Can the various EPCRS corrections for elective deferral errors be applied separately to different participants?  A 401(k) plan sponsor recently discovered that although the definition of compensation for all purposes was total W-2 wages, operationally they were not applying the participants' deferral elections to bonus payments.  The employer non-elective contributions were based on total wages.  This has been going on for many years.  Incidentally, none of the participants has ever raised a question about the lack of deferral from their bonus.

The general correction is to make a QNEC in the amount of 50% of the missed deferral opportunity plus earnings.  The EPCRS safe harbor correction reduces that QNEC to 25% if corrected within 3 years from the date of the failure (the period for correction of significant errors).  Can the plan sponsor correct by providing a 25% QNEC for participants who have been participating for less than 3 years (since the failure as to them is less than 3 years) while providing a 50% QNEC for all longer-term participants? 

My client has a non-safe harbor 401k plan.  They want to terminate it and start a SIMPLE IRA.  I know SECURE 2.0 allows a SIMPLE to be terminated mid year and start a 401k plan, but is the reverse true?  Can a non-safe harbor plan be terminated mid year and start a SIMPLE mid year?  

Is a 60 day notice of termination required?  I have a Q&A from TAG saying that an advance notice of plan termination is not required (even if the plan is a safe harbor 401k plan.)  Is that true?  I know TAG isn't official legal advice but they're a pretty decent source of information.

What say all you interesting people - in light of the new SECURE 2.0 rules for mid-year replacement of a SIMPLE IRA program with an appropriate 401(k) w/ safe harbor - is 60 days notice to participants required? 

Typically employers would have to notify folks by Nov 1 that the SIMPLE would not be continuing for the upcoming year. Since we are past Nov 1, do folks think notice now is sufficient? Assuming that effective Jan 1 there is an allowed replacement (401(k) SH as provided in SECURE 2.0), is notice now enough? 30 days? Something else? Seems like there is interest in having no SIMPLE in 2024, for a cleaner break, if that is possible. 

If there is another thread already discussing this, please point me in that direction. 

Thanks! 

Retail business A is comprised of multiple locations with a total of approx. 75 participants, owners include 2 families and operates a 401k plan, Family 1 owns 51% of the business.

Retail business B is comprised of multiple locations with a total of approx. 40 participants, owners include children of Family 1 (with ownership of 51%) and operates a 401k plan.

Retail business C opened in 2008, and is comprised of one location with a total of approx. 5 participants, 25.5% ownership to Family 1, all other owners are unrelated with smaller shares.

Retail business D opened in 2015 and is comprised of one location with a total of approx. 10 participants, 51% ownership to Family 1.

Participation agreements were created in 2019 using business A as Signatory Employer. Prior to this, they operated their own plan documents.

Each plan was tested separately and a 5500-SF was filed for each division, using their separate business plan names and TINs 2019 to present.

What issues are present in this situation?

The owner of an established construction company XYZ has a 401k plan with 75 employees, purchased car dealership A in 2019. In 2020 they purchased dealerships B & C. All were asset purchases, employees were considered new hires, eligible on first day of employment.

Dealership A started their 401k plan as a participating employer of XYZ plan as did B & C when they were purchased.

Assets of all of the plans were held with one recordkeeper, using separate divisions for XYZ, A, B & C.

Each plan was tested separately and a 5500-SF was filed for each division, using their separate business plan names and TINs 2019 to present.

Due to attribution rules, owner owns more than 50% of each business, making it a controlled group.

What issues are present in this situation?

Hello all - 

Wondering if you have an opinion on whether the $250 or less de minimis rule applicable to excess amounts also applies to excess allocations?  As you know, an excess allocation is a subset of an excess amount.

Pg 21/140 of Rev. Proc. 2021-30:

• Excess amount:  "A Qualification Failure due to a contribution, allocation, or similar credit that is made on behalf of a participant or beneficiary to a plan in excess of the maximum amount permitted to be contributed, allocated, or credited on behalf of the participant or beneficiary under the terms of the plan or that exceeds a limitation on contributions or allocations provided in the Code or regulations.  Excess Amounts include:  (i) an elective deferral or after-tax employee contribution that is in excess of the maximum contribution under the plan; (ii) an elective deferral or after-tax employee contribution made in excess of the limitation under § 415; (iii) an elective deferral in excess of the limitation of § 402(g); (iv) an excess contribution or excess aggregate contribution under § 401(k) or (m); (v) an elective deferral or aftertax employee contribution that is made with respect to compensation in excess of the limitation of § 401(a)(17); and (vi) any other employer contribution that exceeds a limitation under § 401(m) (but only with respect to the forfeiture of nonvested matching contributions that are excess aggregate contributions), 411(a)(3)(G), or 415, or that is made with respect to compensation in excess of the limitation under § 401(a)(17)."
• Excess allocation:  "The term “Excess Allocation” means an Excess Amount for which the Code or regulations do not provide any corrective mechanism.  Excess Allocations include Excess Amounts as defined in section 5.01(3)(a)(i), (ii), (v), and (vi) (except with respect to § 401(m) or 411(a)(3)(G) violations).  Excess Allocations must be corrected in accordance with section 6.06(2)."

Pg 34/140 of Rev.  Proc. 2021-30:

• "(e) Small Excess Amounts.  Generally, if the total amount of an Excess Amount with respect to the benefit of a participant or beneficiary is $250 or less, the Plan Sponsor is not required to distribute or forfeit such Excess Amount.  However, if the Excess Amount exceeds a statutory limit, the participant or beneficiary must be notified that the Excess Amount, including any investment gains, is not eligible for favorable tax treatment accorded to distributions from the plan (and, specifically, is not eligible for tax-free rollover).  See section 6.06(1) for such notice requirements. 

There are differing opinions on whether the $250 de minimis rule applies to an excess amount that is also an excess allocation.  An example, employee elects to defer 5%, but the plan sponsor withholds 7% in error. The 2% would be considered an excess allocation.  Could the plan sponsor elect to use the $250 de minimis rule here?  According to the ERISApedia.com webinar presenters, the answer is no. I even challenged this statement during the webinar and the presenter said the $250 de minimis rule doesn't apply.  

I cannot find anything on the web except one article from Newfront that says the de minimis rule doesn't apply to excess allocations.  And, the Rev. Proc. doesn't really make it clear enough to be certain.

Any feedback is greatly appreciated!  Thanks.

Participant was hired in 2018 and was participating in 401k plan. He terminated in 2020, and then was rehired 2 years later in 2022. Since his rehire, he has been working on an as-needed basis. He receives a W-2 and is on payroll when working (not a 1099 employee). He took a full distribution from his account, even though he technically will still work on an as needed basis. Would he have been inelgiible to take his distribution? He wasn't working when he took it and he is not 59 1/2, so it couldn't be considered an ISW. Just curious if technically they could consider him terminated, and then rehired when he works? 

When would the "taxable amount not determined" box be checked on the 1099-R?   I have a single member plan (Solo) that came to me asking what is involved to terminate the plan.  I asked if ROTH deferrals were made in addition to employer.  The answer was yes.  I was told that all contributions were deposited into a single investment account.  

Do we need to go back and calculate the earnings for the ROTH money and the Employer money?

As I write this, how can he roll his account over to an IRA?  He can't roll it all into a ROTH IRA and at the same time he wouldn't want to roll it all into a traditional IRA and lose the tax benefit of the ROTH deferrals.  He is facing a conundrum.  That said, all I am tasked to do is prepare a final form 5500 and a 1099-R based on the information provided to me.  I can (and will) advise what he should do.  What he ultimately does is his choice.

So, back to Box 2b, do I prepare one 1099-R and check that box?  Prepare a letter covering my butt and be done?

So just a little background:

1. There's a total of 37 eligible participants
2. 4 are owners (including owners through family attribution)
3. 19 HCE based on compensation

I know you can limit the HCE to the Top 20%, and all owners are considered HCE.  So in this case, regardless of the compensation of the owners, would we use them and then the next 4 highest to create the 8?  Or do you use the highest 8, and then add any owners who are not included (so you would be over 8)?

Thanks in advance!

This is certainly a very welcome change.  I assume "Beginning on Jan. 1, 2024"  means ANY form for any plan year calendar 2023 or fiscal year ending in late 2023.  

Thank you

Under Code section 162 (incorporated by reference into 404), a corporation cannot deduct expenses of another corporation, even if the two are part of the same controlled group.  So for example,  a parent company cannot take deductions for contributions it makes to its 401(k) plan on behalf of employees of a subsidiary. There is an exception in 404(g)(2) in the case of termination liability that permits a corporation to deduct termination liability paid on behalf of another member of the controlled group.  I have what I think is a simple question, but am going around and around on how it should be resolved.  Assume in all cases the the party wanting to take a deduction actually will actually pay the expense.

Corporation A wants to sell Corporation B to Corporation C, which is unrelated.  Corporation B has both a 401(k) plan and a defined benefit plan.  Corporation C does not want to take over either plan.  So before the transaction, Corporation A takes over both plans, assuming all the liabilities.  The 401(k) plan is terminated immediately before the transaction, but not all liabilities have been paid at the time of the transaction.  Rather than holding up the transaction for the 60 days until the DB plan can be terminated, a resolution is adopted to terminate the DB plan before the transaction, but it is terminated shortly after the transaction.

It takes a little while to work out all the liabilities under either plan.  (E.g., there is a liability for employer matching contributions under the 401(k) plan.)  So contributions must be made after the transaction to cover liabilities from before the transaction.   In the case of the defined benefit plan, can Corporation A take a deduction if it pays the termination liability, because at the time the liability was incurred,  Corporations A and B were part of the same controlled group?  Or because at the time of the termination Corporation A was the sponsor of the plan and thus liable for the termination liability?  Or is it barred from doing so because the employees covered by the plan were all Corporation B employees and the termination (and thus the liability) occurred only after Corporation B ceased to be part of the controlled group?  Conversely, is Corporation B barred from taking a deduction if it pays the liability because it is no longer a sponsor of the plan at the time of the contribution?

Who, if anyone, can take a tax deduction for the contribution to the 401(k)?  Is Corporation A barred from taking a tax deduction if it makes the contribution because the liability for it relates to employees of a different corporation?  Conversely, is Corporation B barred from taking a tax deduction if it makes the contribution because it is no longer a sponsor of the plan in question?

And does the answer as to the 401(k) change if Corporation A terminates it only after the transaction?

This has to come up all the time, but for some reason I've never been asked the question before.

We have a Cash Balance Plan. Under 401(a)(26), we must have 50 participants. We have a cycle where annual contributions are set for 3 years. Assume we have 51 participants in year 1, all receiving meaningful accruals. If we have 3 participants retire in year 2, putting us at 48 participants, how do we correct since we have fallen below the minimum participation threshold? Added fact: all participants are HCEs.

Thanks.

Let's say a plan charges a distribution fee of $100.

All terminee account balances under $100 are to be forfeited.

I'm curious if there's a trend to actually use a higher forfeit de minimis amount, say for those balances that are just so minimal yet over $100.

For instance, if the account balance is under $120, rather than create IRA's of $0 - $20?

Company A  with a 401(k) plan with a nondiscretionary SH is being acquired in a stock sale this coming week by company B which wants A to terminate their 401(k) plan B's lawyer insists that the plan can be terminated right away before the sale date but according to this IRS webpage on Participant Notices:

The court awarded my client a percentage share of her ex-husband's 401(k) account.  It turns out that abut 90% of his 401(k) are in a Roth funds.  I am working on the QDRO.  

She plans to take a taxable distribution since she needs the money now.  If the distribution was coming from a traditional pre-tax 401(k) it would be income taxable to her and the Plan would withhold 20% for Federal taxes, and there would be no 10% premature withdrawal penalty under IRC 72(t)(2)(C).  

Since it's a Roth account, will she have to pay income taxes on a direct distribution, or will it be tax free? 

72(t)(C) provides that an exception to the imposition of the 10% penalty under 72(t)(1) includes:

"(C)Payments to alternate payees pursuant to qualified domestic relations orders: Any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1))."

So one would surmise that the 10% penalty will not apply to the Roth distribution.  

I guess she could take a loan or make a hardship withdrawals if she is disabled, or she can just wait until age 59-1/2. 

What do you think?  Any creative ideas? 

David

The court awarded my client a percentage share of her ex-husband's 401(k) account.  It turns out that abut 90% of his 401(k) are in a Roth funds.  

She plans to take a taxable distribution since she needs the money now.  If the distribution was coming from a traditional pre-tax 401(k) it would be income taxable to her and the Plan would withhold 20% for Federal taxes, and there would be no 10% premature withdrawal penalty under IRC 72(t)(2)(C).  

Since it's a Roth account, will she have to pay income taxes on a direct distribution, or will it be tax free? 

72(t)(C) provides that an exception to the imposition of the 10% penalty under 72(t)(1) includes:

"(C)Payments to alternate payees pursuant to qualified domestic relations orders: Any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1))."

So one would surmise that the 10% penalty will not apply to the Roth distribution.  

I guess she could take a loan or make a hardship withdrawals if she is disabled, or she can just wait until age 59-1/2. 

What do you think?  Any creative ideas? 

David

Does anyone know whether this guidance is still reliable?  I thought there was a sunset on this, but looks like it may still be applicable.  Specifically, I am wondering if a governmental employee may take an in-service distribution before age 59 1/2 since the plan allows for earlier retirement age (age 53). (See Q&A #2). TIA

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers#:~:text=Q2%3A May a qualified pension,the plan's normal retirement age  

Hi. We have a Cash Balance Plan. A participant has asked about in-service distribution (rollover). Specifically, he is asking if he makes a contribution in 2023, and reaches age 59 1/2 in 2024, can he rollover the funds into a traditional IRA as an in-service distribution and continue to participate in the plan. 

My understanding is that this is not permissible. This seems like it would directly go against the concept of a cash balance plan and almost treat it like a 401k. But my understanding of cash balance plans is definitely lacking. The participant says he has been told by others that this is allowed. Can anyone help?

Hi

The way I have been doing every year, I prepare the AFN and also provide a mini-SAR (software does it this way).

Taking over a plan where the other TPA insists that AFN is sufficient i.e. no SAR is required and they have never provided to the plan sponsor.

Am I missing something here?

Original 1099R completed and filed and then corrected one filed, only issue is that corrected box didn't get marked.  Any idea how to fix this?  Now both are showing as income for him.  This was a complicated in kind rollover and the original amount rolled over was overstated.