The question is - if an employer using a 5305 model SEP hasn't contributed for the last three years, and hasn't contributed anything this year, can the employer establish a 401(k) for this year? IRS instruction doesn't truly address this.

Terminating a SEP Plan

Do I need to amend my SEP for the new law before I terminate it?

Generally, the IRS has not required employers to amend their SEPs for new law prior to termination. Check with your plan professional.

Do I have to fund my SEP in the year of termination?

SEPs can be terminated at any time. You can stop funding your plan once it is terminated.

What are the notification requirements when a SEP terminates?

When you terminate your SEP plan, it is a good idea to notify the employees that you are discontinuing the plan. You may need to notify the financial institution that you chose to handle the plan that there will be no more contributions and that you will terminate the contract or agreement with it. Do not notify the IRS of the plan's termination.

Check this out

https://www.irs.gov/pub/irs-drop/n-23-62.pdf

If a plan uses automatic enrollment, are employees that become eligible under the LTPT rules required to be automatically enrolled?  

Another question...has there been any change in the LTPT vesting rules with respect to a former-LTPT who becomes a "regular participant" and the number of hours that they must meet to earn a year of vesting?  Is the hours required still 500 even if the former-LTPT has met the plan's normal eligibility requirements?

Thanks very much.

Question re: self-correction of an employer eligibility failure (governmental entity adopting 401(k) plan).  If the employer will cease contributions to the 401(k) plan (either through a freeze or a termination) within the self-correction deadline and subsequently adopt 457(b) and 401(a) plans, is the appropriate action merging the 401(k) plan into the 401(a) plan?

When is a 401-k plan (safe harbor) required to be audited by an independent CPA Firm?  I know it used to be 100 employees but I think it recently changed to the amount of account balances?  Any information is appreciated.

Maybe because I see this so rarely now, and partially because I mix up my 415c and 402g deadlines, but...

Just got word that a sole prop who had already deposited $27K in pre-tax 401k deferrals for 2022 is going to have a negative Schedule C net income.  This is the double-tax situation, where when it is distributed it's taxed for 2022 and then again in 2023 because it was refunded after 4/15/23... ?

Thanks.

If this was discussed before, my apologies. This is unchartered territory for me.

Helping a CPA friend.

For a new db plan effective 1/1/2022 that is still not adopted as of today.

One of his clients deposited 200k into an account by 4/18/2023 and filed the 2022 tax return without an extension.

I do not understand how the broker accepted this deposit without an executed plan/trust document.

This client's actuary either never told him about the document deadline or did not do it or dropped the ball or there was a miscommunication, who knows. I do not have all the facts.

So, the bottom line, there is no plan document signed by 4/18/2023 and prior to any deposits.

Apparently, the actuary is now trying to file form 5300 for an "advanced determination on the qualification of the plan", whatever that means.

Are there any corrective measures that can be done here? Assume no resolution was signed by 4/18/2023.

Thanks in "advance".

If new small plans have to be auto enroll soon, how long do they have to keep that provision?

Can they set it up for like a month and then take it away?  After the first plan year?  does it have to stay in indefinitely?  Until over 120 poeple?

the age old question - file an incomplete 5500 without a set of audited Financial Statements, with intent to file amended form later?

plan in question - has never filed 5500, multiple years as a large plan. None will be ready by filing of currently due 5500.

I'm thinking don't file, and file the sum total when ready and submit under dfvc.

Currently prime rate is 8.50%.  Moodys Bond rate is 6.17%.  We have a new plan that wants to allow for loans and was questioning whether they could base the plan loan interest rate off of Moodys.  Any thoughts whether that would be acceptable, given the disparity between Moodys and Prime?

Thanks

I'm curious, for plans that set up auto enrollment, is this generally set up with immediate entry, or a longer period, say 3 months? Do participants feel like they are getting a pay decrease when this happens?

In light of the automatic enrollment requirement for new plans (beginning with the 2025 plan year), does SHMAC make sense for a new plan anymore? Since automatic enrollment is required either way, seems like QACA is always better than SHMAC (unless the employer want to give the higher match and immediate vesting).

Is there some other factor that I'm forgetting that would favor SHMAC?

executive exceeded 415(c) and company refunded the $10,000 of excess after-tax contributions through payroll rather than through the plan.

months later, company convinced plan recordkeeper to remove $10,000 from participant's account and send it to the company.

issues abound! there's still a 415(c) issue because the earnings were never distributed from teh participant's account. A 1099-R was never issued (since the amount distributed out of participant's account went to company). Moreover, there's a prohibited transaction here given the transfer of assets from the plan to the company.

Welcome other thoughts, but I think the company should unwind as best as possible by returning funds to the plan (with earnings/interest), moving it to the participant's account, distributing it to the participant as a 415(c) excess, reporting it on 1099-R for current year, and then recouping that amount from the participant outside of the plan (since participant would otherwise have a windfall).

My main concern is with the fiduciary violation. Would this qualify as a below-market interest loan from the plan to the company, such that it could be corrected via VFCP? 

We have a 403(b) Plan that restated its document in 2018. The restated document has a discretionary match while the 403(b) Plan has been operating with a 3% Safe Harbor Non-Elective for 8+ years. This restated document is not at all how the plan was being operating at that time, nor how it is currently being operated. The Plan has been failing to follow the plan provisions for an extended period of time, but they would like to continue with the 3% SHNEC. They do not want a discretionary match.

What is the process to correct this error? 

The IRS is at it again...

Have received two penalty notices from clients today regarding the 12/31/2022 filing of the Form 8955-SSA through FIRE. Penalty is for $660, with the reason that the Form 8955-SSA was not filed timely. Have confirmations from FIRE that the returns were filed in February and June of 2023.

Get ready to start responding to yet another IRS mess-up.....    

Calendar year plan - Plan requires Year of Services defined as 12-month period in which at least 1000 hours is worked with entry on following 1/1 or 7/1.  Eligibility determination year switches to plan year after first anniversary year if not eligible

Original Date of Hire 10/21/2020

Date of Termination 8/25/2020 (>1000 worked from DOH to DOT))

So not eligible for 2020

Date of Rehire 11/1/2021 250 hours worked in 2021

Date of Termination 4/25/2022

I wonder if this person should have been made eligible on date or rehire although she never worked a consecutive 12-month period.  I believe FIS told me at one time it was just a passage of time in cases like this and doesn't have to be 12 months of continued employment.

I know - tell clients not to re-hire!

Employee participated in two plans during 2022 and went over the 402(g) limit by $1,000.

Can we just remove the funds from the plan and the ER issue a corrected W2?

Before all of the "Nooooooo" answers, consider this:

The ER is already reissuing a new W2 b/c of another, unrelated problem.

Can/should they "correct" the deferral and remove the funds from the plan?  If so, does it get placed int he suspense account or can it be sent back to ER as Mistake of Fact?

If a plan currently allows catch up contributions but does not allow roth contributions, does it HAVE TO BE amended BY 12/31/23 to either remove catchup or add roth. 

Participant contributed in two plans in 2022 and went over the deferral limit in the aggregate.

I know there is no distribution after 4/15, the money just stays there and he's taxed twice on the gross excess.

However, he lives in California and there is a federal extension for taxes due to the wild fires.  Does that 4/15 date for CA residents get moved?

Hello Everyone!

I just need to clarify the rule for Option 1 for Otherwise Excludable Employees:

The rule: The earlier of the first day of the next plan year after attaining age 21 and completing one year of service or 6 months after satisfying such requirements.

The question:

Let's say we are working on a 2023 profit share, and an employee was hired on 07/02/2022.

The earlier of:

 1^st day of the next plan year after completing one year of service: one year of service = 07/01/2023, next plan year = 01/01/2024

 Or

 6 months after satisfying such requirements: 07/01/2023 + 6 months = 01/01/2024 (or is it 12/31/2023?)

 Question: Is 6 months after 07/01/2023 actually 12/31/2023 or is it 01/01/2024?

Thank you in advance!