I have a non-profit client that provides a very rich taxable reimbursement program for its C-Suite.  They've been doing this for over 30 years. They provide annual amounts for which the execs can submit claims for reimbursement that vary based on title (CEOs get $80k whereas a VP may receive $20K). The reimbursement amounts are not limited to medical claims.  For example, execs can get reimbursed for payments to his mother's nursing home payments, CPA fees and legal fees.  There is no written plan, and only about half of the execs actually utilize the full benefits each year.  There are some who have never submitted any reimbursements. Because of the medical reimbursement, I'm certain there are GHP and ERISA implications as well as nondiscrimination issues under Code section 105(h).  I've suggested to the client that it's better to provide the amount as a discretionary cash bonus because of the medical reimbursement component and because the amounts are already taxable.  I'm receiving push back because the client has been advised that since the benefits are taxable, then the above ERISA, GHP, and 105(h) implications do not apply. They also do not want to actually commit to a specified bonus amount for those who have not utilized the funds. Is there anything else they can consider that wouldn't raise ERISA and other GHP issues?  Am I making a mountain out of a mole hill? Would there be nondiscrimination issues since the benefits are taxable?  Thanks in advance.

Plan was amended, HCE's limited to 4.5% deferral.  An HCE that termed deferred 28%.   So ADP test fails.  How do I correct?  Is there any basis for refunding the one HCE his excess and not count the refund in the ADP test?

We have a participant requesting a Hardship distribution based on:

Yes I am backed up on my bills specially my mortgage, car payment and daycare 

I'm probably overthinking this, but I don't believe it falls under the IRS Hardship rules.  I just wanted to confirm

Thanks everyone!

IRS Notice 2024-80

401(k) deferral limit increases to $23,500

415 limit for DC plans increases to $70,000

HCE threshold increases to $160,000; Key employee at $230,000

401(a)(17) limit increases to $350,000

Employer has been a participated  in a MEP for several years. Not an auto enrollment  plan

As of 1/1/2025 the plan will move to a PEP.

Does the move to a PEP trigger the Auto Enrollment requirement for 2025?  Or is the plan grandfathered since it was in place prior to the Auto Enrollment Requirement.

Getting different responses from recordkeeper and TPAs?

Thank you.

Hi

Sponsor has an existing 401k plan.

Wants to add a PS plan - separate plan.

Can the new plan exclude service for vesting purposes?

Never had a plan terminated in the past 5 years.

Hi, 

For plans that are terminating should the Plan sponsor complete the good faith amendment ( SECURE 2.0 and CARES)? what if they have not done the amendment? 

Thank you. 

Hi 

Looking at a possible take over for DB/DC combo

DB has a safe harbor integrated formula but does not pass ratio test on its own (not sure about ABPT as I am not yet provided the testing. Top heavy provided under DB plan.

DC has deferral and 3% NESH and passes 410b ratio test. No PS allocation.

If both plans need to be aggregated for 410b testing, do they need to be tested for 401a4?

I have conflicting guidance on this issue. So long as a plan allows, can anyone convert all or a portion of their 401k accounts (including all pre-tax sources - deferral, rollover, employer) at anytime?

Some suggest that only those eligible for in-service distributions (typically age 59.5) can covert to Roth. Others are suggesting that anyone can convert but only taxes can be withheld for those that are eligible for in-service.

This is obviously only an issue for active employees, not terminated employees. 

Client firm is a Real Estate Broker.   The Plan is a 401(k) Plan which covers ONLY the owner and wife, who are both active in the business and the only employees of the firm.   Outside of the Plan they are involved in various real estate speculations, and do rather well with these investments; which is why they want to expand their use of real estate under the 401(k) plan.  Currently they do have two real estate investment which are solely under the Plan (no involvement of business, or commissions to the firm, with annual independent valuation).  I note that they do have other investments under the trust so it is diversified.  Anyway, they now want to use the trust's real estate assets in a "cash out refinance" of the 2 real estate investments, to obtain funds which will be used to improve the properties, and possibly buy additional properties.  To clarify, it seems that what they are intending to do is get mortgages against the 2 properties (currently owned 100% by trust fund), and use those funds to improve the 2 properties owned, and perhaps to purchase more real estate under the trust.

It is expected that this will not involve any monies outside of the trust, and that all proceeds will remain in the trust.  However, I suspect this is a prohibited transaction since they are using the two properties owned as collateral for the mortgage loans they take out against those two properties.  I also suspect that this will be a PT for other reasons, but am not sure how or why.

I greatly appreciate any and all comments and suggestions.  Thank you in advance!

Does the “once in, always in” concept applicable to eligibility for elective deferrals also apply to eligibility for employer contributions, and if so, what is the legal authority requiring such treatment?

By way of background, we have a client that is a school (the “School”) that sponsors a 403(b) plan (the “Plan”). To comply with the universal availability and LTPT rules, the Plan provides that all employees are eligible to participate in the Plan for purposes of elective deferrals upon hire.

The Plan also provides for (1) mandatory employee contributions and (2) nonelective employer contributions to all participants who make mandatory employee contributions. From a cultural and employee relations standpoint, it is important for the School to continue to offer mandatory employee contributions and to provide nonelective contributions to all participants who make mandatory employee contributions. However, the School would like to impose an annual service requirement on mandatory employee contributions and associated nonelective contributions so that only participants who work 1,000+ hours in a year receive such contributions for that year.

This annual service requirement on employer contributions is important for the School because the School employs many individuals on a temporary/seasonal basis (coaches, summer camp counselors, substitute teachers, tutors, etc.), has many former full-time employees return to work with the School in temporary/seasonal positions, and has high rates of employee turnover. It would be extremely administratively burdensome for the School to make employer contributions every year to all employees who once worked 1,000+ hours in a plan year and who now work less than 1,000 hours/year.

Because we cannot use an allocation condition to impose an annual service requirement on mandatory employee contributions, we’re trying to find a way to impose an annual service requirement on these employer contributions through eligibility. However, we’ve received pushback from the School’s consultant and recordkeeper that the “once in, always in” concept applicable to elective deferrals also applies to employer contributions. While it’s clear that the “once in, always in” requirement of the universal availability and LTPT rules do not apply to employer contributions, we cannot find conclusive guidance as to whether or not Code section 410(a) imposes a “once in, always in” requirement on employer contributions.

Sometimes we have instances where, due to delayed reporting by an employer, additional contributions are reported after a member has refunded their account. In a case where a member refunds prior to reaching RMD age but the second, supplemental refund is paid at or after they reach RMD age, would regular RMD calculations apply to that second distribution?

I am working on a Calendar Year CB plan that has an accrual requirement of either 500 hours OR Employment on the last day of the Plan Year.

The plan Froze and terminated mid-year, and only one HCE met the 500 hours requirement.

I know the Termination date creates a short Plan Year for the purposes of funding, but does it also create a short plan year for the accrual period?

Did the participants employed as of the termination/freeze date with less than 500 hours meet the requirements for accrual or do I have to amend the plan and lower the hours requirement? I don't see any guidance for this in the freeze amendment.

Thank you

Ok, so always something new, at least for me....

In the last month of the plan year, the payroll company correctly withheld 401k from paychecks, but deposited a multiple of 2 payroll withholdings into the participant accounts.

This was discovered during the next plan year and pulled out of participant accounts. 

No 1099-R was issued since it was not a distribution.  However, some participants took distributions before this was corrected. Due to the relatively small amounts, the Employer will not be asking for the money to be returned.

This leads to 2 initial questions:

1. How to show this on the 5500, I'm thinking: Year 1: instead of Employee contributions, show as 'Other Income'? Year 2: Show as 'Admin Expenses - Other'?
2. For those who took distributions - show their extra deposited amounts instead in Year 1 as an 'Employer Contribution' instead of 'Other Income'?  (treating this as Non Elective Contributions may lead to other issues, but still contemplating that).

A participant in a 457 f arrangement passes away and the employer needs to pay the benefit to the surviving spouse. How is that handled from a tax and reporting standpoint? Does the W2 get reported under the participant's SSN or the beneficiary?

Any insight would be appreciated.

This will be a very easy question for this group.  Dentist along with 2 eligible employees will receive 3% non-elective safe harbor for 2024.  Dentist will also fund 10% PS. One employee terminated in 2024 with <501 hours.   Coverage test rules seem to say if term <501 hours they are excluded from the coverage testing.  Ok, but I'd bet our admin soft ware will say discrim testing fails since Dentist and 1 employee are getting 13% total and terminated employee with <501 hours is only getting 3%.  I'm just doing a fast calculation to advise the client.  I'm thinking this would fail 401(a)(4) perhaps?

BTW the PS is provided on allocation basis not accrual cross-tested basis so no gateway minimum.

Thank you, Tom

When determining if a disaster qualifies for the SECURE 2.0 disaster relief distributions and loans, is there a "level" of declared relief that determines if a participant can request a SECURE 2.0 disaster related distribution or loan?

For example, I am on the FEMA site looking at the Hurrican Milton disaster page for Florida.  They provide a map showing the designated areas (attached).  On this particular map there are 4 levels of designated areas.  The categories listed are Public Assistance (Category B), Public Assistance (Categories A-G), Individual Assistance and Public Assistance (Categories A and B), and Individual Assistance and Public Assistance (Categories A-G).

Do all of these categories qualify as a designated area for purposes of requesting a SECURE 2.0 disaster relief distribution or loan?

Thank you very much.

dec_4834.pdf

Are the Federal Disaster distributions under SECURE 2.0 subject to the 10% withholding that normally applies to retirement plan distributions that are not eligible for rollover?

Thank you.

Participant has $100,000 total, $50,000 Roth and $50,000 pre-tax.  Their RMD is $5,000 based solely on their Non-Roth Account (made up number, don't try and recalculate!).

Can they take the $5,000 distribution from their ROTH account to avoid the taxation?

Someone had setup accounts at the recordkeeper and allowed an inbound rollover to hit in mid-December before the plan went live January 1.  There is no guidance on this issue because it should never happen, but here it is.

My thoughts tell me this would call for a 5500 in the year the plan first received any monies.  The part I'm not sure about would be the trust and plan effective date being after that first rollover hit.  There was technically no plan in place at that point.  An amendment wouldn't really make sense here either... Has anyone ever heard of this situation before?