Assume a non-SH 401K plan where the employer is making discretionary contributions. A non-owner HCE becomes eligible for deferral but was not given the opportunity to defer thus creating a MDO. The corrective QNEC is 10%.

Question 1: In general, can a corrective QNEC be used for the 3% TH and for the 5% gateway allocations?

Question 2: The non-owner HCE become eligible for deferrals (triggering the MDO), but does not satisfy eligibility for the discretionary contributions. Am I correct that because of the corrective QNEC they must receive TH 3%?

Thank you for any help!

I believe you can't fund a defined benefit and a sEP in the same year.

I set up a DB for a client, in December 2023, have been following up for the date of the contribution, client finally returns my call only yesterday to find out he contributed $66,000 to a SEP in 2023.

I'm looking for a cite that addresses a DB and a SEP in the same year.  If need be, I'm going to have him transfer the $66,000 from the SEP.

Hi All,

We recently came across a situation at work regarding HCEs. Since I started working at this company last year, New Hire executives and above that are “considered” a highly compensated employee is excluded from participating in the plan, meaning those we hire with a salary over $155K for 2024. Per the IRS definition, determination depends on if the employee was a 5% owner in the current testing period or the 12 months preferring the testing period OR if they earned greater than $155K in 2024. Im our plan documents state that HCEs are excluded from the plan. My question is, should they be eligible to participate in the 401k plan as a new hire (assuming they meet the eligibility requirements for the plan)? And then in the following year for 2025, determine their eligibility based on their actual gross compensation for 2024? Just confused if we should be allowing them to enter the plan at all in their first year.

Is there any remedy if an employee states that they made a Roth election in 2024  by mistake and it should have been pre-tax? The enrollment system is online, so it is possible they mis-read the entry. I am aware of this regulation below that states Roth is irrevocable. But what if it was a matter of an online error? Can the plan sponsor direct the recordkeeper to move it to the pre tax source and then record the  2024 W2 correctly?

The rules of IRS Reg. section 1.401(k)-1(f)(1) and (2) for designated Roth contributions under a 401(a) plan apply to designated Roth contributions under a section 403(b) plan. Thus, a designated Roth contribution under a section 403(b) plan is a section 403(b) elective deferral that is [IRS Reg. 1.403(b)-3(c)]:

Designated irrevocably by the employee at the time of the cash or deferred election as a designated Roth contribution that is being made in lieu of all or a portion of the section 403(b) elective deferrals;

In 2025, a particular participant’s limit on elective deferrals might involve four (or more) variations, turning with the participant’s age (0-49, 50-59, 60-63, 64-).

Some employers might try, in payroll, to impose a during-the-year cutoff on § 401(k), § 403(b), or § 457(b) elective deferrals. But some employers might lack software or other ways to impose such a cutoff reliably. For some, imposing an unnuanced cutoff could deprive a 60-63 participant or even participants older than 49 of what might be a legitimate elective deferral.

How important is it to apply a cutoff during a year?

Or is it good enough that each January an employer checks the recently closed year’s sum of amounts paid over for elective deferrals to find each individual with an excess and instruct a corrective distribution?

In which situations would an excess deferral not be corrected by a corrective distribution or by W-2 reporting?

Is it permissible for an employee to cancel his coverage when he enrolled solely because a court issued a QMCSO requiring him to cover his dependent and such order was subsequently rescinded?  Employee was not previously enrolled and had to enroll for coverage to comply with the original order to cover the child.  

Hello, 

I just came across a situation I'm struggling to navigate, would really appreciate input from more experienced folks in the forum. Scenario below:

1. Married clients own two companies in a controlled group, business "A" with W-2 employees and business "B" with only spousal employees (real estate holding company with s-corp election). Neither company offered a retirement plan.

2. Business A has been sold effective 9/1/24. If Business B were to create a solo 401k plan with a 10/1 adoption date, would controlled group rules still apply for the remainder of 2024 tax year?

Thanks in advance to anybody who's willing to help me think through this puzzle! 

I am considering selling my TPA business.  The vast majority of the business income is derived from administering self-funded group health plans.  Has anyone been through the process recently and know how long the transaction can take and how much the "going rate" is for a book of business sale?

how often does a plan need to provide a participant statement in a 401(k) Plan?

The money is all in a brokerage account (pooled)

This plan is 401(k) their are 4 participants

2 hce and2 nhce's

Have a corporate ext receive earned income

I am working on the 12/31/2023 plan year end. 

Do the hce's have until the due date of their corporate return 9/15/2024 to make their salary deferral contribution for the 12/31/2023 plan year end

Employer wants to limit contributions to situations only if employee is employed on date of contribution.  Currently, employee vests in a contribution and then the contribution is made let's say 1 month after the vesting date.  Employer wants to amend plan so that if the employee is not employed on date of contribution, then they don't get the contribution.  Is that even permissible ?

Bob was born 3/1/1953
He turns 72 after December 31, 2022 therefore his RMD age is now 73
He turns 73 on 3/1/2026... he needs to take a 2026 RMD
He can put off his 1st RMD payment as long as it is paid by April 1 of the following year, 4/1/2027.

Q/ This payment he makes on or before 4/1/2027 represents the 2026 RMD based on his 12/31/2025 year end balance... correct?
OR; is the deal he can put off his 1st RMD payment until 2027, the amount of the RMD is based on the 2026 YE Balance,  but the catch is he must take it by 4/1

What I struggle with is if he puts off his 1st RMD (the 2026 RMD based on 2025 YE Bal) until  4/1/27 (the following year) and then he needs to take another one for 2027 based on the 2026 YE Bal, he is going to have 2 RMD payments hitting his personal account in 2027...  a lot of taxes to come up with.  Am I overthinking this?

I have a non-gonvernmental Plan, but they do educational services and do get some grant money for pre-school programs.  Would they be considered exempt from ACP Testing?  I just want to make sure, as the issue is coming up with the auditors if it is required or not.

Thanks in advance!

It has been determined that 2 years ago, a plan failed the ADP test.  The HCE (not an owner) terminated and already took a rollover distribution the following year, so it has been over a year since that distribution has been taken.

Earnings have been calculated through date of distribution and an amended 1099-R will be issued.  When they (hopefully) withdraw this non-taxable amount from their IRA, are their additional earnings that need to be calculated, or is this amount simply frozen in time at the date of the actual distribution?

I am reviewing a health plan SPD. Has there been any official model NSA/TiC summary published by the Departments of Health and Human Services, Labor and Treasury of an approved summary notice that is suggested for this purpose? Alternatively, is there any summary language that anyone would be willing to share?

I submitted this question to Relius a well but curious if you are all in agreement:

My reading of the Relius 403(b) document and the Corbel formatted 401k prototype document is that the 60-63 catch-ups will automatically be added because those documents merely reference "up to the catch-up limits". And now that limit is just higher for ages 60-63.

Have others come to the same conclusion? I believe I saw an FT William email taking the position that this was their reading of their own document, which was what got me thinking.

For a retirement plan that provides participant-directed investment, an administrator provides information to meet ERISA’s disclosure requirements. This includes comparing a fund’s or other investment alternative’s past performance to “an appropriate broad-based securities market index[.]” For example, many fiduciaries compare a fund one finds to have the investment goals and strategies of a US small-capitalization value fund to the Russell 2000 Value Index or the CRSP US Small Cap Value Index.

In SECURE 2022 § 318, Congress directs the Labor department to publish a rule to let a plan’s administrator use for “a designated investment alternative that contains a mix of asset classes” a benchmark that is a blend of broad-based securities market indices, proportioned to follow the target-date, asset-allocation, or balanced fund’s investments in asset classes.

Considering the Office of Information and Regulatory Affairs’ most recent Unified Agenda of Regulatory and Deregulatory Actions, it seems unlikely the Labor department will complete, or even propose, a rulemaking by Congress’s December 2024 due date.

For plan administrators that rely on a recordkeeper or third-party administrator to assemble rule 404a-5 disclosures comparing an investment alternative’s past performance to an index’s past performance, what have the service providers been doing?

Have some followed what Congress permits, setting up a custom benchmark built from applying each underlying asset class’s index in the portions the target-date fund declares as its target allocations?

If not, what benchmark does a 404a-5 disclosure use for a target-date fund?

(I’m aware some investment funds use custom benchmarks for securities law disclosures; I’m seeking what retirement plans do in ERISA 404a-5 disclosures to participants.)

I’ve had been granted divorce in 2019 where per judgement, we are to split the IRA 50/50 as well as all assets. She (during the divorce process) sells all assets leading to 60k ordered to be returned to me. Yet she does not report this information to child support upon seeking help. She as well was (while married) involved in a class action that she didn’t report, which was recently found.

So arrears have been accumulated, while I’m in and out of the hospital and therapy for an accident I was in back in 2023. The child support agency put a freeze on my possible winnings, took my license, claimed to release it if a payment was made, and closing by depletion of 12k from my IRA.

No QDRO used, no judgement orders, just an order to withhold letter directly from the agency. No levy only the request to withhold. This was not made known at last hearing, caught us by surprise, and the bank doesn’t have any answer to how they deviated from my best interest to forfeit my money. They say CSS is identical to state, but if that’s true, we’re all screwed. What can I do now that they’ve taken all I have and violated the divorce decree?

I do have some very generous plans that allow deferrals immediately.  Most concernedly, I have a MEP that allows it - and now we're bringing on our first 10+ employee employer post-12/28/22, so welcome to automatic enrollment.

Amongst all the other issues is timing for the automatic enrollment notices.  Obviously, it's going to be difficult to give the notice before they are eligible.  What is the best solution for implementing it?  It seems counter to the intent to say "Welcome to Company X.  Since we are part of Y's MEP with immediate eligibility, you can elect to defer starting today, your date of hire.  But if you don't make an election, then in 30 days you will be subject to the plans' automatic enrollment provisions as outlined on this notice I'm giving you today."  Is that really the way to go?

Thanks in advance...

Employer has history of reimbursing some COBRA for terminated employees being provided severance.  Company is concerned about number of individuals on COBRA for general health insurance renewal purposes as well as with possible switch to a PEO with benefits.  Former employees generally have no contractual right to COBRA reimbursement and there is no severance plan or program--the Company has just offered to reimburse some limited COBRA on a discretionary basis with past terminations.  Company would prefer to avoid more COBRA beneficiaries if possible.

Any concern in stopping the old COBRA reimbursement practice (maybe forever, maybe just temporarily) and implementing a new severance arrangement where the amounts provided for COBRA reimbursement are instead provided as special "transition health insurance benefits" (or whatever you want to call them) for use in covering the cost of transition health coverage either through an exchange or COBRA and requiring proof of coverage?  If that is a problem, any issue in simply providing that amount generally earmarked for transition health coverage but paid no matter what--i.e., they get the cash and can spend however they want without being limited to reimbursement.  Employer would not limit ability to elect COBRA and would provide all required COBRA election packages but may highlight the potential benefits of exchange coverage as part of the exit process.  Thanks.