A 401(k) plan has a safe harbor match that satisfies both the ADP and ACP safe harbors. They are looking at adding after-tax employee contributions to accommodate backdoor Roth. 

1.401(m)-3(j)(6) says:

(6) Plan must satisfy ACP with respect to employee contributions. If the plan provides for employee contributions, in addition to satisfying the requirements of this section, it must also satisfy the ACP test of § 1.401(m)–2. See § 1.401(m)–2(a)(5)(iv) for special rules under which the ACP test is permitted to be performed disregarding some or all matching when this section is satisfied with respect to the matching contributions.

1.401(m)-2(a)(5)(iv) says, in part:

(iv) Matching contributions taken into account under safe harbor provisions. A plan that satisfies the ACP safe harbor requirements of section 401(m)(11) or 401(m)(12) for a plan year but nonetheless must satisfy the requirements of this section because it provides for employee contributions for such plan year is permitted to apply this section disregarding all matching contributions with respect to all eligible employees.

Is it correct that, if an HCE makes after-tax contributions, the only two options are:

• Rely on the ACP safe harbor for the matching contributions only (and avoid testing the match entirely) but then run the ACP test on after-tax contributions only (in which case ACP would likely fail); or
• Include the match amounts in the ACP test (in which case ACP has a good chance of passing) but then would have to run the full ACP test, including matching contributions, thereby losing the safe harbor as to the match component (even if the match would have met the ACP safe harbor on its own).

In other words, it seems like if they want to include the match amounts in the after-tax ACP test, they would have to run ACP on the match too. 

Fairly typical situation: someone at the plan sponsor misinterprets the eligibility rules, and New EE is allowed to defer long before the eligibility provisions allow.  The plan sponsor is OK with correcting this via a retroactive amendment (it's just one person and this is the first time it's happened for this plan).

The plan is a 3% SH that we calculate (and they deposit) after the end of the year, and the plan is also top heavy.

1. If the amendment is limited to allow the affected participant to defer only and doesn't 'bring him in' for any other contribution (including the safe harbor), is the plan still a valid safe harbor plan?

2. If yes to #1, then might we also lose the top heavy exemption?

I've got a sense that an EPCRS SCP correction shouldn't cause a failure in the plan, but that seems like it shouldn't apply here because we're still doing administration for the year in question.  Obviously, the simple answer here is to make the amendment say that he's eligible for the safe harbor as well (especially since he's going to get 3% as top heavy minimum), and that's usually what we do, but I'm just making sure of their options.  Thanks.

Medical practice sponsors 401(k).  Doctor/owner (over age 60) deferred $20,500 for 2022, due to miscalculation by office mgr/wife).  Can we get him to max by reclassifying part of deferrals to catch-up and allocating match and extra PS to get him to max $67,500?  (means we will have to do more for NHCEs, but he is okay with that.)  Thanks.

When a plan designates someone else such as the custodian of the assets as a directed Trustee, would that entity be the one signing plan documents as Trustee, even though the Plan Sponsor/Administrator theoretically still also has the additional role of Plan Trustee? Or am I just too confused here?

The IRS website https://www.irs.gov/retirement-plans/form-8955-ssa-resources will not let me open the Form.

It's not my Adobe Reader, which can open other IRS Forms and instructions. It's just this Form.

Great that the IRS will penalize people for not filing a Form that they can't get from the IRS. 

Any ideas?

Seller in an asset sale will have multiemployer plan withdrawal liability triggered by the asset sale.  As part of the deal, seller wants to have buyer pay the liability.  However, buyer is questioning whether it can obtain a tax deduction for payment of the liability, or whether that would simply be treated as part of the purchase price of the assets and therefore recovered only via depreciation or sale of the assets.

26 CFR § 1.404(g)-1 provides that a tax deduction is available for withdrawal liability only if the payment satisfies the conditions of section 162 or section 212.  This suggests to me that the deduction is not available if the buyer is paying the seller's liability in order to acquire the assets, because this is not an ordinary and necessary business expense of the buyer.  But I'm having a hard time finding any specific support for this view.

Also, does this mean no one gets a tax deduction for the payment?  The buyer doesn't get one because it's not ordinary and necessary, and the seller doesn't get one because it didn't make the payment?  Or could this be recharacterized as the seller having received the payment from the buyer and then paying the liability, so that the seller could receive a deduction?  (Of course, this would mean that the seller would be deemed to have received more money on the asset sale, but that might be capital gains rather than ordinary income.)

Husband and wife each have their own wholly owned business and they are the only employees of their respective companies - Company A and Company B. The retirement plan is setup under Company A.

Her company (Company B) is a participating employer in his retirement plan. I have not come across this situation yet so I had a couple of questions. Together their 401k balances exceeded $250k for 2021 (Company A $160k, Company B $140k), but they did not file a return or extension for 2021. Fast forward to 2022 and they are still above $250k so I would like to file an extension to help prevent an additional $500 late filer penalty for 2022.

Before I proceed I had a couple of questions.

1) I assume both of their retirement values is used in determining if they meet the filing threshold. Is this correct?

2) If the wife's company is a participating employer can we still file Form 5500-EZ since all they have are retirement assets? I noticed 5500-SF has a box to indicate a mulitple-employer plan. Not sure if that applies here.

3) Do any special schedules or attachments need to be included in a situation like this?

4) We are not ready to file the 2021 Form 5500. Will filing an extension for 2022 potentially tip off the IRS/DOL that 2021 was not filed and lead to severe penalties? We would like to pursue late filer relief for 2021 and file 2021/2022 ASAP once the extension is mailed in.

Thank you

Question for small, "boutique" TPA firms.  Would anyone know or be willing to share the name of a Cyber auditing firm that they used and had a good experience, especially price-wise?

Thank you.

Fiscal cash balance plan. 6/30 year end.

Plan terminated 6/30/2023.

Spouse of owner participant is required to get first RMD due to becoming 100% vested as of 6/30/2023+attaining age 73. He has only 3 YOP so was vested in year 3 which ended on 6/30/2023.

There is a possibility that the distribution will be postponed to 2024 as there is a contribution due.

1. When in the first RMD due 12/31/2023 or 4/1/2024 (or prior if distribution done earlier)

2. If due 12/31/2023, because the plan is in termination status, can the RMD be calculated based on account balance?

Thanks

The Secure Act requires annuity illustrations each year for DC plans. There is a calculator on the DOL website for pre-Secure Act but it is worthless for Secure act Assumptions. Specifically, it shows joint and 50% assumptions, but the DOL requires Joint and 100% assumptions for the Secure Act statements.

This is the out of date DOL Link: https://www.askebsa.dol.gov/lia/home?_ga=2.36006498.358269527.1690289872-1185248543.1690289872

Any ideas on where to get a free calculator that will produce the Secure Act assumptions? 

Thanks.

We have a takeover client that has 90-day wait for deferrals and 1 year wait for non-safe harbor match and PS with entry on the first day of the plan year.  That is fine.  But they want to change to a 1 year of service for deferrals too.  I will tell them they have to change to semi-annual entry dates for deferrals.  I want to tell them semi-annual for all contributions which is very standard with our clients.  I suppose they could still have only one entry date, first day of plan year, for match and PS only since they could require 2 years to enter for those sources, right?  I will strongly recommend against one entry date since I believe they or their payroll company will mess up the pay-period match.

Comments are appreciated. Tom

I have a client we just took over that has a 457 Plan.  The document I was given doesn't tell me much, unfortunately.

I just got the following question, so I wanted to see if anyone had any insight:

"They have an employee that has reduced their hours and are no longer making $120,000 a year. They have been eligible for the 457 in the past – are they still eligible? Or do they have to meet eligibility each year?"

Thanks in advance!

This is in relation to a DC plan, deferral and match sources. The HR individual inadvertently entered a termination date for an active participant. Participant receives a notice from the recordkeeper stating you are eligible for a distribution and participant cashes out 100% of the balance. Participant was 100% vested, age 35, not an owner, not a Key, not an HCE, all funds in the account were correctly calculated.  

Do you think the SECURE 2.0 overpayment rules are cut and dry to let this distribution go without any action by the administrator? Or do you think we are waiting for guidance and should consider following the prior rule? Or maybe would you say this is not the definition of "overpayment" as defined by EPCRS?

Thank you

We have a plan that was adopted in 2022, but we have elected to treat it as adopted in 2021. We have already file the 2021 Form 5500-SF, including the SB.

Now we are working on the 2022 Form 5500-SF, and the instructions for Box D in the 5500-SF instructions and the instructions for the SB both say that we need to check that box and attach the signed 2021 signed SB, with no mention of whether or not the 2021 form 5500 has already been filed. 

Has anyone here seen any guidance on this? Do we just check it and attach the 2021 SB here per instructions? Or is this only in place for if this is the first filing for the plan?

I'll probably play it safe and check the box/attach a copy of the 2021 SB, but this seems counter to the point of the box.

Thanks!

Doug Fresh

Plan's been frozen so no new benefits after June 30.

Plan's staff contribution credits tend to suck so bad that they always have to do an -11g amendment to pass 401(a)(26).  (Annual $500 bucks each, allocated formally as $125 for each quarter they're active during, and then the -11g stuffs more into Q4 as necessary for folks.)

Well now they're only going to be getting $250 for the most part. 

But is there any "accepted practice" for whether it's appropriate to measure the 0.5% benefit level relative only to the compensation through the freeze date?  Otherwise everyone's going to be at HALF their typical accrual rate, if it's expected to be measured on full year's pay.

--bri

For those planning software changes and service changes following law changes from the SECURE 2.0 Act of 2022:

“The federal government could shut down in October. Here’s how and why.” https://www.washingtonpost.com/business/2023/government-shutdown/?utm_campaign=wp_the_5_minute_fix&utm_medium=email&utm_source=newsletter&wpisrc=nl_fix

An Anti-Deficiency Act government shutdown does not stop every function. But if Labor or Treasury has an appropriations lapse, its work on rulemakings and interpretive guidance would pause until the shutdown ends.

The most recent shutdown lasted 34 days.

Even if we set aside optional changes, what happens if an absence of guidance results in no software for provisions required as a condition of continued tax qualification?

Trying to learn about this type of business entity and I'm having trouble finding something definitive regarding their abilities to sponsor a 401k plan.  I found a lot of info regarding their involvement with MEPs, PEPs, unions, and vebas but not anything discussing whether a single employer PA can sponsor a plan.  Specifically, can a realtor who, although associated with a large real estate firm, is individually a PA, sponsor a 401k?

I've also read that PAs are a type of corporation that can be treated as LLCs - does this mean owners can either be paid via W-2 wages, schedule c income or K-1 income depending on how the PA  chooses to be taxed?

Plan has the principal residence safe harbor provision. A participant is actively looking to purchase a multiplex building (4 units). He wants to live in 1 unit as his principal residence and lease the other 3 units. He is requesting a hardship distribution to purchase the building. Does this fall under the principal residence safe harbor for hardships? My concern is that the participant is technically purchasing more than his own residence. 

Any thoughts? 

Currently working on putting together a good listing to locator services in finding missing or deceased terminated vested employees under a plan to keep a more revised and updated copy at my disposal. Some clients currently working with have participants that left and may not have been able to keep in contact with. Using PeoplesFinder.com, EmployeeLocator.com and Legacy.com but want to see if there are others out there that someone might recommend and would be deemed compliant with the DOL/IRS? 

So, 401(k) plan with a recordkeeper (XYZ) charges a fund fee/Advisory fee/charge/whatever you want to call it - of (x basis points - already determined by the Plan Fiduciary to be "reasonable"). This fee is billed to the EMPLOYER, who pays it, so that participants' accounts are not charged this fee.

Employer now wants this fee to be charged directly to the accounts of terminated participants only.

Assuming this fee is "reasonable" - and some procedure can be worked out between the recordkeeper and the Employer as to the mechanics of how it is processed - I'm not sure it is necessarily a problem, but it certainly makes me squeamish. Would probably pass BRF testing - I'm more concerned about possible PT problems.

Do any of you have plans utilizing such an arrangement? We have a few plans that charge a nominal administrative fee to terminated participants only, but nothing like the above arrangement.