Company X sells health coverage to employer consumers and would like to partner with company Y, which is not engaged in the sale of health plan or other benefits/insurance products, to incentivize employer consumers to purchase a group health policy from Company X. Essentially, if employers purchase a group health policy, they would receive a nominal discount on services from Company Y. 

I am familiar with incentives in other contexts, but this is new. Curious about limitations regarding this kind of promotion and incentive program. 

Here is a strange problem that an associate of mine is dealing with...

A defined benefit plan is being terminated.  The only participant, I will call Mr. Bill, received the maximum payout allowable and there are excess assets.  There is no possibility of a qualified replacement plan so our only option is to revert the excess back to the Corporation.  Now we find out that the Corporation no longer exists.  My understanding is that there was a divorce and the ex was awarded ownership of the Corporation.  The only employee of the corporation and the sole Participant in the Plan was Mr. Bill.  He terminated employment with the corporation that the ex took over and started a new company.  Now we found out that the ex closed out the corporation.

Any suggestions on what to do with the excess assets.

There was a message in my email inbox this morning (sent after hours on Friday) from an institutional recordkeeper notifying TPAs that the recordkeeper will apply the $7000 increased cash-out limit starting July 2024.

The message in the email to TPAs essentially was the recordkeeper was going to apply this to all cash outs, but no rush, you have until 2026 to amend the plans.

The message in the communication to the TPA's clients was the recordkeeper was going to apply this to all cash outs, and you (the client) will need to update any participant communications and amend your plan document.  If you use the recordkeeper's pre-approved document, no worries, an amendment will be provided asap.  If you do not use the recordkeeper's pre-approved document, then you should notify your document provider so the change can be made and appropriate notice is provided to your plan participants.

It seems this recordkeeper is trying to put TPAs and document providers between a rock and a hard place.

• There is no discussion of amending now versus amending later. 
• There is no suggestion of plan sponsor discretion. 
• There is no opt-out offered. 
• There is a sense of urgency communicated to plan sponsors that is not communicated to TPAs.

What is your opinion of a recordkeeper making a unilateral decision applicable to all of the plans they service?

Recordkeeper $7000 mandatory distribution notice.pdf Recordkeeper to TPA $7000 mandatory distribution notice.pdf

Hi, 

If a participant has a OFAC restriction can they continue contribution? how is the contribution affected? 

Thank you. 

Hello,

Thank you in advance for any guidance you can provide and/or pointing us in the right direction.

1. Spouse owned a "Sole Proprietor" business with her name as the business name and created a Solo401k through Vanguard in 2019. 
2. In CY2021, her Solo401k balance exceeded the $250k threshold (due to rolling funds into the plan), so we filed (CY2021) 5500-ez with the IRS using her "Sole Proprietor" name and EIN in ~July 2022.
3. On 1/1/2022, spouse changed the business structure from "Sole Proprietor" to an LLC (filing as an S-Corp) with a different name (call it XYZ LLC) and a new EIN where she has several (1099) independent contractors who she pays (not employees). 
4. In ~July 2023 (we were late), we reached out to Vanguard to discuss what we needed to do related to this change in business structure and completed forms for "restating the plan" with the new "XYZ LLC" name and EIN number (filed with Vanguard in July 2023). 
   1. With restating the plan, would Vanguard have notified the IRS that our business structure (name and EIN) have changed?
5. We filed (CY2022) 5500-ez with the IRS using her "XYZ LLC" name and EIN in ~July 2023.

QUESTIONS

1. Were/are we allowed to continue using the same "Solo 401k" when she changed her business structure (and name) and we restated the plan?   Or should we have closed out the previous (Sole Prop) Solo401k through Vanguard, filed a 5500-ez closing it out and then opened up a new (XYZ LLC) Solo401k under the new business name?
2. I am now wondering how the IRS would know that we changed the business name and EIN?   Will/would they consider the Sole Prop. to not have filed a 5500-ez for CY2022 and we'd be subject to the severe penalties that go with not filing a 5500-ez form?
3. If there is a problem here, given our situation, what do you recommend as next steps?

I've quote below from the 401k plan fix it guide.

Plan failed ADP test 2 years ago. Seems to still be in a self correction program window of 3 years after the first year of correction.

Under SCP below, 1st option is to bring up the NHCE ADP. The 2nd method would be far cheaper to just determine the correction amount (w/earnings) and then contribute that equivalent amt to NHCE's.

However....all HCE's that are due a return of contributions have already terminated and taken full distributions.  I'm thinking they will need to be sent letters detailing the amount of their distributions/rollovers that were not considered eligible rollovers.

Preference would be to find an allowable correction that does not require a qnec to NHCE's.

---------------------------------

Self-Correction Program:

The EPCRS revenue procedure defines this as an operational error. Employer G determined the plan had established practices and procedures designed to keep it compliant and that the mistake wasn't significant. Correction could involve one of two methods:

• G could make QNECs to the NHCEs to raise the ADP to a percentage that would enable the plan to pass the test.
  • In this example, each NHCE would receive a QNEC equal to 1% of the employee’s compensation.
  • G must make these contributions for each eligible NHCE (if the contribution doesn't cause the 415 limit to be exceeded).
• Under the second method, the plan could use the one-to-one correction method.
  • Excess contribution amounts are determined.
  • The amount is assigned to HCEs and adjusted for earnings and this total amount is distributed to the HCEs
  • An amount equal to the distributed amount is contributed to the plan and allocated based on compensation among the eligible NHCEs.

If a pre-enactment (grandfathered) plan without automatic enrollment now chooses to add automatic enrollment, does it have to be an EACA and comply with the SECURE 2.0 rules?  Or can the plan add a plain vanilla ACA without any problem?

Thanks.

We've been asked to provide testing services for a payroll company bundled plan.  The payroll company did not perform the ADP/ACP tests for 2022.  I don't recall why it was not done or why they would not agree to do it now.  So we agree do it  for a healthy fee (they are a client for other purposes, just not TPA.)  

Testing fails and refunds are due for ADP and ACP, not 401(a) on the match.)  Now that is April 2024 and this is a 2022 plan year.  I believe the last I read was this can be corrected without risk of disqualification by end of second year.  I will tell the payroll company to do the earnings calculation and  hopefully their tax advisors will do the 5330. 

Am I missing anything.  I'm not filing under a correction program.  If someone says that is needed, I tell the plan sponsor to get someone else for that.

Thanks.

Is it possible for a plan to provide for both the 30 day retro initial election window and for those who do not make a time election also offer an extended enrollment period for up to, say, an additional 30 days to initially enroll on a prospective basis? Put another way, the plan would provide a 60 day initial enrolment window with those diligent EEs electing to enroll within 30 days of DOH retro coverage to DOH. The rules do not say if this is allowed or if use of the retro option excludes the prospective option. Of course, any such provision would be applicable to all new hires so there should be no discrimination issues involved.  Brian Gilmore any thoughts?

If there was an ADP failure and the TPA refunded the refund amount prior to 2 ½ months after year end but didn't refund the earnings until 3 months after year end, do you have to pay excise tax on the earning portion that was not distributed prior to 2 ½ months or is excise tax only due on the refund amount? 

I'm applying for a 401k Plan TIN.  One of the questions asks "is the plan liable for non-payroll tax withholding?"  Is this asking if the plan will be responsible for transmitting withholding in the future or is it asking if there's withholding for a prior transaction that needs to be dealt with? 

We are working with a machine shop that has two unions plus office staff.  Benefits are collectively bargained with the 2 unions.  One union allows the employees to contribute to that unions 401k plan.  The other union however does not have a union 401k plan.  But regardless, since all benefits are collectively bargained, both unions can be CBA excluded for the 401k plan for the office workers.  Even though the one union does not have access to a 401k plan.  Do you agree?

Hi, 

I wanted to ask on a  401k distribution related to a plan termination and the RMD.  One of the participant was informed that a RMD was processed for 2023 and he could need to take the RMD for 2024 before he did a rollover.  This participant was still actively working on 12/31/2023 although the Plan termination date was 12/31/2023. 

• Does the IRS allowance still hold if one is working full time and not terminated from employment will require to take the RMD? Though the Plan termination date is 12/31/2023.
• If, with the plan Termination date all participants needs to be terminated, is it possible to correctly have a 2024 termination date? Therefore the participant can take the RMD for 2024 and not for 2023?
• Or, does the Plan termination date supersede the IRS allowing an individual not to take the 401k RMD in 2023 if still employed, while still meeting the direction to take the 401k distribution and RMD for 2024 by April 30, 2024? 

Thanks

If a plan fails an ADP test what are the corrective actions that can take place?

1. I am seeing a lot of answer that state that you have two options if you complete this prior to March 15th (2 1/2 months) of the following year.  1 - you can distribute excess contributions to HCES, or 2 - you can provide a QNEC to NHCES in the amount necessary to raise the ADP to the percentage necessary to pass the test. 

2. Then I am seeing other answers that state if you want to distribute excess contributions you must use the one to one method where you must distribute excess contributions to HCE's and then also contribute a QNEC of that same amount to NHCE's. 

Does the second option only apply if you did not complete either the distribution of excess contributions to HCE's or provide QNEC's to NHCE's prior to March 15th of the following year, or is that paticular corrective action always going to need to include the QNEC in the same amount if you choose to use the distribution of excess contributions method? 

We have a question into Relius asking why the system is making an employee 100% vested when said employee terminated prior to Normal Retirement age.  Employee does not have the required 6 years vesting service to be 100%.  It appears that Relius is only looking at age of the employee and not taking into consideration term date......

However, he is the response we get.

"The participant still has a balance and a forfeiture event has not occurred. So, if they reach retirement age with their balance still in place, they DO become 100% vested as they have satisfied the plan's requirements. That is what the regs say. Unless their document has a provision that excludes terminees who reach retirement age from becoming fully vested, but they should check their document and check with their own experts--then Relius is doing things correctly."

What does a forfeiture even have to do with this?

What regs?

It's a Relius Document that says the employee would need to be employed on or after your Normal Retirement Age.  The employee did not meet employed at Normal Retirement Age.

Am I missing something about a forfeiture event and not being employed at Normal Retirement Age?  This would be new to me if I am.....

Thanks

I believe it was late 2022 that the DOL issued proposed changes to VFCP to allow for a "self correction" option under VFCP.  

Can anyone tell me if that option is available at this time?

Thanks very much.

This is a new one for me.  I have a small size financial employer:  owner and spouse plus another employee.  They also have what he is calling another individual as a "statutory" employee that I honestly have never come across before.  A had to look this up that a statutory employee is an independent contractor with the distinction being the business pays half of SS and Medicare and the individual pays the other half.

If this meets the definition of a statutory employee, then can we not only not provide 401k entry to the individual and do they NOT count against any testing?  I.E., with 2 HCEs and 1 NHCE, am I at 100% for 410b or 50%?

Thank you

I am not a 401k person and not sure how the following should be handled.

Setting up a brand-new plan for a sole-prop for 2023 (will be signed and funded by 4/15/2024). There will be employees hired later this year or next year. So far, only the owner

Q1: Do I need to have EACA provisions (I do not want any in there) even if retro to 2023?

Q2: For any possible new employee who may be eligible for 2024 and/2025, does the plan have to have EACA option?

Q3: For deferral effective date, I think it should be 12/31/2023, latest possible election date, agree?

Thanks

A plan ran APD testing for plan year 2023 and found that the plan would not pass the ADP test. On march 15th 2024 the plan used the leveling calculation method to determine a refund amount. Then the plan made a benefit correction for this amount which corrected the W2 to reflect the amount added back to their taxable wages. The plan then sent a 1099 R with distribution code 8 for just the earnings since the other amount was processed through payroll. 

Should the following have been done to correct the failure instead: 
Prior to March 15th correct the deferrals of HCE's to ensure that the ADP test was passed rather then provide an amount using the leveling method?

If an amount was provided via the leveling method should that amount have been taxed in the year 2024 rather then added back to their 2023 W2? 

A sole proprietor has a small loss on Sch C.  The plan has no required contribution source.  He made a deposit of $7,000 during 2023.  I'm thinking with no compensation coudl he still make a catch-up deferral?  Seems he could since that is allowable over plan limits such as compensation?

Thank you.