If a defined benefit plan offers lump sum distributions upon plan termination, does it also have to offer an immediate annuity under the J&S rules?

For example, a participant is age 45 and not otherwise eligible for a distribution until age 65.  Upon plan termination, the plan is amended to offer lump sums.  Does the Plan also have to offer this participant an immediate annuity?

Employers might have a range of views about whether a plan should allow a hardship distribution on no more showing than the participant’s certification.

But some employers welcome this opportunity to simplify a plan’s administration.

And a recordkeeper or third-party administrator that provides a service of vetting hardship claims (whether as the § 3(16) decision-maker, under a nondiscretionary procedure the administrator instructed, or as a preliminary look before the administrator decides) might welcome this opportunity to lower its operating costs.

Yet, some recordkeepers are unready to switch to the participant-certification regime, even with a customer plan administrator’s written instruction. They say they don’t want to implement the change until there is Treasury or Internal Revenue Service guidance.

What are they worried about?

Is any big recordkeeper allowing hardships on the participant’s certification?

I know 403(b) Plans don't file a 5330 for late deposit of deferrals and loans, but do they have to do one for late refunds of the ACP test?

Employer did not setup payroll correctly for deferrals at beginning of 2023.  I am working on the EPCRS fix.

The scenario:  The employee intends to get to 30,000 deferrals for 2023.  So the employee would likely get full deferrals for 2023 plus a QNEC for the Employer error.  This feels a little funky to me, but I am fine with it otherwise.

I'm not aware of any reduction of deferral limit because the EPCRS fix was done.  Am I missing anything?

What is your interpretation of the new automatic enrollment rules under SECURE 2.0 for a plan being established as a QACA?

Do the new rules (i.e., 3% minimum default; auto increases of 1% per year up to 10%, and not more than 15%, if default % is less than 10%) need to be applied to the plan, or can you abide by the old rules for QACA (i.e., any % for a default; auto increases of 1% per year up to 6%, and not more than 15%, if default % is less than 6%)?

Thank you in advance for your reply.

What should be done if a plan sponsor realizes a fund change notice has not been distributed 30 days prior to the change? The change is happening tomorrow and is already in process, it can't be stopped. Should they distribute the notice today even though it's only a day prior? 

I thought that NJ only allowed deductions for 401(k) contributions for self-employed individuals; i.e. not for profit sharing, match or defined benefit contributions. (I was going to say "always thought..." but honestly didn't think about it until we learned the hard way when a client's deductions were disallowed. It wasn't my problem but the accountant had some 'splaining to do.)

Now I get the following message from an accountant, saying that everything is deductible:

Quote

I always thought [that]  the employer contributions for the owner , which are based on net income and discretionary, were not deductible, only the 401k deferral is deductible for NJ purposes.  The below paragraph was sent to a colleague directly from NJ Taxation Regulatory Services

Any amounts contributed to a 401(k) plan by a sole proprietor on behalf of employees or on his or her behalf as an employee receive tax-deferred treatment and are deductible to the same extent as for federal income tax under N.J.S.A. 54A: 6-21. New Jersey follows the federal contribution limits, and elective deferral, employer match, and profit sharing contribution are all deductible. New Jersey agrees that $64,500 ($58,000 + $6,500) is the correct amount for those 50 and older in the 2021 tax year.

Here is the statute cited: N.J. Stat. § 54A:6-21 (“Gross income shall not include amounts contributed by an employer on behalf of and at the election of an employee to a trust which is part of a qualified cash or deferred arrangement which meets the requirements of Section 401(k) of the 1954 Internal Revenue Code, as amended. N.J.S. § 54A:6-21”)

I thought that there was a different cite, which, when read narrowly, didn't permit self-employed individuals to deduct anything other than actual 401(k) contributions, but it's on a piece of paper somewhere and I'll never find it.

Any thoughts about this?

From BenefitsLink’s helpful postings of Labor and Treasury regulatory agendas:

An agenda item shows Treasury’s estimate, perhaps optimistic, that the agency would publish a notice of a proposed rulemaking by December 2023.

https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202304&RIN=1545-BQ70

If you want to send suggestions even before a proposal is published or released, the agenda item names three lawyers assigned to the project.

I have read posts and tried to understand everyone's points.  I thought I read somewhere recently that 1099 employees were going to have to be counted (or was it seasonal employees?).  Anyway, I am working on a potential new client who has a business selling medical devices or pharmaceuticals.  Each employee is paid commissions and bonuses on a 1099 but they  also receive a draw which is paid on a W2.  Add to this that the company is reimbursed the draw reported on the W2 from commissions and bonuses.  

Do these employees count?  Do they count only on their W2 income or ALL of their income?

Thankyou

This is one post I was reading:  Excluding 1099 Employees

We administer a small 401(k) plan with about 10 participants.

The 100% owner of the company sponsoring the 401(k) plan died.

In this particular plan, they had self directed accounts for salary deferrals and a pooled account for all employer contribution and rollover sources. The 100% owner never contributed salary deferrals and his account balance 

The 100% owner did roll over a large portion of his overall benefits from a defined benefit plan that terminated about 5 years ago. About 60% of the pooled account is comprised of private investments (trust deeds, partnerships etc.). I am a little worried about the timing requirements of death benefits being paid to his spouse as his primary beneficiary. We think it may take some time to unwind some of these private investments.

The plan document does not seem to address when death benefits need to commence. The 100% owner just turned age 72 this year.

In general, we have always heard of death benefits being paid by the end of the year of the participant's death.

Is there specific timing on when benefits must be paid?

Thanks.

Both I and another co-worker have plans that are a control group where 1 spouse's company sponsors the plan and the other spouse's company is an adopting er.  With SECURE 2.0, the control group link (minor children) will go away and thus the plan will become a multiple employer plan.  It may, however, be better for the spouse that is an adopting/participating employer to stop participating in the current plan and start up their own retirement plan for 2024 and beyond.  

Would this just require an amendment to "unparticipate" in the plan they are currently in?

If a client has 49 employees within a 75 mile radius of their HQ and 11 employees beyond 75 does, does FMLA still apply? 

An ineligible employee was allowed to make several deferrals. (She works less than 20 hrs a week)

 Usually, the correction is to either make an amendment to allow the person early entry or to refund the money.  This is a 403(b) plan, so I believe the former is not an option due to the universal eligibility rules.  (I thought if you let one of the <20 hrs people in you had to let them all in...)

 But, before this was caught, the account was reduced to zero via monthly fees.

 Are we done?  Or does the account have to be sort of rebuilt and distributed so the taxable income is realized by the employee?

I am tasked by a client with getting the ACA 1095 (and 1094) filings done (way late) for years 2017-2020.  I am looking software suggestions. Thanks in advance.

We have a client that is an LLC filing as a partnership but the K-1s are completed differently than I have seen before.  There is nothing reported in Box 14 even though the net income for the company for the year was over $1 million. Both partners received guaranteed income for the year of $120,000.  One partner is a limited partner and the other a general partner. We asked the CPA why there was nothing in Box 14 and he indicated that per the IRS rules, if a reasonable guaranteed payment for services is paid to each member, the earnings of the LLC reported in Box 1 of the K-1 would not be subject to SE tax.  They believe that the $120,000 is a reasonable amount and each member did pay SE taxes on that amount. 

Since guaranteed payments are not normally considered in the self-employment compensation calculation and there is nothing in Box 4, it seems that their plan compensation would be zero. They did defer and wanted to put in a profit sharing contribution for themselves but I think the deferrals will have to be returned.  Does this sound correct?  Has anyone had this situation?

Gosh I'm glad I don't do ESOP's. But we do get some questions now and then from referral sources where we try to provide some general guidance on what a client might want to discuss with their ESOP legal counsel or TPA, etc.

Along those lines - now that pre-approved ESOP documents are available, I have a question about the timing of adopting one. An employer has an ESOP, which did receive a determination letter several years ago. The CPA wants to know if a pre-approved ESOP document has an IRS approval date in 2020, is it a "late" adoption if adopted currently? In other words, does the normal 2-year window apply? I'm thinking that as long as timely interim amendments were adopted, they should be ok - relying on the prior determination letter until they adopt the new pre-approved plan at whatever date.

Pardon my ignorance on this issue, as I've frankly paid no attention to such ESOP questions - they don't apply to our business except tangentially for questions such as this that sometimes come across my desk.

Thanks in advance.

Start-up 401(k) plan for small employer (no more than 5 regular employees, not including interns) intends to have eligibility criteria for all contribution sources attainment of age 18 and completion of 6 months of service, elapsed time, with quarterly entry dates.  The sponsor wants to exclude interns, but there is a concern that the exclusion may result in a coverage failure, given the number of interns and their potential duration of service.

To avoid a coverage failure, can the plan provide for an exclusion of interns subject to a fail-safe that allows an intern to enter the plan effective the first day of the quarter coincident with or next following the intern's attainment of age 21 and completion of 12 months and 1,000 hours of service? 

A few questions about FSA during M&A:

1. Scenario: The FSA plan continues under the seller's plan - after the two parties agree that the seller will continue its medical FSA for the transferred employees, I am reading the buyer must have an existing medical FSA plan OR be prepared to adopt a new one. 

    QUESTION:   How soon does the buyer have to adopt a new FSA plan?  Say for example, the parties agree the buyer will continue the seller's plan until the end of the plan year.  Would the buyer have to adopt the new one after the end of the seller's plan year or is it expected that the buyer will have to adopt the new FSA plan ASAP after the close of sale?

   QUESTION:  If the buyer assumes the seller's medical FSA how does that usually work with the FSA vendor and the contract?  Does the buyer have their own contract with the vendor?  What is the usual situation with this? 

So I have an owner of an LLC who is the only employee.  She owns her company 100% and her company is a participating ER of the plan that her husband's company (another owner only LLC) that sponsor's the plan.  It is a control group for now anyway, thanks to Secure 2.0.

She has been talking to someone other than us (her TPA) and her broker and thinks she can open a 2nd 401k plan.  Since her company is an adopter of the plan she is currently in, wouldn't she be prohibited from creating a 2nd 401k plan?

Since there will no longer be a control group next year because of the family attribution changes, she could spin off her own plan, right?  I have done a small handfull of mergers, but this is the opposite and am not sure how this would be handled...

We are a midsize TPA firm established in 1977 looking for an acquisition or merger.  Please respond to steve@apspension.com.