Here’s my friend’s situation:

She is her S corporation’s 100% shareholder. She is, and always has been, the corporation’s only employee. For many years, her § 401(a)-(k) plan has every year received her maximum (including age 50 catchup) elective deferrals as Roth contributions. Every year, she provided herself a nonelective contribution of 25% of compensation. These two subaccounts are a seven-figure sum.

She received Vanguard’s letter “Your small-business retirement account is moving to Ascensus[.]” She would prefer to keep her § 401(a)-(k) plan at Vanguard, but that’s impractical.

She would prefer no more than small accounts at Ascensus. Why? According to Vanguard, the Ascensus accounts will not be displayed in her Vanguard website. All her investments are with Vanguard. She likes using Vanguard’s website as a one-stop.

To get the desired display, she is considering a rollover (she’s distribution-eligible) of all but about $1,000 of her nonelective contributions subaccount to a new non-Roth IRA, and a rollover of all but about $1,000 of her elective-deferrals subaccount to a new Roth IRA.

She would do this before the mid-July transition to Ascensus.

The reason for leaving non-zero balances in her two § 401(a)-(k) subaccounts is so she’ll get recordkeeping on the terms Vanguard arranged with Ascensus. She intends to continue her business, and to continue the maximum elective-deferral and nonelective contributions.

After each year’s contributions, she would direct two partial rollovers into the two Vanguard IRAs, which would never get any contribution beyond rollovers from the § 401(a)-(k) plan. She would leave in the § 401(a)-(k) plan enough to pay Ascensus’ fees.

BenefitsLink neighbors, does this work?

Any reason my friend shouldn’t do this?

Any caution I should explain?

The employee (past NRA) retired in early 2024 and due to various business needs the employer reached out to rehire the employee on a part-time/on call basis.   The plan provides an allocation waiver for retirement for profit sharing allocations.   There is only 3 months between the retirement date and rehire date.   The employer wants to treat the compensation earned through the retirement date as eligible for profit sharing under the allocation waiver and all income earned upon rehire would be subject to the 1000 hour and last day allocation conditions. 

The plan is not top heavy and uses new comparability with each employee in individual allocation groups and combined tested with a Cash Balance plan. 

Assuming no other testing concerns, would that split allocation be allowed?  

And considering potential testing concerns, the only issue I am seeing is if the allocation based on compensation through retirement does not satisfy the gateway minimum based on full year compensation, the full year compensation gateway minimum would be required.    

A terminated participant in Michigan has an outstanding loan.  Michigan withholding is 4.25%.  Do I also apply the withholding percentage for the state to the loan balance when calculating the state withholding?

I was reading an article in today's newsletter about the topic and came across something that I wanted to double check.  In not so many words, it said that if a 401(k) plan offers a life annuity distribution option, a married participant must obtain spousal consent for that type of payout.  Is this everyone's understanding?  If this is the case, I imagine amending the plan to remove this option would be a BRF violation. 

Hi all:

Wondering if I got bad advice from E*Trade. I have a solo 401k plan with vanguard. I am trying to role it over to a solo 401k plan at E*Trade. 
 

My current plan is sequence number 001 at Vanguard. 
 

I was told at E*Trade since it is a new plan (ie xyz NEW solo 401k) I should use sequence number 001. However it is still obviously based on the same EIN. So should it be 001 or 002? 
 

Thanks!

I submitted a QDRO to a Court in Maryland for my Client to receive her portion of Pension benefits as outlined in her JAD. However, her ex-husband has not been cooperating in signing the order, so we decided to file a "Motion to Expedite" entry of QDRO, but the Judge denied the motion.

What should be done in MD when a Judge denies a QDRO. I'm a bit concerned that the Judge thinks the Statue of Limitation has run because this Divorce case took place 18 years old. However, Potts v. Potts ruled there is no statue of limitation as QDRO

Just looking for some help. All advice appreciated.

one-person plan in which owner has a loan with quarterly payments.

They want to push off loan payments by a quarter.

Doesn't seem right, but in so doing, they never default.

What could go wrong?

Hi All,

Saw a thread on here about 20 years old but curious if the theory still holds up.

Company has 4 divisions, A, B, C, and D under 401(k)(13) safe harbor plan. All divisions receive the QACA safe harbor match. Company wants to make only Division D eligible for an additional/enhanced match.

Can this be done?

If Division D passes 410(b) on its own, the benefit passes 401(a)(4) inside of Division D, and the benefit passes 401(m) inside Division D, is this allowable with a plan/spd amendment?

Any other concerns or things I'm missing (i.e. does a test need to be for the controlled group as a whole vs just division d)?

Thank you in advance!

Under an IRS audit, it was discovered that the most recent statement of the plan documents indicated that eligibility used the elapsed time method.  The prior (correct) statement indicated the eligibility required 12 months of service in which you work 1,000 hours.  The plan has always been operated with the 1,000 hour requirement.

Would this require a submission through the VCP or would a self-correction in the form of an amendment suffice?  The fact this was discovered under audit and is a 'further restricting' amendment has me worried that this would require the correction filing and fee to the IRS.

(Plan is profit-sharing only / no deferrals)

Hi

I hope I am going to be able to explain this properly.

Looking at a takeover combo plan which was done in software A and I am checking it on software B

CB plan uses full year salary where DC plan uses salary from DOP. I have not had one of these in sometime so am conflicted with the different results.

Only DC provides top heavy.

The way the prior TPA did the calculations with software A, they calculated the DC EBARs gateway using salaries from DOP and they added those results to CB EBARs. Overall testing was done using full year salary.

The way my software B does the EBARs, looks at both plans, picks the higher salary and applies gateway to the higher salary.

Are both methods acceptable?

Thanks

The 2020 Department of Labor "Notice and Access" safe harbor may be used to deliver ERISA notices electronically to plan participants.  The Notice and Access safe harbor very generally requires an initial paper notice, followed by a notice of internet availability, and then notices may be posted to a website.  This method is not overtly a safe harbor for delivering notices required under the IRS Code, like 401(k) safe harbor notices.

IRS electronic delivery safe harbors are outlined in Treas. Reg. § 1.401(a)-21. The two methods outlined are:

• Consumer consent - basically similar to the "Affirmative Consent" DOL safe harbor, or 
• Effective availability - participants must have effective ability to access the notice 

My questions are:

• Are other providers who are using the DOL Notice and Access approach to delivering ERISA notices assuming this approach also satisfies the IRS Effective Availability safe harbor for delivery of IRS notices?  More specifically, are you using the DOL Notice and Access delivery method to deliver your 401(k) safe harbor notices? 
• Does anyone feel like the DOL Notice and Access safe harbor might not satisfy the IRS electronic delivery requirements?

We have a client where we handle their 401(k). They also have an ESOP, which we don't handle. A law firm handles (or DID handle) the ESOP/document.

Short version - the business has been sold, and both plans need to be terminated. The law firm who handled the ESOP document has "resigned" from the ESOP document business. Now, we can't (or won't) amend the ESOP document. But I'm just curious - is a current ESOP termination amendment that includes SECURE/2./CARES amendment(s) similar to what is required for a 401(k) required? While they need to find another ESOP attorney or TPA, I'm just curious, and I've paid no attention to ESOP issues such as this. 

The trustee wants to invest a portion of the plan assets into the purchase a home for himself, keeping it as a plan investment.  In relatively short time he will then sell the house and put whatever earnings there are back into the plan to be shared by all participants.

I do not deal with real estate in plans enough but this doesn't sound right.  Is this a PT?  Assuming the plan permits real estate investments and he has it independently valued annually, can he really his own house and keep it as an asset in the plan?

Thanks for any replies

Can an ex spouse take a hardship withdrawal to buy out her ex husbands share of their primary residence home? 
thanks!

Hello All,

Another vexing question to which we have  conflicting answers. In the event that a "Primary beneficiary" of a ERISA -covered Defined Benefit Plan is determined to be invalid, what determines who the "Sucessor/New Primary Beneficiary" will be? In this partiicular instance, in addition to a "Primary beneficiary" , the completed form indicated a "Contingent Beneficiary".  It should be noted that the "Plan Documents" (i.e. Summary Plan Description SPD) states, specifically, that the "Contigent Beneficiary" shall become the new "Primary Beneficiary" in the event the  "Primary Beneficiary" is deceased; the document gives no other instance wherein the "Contigent Beneficiary" shall become the new "Primary Beneficiary" . The Plan documents ALSO states, specifically, that in the event that there is no VALID (emphasis mine) "Primary Beneficiary" the benefits shall be paid to the deceased plan partipant's Estate.  The question is: Do the "Plan Documents" determine who is the new "Primary Beneficiary" or some other ruling authority ? Based upon the plan document wording specifically addressing the event of an "invalid Primary Beneficiary", would not the correct new "Primary Beneficiary" be the deceased plan participants Estate per the wording in the SPD? Thanks in advance for everyone's help!

In this MEP, eligibility for deferrals is immediate and for SH/PS it's 1 YOS and semi-annual.  I know, yuck.  But all the members follow it.

A new company (a partnership, if that matters) wants to join 7/1/24.  The entity was established 3/31/24.  Presuming there is no prior service to count:

Deferrals - this is an individual calendar year determination.  The only thing that might cause an issue here is if I have to pro rate comp and someone ends up with a pro rated amount less than they defer.

SH/PS - typically, this wouldn't be an issue (however, see TH discussion below).  Let's say that they want to do an immediate entry waiver for all those employed on 7/1/24 so they are eligible for the SH/PS on 7/1/24.  Again, no short plan year, with the only possible issue if someone defers so close to a pro rated 415 limit that any ER contribution puts them over the top.  And PS has no last day or hours requirements, so if I have to allocate something to pass cross-testing, that's fine.  Plus it's 100% vested, so no vesting service counting potential issue.

TH - many of the smaller companies in the MEP have it where the owner(s) defer the max in the initial year and the regular employees don't defer much, so it's TH and the nonkeys have to get 3% even though they aren't otherwise eligible.  Fine, granting immediate entry would cover that.

Based on the no "short plan year", my gut says that I get to use full-year numbers for everything.  Could it be that nice and simple? 😁

One of the major providers who is not yet ready to offer e-filing a form 5330 told us that their lack of ability to provide this service meant that the employers would be able to rely on the following exemption posted on the IRS's website and file on paper. Do people agree with that? My assumption is that the IRS told somebody at this major provider that that was the case. Otherwise, they would never tell me that it was an option.

https://www.irs.gov/retirement-plans/mandatory-electronic-filing-for-certain-form-5330-filers-using-the-irs-modernized-e-file-system-mef

"If the IRS's systems do not support electronic filing, taxpayers will not be required to file electronically. In general, the filer should maintain documentation supporting the undue hardship or other applicable reason for not filing electronically."

Perhaps it is a stretch to suggest that the provider's inability to process and e-filing of the 5330 is part of the IRS's systems, but again, I find it hard to believe that the provider would've told us this if they hadn't received that response from the IRS. The "undue hardship" provision does seem to leave the door open towards a response of "my vendor was not able to do the e-filing".

Okay, so my company, what's taking out 401K Contributions and then all of a sudden, they stopped. I contacted h. R. And they said I was never supposed to have been signed up 401 k because I just started. So I asked them well Where is my money then. Cause it shows on my pay stub. So they contacted the person who handles the 401K. And said that because I came in when they're transitioning over to a new company. That the money was just floating in the air or whatever so they say that they're gonna cut me a Payroll check for the amount that they took out. I asked what about our company match. They said because it never reached voya, Who represents or handles my 401K that I don't get the company match and I explained to them that I don't want to get penalized or anything like that and they said no. But the check was considered loan refund or something like that. So  I signed up for the non union plan which is the one i now qualified for and they started taking out money for 401K again. only 2 payments was received while now. 3 payments was received by voya. When i get paid weekly.  My other contributions were never. Received so how do I handle this situation.  It's been a week and work hasn't said anything to me.

I have a Client who was divorced by Judgement of Absolute Divorce. In the JAD the wife (Plaintiff) was to receive Rehabilitative Alimony for 30 months. The Defendant never provided those payments to the Plaintiff. Now we are 20 years later and the Plaintiff is working on a Qualified Domestic Relations Order to receive the Pension benefits awarded to her in the JAD. Now she is also trying to file a petition to receive the Alimony payments never received, but I notified her that the statue of limitation has passed. However, she can use a QDRO to receive the Alimony payments that she is entilited to receive, as the state that she resides has no statue of limitation on QDROs.

Now to get to my question: I am drafting a QDRO for Alimony in a 401k Account, should I include only the exact dollar amounts awarded to her or should the QDRO apply the interest of the investment accounts on the wife's Alimony share, as any account would?