The plan document for the ERISA 403b plan says that distributions are only allowed in lump sum payments.  However, the RK is allowing participants to take RMDs in installments or annuities (and in excess of the RMD amount, which is a separate issue).  Is there an overriding provision somewhere that allows this regardless of what may be in the plan document?  Or am I going to have to amend my document to line up with the RK (which is probably the easier solution, but I am interested in the actual answer, too!).  Thanks.

For a Form 5500... let's say the year end 2022 plan assets (snapshot as of 11:59PM on December 31, 2022) was $652,325.  

However, profit sharing contributions / contributions attributable to the 2022 PLAN YEAR are made on March 2nd of 2023 FOR the 2022 plan year.  Those assets deposited on 3/2/23 for the 2022 PLAN YEAR... SHOULD THEY be included in the "year end plan assets 2022" for the 2022 Form 5500?  I just want to double check question this with the wisdom of the crowd here.

A client sent us their census information this past week, and naturally their ADP Test failed miserably for 2022.  

I am preparing a communication explaining the owners' the option of amending the plan retroctively to provide for a 4% Safe Harbor Nonelective for 2022, or take a sizable refund of their deferrals.

Question:  We're well past March 15.  Assuming the client will elect to contribute a $12,000 Safe Harbor contribution to make this go away, is there still a requirement that they also pay the 10% excise tax on the excess deferrals, or is the concept of an "excess" gone by providing the 4% Safe Harbor?

I met with a new client this week.  It is a trustee-directed pooled plan.  They are moving to a daily platform with us as TPA.   It is a Sept 30 plan year end.  They've used an insurance company as record keeper/administrator for many years who did testing, 5500 and an annual statement.  

The plan sponsor mentioned she wanted a long separated participant out but they had a loan.  I ask are they making payments - answer no.  I said oh the insurance company did a 1099-R then?  She said no they don't do that, she does 1099-Rs.  So there is a long delinquent loan.  

Our engagement letter says we are not responsible for anything prior to our engagement which is Oct 1, 2023.  I want to wash my hands of this.  Once it transfers to the new record keeper the loan will be on the books unless they can convince this person to take distribution before Oct 1 of which I am hopeful.

I'm not that in tune with error corrections.  Our clients are generally small and clean.  I don't want this loan correction process with the IRS to fall on me.  How can you go back years and default a loan with 1099-R?  I will ask how long ago has this been going on.  I know it is not good to say - pay it off fast and forget the whole thing.  Payoff is questionable anyway as it is about $15,000.  I is a very successful company with high earning owners - the responsibility for not defaulting falls on them so they could owe the penalty but I'm surprised this insurance company did not say something - they have the record keeping, issued the loan, do the testing, admin and 5500.

Comments?

Tom

Hi

DB plan effective 1/1/2021.

Owner was 73 years old in 2021 and the vesting was 100% as of 12/31/2021.

Plan was not signed till July 2022.

So, when is the RMD due?

Thanks

• a plan is frozen in 2022 - both accrual & participation are frozen, and
• the plan is not underfunded - not qualified for 401a26 exemption
• at the same time, there are some employee meet the eligibility requirements before the valuation date which means they are eligible to enter the plan if the participation is not frozen

in this case, should these employees be counted as non-excludable employees in 401(a)(26) (ignoring the minimum participation relief in SECURE Act)?

appreciate all replies and helps.

I have a new prospective client that currently has a SIMPLE IRA plan that has been in place for over 5 years and has 15 employees. I want to make sure that the advisor is relaying the correct information to the client. The advisor has told them that moving to a 401k would allow them to receive the start up credit plus the employer contribution credit plus the automatic enrollment credit.  Does this sound right?  

If you withdraw from conversion amounts in a ROTH IRA before age 591/2 and have not met the 5-year rule, the conversion amount is subject to the 10% penalty tax because you are not age 591/2 and the earnings on the conversion amount would be taxable, as well as subject to the 10% penalty, correct? But if you are over age 591/2, then no tax or penalty amount applies but you will be taxed on the withdrawal of any earnings because you have not met the 5-year rule, correct?

If you withdraw money  from a Roth  401k account and you are under age 591/2, you can withdraw contributions without tax or penalty but earnings will be taxes and also subject to 10% penalty, correct? 

Any advice is appreciated.  This may be loan administration 101 but I am not clear on what happens when a participant stops making loan repayments, mostly centered on what happens after a loan is deemed to have been distributed.

Example:

A participant has $100,000 account balance and takes a loan for $20,000.  She repays $5,000 but then stops payments.  The loan goes into default and triggers a deemed distribution.  The participant is still employed.  The outstanding balance (lets say that is $16,000) is taxable in the year of the deemed distribution.  But there is accrued interest of $2,000 remaining on the loan at the time of default.

I keep reading that the deemed distribution amount plus accrued interest must still be accounted for after the deemed distribution.  But when a distributable event does occur, the accrued interest is used to offset the participant's non-loan account balance.  Is that correct?  So if a few years after the deemed distribution, the participant terminates and now has $200,000 non-loan account balance.  She also has an additional $2,000 in accrued interest from the loan.  Is it the case that the participant is paid $198,000?

Thank you for any advice.

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