Curious how folks are handling the situation of a participant who receives back pay for prior years.  Are you making corrective contributions for missed deferral opportunities and any employer contributions with respect to the back pay?

Treas. Reg. § 1.415(c)-2(g)(8) provides that it is generally taken into account for the limitation year to which it relates.  So for 415 (and 414(s) testing comp) purposes, it would be included for the prior year(s) to which it relates.  However, back pay is reported on Form W-2 for the year of receipt.  So, if a plan uses a W-2 definition of comp, it seems that the back pay would be picked up in the year of payment, even if the individual doesn’t have 415/414(s) comp to support it.  It seems odd to me that the timing would differ, but I suppose not everything in the wonderful world of ERISA makes sense.

Just kind of thinking out loud here -

Ever have a client ask if they can add a DB plan when they already have a SEP, and then you have to tell them the 5305 Model SEP document precludes a second plan?

A lot of times these sole proprietors have NO idea what sort of SEP documentation they set up years ago - so I was wondering it might be "obvious" that a custodian like Fidelity, Schwab, Merrill Lynch, etc. would or would not clearly be using a proprietary SEP document.

So I wonder - is there a reasonably accurate list anyone maintains that would say "THESE guys definitely use their own SEP documents, but THIS custodian issues its customers the 5305, so be careful?"

--bri

Situation is: 

• Employee & child are covered as active under an employer group plan
• Employment is terminated and the employee + child elect COBRA
• Several months later, the employee becomes entitled to Medicare

Can you please confirm if this second QE qualifies the child for the additional 18-months (total 36 from the time the employee terminated employment)?

I understand the missed deferral is treated as a QNEC.  I'm unclear if that is just from the ER's perspective and it needs to be deposited into a source named QNEC, or can be put into the 401k source, since it will be 100% vested there etc.

Also, the missed match, I think it can just be deposited into the match account, not a QNEC account.

(Lost earnings included in above).

I just like to be 100% because RMDs are critical as you know given the potential penalty.  

Participant has pretax and Roth in a 401(k) plan and is required to take RMD now in 2023.  The RMD is based on the account value in total - but I think the participant may allocate the RMD between pretax and Roth as they choose? 

Thank you 

A distribution will be paid 10/1/2023 from a non-governmental 457(b) Plan.  The total amount of distribution will need to be reported as taxable wages on the W-2.  The distribution will be paid directly from 457(b) account to participant.

1) If this is eligible compensation under the document, how can an employee defer from this as it is not actual compensation being paid via a paycheck?  

2) Is there any ability to have taxes withheld from the payout or not?  I expect not, since no 1099-R, unless I am completely confused.

3) Do I understand the process correctly, which I believe is to pay from the account, but report on a W-2?  Or should the distribution not be paid from the account and instead paid in ta paycheck with tax withholding (aside from previously withheld FICA)?  If the latter is the case, does the amount in the 457b account get paid directly to the employer?

Thanks!

If a plan document was restated and removed the early retirement age provisions (fully vested and entitled to a contribution if terminated and met ERA), is this a protected benefit for those plan participants prior to the restatement.

We have a tax client that decided to use an ROBS to fund a franchise investment. They used a promoter; when I got the promoter on the phone and asked if they were a TPA, she explained they are a "partial-TPA". 😳  Basically, they do all the plan doc, compliance, DOL/IRS filings and client communication BUT no heavier service models (no 3(16), etc.) and rely on the PS to track and pass required PP docs and track eligibility. 

Waiting on AA and plan doc to review; 5500 was said to be filed for 2022 but I have not personally reviewed yet.  We're obviously going to be super sensitive to PT issues of ROBS (owner comp in the c-corp reasonable, no PII loans, etc.), and with the understanding the IRS has a compliance program specifically for ROBS plans. I have been asked to source a RK, provide 3(38) services (I am an RIA/IAR and have plenty of plans we act as 3(38) on), and assist with enrollment. This is a 120+ EE plan.

Anyway, plan has been up since 2022, investment in the private c-corp franchise was done in 2022 and in 2023 (in a couple of months) they'll have their first 1-year EEs becoming eligible. As best I can tell, everything else is above board with the "partial-TPA"s involvement. There is currently no RK on the plan as until a couple months from now there haven't been any eligibles. The "partial-TPA" advised that the company is already too large for them to handle and suggested we find another. I've already spoken to a TPA I have a long-standing relationship that is very familiar with these ROBS designs. I am also sourcing RKs and making sure they are OK to work with an ROBS plan. The client company so far has been quite successful, and we are preparing valuation firm for ongoing valuation of the c-corp stock purchased by the owner/EEs with their rollover into the plan.

Just wondering if anyone has had any experience with these? Is there anything from a tax/advisory perspective that I might not find in easily accessible in my research that I should know about? This will be my first ROBS plan; I have a bitter taste in my mouth from S/D-IRAs and the promoters who are more asset gatherers/sales oriented than compliance & fiduciary oriented, which have gotten a few of our tax clients in trouble in the past, so I'm hyper cautious and will be eager to get vendors I trust involved going forward.

Thanks in advance!

Sch D is needed only when plans invest in MTIAs (master trust investment accounts), GIAs (group insurance arrangements -  I assume referring only to welfare benefit plan), CCTs (common or collective trusts), PSAs (pooled separate accounts) and 103-12 investment entities (whatever they are). which along is extremely puzzling. 

The Wolters Kluwer 5500 Preparer's Manual indicates under the Who Must File Schedule D outlines when Sch D must be filed for investments in the above and indicates their related asset reporting lines on Sch H - 1c(9) through (12).  So I assume when those lines have no value, then Schedule D is not needed.   Our plans generally have almost all assets reported under (13) for mutual funds.     

So it seems for plans on Ascensus, Hancock, Empower, Principal, American Funds, etc., generally Schedule D is not needed if the plan assets are held in mutual funds and have no reporting on the Sch H lines mentioned above.

Comments are appreciated.  And yes I've ready the instructions to Schedule D - still seems clear as mud to me.   We only have a handful of long form 5500s fortunately which I'd love to transfer out!

Thank you!

what is the best method to correct this?  I haven't seen this one before.

Just wondering what others have experienced this year -

We filed a few 5558 forms at the last minute (July 28th to be exact) and sent them via certified mail to the IRS address in Ogden, UT.  (Historically, the USPS doesn't usually get a signature but we haven't had any issues and the USPS website eventually shows the package as delivered.)  Anyway - this year when I use the certified mail tracking number it still shows as "moving through network" on the USPS tracking site.  However it does show the mailing was received at the USPS Salt Lake City Distribution Center.  Am I being overly concerned?

A State might have an income tax law that does not follow the US Internal Revenue Code.

Is anyone aware of a State’s tax law that would treat as not an income-free rollover a transaction or an amount treated as rolled over for Federal income tax purposes?

I realize that the answer to this question is "in the plan document", but I've read it and still am unsure how to proceed.  Any basic guidance on this is appreciated.

A 1 life plan has life insurance in it as well as other investments.  The owner is getting close to retiring.  He would like to terminate the plan but maintain the policy outside of the plan.  In this case, is it common for him to pay the cash surrender value of the policy into the plan and then have the policy moved out of the plan and retitled as a personal life insurance policy, which would avoid any taxation on the policy at the time of the transfer?  Is there any other way for him to continue the policy outside the plan, not pay the CSV into the plan and not be taxed on the CSV at the time of transfer?

If he just took ownership of the policy and did not pay the CSV to the plan, he would be taxed on the CSV of the policy at the time of transfer, is that correct?

FWIW, its the insurance guy who sold him the policy that is asking this questions :)!!!

Thank you

Before 2009 you not use a 5500-EZ for a controlled group.  Apparently, this has changed and you can use 5500-EZ if the plan qualifies as a one life plan.  Basically, we have a situation with a plan that covers only the owner and has less than $250K, but is adopted by a controlled group with the same owner.  One form is a proprietorship and the other is an LLC.  Just want to confirm that even though there is a controlled group the 500-EZ can be used.  Also, want to confirm that no filing is needed since the trust is under $250K.

Hi

CB/DC combo, cehcking something resuklted by sofftware.

DC has 401k deferral+NESH+PS

401k+SH eligibility age 21 and no service i.e. immediate entry (this was amended to be effective in 2022 and on - prior was 1 year wait)

PS portion eligibility age 21, 1 year service after 1000 hour service with dual entry

PS allocation 1000+ hours and last day

CB eligibility age 21 and 1 year service after 1000 hours and dual entry

Overall gateway is 7.5% ow which 3% comes from NESH

Q1: EE hired on 8/15/2021 and active as of 12/31/2022 - works 40/week - does this employee get a PS allocation under gateway requirement?

Q2: same as Q1 except EE terminated 10/31/2022 - does this employee get a PS allocation under gateway requirement?

Q3: same as Q1 except EE was hired on 7/5/2021 and active as of 12/31/2022 - does this employee get a PS allocation under gateway requirement?

Thanks

Financial advisor asked if this client he has can sponsor a SEP IRA with one of his businesses and a 401(k) with the other?  There are no employees.  

We filed From 5558 for a plan sponsor using the EIN it had been using in past years.   The sponsor elected S corp status for 2022 and wrongly assumed the EIN would not change.  the plan sponsor said the EIN (old one) on the 5500 now to sign is wrong.  But if we use the new one - it wil not link with the 5558.  I was thinking of filing under the old EIN.  That will not raise any red flags.  At this point any late filing penalty is small - 10 days which we can eat but I'd rather not go there.  It is an EZ by the way.

Any suggestions?

All subs participate in the same 401(k) plan, which includes catch ups.

In Sub 1, all catch-up eligible participants have their contribution limits automatically increased at the beginning of the Plan Year.

In Sub 2, all catch-up eligible participants are given notice that they need to actively elect catch-up.  They are given a notice at the beginning of the year and a follow-up mid-year.

Accordingly, if someone in Sub 2 elects to defer 6% of comp, and that equals $30,000, they will be cut off at $22,500 unless they have actively elected catch-up.  That same employee in Sub 1 would have the full $30,000 contributed, without ever having elected catch-up.

We plan to make all catch-up administration consistent for future Plan Years, but what about this Plan Year?

Is this a problem?

If we change administration this year, does that create a problem where we otherwise wouldn't have one?

If this is a problem, what is the solution?

Has anyone ever encountered the situation where an unused forfeiture account reverts to the employer on plan termination? Got asked this question today and in all the years I've been a TPA, I've never seen it. Thanks for any replies.