Leaderboard

Garnishment of a participant's account outside of a QDRO is allowed under ERISA only for federal tax debts or court-ordered criminal restitution. If it doesn't say it's for one of those things, I'd respond that this is a qualified plan which is forbidden from complying except in those situations.

The 415 regs address this issue. Have you reviewed the reg? The 100% pay limit is what it is, and the actuarial increases cannot exceed it. Therefore, you will have to determine (as best you can) the precise point in time at which the increases reached that limit and create an immediate benefit commencement date. A BCD means you must offer the retiree all the payment form options available under the terms of the plan. This means some determination of retroactive payments. No comment about how you determine a J&S benefit if that is chosen, because there are some other facts needed for that discussion. Also not opining on whether there is any issue w/r/t late payment under RMD requirements.

Well on its face it is a true statement. Once you adopt the plan, simply not adopting it again is not enough to end your participation. With that being said I think you just do a new one today and have them execute it. All of their original information regarding the effective date of their participation is unchanged. Then you will have a participation agreement that more perfectly aligns with the new format of the plan document.

No can do - as @Bri states - company contribution/check, as that is where any deduction occurs and where an IRS auditor would be looking to substantiate. Beyond that, plan sponsor and his accountant can figure out the details to make that happen.

I would approach it as, that should be a company check for the deposit. Where the company got the money from, I don't mind hearing/seeing/speaking no evil as to how. So that I can at least apply a standard of reasonableness

Thanks @WCC - I agree that if the intent is not to match separately elected catch up, then the document should state that but just the standard "catch up contributions are not matched" provision, my opinion is that you must follow the term in regulations and catch ups are defined as deferrals that exceed either an plan or statutory limit (not verbatim obviously).

The new 401(b)(3) rule doesn't require the post-year-end new benefits to separately pass 401a4 in and of themselves, unlike the way an -11g amendment used to.

If the accountant is a member of the American Institute of Certified Public Accountants or is a licensee of a State that adopts the AICPA professional-conduct rules and standards as the State’s rules: “[A] member [or a licensee] should not advise a taxpayer to take a tax position unless the [CPA] has a good-faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits, if challenged.” The standard is not about whether the IRS would fail to detect the pushy position. Rather, the standard looks toward the merits (and pretends the decision-maker would find facts and law fairly and justly). If a shareholder-employee is 49 or older and has two decades’ (or more) business or professional experience, how likely could she defend that the fair-market value of her personal services was only $150,000? This is not advice to anyone.

The definition of HPI stands as is, and the plan should follow the rules. It is between the accountant and the owner on how the owner's income is characterized as W-2 or dividends. You don't want to hear later that the IRS is challenging the reporting of income as tax avoidance and the client and accountant say they did what you told them to do.

Those not eligible by age/service for PS and CB would not be included in your rate group testing. Good luck if you have to navigate a 6% DC limit to avoid combined plan deduction limit with a SHM.

When it comes to state taxation of contributions, Pennsylvania is like New Jersey but PA also taxes 401(k) deferrals. Tennessee used to be like PA but made a change in 2021. Here is a relatively up to date chart that summarizes all of the states (hint: most follow Federal rules or don't tax deferred income). https://www.ici.org/system/files/2022-12/state_tax_2022_survey4_red.pdf To complicate matters even further, there are many local taxing authorities that also have rules that include deferred contributions. The flip side of the coin is which states tax distributions from retirement plans. Many do at some level of taxation with rules that range from taxing all distributions to thresholds when taxation starts and graduated schedules. One thing that most retirees who worked in PA or NJ and then want to live in another state that taxes distributions. Effectively, they will be double taxed at the state level - once when making the contributions into the plan and again when taking the distributions. It is very rare for a plan to get into the details of state and local taxation from the perspective that it is not their responsibility or that they do not want to be deemed to have provided tax advice.

@susieQ it is fairly common for the ESOP document to be structured so that the plan was a profit sharing plan and the ESOP was a stock bonus component embedded in that plan. The plan may already be a profit sharing plan and there is no need for a restatement. If the plan is a profit sharing (either by default or by restating the ESOP into a profit sharing plan) be mindful that the plan must follow all of the rules regarding the investment of the assets. @CuseFan is correct that adding a 401(k) feature to the plan now (post the SECURE 2.0 mandate) is subject to auto enrollment rules.

If help from a practitioner doesn’t get what you seek, consider whether you have a friend at Morgan Stanley who would search its files.

What was it the Citgo Doctrine? Or was it the Valero Doctrine? Oh right Chevron 🤣

Empower has been on the train since early 2025. Empower expects to include private investments within Empower collective trust funds. https://www.empower.com/press-center/empower-offer-private-markets-investments-retirement-plans Empower has supported making it feasible to include private-equity and alternative investments. https://www.empower.com/press-center/empower-responds-senator-elizabeth-warrens-inquiry https://www.empower.com/press-center/empower-applauds-executive-order-supporting-broader-investment-access-401k-plans Yesterday, Empower’s news release praised the proposed rulemaking. https://www.empower.com/press-center/empower-applauds-dol-proposal-supporting-responsible-flexibility-investment-choices

If you make private equity funds available to the public, then you create money making opportunities for the private equity fund managers by opening up a category of money and unsophisticated investors that would not otherwise be preyed upon.

The answer to your question is YES.

Revenue Ruling 91-4 dealing with the return of a contribution that is a valid mistake of fact says "Earnings attributable to the excess contribution may not be returned to the employer, but losses attributable thereto must reduce the amount to be so returned." To address the earnings remaining in the plan, consider possibly including the earnings along with other allocations of income to participants, or possibly paying a plan expense. Do not use it to offset an employer contribution.

The earnings should be paid to the ineligible participant. The sponsor can't benefit from making a mistake, investing the participant's money and keeping the earnings. I didn't look up a cite for that, so consider it just my opinion. edit: I also made an assumption that the $500 is an employee deferral. If that is not correct, and this is employer nonelective money, then my answer changes.

Agree. There is no catch up contribution until the participant exceeds the regular deferral limit, so everything should have been matched until the deferral limit is exceeded.

Even if they can justify the compensation, is it really worth it to avoid having $8,000 contributed as Roth? What's the big deal?

Yes, BCD would be established from then. I would provide all applicable forms of benefits as of that BCD, including lump sum that would be payable at that time. Then, based on the election, I would figure out what should be paid now, including missing payments and interest. And don't forget about RMD issues as well.

Yes, assuming the plan allows.

I agree with you. The separate election is just a cosmetic box used for "convenience". I am not a fan, but I know some sponsors have their reason why they think it is advantageous. I have seen this many times and those dollars should be matched. I have seen one or two documents written in a way that says "...we don't match contributions made under the separate catch-up election box". If your plan just says "we don't match catch-up", then those dollars should be matched.

If the court’s order names as the garnishee the § 403(b)(7) account’s custodian, isn’t it that trust company that might want its lawyer’s advice about whether and how to respond? And if the order does not name the plan or its administrator, might the plan’s administrator want its lawyer’s advice about whether it must or should do something, or need not (and perhaps should not) do anything?

100% - I am not advising them. I'm answering strictly that the rules say if FICA comp is over some number, then the rules kick in. I don't discuss how the W-2 compensation is determined. This is adorable.

Both Paul I and Peter are giving you the proper framework. Please be cautious. A third-party administrator should not be giving "advice" on how a client allocates income between the K-1 and W-2. Only the accountant or the client's tax/legal advisor should opine on that and in each case, they are constrained by their own standards of practice.

I would just pay it all out. Covers the RMD and isn’t a burden from a tax perspective.

New Jersey is very odd. Back in 2021 one of my clients asked us to assist one of its employees (someone pretty high up on the food chain) who had deferred over 90% of their income into the company's nonqualified deferred comp plans. This employee was a NJ resident. We are located in the South and normally do not provide any services with regard to NJ so I contacted a friend, tax partner in D.C who is barred in NJ, to assist. The client had treated the deferred comp as required under the IRC, which, we found did not align with the NJ rules (we didn't advise on the original set up). The employee had paid the increased NJ tax based on 2019 601B and was assessed a tax, penalties and interest of over $40K and asked the client if they could provide assistance with at least a possible waiver of the penalty and interest. Though we formulated arguments to assist the employee, we were not optimistic based on our reading of the NJ law. We in fact were researching the statute of limitations as to how far back could they go with this. After "chasing this rabbit" as the client phrased it, and working with the programmers to change the payroll set up, NJ ended up conceding that the deferrals weren't subject to NJ state tax and refunded the client all of the $40K plus interest. None of us understood the NJ reversal but of course did not argue.

In addition, a BCD should be the first of the month in which your AE increases cross the 100% pay limit. So, the final benefits will be slightly below the 100% pay limit.

The compensation limit can be increased by some annual COLA percentage after a participant separates, I think most pre-approved plans allow for that. These are less than post-NRA increases but apply from separation. This might delay the required (retro) commencement date. From Google AI: For a participant who has separated from service, the IRC Section 415(b) 100% of compensation limit is adjusted annually for cost-of-living increases. IRS (.gov) +1 The specific percentage increase for recent and upcoming years is as follows: For 2026: The adjustment factor is 1.0284 (a 2.84% increase) for participants who separated before January 1, 2026. For 2025: The adjustment factor was 1.0258 (a 2.58% increase) for those who separated before January 1, 2025. For 2024: The adjustment factor was 1.0351 (a 3.51% increase) for those who separated before January 1, 2024. IRS (.gov) +4 Key Rules for Post-Separation Adjustments Annual Indexing: Under Section 415(d)(1)(B), the compensation limit (the "high-3" average) for a separated participant is adjusted annually using procedures similar to Social Security benefit adjustments. Cumulative Calculation: The adjustment is applied by multiplying the participant's compensation limit, as previously adjusted through the prior year, by the current year's factor. Plan Provision Requirement: A participant's benefit can only be increased to reflect these cost-of-living adjustments if the specific retirement plan document includes language allowing for such scheduled post-retirement increases. Comparison to Dollar Limit: The final benefit remains limited by the lesser of this adjusted 100% compensation limit or the overall 415(b) dollar limit (which is $290,000 for 2026 for those aged 62+). IRS (.gov) +6

Seems important enough to include review by the ERISA attorney for the plan. I'll bet the recordkeeper has discussed it with its own attorney and/or E&O insurance provider.

Are you certain about the exact fund—whether SEC-registered mutual funds or a trust company’s collective investment trust, and of the exact class of shares or units? Vanguard states November 13, 2000 for VFIAX’s inception. Consider that the plan’s investment alternative for at least some, and maybe much or all, of 1997-2003 might have been another fund or class of shares. That a retirement plan’s statement for a period after 2003 shows a holding in VFIAX does not mean the plan had the same investment in earlier periods. Given that the participant and the might-be alternate payee might agree on ways to approximate hypothetical returns, values, and amounts, might they tolerate another simplification? Instead of looking for any Vanguard fund’s returns, get the S&P 500 Index numbers, and assume the retirement plan’s investment alternative’s returns were, yearly, five basis points lower. There are other ways to collect or use real information. But the expense might be disproportionate to whatever value your client might obtain by using a more careful estimate. This is not advice to anyone.

To further stir the pot on the inanity of NJ's taxation (I am a resident), NJ also does not allow an income tax exclusion for pre-tax contributions to cafeteria plans, flexible spending accounts and 132(f) transit accounts. Even though it has an exclusion for contributions to a cafeteria plan, most employers' concept of a cafeteria plan do not satisfy the conditions for the income exclusion section.

One more item I just noticed--non-equity partners do not typically receive a 1099. They get a K-1. Are you sure this guy is not a profits partner? You are calling him a "partner." Get this issue resolved first. Because if he is in fact an profits partner, then all bets are off in what I previously discussed.

An asymmetry in New Jersey’s income tax treatment of § 401(k) and other kinds of deferrals has persisted since 1984. https://benefitslink.com/boards/topic/80992-403b-deferral-in-new-jersey/#comment-355909 Many people are aware of New Jersey’s law. Past efforts to persuade the legislature to change the law have failed.

I think yes, it would actually have to convert to PS as it would no longer satisfy requirements of an ESOP. However, if there was never a 401(k) provision and that component plan is new I believe it will be subject to auto enrollment rules.

My understanding is this would be Code G only. The Form 1099-R instructions say to use Code G for a direct rollover to a designated Roth account, including in-plan Roth rollovers (IRRs). I’m not seeing anything in the instructions that allows Code 2 to be used with G, and it’s not listed as a valid combination in Table 1. Also, the attached IRS In-Plan Roth Rollover Phone Forum transcript (page 13, paragraph 2), while a bit older and from when these rules were first introduced, indicates reporting the amount in Box 1 and 2a with Code G, without mentioning any additional distribution codes. It seems like Code G already communicates that this is a direct rollover and not subject to the 10% early distribution penalty, so adding Code 2 doesn’t appear necessary or supported by the instructions. Happy to be corrected if there’s specific IRS guidance that allows 2G here, but I haven’t come across anything that does. inplan_roth_phoneforum_transcript.pdf