A DB plan excludes HCEs (other than the two owners) and requires one year of service for NHCEs.  For 2023 all eligible NHCEs are participating, but the plan needs to include one more participant to satisfy the 40% requirement of (a)(26) minimum participation.  There are several HCEs who would have the one YOS in 2023, and there are several NHCEs who were first hired in 2023 and do not have the one YOS.

If an amendment brings in one HCE retroactively for 2023, would that be a discriminatory amendment under 11(g) standards?  Since the newly hired NHCEs are statutory excludables for 2023, we can ignore them for coverage.  But an amendment granting a meaningful benefit just to one HCE is concerning to me.  We discussed that they can alternatively bring in one NHCE early and grant the benefit (of course, testing under 410(b) would now have to include everyone with that reduced eligibility), but the plan sponsor would like to grant the benefit to this one HCE.

Is this a problem or am I just overthinking this?

Thanks.

I have a plan failing the 414(s) Compensation Test.  They only have deferrals and I am already assuming a 3% De Minimis percentage.

I'm not sure how to correct this since it's not affecting employer contributions.

Would the employer be responsible for "missed deferrals" on the bonus amounts?  Or, if the plan passes the Average Benefit Percentage test will it be deemed to pass?  I'm seeing both options on-line.  We don't have any resource sites or materials in our office to rely on.

Any help/guidance you can provide would be greatly appreciated.

Client forgot to enroll an eligible employee and has missed deferrals in a tax exempt 457(b) plan that the employer participates in. My understanding is that, since there is limited opportunity to submit corrections to the IRS under Section 4.09 of EPCRS, that practitioners interpret that to mean that corrections for 457(b) plans can generally follow those prescribed under EPCRS for qualified plans. So in this case we would corrective contributions for the participant's missed opportunity to make a contribution/invest (e.g., 50% of missed deferral) as under EPCRS. 

My Divorce Decree says that my ex-wife is entilited to "any benefits under my pension plan"

Does that also mean she is entilited to health care when I retire or a payment I am required to make to pay for part of her health care?

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