I have a combo 401(k) PS/CB. Owner died unexpectedly in December 2022 while in his 50's. He has no spouse, children, or completed beneficiary forms. His parents (in their late 70's) are the beneficiaries for both plans. There was some up in the air, but now both plans are being terminated. 

My question is on RMDs. Are the parents required to take RMDs from the plans due to their ages or not since the owner was not of RMD age? The plans should be paid out by the end of 2023 or early 2024. There will be required payments from the inherited IRAs, but that is outside the plans. I am more concerned that while the plans are open, the RMD rules are being followed. 

If a participant's last day of service is 12/31/2022 and as of 01/01/2023 does not return to work, will a 2022 RMD be required? 

Company recently established using a ROBS (not our client and we aren't directly involved) is doing well and has potential investor.  The investor would like to invest in exchange for issuance of preferred stock.  The ROBS company has apparently told investor that because the ROBS 401(k) holds shares in the company, the company cannot issue preferred stock.  Instead, they have proposed a temporary workaround whereby they will issue a debt instrument (loan agreement with de minimis interest) that will convert to preferred stock within 180 days.

Investor has asked us generally if that makes sense.  We don't work with ROBS and have suggested they need to find experienced counsel if they want to proceed but just curious with all of this but, in interim, just curious if this is a common ROBS issue.  And, if so, does the work-around really solve for it?  Thanks 

A client whose safe harbor match is based on the pay period and funded each pay period would like to make a true-up this year although it is not required.  The FtWilliam PPA document contained the following language which appears to allow a discretionary true-up:

Notwithstanding the foregoing, after the end of each Plan Year, the Company may make an additional Matching Contribution ("true-up") on behalf of each Participant in the amount of the positive difference, if any, between the Matching Contributions that would have been allocated to his Account had such contributions been determined on the basis of Compensation for the entire Plan Year and the Matching Contributions previously allocated to such Participant's Account.

The Cycle 3 document does not contain this language (at least that I can find) and only addresses required true-ups:

If the Employer funds Matching Contributions more frequently than the determination period indicated in the Adoption Agreement, a true-up contribution will be made to any Participant who did not receive a Matching Contribution based on Matched Employee Contributions or Plan Compensation for the entire determination period indicated in the Adoption Agreement.

Does the absence of language specifically addressing a discretionary true-up preclude the client from making one?  Or, can the language in the document be interpreted as the bare minimum an employer must do, but it does not preclude something more?

Would like to get your thoughts on this.  Thank you.

Scheduled publication date is November 3, 2023 -- which would put the close of the 60-day comment period at January 2, 2024.

Links to Federal Register:

• Proposed regs
• Proposed amendments to PTE 2020-02
• Proposed amendments to PTE 84-24
• Proposed amendments to PTEs 75-1, 77-4, 80-83, 83-1

Sole owner dies in 2022.  Business had participants other than the owner so 5500-SF had been filed in all years.  By the end of 2022 all assets had been distributed except for the deceased owner's.  They have a final filing for 2023, do they file a 5500-EZ or continue with the 5500-SF?  

Thanks for any guidance.

An employer of my acquaintance, who uses a well-respected 5500 software product, filed a number of 5500s timely.  Upon checking on the government web site they discovered that the auditors' report was missing for one of their many plans--the remaining are fine.  On further examination it looks as though it might have been omitted when everything was uploaded to the vendor's web site for filing.  Don't know if this is system error or human error but obviously needs to be corrected.  Any advice to avoid a penalty for an incomplete filing?  Do they file an amended return even though none of the numbers changed?  Should they contact the vendor?  Other?  Thoughts appreciated!

So, there is a segment of a business that that is being spun-off and a new company will be the employer.  The employees in the new company are being transferred from the old one as part of the transaction.  The business selling off will retain 9.9% ownership in the new company and an affiliated service group relationship will exist post sale.  

Is itt true that companies in the same service group may be treated as a single employer under the Code (409A) but not as a single employer under ERISA?  Meaning no termination of employment under the qualified plans or health plans?

So, there is a segment of a business that that is being spun-off and a new company will be the employer.  The employees in the new company are being transferred as part of the transaction.  The business selling off will retain 9.9% ownership in the new company and an affiliated service group relationship will exist post sale.  We've settled that under 409A a bonafide separation of service will occur under the NQDC (they can get a distribution).

But is it true that companies in the same service group may be treated as a single employer under the Code, but not as a single employer under ERISA?  Meaning no termination of employment under the qualified plans or health plans?

Should also mention that it is intended that the "significant portion" test regarding the provided services under the 414(m) rules is met, in that threshold is 5% so we shouldn't have to aggregate employees.  

Wasn't even sure where to post this since the question is pronged along 2-3 tracks.  And yes, we are seeking counsel as well, but I always like the perspective gained here. Confusing!  

WASHINGTON The Internal Revenue Service today announced cost of living adjustments applicable to dollar limitations for pen (irs.gov)

We generally write our plans' loan policies to say that in the event of a participant termination, the loan can be rolled out of the plan - this way, if the participant finds a new plan that will take it (which is a big "if" in its own right), they can transfer the loan to the new plan, establish payments, and not have to deal with the extra taxation.  It's a rare moment where I care about the participant. LOL

Thankfully, it doesn't come up very often.  But we just learned that one recordkeeping platform that we work with will not play nicely with this - their policy is to default the loan due to non-payment and then 1099-R it.  They claim it is due to a system limitation.

Obviously, we have to issue new loan policies to all these plans to say that they cannot do this.  So... could this be a protected benefit and therefore not allowed to be cut back?  I figure that since loans themselves are not, then the disposition of them shouldn't be, but I thought I'd see if I was overlooking something.  Thanks.

How would the proposed investment-advice rule affect you?

On October 31, President Biden and Acting Secretary of Labor Julie A. Su announced that she will propose a new rule to interpret whether a person provides investment advice that makes the person an employee-benefit plan’s fiduciary. The same rule would interpret also whether one is a fiduciary regarding an Individual Retirement Account or Annuity (IRA), a health savings account, an Archer Medical Savings Account, or a Coverdell education savings account, even if the account is unconnected to an employment-based plan. (Whether a rule would be or might become contrary to law is beyond this explanation.)

To go with those interpretations about investment advice that makes one a fiduciary, the Secretary will propose changes for five class prohibited-transaction exemptions (PTEs). These matter because both section 406 of the Employee Retirement Income Security Act of 1974 (ERISA) and Internal Revenue Code of 1986 (I.R.C.) § 4975 make it a prohibited transaction for a fiduciary’s advice-giving to affect her compensation, business, or other personal interest.

Under a 1978 government reorganization plan, the Labor department’s rules, exemptions, and interpretations are authority not only for ERISA-governed employee-benefit plans but also for accounts subject to a tax-law consequence under or regarding I.R.C. § 4975.

BenefitsLink’s news pages link to the prepublication texts and some news releases and articles. Eight hyperlinks are posted in the October 31 news.

The proposals are not yet published in the Federal Register.

If published soon, the 60-day comment period would end in early January. And without waiting for a request, the Labor department expects to schedule a hearing in mid-December.

What’s in the proposals?

Here’s a few key points:

Investment advice that makes one a fiduciary includes a recommendation of any investment transaction or any investment strategy. That applies for someone in a business that regularly involves investment-related recommendations, or who “represents or acknowledges that they are acting as a fiduciary when making investment recommendations.”

The proposed rule’s explanation of a recommendation aligns with uses of that word under securities law and insurance law.

A recommendation need not be about securities; it would be about any kind of investment property, including an annuity contract, even a fixed annuity contract, and a life insurance contract, unless it has no investment element.

An investment adviser is a fiduciary only “to the extent” it renders investment advice. For example, a securities broker-dealer or insurance agency that presents a rollover recommendation might be a plan’s or IRA’s fiduciary only when it forms and presents a particular recommendation. One might be a fiduciary only for a day or two. For example, a one-time recommendation to rollover a payout into an IRA could make the recommender a fiduciary, but her responsibility might end when the distributee accepts or rejects the recommendation.

Responsibility for one-time advice also might apply to a suggestion about how another fiduciary selects or monitors designated investment alternatives, or about whether to allow a brokerage window.

That a person is not (or is no longer) a fiduciary under ERISA or the Internal Revenue Code does not excuse the person from duties under banking, commodities, insurance, or securities law.

The revised best-interest exemption (PTE 2020-02) would let a Financial Institution—such as a bank, trust company, insurance company, securities broker-dealer, or registered investment adviser—and its Investment Professionals provide self-dealing advice if they don’t put their interests ahead of the Retirement Investor’s interests and don’t put the Retirement Investor’s interests below the Financial Institution’s or its Investment Professional’s interests.

Some changes would widen which persons can get relief. Some changes would tighten disclosures. Among other changes, a Financial Institution and its Investment Professional must confirm in a written disclosure that they act as fiduciaries.

A change would require a Financial Institution’s yearly compliance reviews to check “that [t]he Financial Institution has filed (or will file timely, including extensions) Form 5330 reporting any non-exempt prohibited transactions discovered by the Financial Institution in connection with investment advice covered under [I.R.C. §] 4975(e)(3)(B), corrected those transactions, and paid any resulting excise taxes owed under [§] 4975[.]”

If the Labor department adopts its proposed change in PTE 84-24, an Independent Producer who recommends an unaffiliated Insurer’s annuity contract could get a fully disclosed commission or fee if the exemption’s protective conditions are met. What’s the big change? The Insurer “would not be treated as a fiduciary merely because it exercised oversight responsibilities over independent insurance agents under the exemption.” And the Insurer “only would be required to exercise supervisory authority over the independent agent’s recommendation of [the Insurer’s] products.”

Another proposal would change PTEs 75-1, 77-4, 80-83, 83-1, and 86-128 so each provides no relief for a self-dealing transaction, including conflicted compensation. Instead, a fiduciary must meet the conditions of the best-interest exemption.

This is only a quick and short look at a few of the many points in the proposals. For more information, read the source texts. Or, post your query in this BenefitsLink discussion.

Participant (owner) born in 1938 has been taking RMDs for many years. Spouse was born in 1954 🫤 so we have been using the joint table.

Participant dies in 2022. Normally calculated 2022 RMD was paid to spouse as beneficiary.

Going forward...I think:

The 2023 RMD is based on the 2022 joint life expectancy, minus one.

The spouse can roll over (after the 2023 RMD is paid) to her own IRA, or her account within the plan.

Does that sound right?

I have a client that completed their 2022 audit and discovered employees who are due an additional Safe Harbor contribution.  The advisor is asking if these can be made to the PEP.

My initial response is they should be made to the original plan and then a second wire/transfer can be sent to the PEP.  The prior recordkeeper is unwilling to accept the Safe Harbor contributions as they have completed the termination.

I thought maybe the Safe Harbor contributions can be submitted to the PEP and then have the recordkeeper reclassify these amounts as transfer funds.  I know this won't be the last time a situation like this occurs with a PEP.

Any thoughts ?  

Just polling the folks on this forum. As a TPA business owner, If you could only pick one of the two organizations for membership, which would it be and why? Thanks in advance.

Hi

Here is a new one for me.

Having a discussion with a broker about which table to use for a DC plan RMD calculation. I never heard of this before.

Age difference between the 2 spouses is 20 years.

The broker wants to use uniform versus J&S table.

If uniform, the RMD is 10,000, if J&S table, RMD is 7,000 (making up numbers)

Q1: Can the table be optional?

Q2: Assuming not optional, should not the excess 3,000 distribution be subject to in-service and 20% withholding rules?

Q3: Plan normal form is lump sum and no spousal consent is required for distributions but still, need to complete a distribution election form for the extra 3,000 distribution?

Q4: none of the above as they can choose between the 2 table and either number is ok under RMD rules???

Any other questions I am not thinking of/not asking?

Any comments are appreciated.

Thanks

For anyone that has experience with annuity buy-ins, how have you calculated the Funding Target liability for the purchased group?  I believe for accounting purposes the liability is set equal to the fair value of the GAC, but is that also true for the FT?  Or are we required to use the PPA-defined segment rates?

I have a question about if this plan can file using Form 5500-EZ.

There are 2 people in the company: 100% owner and his child. The child does not yet qualify for the 401(k) plan because he has not met the eligibility requirements (the plan requires participants to be age 21 and the child is not yet 21).

Since the 100% owner is the only participant in the plan, can a Form 5500-EZ  be filed instead of Form 5500-SF?

Below is the text from the 2022 Form 5500-EZ Instructions:

"1. Covers only you (or you and your spouse) and you (or
you and your spouse) own the entire business (which may be
incorporated or unincorporated); or

2. Covers only one or more partners (or partners and their
spouses) in a business partnership (treating 2% shareholder of
an S corporation, as defined in IRC §1372(b), as a partner); and

3. Does not provide benefits for anyone except you (or you
and your spouse) or one or more partners (or partners and their
spouses)."

Thank you!

Hi

Asking for a CPA friend of mine.

Corporation A.

Joe's year of birth is 1952. So Joe will be 73 in 2025

Joe owns 10%, Joe's wife owns 1% and Joe's son owns 89%

Joe will sell 8% to his son in 2023.

Is there anything I cannot think of that would allow Jow to defer RMD until forever?

Also, assuming Joe needs to start RMD, 2025 is the first year, correct?

Thanks

In the adoption agreement compensation is described as "W-2".  The Post-Severance box is not checked:

[  ] Include Post Severance Compensation in definition of Statutory Compensation.

So... if an employee terminates on say 10/1 but is receiving severance pay through the end of 2023, we don't count any income earned from 10/2 through the end of the year, correct?  AND, the employee can not defer from that severance compensation either, correct?