A company wants to set up a 457(f) Plan.  They are aware of the taxation upon vesting rule, but they don't want to make a full distribution upon vesting.  Instead, they want to distribute a percentage to cover taxation, but leave the rest in the plan until a specified payment date.

I don't see this as a problem, but what issues am I missing?

• The company is a nonprofit, so how are 990 tax returns handled for contributions/distributions.
• The money in the Plan will continue to accrue earnings after it is vested but before it is distributed -- is there a tax issue here, or are the investment earnings not realized until final distribution?
• Does the tax distribution (the amount distributed at vesting to cover taxes) have to be a set amount (specified in the plan ahead of time) or can it just be the amount necessary to cover taxes, which is calculated at the time of distribution?

Thank you in advance!

I am sure this has been asked many times but I do not see anything similar to my challenge. 
Unfortunately, terminated employee was paid and had 401k withheld. Employee is returning the entire paycheck but due to system processes, our team was advised that we cannot choose which deductions to return - the whole check will be voided to look like it didn’t happen. 
Enter having to correct with our record keeper - we have advised the compliance way to correct - send over to record keeper for self correction, they will calculate the earrings, and issue 1099-R to offset W-2. If we do not have our record keeper complete there could be an employee loss to make whole or if there are gains, we still have ineligible funds in the Plan. 
I was basically told to just figure it out make it work. My make itwork way would be to follow our record keepers advice but getting pushback on the business because of their system limitations.

how would you go about correcting? How would we be able to calculate earnings or losses on a contribution that has been in the Plan for months?

thank you. 

We have separate 401(k) plans for non-union and union employees.  How are employees who unionized but with a balance in the non-union plan counted on line 6?  Are they active because they are active employees or are they separated because they are now in a different plan?

Thanks in advance.

We are trying to determine whether a large plan made several late deposits for approximately 50 participants during 2022 totaling around $25k .  They were deposited between 5 and 50 days after the payroll date, although most were in the lower range.  The one deposit that was 50 days overdue, as well as some of the others, were late because the plan was switching recordkeepers at the time and that was a very convoluted mess that dragged on for a couple of months. 

The trustee usually makes the deposits within a few days of payroll, and I'm aware of the 'asap' guideline for deposits; in addition to the recordkeeper change, the trustee also had seemingly valid reasons for why the other deps were late.  Since all of the deps were made by the 15th business day following the payroll date, would it be reasonable to deem the deposits as being made in a timely manner given the circumstances?     

If not, all but one late deposit would've had positive earnings (a small amount), while all the others would've suffered losses if they were immediately invested.  I imagine this could be remedied via self correction and a 5330 would still need to be filed to report the late amounts (as well as report that late deps occurred on the 5500) even though the net earnings calculated would be negative and there wouldn't be any excise tax due. 

Also complicating things is the fact that the 5558 that was filed did not request an extension for the 5330.  It has been a long time since I've had a situation like this, so any help would be greatly appreciated - hopefully there's some relief.  Thanks in advance!    

A small law firm operates as an LLC and is taxed as a sole proprietor.  The law firm sponsors a 401(k) profit sharing plan.  The sole member of the LLC makes 401(k) deferrals.  Which bank account should the LLC member use to pay his 401(k) deferrals into the Plan, personal account or the LLC's bank account?  Does it matter?

See particularly (c)(iii) of the link. This is idle curiosity only. Does the extension to deposit retirement plan contributions extend to minimum funding deadlines for a DB or MP plan? Please don't spend any time on this on my account, as there's no live case situation.

https://www.law.cornell.edu/cfr/text/26/301.7508A-1

If a plan was created in December of 2022 but no assets were in the plan until 2023 are there any filing requirements with the IRS for the year of 2022? 

Hello! We have a client that started their plan in 2022 and failed ADP and TH testing due to their owner maxing out their contribution. Their TH Funding was going to be almost $30k and they demanded a reversal of all the owner's contributions in 2022 which were processed recently after many conversations on why this was a bad idea and having them approve a hold harmless letter. Several questions about this:

1 - Does the reversal change the TH test? The balance as of 12/31/22 hasn't changed, and I know first-year plans can use accrual, but I have only ever used that when adding employer contributions to the total. Was not sure how this should/could be handled since I have never had a client actually go through with a request like this.

2 - Similarly, the Form 5500 will reflect the amounts that were in there on 12/31/22 since this is done on a cash basis. So do their quarterly statements. Should any of this be updated or should it all be left as-is? It's just a glaring issue in an audit and I am fine with that as the client signed off understanding they need to own everything that comes with the request.

3 - The reversal that was processed was for exactly $20,500 and all earnings/dividends remained in the plan. Thoughts on how this should be handled? Their letter of direction stated the exact amount versus making it all look like it never happened but, again, such an obvious issue if looked into.

Thanks!

Employer sponsors a 5304 SIMPLE, wants to change it to a 5305-SIMPLE.  There are six employees who are participating in the SIMPLE plan and all want to move to the new investment platform as a group.  (By moving as a group they will get a discount on fees, etc.)  Does the employer have to wait until January 1, 2024 to make the change?  And would he just restate on the 5305-SIMPLE?

We've run into multiple situations where it is discovered companies are not taking employee deferrals from bonuses and commissions, despite there being no exclusions specified in the adoption agreement. What is the typical correction? Would analysis need to be done for every plan year going back to when the AA was restated? Or since inception? 

This seems to be a recurring issue for plans that are being audited for the first time (first year over 120 ppts).

I know it's likely an inexact answer, but I've had people tell me different things.  What is the approximate maximum benefit credit you can get in a Cash Balance Plan?  Just a ballpark number that you could tell someone when discussing the design.

Obviously there are a lot of variables, but just trying to make it easy for someone to understand who doesn't have much knowledge.

Thanks!

Closed MEP 401(k) plan. 

Can an audit be avoided if the individual entities are each below the participant count threshold? The MEP as a whole appears to be over the audit count threshold. 

I confess my ignorance, I've only had experience with small MEPs, usually former control groups that became not-a-control-group but still worked together. 

I have seen some MEPs do individual 5500s for each single employer, does anyone have any rules or reading I can do on this topic?

Would filing each entity under a separate 5500 alleviate the audit requirement? 

If there are other threads or reading material on this question specifically, please point me in that direction. I do understand the Form 5500 has an updated MEP attachment, which I think I understand fine. My question isn't related to that. 

Thanks everyone! 

We have a plan sponsor who failed to start deferrals at 3% (plan has immediate participation) and has auto-increase (1% per year.)  I don't know how long or how many employees this involves.  We have a conference call Thursday at 10:00 am.  Of course the HR person involved is gone.  I'm thinking the correction is to fund 50% of the missed deferral and/or deferral increase and 100% of the match plus earnings on both.

I almost think I saw someone post on here one time to propose a one-time bonus grossed up for the tax liability.

Thank you in advance for your comments.

Tom

A client is about to turn 62 with a serious health issue that may or may not be terminal.  Spouse is 5 years younger.  Client has plenty of assets to live off of.  What are the implications of him taking social security at 62 as opposed to waiting?  If he waits will his spouse receive the benefit he would have gotten (if he dies in the next year) when he turns 66 or 67 (or 70 for that matter).  Is there any advantage in this scenario to him starting the benefits at 62?

All members of the controlled group participate in the plan. Safe Harbor Match equal to 100% up to 4%

some of the participating employers want to increase their match to 100% up to 6%.  Is this even possible?  Don't all participating members have to use the same safe harbor formula?

Guessing they could elect a discretionary match for a specific group of employees, assuming it is below 4% and still remain safe harbor.  However, allocating a discretionary to only a small group of employees would require additional converge testing - correct??

Should form 5500EZ be filed if it currently covers only the owner. But had common law paid out participants in the earlier years?

An accountant just presented a very old problem.  His client adopted an HR-10 prototype with Equitable in 1986 when purchasing an annuity and life insurance.  Contributions/premium payments have been made every year, and Form 5500EZ has been filed.  But there have been no document updates.  The only thing they can find is the original adoption agreement...not even the basic plan document is available.  The insurance agent has been in contact with Equitable but nothing has surfaced.  Equitable has kept the document up to date with IRS but apparently the client hasn't adopted any restatements.

If they go into VCP, will the IRS require all the missing restatements?  Form 14568-B Schedule 2 only lists the EGTRRA, PPA and Cycle 3 documents in the identification of failures (but does have a later catch-all section for "late amender failures not listed above").  I'm trying to remember back to 1986 -- would a document adopted then have been compliant with TEFRA/DEFRA/REA or did those documents come on the scene later?  Obviously the TRA'86 documents would have been later.  I'm trying to figure out how many restatements are missing.

Thanks to all.

Is anyone else having trouble with the program not responding when trying to e-sign or print?  It's spinning and spinning.  I was able to work with it this morning as it was slow and this afternoon I can't print a long form for an auditor not can I e-sign a couple returns.  Just curious.  This has not been a problem in the past.

Do some third-party-administrator businesses get malpractice or errors-and-omissions insurance?

Without saying anything about how much the premium is (or what coverage limits are available):

Which errors are insured?

Does it include incorrect or incomplete advice (or a failure to advise) about the Internal Revenue Code?

Does it include incorrect or incomplete advice (or a failure to advise) about ERISA’s (nontax) title I?

Which errors are not insured?

Which liabilities are excluded?

(My query does not relate to any client; it’s to support my charitable and educational work with young people preparing to enter the business.)

Hi

For an s-corp that is owned 50/50 by 2 unrelated partners (no other employees), trying to determine if 5500-EZ is ok to file - I think it is but wanted to double check. What say you?

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From 5500-EZ instructions

Who can file 5500-EZ

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).

From IRC §1372 (a) &(b)

(a) General rule

For purposes of applying the provisions of this subtitle which relate to employee fringe benefits—

(1) the S corporation shall be treated as a partnership, and

(2) any 2-percent shareholder of the S corporation shall be treated as a partner of such partnership.

(b) 2-percent shareholder defined

For purposes of this section, the term "2-percent shareholder" means any person who owns (or is considered as owning within the meaning of section 318) on any day during the taxable year of the S corporation more than 2 percent of the outstanding stock of such corporation or stock possessing more than 2 percent of the total combined voting power of all stock of such corporation.