Hello All - would like to have a regular advisor email list to send out newsletters too, especially with Secure Act changes.  Is there a particular company that is better, to one, purchase the list for certain areas and two prepare the newsletter with input from me and perform the service of the email blast?  Thank you.

Good morning, I hope all is well.  Generally when we file Form 5500 we do so on an Accrual Basis.  I'm taking over two 401(k) plans, where the previous TPA has been filing the Form 5500 on a Cash Basis. 

I assume there is no issue, one way or the other?  Is it better to continue filing them on a Cash Basis, or should we consider switching over to an accrual basis?

Thanks!

Employer sponsors a 401(k) Plan.

A while back a group of employees under the plan were moved to the Union Plan.  The participants contribute to the union plan however, their balance from pre-union remains in the Employer sponsored. Plan

A participant who has an account balance and who is now a union employee requested a loan from the "non" union Plan. Technically this participant is not an active participant. The participant is coded as inactive on the original 401(k) Plan.

Since he is not active (which is a requirement for a loan) is he eligible for a loan?

A QDRO was received and approved on a participant's pension (DB) benefit.  The order was a separate-interest order (i.e. not a stream-of-payment).  It turns out, it never should have been filed, and both parties agree (according to the participant, anyway).

The Participant has not begun receiving payments.  We don't know yet if the AP has.

• Assuming she has not begun her benefit, can we simply have them provide an amended QDRO, reversing everything?
  • In the meantime, is it okay practice to lock her benefit until we can get it settled?  (I realize this would only be necessary if she thinks she is entitled to the benefit, but we just don't know yet).
• If she has begun her benefit, is there anything we can do?  We can't stop the benefit once it is in place, so the only option I can think of is for him to get a 100% stream-of-payment QDRO on what she is currently receiving.

Thanks all!

Safe Harbor 401k has the standard one year of service 1000 hours rule.  The owner want's to bring their spouse into the plan.  The spouse does work for the company but hasn't been on the payroll.  Is this permitted?  The onwer wants to start the spouse on the roster so that the spouse can max on the deferral side and recieve the SH match as well.

A CPA/Auditor friend of mine came up with these two questions today. First, she is auditing a 401(k) Plan that has been "frozen" since January 1, 2020. The reason for the freeze was to correct operational defects in the plan from 2017-2019; which, after she described it, was failure to complete compliance testing and make appropriate refunds to HCE's. Her question was whether the plan should be considered terminated, due to lack of contributions for 3 years (still frozen as of today); my thought is that perhaps the Plan Sponsor (still a viable company and not subject to closing or bankruptcy) froze the plan to avoid 100% vesting on the matching contributions going into the plan. My response to her was to question the plan sponsor as to whether, once the defects are corrected, was going to unfreeze the plan and let deferrals resume. Otherwise consider formally terminating the plan. Any thoughts on this?

And second, a participant took a $50,000 loan in June, 2022 for the purchase of a principal residence, payable over 30 years. However, the house was purchased in December, 2021 and closed in February, 2022. Isn't this out of order? And then the participant "refinanced" the loan in September 2023. And, just to make it more interesting, the participant is the owner of the company.

Thanks for any replies. I'm both a TPA and a CPA/auditor, and these are 2 questions that made me scratch my head.

I've always seen interest-bearing cash included in the schedule, but something recently made me question whether it should be in the case where the balance is for clearing transactions only and is not a participant-directed or -selectable option.  I cannot find a formal definition of "investment assets" or "assets held for investment" and whether that might be to the exclusion of such an account.  Still leaning towards including it.

Our plans all switch to plan year after first anniversary year.  Everything you read talks about 500 hours worked in 2021, 2022 and 2023 implying the hours are counted on a calendar year basis.  

Example: DOH 8/1/2021 and completes 500 hours in first anniversary year.  Since plan eligibility switches to plan year after that, the person is eligible if worked 500 hours in calendar year 2022 and also 500 in 2023, then is eligible 1/1/2024 since worked 500 hours in 3 determination years. Seem right?

Example 2: DOH 8-1-2020 and completes 500 hours in first anniversary year and also 500 hours in calendar year 2021 and 2022 but not in 2023.  Does this person have 3 years since the first employment year started in 2020?  I read "pre-2021" service is excluded.  Does that meant the hours in the first anniversary year worked in 202 are excluded? 

Maybe I'm overthinking.  The more I try to provide specific advice the more questions I have.  Almost all our plans are calendar year.  Seems we should just be able to count calendar year hours - not anniversary year hours.

Does anyone know if FIS will provide a good-faith amendment soon so we can provide clients with a document and SMM?

Tom

Currently working on an audit for a 2022 plan year(calendar year) wherein it was recently discovered during our audit that a participant's deferrals were withheld but contributed to an incorrect participant's account due to a SSN error on the deferral upload.  

The participant who did not receive their deferrals was only with the company for a short amount of time (3 months) and is no longer in the Plan.  Additionally, the participant who incorrectly received the funds has since distributed their funds out of the plan due to the fact that the plan is currently in the process of terminating. 

Because of this we presented the client with the options of either: 1) reaching out to the participant who incorrectly received the funds and request that they distribute that money out of their account due to the error, or 2) the trustees of the terminating plan fund the participant themselves in order to make them whole.  Plan management was able to reach out to the individual who incorrectly received the funds and they have agreed to return the funds back.

We are now trying to figure out how this process would work in regards to having the funds distributed from the incorrect individuals new 401k, as well as how to get the funds back to the correct individual through the self correction program, as opposed to the VCP.  Is this possible?

Any help would be greatly appreciated. 

A plan adopts a 1.401(a)(4)-11(g) corrective amendment on 10/14/22 with an effective date of 1/1/21. The amendment adds employees to the Plan that complete 1 year of service. An employee completed one year of service for the Plan year 2021 based on the 1/1/21 effective date. However, this individual terminated service on 3/1/22 which was 7 months before the amendment was adopted. Since she terminated service prior to the adoption date does she still meet the one year of service requirement? I would say she does since the effective date of the amendment is controlling. Any thoughts?

Regular plan eligibility is 1 YOS, 12 months over 1000 hours, age 21, quarterly entry dates.  Assume the January 1 entry date for LTPT and plan year counting of hours.

Employee born 01/2005, hired on 10/04/2021.  Works less than 500 hours in 2021.  Works 784 hours in 2022.  Do the LTPT credit years start for him in 2022 even though he is not yet 21?  Or - do you start counting when he is age 19 (2024) that would make him LTPT eligible in 2026 when he is 21 provided he works more than 500 in 2024 and 2025?  Or do you start counting when he turns 21 in 2026 and he would be eligible in 2028? 

Thanks in advance.....

Hi, 

I've never come across Form 2678, can any one explain what Form 2678 is and if this is required for terminating plan.

Thanks 

A somewhat simplistic example - Plan has a default investment - investment (A). Participant chooses to invest funds in (B) and (C). There is a failure on the part of the Employer/Plan Administrator to implement these investment choices, so for some period of time, Employer continues to deposit the Participant's funds into (A).

What is the proper remedy here, IF the default investment underperforms the investment returns under (B) and (C)? I can't find that this falls under one of the fiduciary breach correction options under VFC. It does appear that the Participant can perhaps seek relief under IRC 502, as per the LaRue case, but I'm no lawyer, and the implications of various court cases can best be interpreted by those who are! 

Can the fiduciary simply compare the returns, and if the Participant "lost" higher investment returns, just deposit the lost gain? If they don't, then does the Participant then have to go through the steps for an ERISA claim and first exhaust the administrative remedies available, then bring suit? (And an ERISA suit for very small returns would cost far more than the potential gain...)

I'm sure this can't be all that uncommon, yet I find very little discussion of specific remedies or options.

Maybe just a "regular" PT - correct and pay the penalty?

Thanks for any thoughts.

As I understand it, if an employee is not offered a 401k plan when they are eligible, as long as their deferrals start within 3 months of entering the plan there are no penalties/QNECs due.

What happens if a plan if an employee signs up for a plan but the deferrals don't start until 3 months after signing up. This is dissimilar from the first scenario since the employee is offered and opted in but deferrals did start for a short time. Would a QNEC be due for the employee that signed up but wasn't started for 3 months?

The IRS website gives the example of the first scenario where an employee is never offered the plan but I could not find the second scenario.

I haven't seen much talk about this...

Proposed rule published 2/27/2023.  It did not receive many comments (ERIC, ARA, ABA, and ABC among the few that submitted comments).

The proposed rule would establish a requirement to use forfeitures no later than 12 months following the close of the plan year in which the forfeitures were incurred.

There is also a transition period for forfeitures incurred during plan years beginning before 1/1/24.  These forfeitures will be treated as having been incurred in the first plan year that begins on or after 1/1/24, and have to be used no later than 12 months following the close of the PY.

Proposed applicability date of 1/1/24, no final rule yet, but plan sponsors can rely on the regulation now.

How are you handling this?  Fire drill to use up forfeitures from past years to get in compliance? Plan document/amendment issues?  Absent clarification, would you consider the use of forfeiture for the 2025 PY but allocated in 2026 as being used no later than 12 months following close of the PY?  Curious what other think.

Plan was setup as a Safe Harbor Match. Unknown if notices were handed out to the employees or not but the client was advised it needed to be done and were supplied. Now the Trustee refuses to make the actual Safe Harbor Match. There are employees that defer and the plan fails discrimination testing. First year filing, besides informing the client we will no longer handle their plan since they won't follow the rules are there any other options? Chances are since they never filed they will continue to operate this way and the chances of being discovered are probably fairly low. Do we just cut them loose and hope that it is discovered one day?

Of course documenting everything thoroughly to protect myself.

takeover situation, CB Plan doc refers to "standard" definition for HCEs.   401(k) Plan refers to Top-Paid.  Small combo (6-7 total, 2 owners, 1 highly paid non-owner).  What does it mean?  Which definition prevails? IMHO it boils down to if the highly paid non-owner individual does get the 7.5% Gateway or not?  

This is just a Profit Sharing plan - Sole-Proprietor (only participant), with Schedule C net profit of $105,533. After reductions, compensation used for PS purposes is $98,077.33. If we wanted to fund 100% of compensation, do we have to worry about deductibility?

There is a PBGC letter that the 30% cap on asset sales of small companies does not apply if the asset sale occurred after a mass withdrawal.

I wish I had saved it, but did not. Can anyone point me to a link to that PBGC opinion, or anything else relevant. After a mass withdrawal, and without that 30% exception, it seems that the entire value of a small company could be forfeited.

A construction company subject to prevailing wage laws sponsors an HRA funded via a trust. Contributions are made to the trust for each hour worked, and the trust reimburses participants when they incur medical expenses. The trust also pays Plan audit fees and legal expenses. The question is whether the company can take full prevailing wage credit for all contributions to the trust if a portion of those contributions are used to pay Plan audit fees and legal expenses rather than provide direct reimbursement benefits. Thanks for any help.