sections .05(8) and .05(9), an “Employee Elective Deferral Failure” is a failure to implement elective deferrals [emphasis mine] correctly in a § 401(k) plan or § 403(b) Plan, including elective deferrals pursuant to an affirmative election or pursuant to an automatic contribution feature under a § 401(k) plan or § 403(b) Plan, and a failure to afford an employee the opportunity to make an affirmative election because the employee was improperly excluded from the plan. Automatic contribution features include automatic enrollment and automatic escalation features (including automatic escalation features that were affirmatively elected).

I am not aware of anything in EPCRS that provides an explicit correction method for missed Roth deferral. (This is different from when a pre-tax deferral is made when it should have been Roth,which is addressed in the IRS article for which you provided the link.) The IRS article does provide a suggested approach which get the participant close to where they wish to be. Assuming the plan allows transfers from pre-tax to Roth, make the appropriate QNEC correction and then have the participant elect a transfer from the amount of the QNEC to Roth. This would be taxable to the participant in the year the transfer is made. Note that the IRS proposed using a similar transfer in the recently released rules for allowing participants to elect to have an employer contribution made to their Roth account (and a QNEC is an employer contribution). Absent specific guidance, think through the correction steps and any associated plan provisions needed to implement the correction, and discuss all of the implications with the client. The rapid proliferation of Roth throughout the plan easily may have unintended consequences.

The 40% correction you reference is the correction for missed employee/after-tax contributions, not Roth. Missed Roth contributions will follow either the 0%, 25% or 50% QNEC correction method depending on amount of time of the failure and the timing of the correction (or you could go straight to 50% regardless of the lower priced options). The correction would not be funded to the Roth source, it would be a pre-tax QNEC. One idea for 2025, since you said the employer wants to do more, give the employee a bonus (not contingent on it being deferred) and let the employee make a choice if she wants to make a Roth deferral from the bonus, assuming the plan allows for deferral of bonus. I think it is too late to do anything about the 2024 W2. Be careful with being more creative than EPCRS allows, a more generous correction could be considered a contribution, not a correction.

Note, there are rules that limit the aggregation of safe harbor plans with other plans for coverage and nondiscrimination testing. In all likelihood, you will need to meet coverage in the two SH plans separately for 2025 (i.e., as if both plans excluded all other employees). Also, check the plans to make sure that they don't cover the other entities by their terms. You could have some people being covered accidentally in more than one plan. Last but not least, there are rules about modifying safe harbor plans mid-year. These rules may prevent you from merging anytime other than the first day of plan year. So, in other words, therre is a lot to think about here. Consider legal counsel (regardless of whether it's me or someone else). M&A is complex and shouldn't be handled without knowledgeable advice, IMO.

I’m not a fan of different accounts for each source. The only exception I would concede is maybe Roth money.

It is odd that which choice results from an absence of the worker’s communication turns on whether the noncommunication is during or after the notice period. Congress could have allowed a plan to provide an implied assent to an elective deferral even before a worker has received the automatic-contribution notice if the notice explains a participant’s right to get a permissible withdrawal and is given with enough time before the end of the period for a permissible withdrawal. That could allow making the implied-assent choice the same for during the notice period and after the notice period ends. But Congress might have overlooked that idea in the few days of December 2022 in which they legislated SECURE 2022. And some wonder whether Congress thoughtfully considered the public policy effects of imposing an eligible automatic-contribution arrangement as a tax-qualification condition for new § 401(k) or § 403(b) arrangements, so burdening startup and emerging businesses but not many established businesses.

A person starts a new job, usually gets various employment forms to review and complete so just add this to the list. Basically, you can make an affirmative election now to enroll or not enroll (defer 0%), and pursuant to this notice, if you fail to make an election you'll be automatically enrolled on X date. This is always the concern for any administrative task foisted upon a small business.

What the estate(s) needs is a Florida lawyer to provide advice. Sounds like these estates are large and therefore set up with wills, trusts, and executors. The executor needs to be involved, and the executor needs to have a lawyer (if not a lawyer) If you, guestdelta, are an IRA administrator or the like, not an attorney (or maybe a CPA), you should not be messing with this yourself. Do not rely on what JP Morgan tells you.

Just watch the 2-year holding period rule for SIMPLE IRA rollovers/withdrawals. I'm not sure if the 2-year holding period would be waived if that individual passes. The question for you would be why would the surviving spouse not want to roll the money out into her name? Something she needs to consider is access to the money. If she is pre-59-1/2 and rolls that money into her own IRA account, she will pay penalties and taxes for any withdrawals. If she rolls it into an inherited IRA she can take withdrawals pre-59-1/2 without paying a 10% penalty. AND even if she elected to receive the money into an inherited IRA it's not an irrevocable decision. On a later date, she can roll those assets into her own IRA.

Think about what each Form 990 or Form 5500 will show. Think about what an independent qualified public accountant, if any, might find. KEC79, if you’re a service provider anywhere near this VEBA’s situation, lawyer-up to Cover Your Assets. There might be ways for an employer’s blunder to become a service provider’s liability exposure. A service provider might evaluate whether doing something now could help improve opportunities for avoiding or dismissing a claim. This is not advice to anyone.

If an employer “as part of the exit process” might “highlight the potential benefits of exchange coverage”, think carefully about how to make the explanations—of both exchange coverage and continuation coverage—accurate, complete, balanced, and fair. Prepare for a later day when the employer, which likely is its group health plan’s administrator or other fiduciary, would respond to a plaintiff’s assertion that the fiduciary had obedience, loyalty, prudence, and impartiality duties to communicate in the participant’s (the could-be continuee’s) interest. This is not advice to anyone.

What seems incongruous? The notice Internal Revenue Code § 414(w)(4) calls for is about how someone makes or is deemed to have made one’s cash-or-deferred election. What you describe goes like this: A worker, from one’s employment commencement date, is eligible to elect. A worker always may elect between cash and a deferral. During the notice period, a worker may elect, impliedly, cash or may elect, affirmatively, a deferral. After the notice period, a worker may elect, impliedly, a deferral, or may elect, affirmatively, cash. A worker’s right to elect between cash and a deferral is constant during and after the notice period. To the extent of differences in whether and when an automatic-contribution arrangement applies, an employer can’t avoid at least some incongruity about which choice results from a worker’s communication or an absence of the worker’s communication. But Congress set that course.

I don't see any issue with them stopping the COBRA subsidy practice going forward to new terms. Those who have been promised a subsidy should receive the promised amount to avoid issues. As for how to handle COBRA subsidies, lots of employers simply provide a taxable cash payment regardless of the employee's COBRA election. Aside from the downside of being taxable, this has multiple advantages including avoiding the Section 105(h) nondiscrimination limitations that apply to self-insured plans. That's basically a standard payment in the amount of the intended COBRA subsidy, which a gross-up if they want to offer it. Here's some more discussion of that issue: https://www.newfront.com/blog/cobra-subsidies-reimbursement-2 Here's a quick slide summary: 2024 Newfront COBRA for Employers Guide

I share Gina's concern on this situation for the same reasons. You can correct the situation for the amounts that were not contributed in the past by filing under the Voluntary Fiduciary Correction Program and contributing the amount owed plus interest using the DOL's calculator. As far as the IRS is concerned, I am not aware that they have any program in place to address voluntary correction of tax exemption issues. Because of this, you should retain highly competent ERISA counsel to assist you in rectifying this problem. The DOL program would likely resolve any prohibited transactions and other fiduciary issues. The danger is, that you do not want the IRS to know about this and hit your client with a 100% excise tax on a reversion. Perhaps there is a closing agreement you could pursue to address any IRS issues. Regarding the overfunded status of the VEBA, you could, prospectively, collect lower premium amounts from employees or amend the VEBA going forward to add additional benefits to help soak up some of that excess amount. I hope these suggestions prove helpful to you.

guestdelta, along with others’ pointers, consider these to ask your lawyer about: Read the IRA agreement. Many of these include provisions about beneficiary designations, primary and contingent beneficiaries, and default beneficiaries. Don’t assume Florida law governs. Many IRA agreements include a choice-of-law provision. That choice often is the State a bank, trust company, insurance company, or broker-dealer prefers, or the State some investment funds’ manager or adviser prefers. Some frequent choices are California, Delaware, Massachusetts, and New York. JPMorgan Chase might prefer New York law. Don’t assume, without reading, that any State’s simultaneous-death statute for decedents’ estates applies. Consider that a State’s statute might not apply to determine the beneficiary under an IRA agreement, a contract right. Consider that an IRA agreement might state its provision about simultaneous deaths and the orders of deaths. Consider that a simultaneous-death provision might apply only between or among beneficiaries, and might not apply an order of deaths regarding the originating IRA holder’s death. As MoJo notes, a simultaneous-death time need not be limited to minutes, hours, or days. It might be months. Up to six months is not unusual. See, for example, I.R.C. (26 U.S.C.) § 2056(b)(3). Consider that a simultaneous-death provision might be irrelevant because the IRA agreement might provide who is a contingent beneficiary and who is a default beneficiary without using any such concept about the order of deaths. For these and other points, remember a beneficial interest in an IRA is about contract rights. If the default beneficiary is the personal representative of a decedent’s estate, ask your lawyer about whether one might persuade JPMorgan Chase to pay the applicable decedent’s estate’s takers instead of the personal representative, on satisfactions, releases, and indemnities all around. Yes, there are some IRS rulings and other nonprecedential guidance your lawyer could read to suggest potential courses of action for a situation in which there is only a default beneficiary. This is not advice to anyone.

In my experience where a bank is involved, it is usually acting as a directed trustee/custodian. They limit their fiduciary duties substantially by having a contract that directs them to perform certain activities and specifies exactly how they are to be performed. The plan sponsor is usually the named administrator and trustee. The same is true for 3(16) Plan Administrators. Most have contracts and processes and procedures that limit what services they are performing and how they will be performed. I have very rarely seen a 3(16) named in the plan document, taking on the whole enchilada. I will say, the larger the plan the more likely they will have more fiduciaries in the mix.

If the SIMPLE is 2 years old I believe she could elect to roll it to her 401(k) Plan account (assuming she is a participant and entitled to roll in to the Plan) but I don't think she can elect to roll it to his 401(k) account if that is what you are asking.

You need to give participants at least 30 days to respond (most give 60-90), you will then need to demonstrate to the PBGC that you did a diligent search, which includes a demonstration of at least one private search company (PBI, LexusNexus, Berwyn Group, etc.). Sometimes a phone call is the best way to reach people. PBGC regs are fairly clear about what you need to do.

I would respectfully disagree. A "simultaneous death" doesn't mean at the same time or even for the same reason. In some cases, a "simultaneous death" occurs even if there is a gap of up to 30 days, if the deaths were the result of a common cause (i.e. a car accident that kills one instantly, and the other lingers for weeks before dying of injuries received). In other cases, the cause of the second death is irrelevant, if the deaths occur in close proximity (sometime days separated). The bottom line is, each state has it's own simultaneous death statutes that will define whether or no a simultaneous death exists give the facts - and each determination is very fact specific.

Pay particular attention to CB's comments here, especially the allocation of forfeitures part. I've seen plans where plan sponsors got badly burned on this.

With the giant caveat that I am neither an attorney nor an IRA expert (I'm a TPA)...you need to check under Florida law. Most (all?) states have some form of "Simultaneous Death" statute, where if both spouses die within a certain amount of time, the spousal beneficiary is treated as not surviving, so it passes to the contingent beneficiaries if named, and to the estate if no named contingent beneficiaries. Other people on this board are certainly far more expert in these matters, and will probably give you much better answers!

A safe harbor match can not require hours in order to receive it on a year-by-year basis, but it can have a service requirement for initial eligibility. No, you can have different eligibility for deferrals and safe harbor match. The major consequence of this design is the loss of the top heavy exemption, as Bri noted earlier. Under this design you are technically doing an ADP test for the disaggregated portion of the plan covering otherwise excludable employees, since that group is not covered by the safe harbor match. It is unlikely that there would be any otherwise excludable HCEs, so that group should always pass the test automatically. But it's something to be aware of. No, you can have a service (hours or elapsed time) for initial eligibility for matching contributions, including safe harbor matching contributions. If your document uses a checkbox-style adoption agreement, there are probably options for this. A plan that consists solely of deferrals and matching contributions which satisfy the ADP and ACP safe harbors is exempt from top heavy. This is determined based on the contributions that are actually made to the plan on a year-by-year basis. A plan can permit non-elective contributions but will not lose its top heavy exemption unless non-elective contributions are actually made (or forfeitures allocated) in a given year. Likewise, making non-safe harbor matching contributions will also cause the plan to lose its top heavy exemption.

My first thoughts, you don't really specify what the benefit is. These are my thoughts generally speaking, the Department of Labor (DOL) considers healthcare premiums that are withheld from employee pay to be plan assets (29 CFR § 2510.3-102(a)(1)). This would be true, even if they are not segregated from employer assets (AO 92-24A). In general those assets should be held in trust, additionally VEBA assets cannot be used for anyone other than participants and beneficiaries for permitted benefits. You can mess up your tax exemption by breaking the "no inurement rule." I hear possible fiduciary problems and possible exempt status problems in what you are saying. That's all my thoughts. Good Luck.

Surprised me but I looked and looked and could not find anything! Will keep trying. Seems like it ought not to apply but not safe to assume! Could freeze plan # 1 and set that up so no payouts; create plan # 2 and then merge the plans.