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This is to share with you the happy news that today is the 25th anniversary of the first day on which the BenefitsLink Newsletter began daily publication. I didn't see this coming when I decided to go daily in 1999, at age 41. (The newletters had begun four years earlier, but they weren't being published every day.) The free information must be helping employee benefits practitioners to help their clients, which translates to the ability of employers to effectively run and fund programs that improve the lives of so many millions of working people (and retirees, and beneficiaries), even if most of them wouldn't know (or want to know) the difference between an ERISA and an eraser. What a noble endeavor, to be an employee benefits practitioner! Some lawyers and TPAs and other benefits practitioners have found work through our job board that's been running since 1996, which means they've gone to new workplaces and sometimes new cities, which means some of them have met people they wouldn't have met otherwise, which means some of them have fallen in love and then had children... which means there are people walking around on the planet now who wouldn't be here but for this "web site" thingie that started in 1995, and then the idea of sending "newsletters" by "email." None of that would have been possible without readers. The existence of "BenefitsLink babies" didn't occur to me until one day about 10 years ago, but I kept it quiet -- at that time, they were still teenagers! True to form, I and my business partner and wife Lois Baker (formerly an employee benefits lawyer, whom I met on CompuServe in 1990 while trading ERISA questions using dial-up modems) have failed to do any marketing of this happy day. But as I sat here at the keyboard today I had the idea that we would get so much joy by celebrating the occasion with readers. I hope this hasn't come across as a commercial but instead is the lifting of an E-flute of cyber-champagne -- here's to employee benefits practitioners everywhere! It's a wonderful community, and for 25 years now and still counting, we are so happy to be a part of it.

We are no longer a service provider to the plan and unable to assist you with the information you are requesting as we have no access to that data and no contractual agreement with that Plan or Sponsor. Please contact the ERISA Plan Administrator and/or Plan Trustee. Our last records which we have previously provided to you indicate they are X and Y. The last known address and phone in our records is _______ and _________. We wish you luck in enforcing the right of the participants with the legally responsible parties but are unable to offer any further assistance. Just repeat that ever time they call.

A big thank you to Lois and the entire IT team (is that just Lois?) for cleaning up the site after the major spam attack over the weekend. Every board was littered with messages. These boards are very useful to many people and it doesn't happen without great support. Thank you to the entire clean up crew.

It sounds like the K-1 is issued to the partner's corporation, NOT the partner. The K-1 is not plan comp. This is not an uncommon setup, but its also often misunderstood. Based on the scenario you lay out, his comp for plan purposes is his W-2 from the corporation, not the K-1 from the partnership to the corporation. If the income passes from one entity to another (not taxed as income from self-employment), why would it count as plan comp?

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.

Thanks, @Effen -- that was a fun thing to wake up to on a Saturday. 😲 We did manage to stop them mid-stream, and have added a few more safeguards. Staying one step ahead is a challenge sometimes!

Solo 401(k) is a marketing term and not a real thing. Probably the only difference is that some mutual fund/brokerage providers will create a “solo” document that severely restricts the operation of the plan. They also aren’t always good at ensuring the plan document satisfies all the amendment and restatement rules. Whatever it’s called, you have to follow the eligibility, discrimination, and filing rules. Also, you have to follow the long term part time rules. I highly recommend you find a TPA to handle the compliance. It will cost you less to have it done right than it will to have someone fix it later.

Just to be clear ... you cannot change an allocation formula (or contribution formula, in the case of a mandatory match) once someone has earned the right to the allocation. So, for example, if someone needs 1,000 to share in the allocation, you have until that occurs to modify the allocation formula (usually considered to be about 5 months into the plan year, but if you have a company that has lots of overtime, that may be too late). If there are no allocation requirements in the plan, then you have to amend before the beginning of the year. If the plan has a last day requirement, people con't earn the right to the contribution until the last day of the plan year, so you have until then to amend. Hope this helps ...

I question whether it is possible for a plan to fail coverage the way you have described. Show the numbers for the test.

We haven't done (nor will we) any formal quantitative analysis of this question. I CAN say that it is darned few, in general. An administrative PIA all out of proportion to the end results. Somewhat typical of many of the SECURE/2.0 changes...

I think the location of the assets is 100% irrelevant.

How is that a failure under 414s?

If you elect the 4% SF nonelective up to the last day of the following plan year, you are a SF for the year. So if that is the only employer contribution you are deemed not top-heavy. Though you would need to make it to all eligible (though I believe you can exclude HCEs still), not just the deferring because you can't add a retroactive SF match.

Section IRC § 401(k)(14)(C)(w)(t)(f), provides that you will be removed from you home at night and placed on an airplane that will take you to a prison in El Salvador without due process where you will be incarcerated for the rest of your life. So your best course of action to protect yourself is to interrogate the prospective lying SOS in the customary way before permitting the hardship distribution. https://www.meisterdrucke.uk/kunstwerke/1260px/English%20School%20-%20Cuthbert%20Simpson%20also%20Symson%20Simson%20or%20Symion%20tortured%20on%20th%20-%20%28MeisterDrucke-673723%29.jpg

It is permissible, it is not required, and there are pros and cons. Some companies fund the SHNEC with each payroll because the contribution is 100% vested and not subject to other allocation conditions (like a last day rule). They do this as a convenience and feel it helps them manage their finances. The TPA should know better than to say there is no "true-up". The SHNEC is not like a match. A plan can specify a time period for funding the match that is more frequent than annually. The SHNEC requires each participant receives must the the SHNEC percent of annual plan compensation. Payroll is notorious for having adjustments from pay period to pay period, and for having challenges reporting plan compensation should the definition of plan compensation be something other than 3401(a) W-2 compensation. The prudent plan administrator, payroll and TPA all would double check after year-end that everyone received the SHNEC they were due.

This COLA chart was designed with smaller business owners in mind. In addition to the indexed limits in Notice 2024-80, certain enhanced and additional limits are also shown for smaller businesses (under 26 employees) and larger employers (26 to 100 employees). The footnotes are important and provide additional clarification. Please let me know if you have any suggestions for next year's chart! A rollover chart is contained on page 2. Uploaded new file on February 26 to include the new bankruptcy exemption amount ($1,711,975) for IRAs (excluding most rollovers). Hope this helps. Enjoy, ``Gary COLA_RO_2025-ENHANCED.pdf

I'd do a final for 2024 and include the 6 cents as if distributed in 2024. Most likely, the numbers wont change at all since you'll round to whole dollars anyway

I didn't see one single CORRECT answer. A retirement plan uses a trust to hold the assets. The trust is required to have it's own tax ID. PERIOD. Yes, of course you can ignore it and continue to hope that the IRS will never match income to tax IDs, but that doesn't change the answer. Ray, continue to do it the right way, regardless of what others have said.

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.

They definitely are not deferrals. No deferral election was signed - this is just a payroll error. As you note, they are loan repayments, and are credited to the plan as such. The W-2, if it shows these loan repayments as deferrals is wrong, and should be corrected.

yes, but watch out for minimum TH requirements (if the Plan is TH).

Hire a professional to fix it for you. Way less than $150,000.

Oh, you sweet, summer child. 😇

Getting stiffed for providing professional services in good faith almost always ends with a feeling of regret including what you shoulda, woulda, coulda have done differently to have avoided the situation. Your question in particular asks what would be ethical ways to proceed. As an EA, you are subject to the Joint Board for the Enrollment of Actuaries and its Standards of performance of actuarial services which includes guidance on what is considered "records of the client". You also should be aware of the ethical standards of any professional organization to which you belong such as ASEA, SOA, ASPPA, AAA... Generally, while there are differences between each organization's code of ethics, if you delivered work product prior to receiving payment for those services, you cannot withdraw or invalidate a client's reliance on that work product. Generally you do have a right, absent any formal contractual obligation, not to perform future services. You appear to have a direct relationship with the plan sponsors since you have filing authorizations and also because you personally sign the Schedule SB. If ultimately you decide not to perform future services for the client, you should notify them in time for them to find another actuary, but you may find in some of the applicable codes of ethics that you should not disclose the reason is the TPA did not pay your fees. If this is the case, consider offering to continue working directly with the client as a change in your business model. Keep in mind that it is the TPA that is not paying for your services, but it is the plan sponsors who are using and relying on your services. The ways to proceed you listed have an element of vengeance or punishment which commonly is driven more by emotion, and it is the plan sponsors (not the TPA) who would suffer by attempts to remove the SB. Temper the emotion, seek legal counsel about how to proceed about getting paid for services delivered, and get some guidance on the cost of exploring legal paths forward in terms your time and expense against the known cost of writing off uncollected fees. Do take some time to implement, maintain and follow the terms service agreements and engagement letters with the TPAs and clients.

The plan administrator and its service providers will make separate payments of the Roth and non-Roth accounts. In addition to the fact that IRA providers will not take on the responsibility of splitting a distribution into Roth and non-Roth accounts, the plan has to report the distribution to the participant on a 1099R, and there is not enough room on one 1099R for all of distribution codes needed to report the distribution correctly if it was made in a single payment. In short, no IRA provider would accept a check with co-mingled amounts, and the plan would have no way to properly report the distribution to the participant.

To put some dates on the original question ... am I understanding it correctly, that you are talking about a plan adopted (say) 8/15/2025 with an initial effective plan year of 1/1/2024-12/31/2024? If that's the case, the first Form 5500 will be the 2025 form, due 7/31/2026 or 10/15/2026 on extension. You will check the box for a retroactively adopted plan on the 2025 form. You do not file a 2024 Form 5500 at all. However you will need to attach both the 2024 and 2025 Schedule SB to the 2025 filing.

I think it depends on whether you want the Plan to be a loan collection and processing agent for ex-employees or you want that loan off the books ASAP when a participant terminates.

This is an illegal exclusion unless the plan provides a 1000 hours fail-safe. In other words, the plan must provide that, regardless of the excluded class, a part-time employee who actually works 1000 hours enters the plan. Given that, the plan should satisfy the coverage test when using the option to disaggregate otherwise excludable employees.

This would be viewed as failing to withhold deferrals from eligible plan compensation, which is considered an operational error and more specifically a missed deferral opportunity (i.e., plan participants missed an opportunity to defer amounts under the plan). The first method available to correct this error would be to provide the affected participants (1) a corrective contribution in the form of a qualified non-elective contribution (QNEC) that’s equal to 25%-50% of the missed deferral amount, plus (2) if the affected participant is eligible for matching contributions, 100% of any missed matching contribution determined using 100% of any missed deferral amounts (not the reduced 25-50% amount) plus (3) any investment earnings what would have been earned on the contributions made under (1) and (2), if any. It is likely the percentage used for the corrective QNEC will be 50% as it appears that the error may have started a while back, but it could be less if it has only been occurring for a short period. If corrected in this manner, the employer should be able to self-correct even if it has occurred for a long period of time, but that would only be if it meets the rules for self-correcting inadvertent failures. Otherwise, it would only be able to be self-corrected if the error has only been occurring for less than about two years. The other method to correct the error would entail adopting a retroactive plan amendment to conform the plan document terms to the plan’s operation using an amended comp definition excluding the items you enumerated from the plan’s new comp definition for the period at issue. If the employer chooses to correct through retroactive amendment, the correction would need to be to submitted to the IRS under VCP. To get the IRS to agree to the retroactive amendment under VCP the employer would need to explain the expectations of the affected plan participants with regard to these excluded items (here, that they did not expect these items to be included for salary deferrals and matching contributions, if any). This would have to be shown by submitting SPDs, election forms, data statements or summaries of benefits, statements, notices, employee communications, new hire enrollment materials, or any other documents that indicated that these comp items would be excluded for plan contribution purposes. If the employer does not have any documents to submit showing that the participants were informed that these comp items would be excluded, it is unlikely that the IRS would agree to the retroactive amendment and it would likely require contributions be made as described above. Note that retroactive amendments can be used to self-correct but only in instances where the retroactive amendment would increase the benefits for the affected participants. That would not be the case here. There could be another correction the employer could propose if a VCP is submitted... under VCP the employer can propose anything it is just whether the IRS would accept what is proposed (not sure what they would propose but maybe they can come up with something). Also, note that since 2022 VCPs cannot be submitted on an anonymous basis (though you could ask for a pre-submission conference to discuss a potential VCP submission without disclosing the employer’s name, etc. but those conferences are advisory only and non-binding). as usual, this is not advice....

Because the plan document specifies a new comp allocation, which is not a safe harbor formula, you have to satisfy the general test (aka the rate group test). However if you calculate your rate groups on allocation rates, instead of on accrual rates, then everyone should be in the same rate group and the test should pass easily. You don't need the gateway because you're not cross-testing. You also don't need the ABPT unless your rate group is less than 70% coverage (which is unlikely to happen, unless, as Lou mentioned, there is an allocation condition that isn't met by a large number of NHCEs).

Certainly what the plan says about compensation will have a bearing on the answer, but the following observation may help focus on what appears to be a disconnect in Jane's argument. If I follow the description correctly: Jane's S-corp PC owns part of the LLP. Jane's S-corp PC gets earned income from the LLP which would be reported on a Form K-1 (1065) Jane's S-corp PC would send Jane as an S-corp shareholder a Form K-1 (1120s) which would identify her W-2 earnings, S-corp dividends and various other allocations of income and expenses. Jane receives a W-2 from Jane's S-corp PC. I expect that Jane's income on the W-2 is less than the income Jane's S-Corp PC received from the LLP by amounts listed in the 3rd bullet, and Jane would like to have the higher income considered as plan compensation. The amounts reported on Form K-1 (1065) to Jane's S-corp PC is not plan compensation, and only Jane's W-2 income from the S-corp is plan compensation. There always do seem to be some special rules somewhere out there, but the reporting path for Jane's income should be fully documented through all of the returns filed for Jane and her businesses. Jane or her advisors should be willing to provide that information to you.

Why? As mentioned in a previous thread, if the merger documents are properly defined and executed, the location of the assets is NOT relevant.

We had a client with the same issue.... failed to file 11 years of 5500s for a 401(k)/PS but only had 8 years of information/data. Filed the plan under DFVCP, paid $4,000 per plan cap. We had discussions with the DOL because of the lack of data for the missing 3 years and were able to simply upload the incomplete 5500s (filing out primarily lines 1-4, marking a few of the boxes below that, with no schedules) with a letter of explanation, including the DFVCP case number and agent in charge, etc. DOL accepted it, never heard anything from the IRS. This was just one client's experience, it may or may not work for another.

See Notice 2016-16 D. Prohibited Mid-Year Changes #3. Answer is no, you can't do this.

FWIW, and I understand this isn’t helpful, I despise everything about this rule; especially the application of the unique compensation amount.

And just to add to the above, although the IRS has never issued any formal guidance on an acceptable "de minimis" percentage, a widely accepted (or at least utilized) percentage is 3%.

Agree with Bill. The test under 414(s) is not how close the two percentages are, but rather whether the HCE percentage of total compensation exceeds by more than a de minimis amount the non-HCE percentage. In other words, you only have a 414(s) failure if the HCE percentage is too far above the non-HCE percentage. The other direction doesn't matter. 1.414(s)-1(d)(3): Nondiscrimination requirement—(i) In general. An alternative definition of compensation under this paragraph (d) is nondiscriminatory under section 414(s) for a determination period if the average percentage of total compensation included under the alternative definition of compensation for an employer's highly compensated employees, as a group for the determination period does not exceed by more than a de minimis amount the average percentage of total compensation included under the alternative definition for the employer's nonhighly compensated employees as a group.

I would recommend everyone lawyer up and walk away like a dealer at a blackjack table.

Agreed. If the income does not flow through to Schedule SE (which references K1 box 14) and is not subjected to SECA taxes then it cannot be earned income from self-employment.

The good ol' IRS Rollover Chart explains it clearly: Roll from: Qualified Plan (pre-tax) Roll to: Roth IRA Allowed: Yes (with a footnote) Footnote says: Must include in income.

In lawyers’ and law firms’ lingo, the label “of counsel” has no one settled meaning. It can relate to any of many kinds of relationships. It can, in context, refer to a current partner, a retired partner, an employee, or a nonemployee contractor. Does the of-counsel lawyer provide any service? Even having a lunch conversation with a client’s inside counsel or executive to help keep the client content with the relationship might be a valuable service. Don’t reflexively assume this person is retired. Suggest the plan’s administrator decide whether the participant is or isn’t retired (in the sense Internal Revenue Code § 401(a)(9) uses that word). If the law firm feels unready to interpret § 401(a)(9) and how it applies regarding the facts, you can suggest that the firm might get another lawyer’s advice.

The § 72(t)(2)(A)(v) exception from a too-early tax applies to a distribution “made to [the participant] after separation from service after attainment of age 55[.]” http://uscode.house.gov/view.xhtml?req=(title:26 section:72 edition:prelim) OR (granuleid:USC-prelim-title26-section72)&f=treesort&edition=prelim&num=0&jumpTo=true The IRS recognizes a practical tolerance about the age-55 condition: “A distribution to [a participant] from a qualified plan will be treated as within section 72(t)(2)(A)(v) if (i) it is made after the [participant] has separated from service for the employer maintaining the plan and (ii) such separation from service occurred during or after the calendar year in which the employee attained age 55.” IRS, Employee Plans-Miscellaneous Tax Reform Changes, Notice 1987-13, 1987-1 C.B. 432, at § D, Q&A-20. But the tolerance about the age-55 condition does not change the separation-from-service condition. This is not advice to anyone.

Girls will be boys and boys will be girls It's a mixed up, muddled up, shook up world... The Kinks, 1970

I observe that if the client has no clue where to find a resource on which to base their investment decisions, they should not be making any investment decisions for the plan. You may want to point the client to articles about their fiduciary responsibilities and the risk they are taking by doing a task for which they are not qualified to do. Here is an example: https://www.employeefiduciary.com/blog/meeting-401k-fiduciary-responsibility Good luck!

L needs a new W-2, or the payroll records need to be updated before the W-2 is generated. The participant did not have a valid cash or deferred election on file so there can not have been 401(k) deferrals. L's withholding is going to be off since the loan payments were treated as deferrals and not counted in taxable wages. They may end up owing more taxes when they file. If you wanted to pretend that somehow the loan payments were actually deferrals (I don't suggest this) then the loan would be in default and the participant would have a taxable deemed distribution. I suggest having a chat with the office manager and explaining how 401(k) loans work. Besides getting the coding straightened out, they also need to be aware that the loan payments are scheduled to end at some point in the future and they need to stop withholding from the employee's paycheck.

Is this actually a QDRO? Meaning it has already been approved by the plan administrator? If so, the plan administrator erred, because one of the requirements for a DRO to be a QDRO is that it may not require increased benefits, see IRC 414(p)(3)(B) and ERISA 206(d)(3)(D)(ii). The plan administrator should have adopted a set of QDRO procedures, I know that our document provider has a checklist to determine if the DRO can be a QDRO. One of the items on that checklist is "Does the order require the plan to provide greater benefits than would be available to the participant without regard to the QDRO?" and if the answer is Yes then the DRO can't be qualified. Did the plan administrator follow their procedures? If it is not a QDRO, meaning the plan administrator has not yet qualified the DRO, then it should be rejected.

The loan must bear a reasonable rate of interest in order to be exempt from being a prohibited transaction under IRC 4975(d)(1)(D) and ERISA 408(b)(1)(D). Since a plan fiduciary (and the plan administrator, even in a non-Title I plan) may not enter into a prohibited transaction, the loan could not be made in the first place. So, I suppose I agree with your conclusion that making a loan with an unreasonable interest rate would not be a 72(p) violation. It would however be a disqualifying failure and a fiduciary breach.

"A loan will be considered to bear a reasonable rate of interest if [the] loan provides the plan with a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances.” - I always hated this regulation. There is really no other similar circumstance in the marketplace...

Personally, I am of the opinion that those records should be kept electronically and in perpetuity, if not by the TPA/RK/Trustee/Custodian then certainly by the plan sponsor with the assistance from one of the aforementioned entities. Doesn't need to be extensive, just needs to sufficiently prove someone has been paid out. Why? SSA sends me a letter saying my employer's plan from 35 years ago MAY owe me a benefit. Not remembering they paid me back then and instead of rolling it over I went to the casino and lost it, I have no record, so I make a claim on that plan. I don't accept their answer of we don't have you in our records any more so you must have been paid out, so I go screaming "I want my two dollars!" (bonus points for the movie reference) and threaten to talk to my lawyer, the DOL, the IRS because I've seen everything worthwhile on Netflix and have nothing better to do now. This sends the Plan Administrator scrambling, calling around to past and present service advisors, muttering "I don't have time for this" and "I'm getting too old for this sh1t" (yes, another movie reference) before caving like a Democratic senator and concluding it's easier to pay me my $2. The moral here is (1) someone should retain these records in perpetuity, logically the plan sponsor, and (2) responsible party(ies) need to be diligent in reporting deletions on Form 8955-SSA. Then the too often occurring scenario from above gets avoided.

The IRS issued a "Notice of proposed rulemaking and notice of public hearing". The effective date of the guidance will be as of the first plan year at least 6 months after publication of the final rule. Given the process for accepting comments, holding hearings and finalizing guidance, the rules likely will not be effective for calendar year plans until 2027. In the meantime, plans are expected to comply with "a reasonable, good faith interpretation" of the new rules. That being said, there should be no need to go through the election process all over again. It sounds as if the plan received affirmative elections from employees. If an employee did not make an affirmative election, then the AE default elections should have been applied. This is somewhat of a simplification of what is in the new guidance, but it should suffice as having made a reasonable, good faith interpretation. Here is a link that will provide more detail about the contents of the guidance, and can help you track the potential issues as the guidance moves through the process of being finalized. https://ferenczylaw.com/flashpoint-and-not-a-moment-too-soon-in-fact-a-little-late-mandatory-automatic-enrollment-guidance/ There's a lot to absorb, so keep informed as this all unfolds.