I have a question in the M&A context - company B will be purchased by company A on 5/1.  Company B has a non-safe harbor 401k plan and company A has a safe harbor plan. What are the options mid-year - can the non-safe harbor plan be merged mid-year into the safe harbor plan? I would think best practice is to use the IRC 410(b)(6) transition period at least through end of the 2024 plan year and then merge at end of plan year? Or freeze plan B, allow employees to join plan A and merge at plan year end. Any thoughts? 

Hi!

I have a small plan that has always consisted of only 4 owners. Funding their PS has never been an issue until now when they've started to hire part time employees. The coverage test is failing.

FACTS:

1. Eligibility is 21 and 3 months svc with monthly entry.
2. They exclude part time (PT) employees
3. 3 year Vesting

• PT EE #1 - Hired 5/13/2022. Termed 4/20/23. Excluded PT but met eligibility & could enter 9/1/22
• PT EE #2 - Hired 5/16/2023. Termed 8/7/23. Excluded PT and termed before entry.
• PT EE #3 - Hired 10/11/23. Excluded PT and still working PT. Would enter 2/1/24

PT EE #1 who would have been eligible has terminated and would be 0% vested. 

I guess my question is an 11g amendment required here or could PT EE #1 meet statutory exclusion and be excluded from tests? 

If I have to do an 11g amendment and I need to expand coverage what is the best way to do so? Who would get an allocation? The one possibly eligible PT'er is gone and would be 0% vested. PT EE #2 termed before entry. And PT EE #3 is meeting eligibility in 2024. 

What is the solution here? 

Because of the recent litigation regarding usage of forfeitures, I wanted to get some back up for how this is being viewed in 401(k) and other participant directed account plans.  Forfeitures must be used according to the plan document and most big providers have the standard "pay plan expenses" and reduce employer contributions.  Some also have the prorata allocation.

Given all of that, we have seen it recommended that the forfeitures be used for participant education, specifically financial wellness.  That also being a way to deplete the forfeiture account when the plan sponsor is paying the fees and/or does not have contributions to reduce.

Any thoughts on this being a reasonable "plan expense" noting here that I have reviewed §2550.404a-5 as well as the settlor vs permitted plan expenses the DOL has opined on and it does indicate educational seminars and retirement planning software is permitted. 

So if it is permitted - does the financial education need to be specific to retirement planning or is overall financial wellness ok or is there some gray area?  

Thanks!

I'm finding this subject confusing, particularly due to the fact that some vendors/recordkeepers are handling the process differently, or their information is contradictory/confusing, etc.

So, it is very clear that a QBAD is reported on a 1099 as a Code 1.

A PLESA (which I hope never to encounter anyway) is treated as a qualified Roth distribution, and reported as such.

For other SECURE/2.0 special distributions, it seems like a Code 2 is possible if the "AND YOU KNOW" clause in the 1099 Code 2 instructions is satisfied. Are you allowed to use a Code 1, even if you "know" - or if the employee certification doesn't convince you - you are allowed to rely on it, but are you allowed to REPORT as a Code 1, or MUST you report as a code 2 if you ostensibly "know" it qualifies? 

Other observations? Floundering a bit on this...

Thanks.

Just curious as to what people may be hearing. Remarkably simple income tax return filed electronically end of January - IRS refund website confirms accepted January 31. Refund still not approved/processed. Return has 2 W-2's 2 1099's. That's it, standard deduction.

In the past, these have been processed VERY fast. And everyone I know who filed at the same time this year got their refund processed and received very quickly.

There's no option I'm aware of to actually talk to someone at the IRS who can say what the hold-up is. When I did call, the phone message was the EXACT wording that is on the "Where's my Refund" site. I just wondered if other folks you might know are encountering similar delays. It isn't anything critical - it's not like it is needed to pay bills or get groceries - it is just annoying!

Simple enough, a 401k plan sponsor does not want "temporary employees" to be eligible to be in the plan.  These TEs only work a few months.  The 401k plan has a 90 day service requirement, elapsed time, no hours requirement with monthly entry.  Without the exclusion, a few of these TEs could slip over the 90 days and still be there on a plan entry date.  

Can they be an excluded class or does this seem too connected to a service issue that would not be permitted as an excluded class?  What if the exclusion centered on something like "employees not eligible for health benefits" are excluded?

Thank you

Interest rates may come down at some point.  I've got a participant who is asking if they take a residential plan loan now for 20 years and the rates drop over the next two years, can they refinance the remaining unpaid balance at the lower rate?  The plan does allow refinancing.

I've seen several discussions here and have reviewed 1/72(p)-1.  It seems like this is not well-defined.  I mainly wonder if since there is no acquisition at the time of the refinance, is it limited to five years at that point?

Thanks.

I have a 403b plan with no exclusions for eligibility.  They had a new employee that was hired for a temporary/part time/one year position and they didn't allow her to defer.  The match is 9% if you defer 3%.  I think they should put the money in for 2023 for her and year to date for 2024.  

They wish to amend the document going forward to exclude Temporary and Part Time employees.  I do not have any other 403b plans and am not certain that is the best route. It's a small employer with only 9 employees.

Thoughts?

I'm working on a 2023 5500 large plan filing. Plan is an MEP so I have to complete the new MEP schedule. In Part II, I have more employers than I have space for. Do I add a 2nd MEP schedule? Or do I just add a spreadsheet as in years prior to accommodate everyone?

Thank you.

Controlled group members Company A and Company B have some non-highly compensated employees who receive wages from both companies ("dual employees").  Company A sponsors a 401(k) plan.  Company B does not sponsor a plan, and is not a participating employer in Company A's plan.

Owners do not want to cover any Company B employees or to count Company B wages as plan compensation of dual employees.  Dual employees participate in the plan to the extent of their compensation from Company A only.

For purposes of coverage testing, is each dual employee treated as one employee of Company A who is participating and as one employee of Company B who is not participating?  This seems counterintuitive if a controlled group is deemed a single employer for plan purposes.  Is each dual employee instead treated as a single employee of the controlled group, thereby helping pass the ratio percentage test on the basis of their participation in the plan, even though their Company B wages are excluded, but presenting a likely discriminatory definition of compensation problem because of that exclusion? 

Hi, 

One of the terminated plans failed their ADP test since all participants have moved their money how can the correction be done? can they just have the tax record corrected or should employee return the excess amount to the plan. 

I believe most, if not all, of the large recordkeepers do not withhold local taxes from plan distributions. I assume that it's just too difficult to track and administer the various local tax withholding laws/rules. I would also think that there may be some preemption arguments because it's disruptive to the uniform administration of retirement plans.

Without doing any research, I would think that some local jurisdictions would specifically require withholding and some may not (or may not have any rule at all).

I'm thinking that the potential liability to a plan sponsor would be low b/c of some combination of the following: (i) the underlying local tax liability belongs to the participant; (ii) it's a low amount; (iii) limited local resources to enforce; (iv) maybe preemption attaches; and (v) market practice of not withholding for local taxes.

Anyone have any thoughts/direction on this issue?

A single member plan (62yo participant)  wants to take a distribution from his plan, pay the taxes outside the plan and put the total rollover into a Roth IRA.  Can that happen?

A TPA firm seems to be proactively sending out freeze amendments for small DB plans. No mention of the notice requirement to participants, and the communication is very clear that it says not to return a copy of the signed amendment right now to the TPA, but that if there is a need to reduce the 2024 contribution they will ask the sponsor for a copy of the signed amendment then. Has anyone else seen this? Is anyone else doing this?!

If plans are in danger of funding issues, I  100% agree that freeze amendments should be considered, and if needed executed and notice given. With the ability to increase benefits after year end that now exists with SECURE 2.0, another amendment to unfreeze can be done after year end if circumstances change. I disagree with the "sign this now, but ignore it unless you need it" approach that TPA seems to be taking. 

I disagree with sending a resolution/amendment and telling a sponsor essentially if it's needed at the end of the year, they can provide the TPA with a copy then. 

I have been doing this a long time now, but still learn new things all the time. And admittedly don't spend as much time on DB as 401(k) so they are not my strong suit. However, this seems to be a document violation. Is there something I'm missing that doesn't make this at worst tax fraud and at best an ethical violation on the part of the TPA?

I'm really hoping one of you says "justanotheradmin - there is a special rule for small DB plans that you obviously aren't familiar with that allows just this kind of 'execute but don't have to use if you don't want to' amendment" . 

Can't remember seeing this addressed, so...

Are there any circumstances under which a brand-new 401(k) would now meet the audit requirements in its initial year?  I can see any number of participants being eligible to participate at plan inception, but adding participant balances would take time after the implementation date (i.e. start of the plan year), resulting in no participants with beginning balances.  Am I missing something?

A plan sponsor asked their financial advisor (who in turned asked me) about possibly permitting what may be a REIT in the 401k plan.  The plan is a pooled asset plan with trustee, not employee direction.  The plan sponsor/trustee I believe wants to invest a significant amount into this new investment.

The plan document does not have any restrictions on investments.  The owner who is pushing for this is over age 70.

I want to give them some possible downsides.  Risky investments beyond retirement age would be one.  So would possibly investing in a high risk investment that could negatively impact participant balances.  Although a small plan (around 15 participants), This could be considered a non-qualifying asset and trigger an annual audit.  

Any other obvious matters to point out?

Thank you

Dentist A owns his practice 100%; Dentist B owns his practice 100%.  They do no work for each other.

Dentists A and B are purchasing practice C and will be 50/50 owners.  Practice C hires a dentist who will be doing 75% of the work.  Dentists A and B will work there to fill the other 25% of work.  There is no referral of patients from A or B to practice C, or minimal.

Practice A has a 401(k) with PS.  Practice B has no plan.  So the question was posed to me - does practice A need to cover practice C in the A plan?  I believe the answer is no.  

Thoughts?

Thank you,

Tom

Hi everyone, great to be here and apologies in advance if I haven't put this question in the correct place.

I'm trying to provide a family member with some guidance on a compensation issue they are having with their employer.

The short background is that my family member (who I'll refer to as "Jane") has played a key role in building a company from $0 to a significant current day value.

Because of early-stage company challenges, it never executed Jane's equity agreement when she first joined the company. Because she generally operates in good faith, she didn't push for the issue to be dealt with (until now).

The company is now proposing a change of control bonus (% of sale proceeds) to fix the situation.

Jane is receiving conflicting information on the following aspects of the agreement and I'd appreciate any thoughts on these issues -

1. Does Jane need to be actively employed by the company when it sells for any 409A or other tax/compliance reasons? Technically she would have already 'vested' the right to this bonus if it were equity and so doesn't seem right that she be held hostage for an unknown amount of time for something she has technically earned/vested.

2. Given that there is some possibility she may not be at the company when it sells (let's say in 3-4 years), does this have the characteristics of a top hat agreement and therefore touch on ESIRA?

3. Are there any other concerns/considerations from a tax, compliance or other perspective that she should be considering?

Hi

Never a dull moment with pensions.

Sole prop, has DB and 401k/PS plans.

2022 401k/PS (first year) was deposited into the DB account in October (just found out).

DB is terminated 11/30/2023 and all was rolled over into an IRA including the 401k/PS portion (the plan is still active).

To add more fun, when DB was rolled over, the RMD was calculated on the full amount i.e. RMD was calculated incorrectly (however RMD included the portion attributable to 401k/PS portion.

So, how does one correct all this? Such a mess, they did not even tell me all this even though I was very specific when deposits were going to be made.

Anyone has experience with this mess?

Thanks

Regarding the three (or two) years period, does this mean any employee that worked PT, aggregate for 2021,2022 and 2023, (now 2022 and 2023) OR anyone hired in either 2021, 2022 or 2023) and worked PT in any of these years,  must be given the opportunity to defer?

Semantics or stupidity on my part?

How can an employee be considered LT with only 2-3 years of service?