Terminating Plan: 01/01/2022 to 10/17/2022

When is the due date for filing Form 5558 Extension?

We recently took over a safe harbor 401(k)/profit sharing plan, new comparability, grp 1 officers and owners grp 2 all other eligible employees.

There are 4 participants: owner (100%), spouse, adult son over 21 and one common law employee.

The plan had passed 401(4) only because the son had not been treated as an HCE.

Under IRC Section 318, am I off base here, or is not the adult son an HCE as well?

I have a plan sponsor who would like to allow a loan for a NHCE participant who has fallen on hard times but is young and doesn't qualify for a "safe harbor" hardship. He would like to amend his plan to allow loans and then has asked how quickly he can amend to no longer allow it.  Is there a general rule of thumb for this?

Participant auto enrolled and had three paychecks worth of auto deferrals taken.  Then she left the company.  Age 31.

Can she take a permissible withdrawal (plan allows them) and avoid the 10% penalty tax?  Or is that only for in-service withdrawals?

General question for you attorneys out there who deal with health insurance claims and "clawback" of expenses paid, if a legal settlement is reached

I was talking with someone a few weeks back, who had sustained some significant injuries in an auto accident that was the fault of the other driver. Her health insurance had paid significant amounts for medical bills. She was in the process of suing the at-fault driver.

I have heard that many health insurance policies require repayment if the injured party receives a settlement, but I don't know anything about it. I asked her if her attorney had mentioned any such thing, and she admitted she didn't know. So I have two general questions:

1. Is it in fact a common clause in health insurance policies to have some sort of "clawback" or repayment clause in the event of the injured party receiving a settlement?

2. If her attorney DIDN'T mention it, if there is such a clause, would this likely be some sort of legal malpractice? I mean, if the settlement is completely or nearly eaten up by clawback and legal fees, why would anyone go through the agony of a lawsuit?

Again, I freely admit I know nothing about all of this, so I my be asking stupid questions here, in which case, my apologies!

Sorry for all the questions today!

Have 2 participants in similar situations:

Participant 1:
Was eligible for the Plan, having worked 1,000 hours  from 2014-2016
Worked about 250 hours in 2017
Had 0 hours from 2018-2021
Re-hired and worked 900 hours in '22

So it would appear that there was a 5-year break in service.  Does that mean that this participant needs to re-establish eligibility, or do they become eligible again from the re-hire date?

Participant 2:
Was eligible for the Plan, having worked 1,000 hours  from 2014-2017
Had 0 hours from 2018-2021
Re-hired and worked '22

This participant only had a 4-year break in service.  I believe this means that they do become eligible immediately upon re-hire, since there was no 5-year break.

Is that accurate for both participants?

I'm taking over a client and this is the first year I'm operating as the TPA.  They do a match, which is funded after the end of the year.

Deferrals are allowed immediately

Matching Contributions, you become eligible 1st of the month following the completion of 1 year of service.

Currently the Plan does not exclude compensation prior to becoming eligible for the Match.  It appears that the previous TPA was matching all deferrals made during the year, as long as the participant became eligible at some point during the year (for example, if someone became eligible on 12/1 all of their deferrals would've been matched up to what the formula allows).

My question is if that is allowed?  Or are they only allowed to match deferrals made after they would've become eligible for the match?

Someone is making me think I'm crazy, so I just need to make sure that I'm correct in terms of the formula to calculate the Funding Target.

Here's what someone is telling me the formula should be:

Hypothetical Account Balance * (1+Interest Crediting Rate)^20.5/12 * (1+Interest Crediting Rate)^Years to Retirement
--------------------------------------------------------------------------
(1/1+1st Segment Rate) ^ Years to Retirement

My understanding is that the segment rate is determined by the # of Years to Retirement.  Also don't know where they are getting the 20.5/12.  What I thought the calculation was is:

Hypothetical Account BalanceBalance * (1+Interest Crediting Rate)^Years to Retirement
-------------------------------------------------------------
1+Segment Rate (dependent on the Years to Retirement) ^ Years to Retirement

Please tell me I'm right and that the other person is crazy

Is it legal to supply the quarterly benefit statement on the users participant dashboard and not send them via mail or email? Or must all the quarterly benefit statements be sent to the email provided on the account? 

Is it feasible for a Plan Sponsor to opt out of Roth Deferrals (and Catch-ups altogether) and advise participants to seek advice on establishing a Roth IRA?

I believe this is a bit different than the "fire me so I can take my money" fraud. Participant left employer in August, 2022. Earlier this month (August, 2023) participant requested distribution paperwork. Per participant the paperwork is in the mail back to us. 

Employer emailed today a list of hires and rehires and this employee is included. 

I tend to think that if the employee is employed when I get the form back, I cannot do the distribution regardless of participant's intent or the date on the form. 

What am I missing?

Regarding  catchup contributions starting 1/1/2024 going to the Roth source for certain high earners, is that only for W2 employees? What about Schedule C/Schedule K owners? And how would that work for those people whose money is in pooled accounts and not separated by source, other than by a TPA in their system?  TYIA. 

Here's an odd one - possible takeover plan.  Plan Documents reflect a plan effective date of 12/01/1988.  The 5500 forms going back at least until 2009 on EFAST show the plan effective date to be 01/01/1998.  Can this be changed on the 5500-SF prospectively or should the past 5500 forms actually be amended?

Thanks in advance.

I just want to confirm what the 415 limit will be for a plan year than runs from 7/1/23-6/30/24? It seems to me that it is based on the limit for 2024 but I do not have that yet. Thank you!

I inherited a takeover plan that was not tested last year. The plan uses prior testing method and is not safe harbor. What are my options?

Client currently funds 7% Profit Sharing to all participants.  This is cross tested plan.

They also allocate the 3% to all participants. 

For the upcoming plan year, the HCEs will not receive the 7% - testing will not be an issue.  However, the client wants to know if they can allow the HCE to decide if they will take the 7% as cash or defer into the plan.   The 7% would be paid as wages in the current plan year and deferred to the 401(k).

If the employee has already deferred for the 2023 plan year, the 7% would push him over the deferral limit, so he would be capped at the 402(g) limit.

I thought the IRS had some guidance when you allow the employee in this case to take the cash or defer.  I am trying to figure out if the client is opening themselves up to an issue down the road.

The client has until the filing of his tax return to fund the 3% safe harbor.

He is making the safe harbor on a monthly basis.  Is there is an issue if he does not make the payment for a couple of months when the cash flow is low?

Participant (NHCE) passed away in mid 2022 but the company payroll dept continued to send her regular 401k amount for deposit into the mutual fund account.  It wasn't withheld from any pay; it just kept coming out of the company bank account, along with the match.  This went on for over a year, spread across 2 plan years.  Roughly $10,000 in 401k and $8,000 in SHMatch was deposited that should not have been.

The deceased participant's account (100% vested) was paid out to the beneficiary, including these excess 401k and match amounts.

Is the only course of action to go back to the beneficiary to reclaim these amounts?  The plan sponsor is reluctant to push too hard from the beneficiary but there is no other way, correct?  If the beneficiary does not pay it back and the plan sponsor does not pursue it further, is there an amount the plan sponsor owes to the plan to make up for these excess amounts?

Thank you

I just wanted to make sure my thinking was right in terms of a formula for a Cash Balance contribution for an HCE.  I know you can put either a percentage or a dollar amount as the set benefit, but does a formula like this work:

20% of compensation up to a maximum of $50,000?

It would only be for the HCE, I just wanted to make sure that it was OK to put the cap on the benefit like that.

Thanks in advance!