Sometimes when you overthink something it makes you crazy and unsure of the obvious.

I have a participant who has terminated.  She had Roth and pre-tax money in her account.

Can only one 1099-R be prepared or do I need to prepare one for each money type?  Am I reading the 1099-R instructions correctly, do I put the total being distributed in box 1 and in box 5 that is where I indicate her ROTH and/or after tax voluntary contribution distribution? 

Example...  Suzie terminated and took all her money.  Her $10,000 Roth account rolled into a rollover Roth IRA.  Her $20,000 employer money into a rollover IRA

Box 1, total of all distributions  -  $30,000
Box 2, taxable money  - $20,000
Box 5, Roth and after-tax voluntary contributions  - $10,000
Box 7, Distribution code(s)  - code G and code H

Her 1st Roth salary deferral was more than 5 years ago (2012)

Or do I need to prepare 2 form 1099-Rs.

There is a small professional DB Plan not subject to PBGC in closedown. All benefits have been paid except the 2 principals and the principals' child. The principals' child is in the middle of separation from spouse. There is no QDRO in place and the separation is being drawn out. Future ex-spouse won't sign the spousal consent so that the money can be distributed. The company is being acquired with one condition being that this plan has been fully closed and distributed by end of the year. Participant is on the younger side with Lump Sum in the few hundred thousand $ range. Is there any ground to be able to waive the spousal consent because of plan closedown? What is the best course of action?

1) Give the money to PBGC? (not ideal for anyone)

2) set up a generic IRA as if the participant was being forced out/couldn't be located? 

3) Waive the spousal consent and distribute to the participants IRA?

4) Distribute it out under participant election and correct under EPCRS once consent can be obtained?

I appreciate any help.

On the old Schedule SSA, reporting terminated participants with unpaid vested benefits was mandatory but reporting them after they had received a distribution was optional.  So, we never did it.  Now we have a little over 2,000 people who were probably reported as term vesteds with a balance and never removed upon subsequent payment.  Their payment dates were from 1994 to 2005.

The problem we have now is that these people are receiving letters from the Social Security Administration reporting that they may have a benefit due. It is sometimes difficult to convince people that they were paid.  After all, a government agency is telling them to contact us.   We have the check number, amount, and payment date, and even in most cases signed distribution election forms, but we no longer have the canceled checks so people don't always believe us.  And much of our information is on microfilm which requires in-person research, which is a bit of a hassle.

How appropriate would it be, the next time we file the 8955-SSA, to report these people as having been paid out?  Is this a huge red flag?   Would it trigger unwelcome attention from some agency or another?

We have a plan that is terminating with Transamerica.  Several participants will not return their distribution forms.  This is an FIS/PPD DC document.  I know most will say - what does the plan document say?  It is very ambiguous in my opinion.  These are participants with more than $5,000 and they are not "lost."  The plan is not subject to QJSA.  We want to simply roll them to a default IRA with Millennium Trust if they continue to ignore the distribution forms.  The assets are enough where I don't want to take chances - in total about $25,000 for 3 people.

Thank you in advance for your comments.

Tom

Background:

This just got dropped on me this weekend.  Company A has a 401k plan, Company B has a 401k plan.  Both plans with same recordkeeper.  Ownership and plan features are identical for A and B as of 1/1/23, no issue with protected benefits.  Company C is being purchased, has no 401k plan, same ownership.  Holding Company D is being formed to own Companies A, B, C, and any future acquisitions.  All employees of all companies will be employees of Holding Company D as of 1/1/23.  My thought is to keep surviving Company A plan, merge Company B plan into Company A plan, have Holding Company D become the plan sponsor of Company A Plan and add all employees of Company C into the plan as of the closing date of the purchase.  I would file a final 5500 for Company B plan (though not terminate the plan) for 2023 (or 2024 if recordkeeper cannot merage assets as of 1/1/24).  Continue filing 5500s for Company A Plan (Holding Company as new plan sponsor).  On Holding Company 2023 5500 I would list Company A in Part 2 question 4, then on final 5500 for Company B list Holding Company A in Section 7, question 13c.  The timing is obviously tight, but am I missing anything in this strategy?

Thank you for any input!

Situation 1 - Rehire

Full-time employee is eligible and participating in the 403(b).  The employee experiences a separation from service and there is no plan to re-hire employee.

Employee ends up being re-hired later in the same Plan Year, but in an ineligible position (fewer than 20hrs/week).  Does the employee get to participate immediately under the "once-eligible, always eligible" rule?  

Situation 2 - Reclassification

Full-time employee is eligible for the 403(b).  The employee changes from full-time to part time (expected fewer than 20 hrs/week).  Is the employee still eligible under the "once eligible, always eligible" rule, or is the employee now ineligible under the exclusion for employees expected to work fewer than 20 hrs/week?

During the 2022 plan year, the company made the deductions from payroll, but they were never submitted to the recordkeeper.  They were in the process of changing payroll providers.  When the contributions were deposited (late) in 2023, 3 participants were over the 402g excess.  The plan sponsor is now requesting a distribution of these excess amounts.  

The accountant is telling the client remove the 402g excess and report/pay penalty on the form 5330.  I believe they are confusing the late contribution and needing to file a 5330 for that.   Since none of the impacted participants are over 59 1/2, can they distribute the money from the 402g excess?  I realize they will be double taxed (2022) and then in year of distribution.  If they are allowed to distribute, I believe they are subject to the 10% premature distribution penalty.  Can/Should they distribute the money?  I am thinking there is no distributable event to permit the distributions, therefore the money stays in the plan.  Thoughts?

sometimes....we make it so clear to communicate with us at all times about distributions (this has to do with a s/d brokerage type account, not with a recordkeeper), and yet that doesn't happen...

okay enough complaining...

Owner of small plan took an in-service (not hardship) distribution of an in-kind asset. Unfortunately, owner is under 59.5 and this asset is allocated among all money types, including 401k, which is not allowable under 59.5 per my understanding.

First off, so this 401k portion really was not able to be distributed, but for now say it was.  Because new holder of this non-ordinary asset cannot separate this out between two accounts (taxable account vs non-taxable rollover IRA), the brokerage has recommended rolling it back into the plan. It's after 60 days, so I feel like that's it, it was a distribution, which was partially not allowed. They still want to roll it over and treat it as a correction and correct the 1099-R's.

I don't know, trying to figure out a correction.

401k plan with ADP Basic SHM provision is amended for 2022 changing to a Triple Stack Match.   When the SHM was calculated, the amendment was missed, so only the 1st tier (4% of comp) was calculated and timely deposited.  The correction is going to be made this week for the other required tier, but obviously will be deposited after the deadline for 2022 415 purposes.  EPCRS Revenue Procedure 2021-30 provides at Section 6 .02 (04)(b) A corrective allocation to a participant's account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates. However, the normal rules of § 404, regarding deductions, apply.

Can the Plan rely on this provision when making the deposit for the 2022 plan year before 12/31/2023, or is that provision only going to apply if the correction is made 1/1/2024 or later since "technically", there isn't an EPCRS correction needed until 1/1/2024?

Section 125 permits election changes (other than in the case of certain HIPAA special enrollment events), including upon divorce, to be effective only on a prospective basis.   

The Code permits an employee to pay for coverage on a pre-tax basis only for certain specified dependents.  An ex-spouse is not not one of these specified dependents.

ERISA requires plan fiduciaries to administer a health plan in accordance with its terms.  Virtually all plans provide that ex-spouses are not eligible for coverage.

If an employee notifies the employer on December 1 than he or she was divorced from his or her covered spouse on November 1 (and provides sufficient evidence of such), when can/must the employer remove the spouse from coverage?  (Leave COBRA out of the analysis.)

If the employer removes the spouse prospectively from December 1, the employer is seemingly complying with Code Section 125 but has it violated its fiduciary obligations under ERISA because it covered the ex-spouse in contradiction with the terms of the plan and must the employee impute income for the payrolls in November in which the employee paid for the ex-spouse's coverage?

If the employer removes the spouse retroactively from coverage back to November 1, will it be violating the Section 125 election change rules but be in compliance with ERISA and the other sections of the Code?

I know that the ACA's rescission rules generally prohibit retroactively terminating coverage except in the case of fraud and intentional misrepresentation.  But that means, doesn't it, that the ACA does contemplate rescissions under certain circumstances while the cafeteria plan rules do not.

To me, this is an inherent contradiction between these various laws.  I'm sure others have recognized this but I have not seen much discussion of it.

Any thoughts are appreciated.

These rules are completely insane.  What are others using as a practical tool for sorting this all out?  There must 15 to 20 pages in the EOB.  Has anyone created a user friendly guide to answer the million possibilities??  I'll spend 45 minutes sometimes trying to figure all of this out for a particular scenario.

To me there should be a website where you ask: How old was the Participant?  How old was the beneficiary? Was the beneficiary the spouse?  And on an with all of the other variables (RMD before death, after death) and tell you what the rules are. 

Has anyone done this yet??

Just took a look at IRN 2023-73 in order to input the new Qx factors into Excel, and notice this year that unlike all prior years, the Qx factors are to 5, not 6, decimal places?  Am I missing something here?

IR Notice 2023-73 2024 Mortality Tables.pdf

We accidentally treated part-time employees as excluded from the Plan.  Luckily, this problem is only recent -- we didn't have any part-timers until last year (which partially explains why we didn't know how to treat them).  Based on our calculations, to correct for these employees (there are only 4 of them), we are looking at small QNEC amounts -- at most $400, but as little as ~$100.  These employees don't currently have any accounts -- do we need to create accounts and contribute these small amounts to each of them?  Is there a rule where we don't have to make QNECs (and open new accounts) if the amount is below a certain threshold?  I know there are de minimis rules for overpayments and excess amounts, but I don't see anything for QNECs related to improperly excluded employees.

I appreciate any guidance.

How do most 401(k) plans handle RMDs when the plan's only form of payment is a single lump sum? Do they require full distribution upon a participant reaching his or her Required Beginning Date? And if so, how do they handle it if a Participant does not request a full distribution?

I have never been a part of a Roth Conversion.  Have a single member plan who has asked if she can do one.  The plan document allows for one and I have done some reading.  Have I got the process correct? Is there a script/outline somewhere that someone can point me to?

• In-plan Roth rollovers/conversions have evolved into being the same.  In the beginning you needed to be eligible for a distribution and now anyone can convert as long as the account is 100% vested.  Right so far?
• A 1099-R will need to be prepared for the conversion.  No actual taxes are withheld yet the participant will need to declare the rollover as income on their personal 1040. No 10% penalty, no 20% Fed withholding. 
• The 1099-R distribution code will be G for rollover (Box 7).  Box 1 and 2a will both be the total amount converted.  None of the money has been taxed so it all needs to be declared and is taxable.
• The rollover needs to be put into a designated Roth account.
• The 5 Year Rule...
  • The 5 year rule starts at the beginning of the first tax year. 
  • Each conversion has it's own 5 year rule.  
  • If a distribution is taken before the 5 years is up and the account holder is less than 59-1/2 then the 10% penalty kicks in and the whole distribution is taxable
  • If a distribution is taken before the 5 years is up and the account holder is older than 59-1/2 then the 10% penalty does  not kick in but the whole distribution is taxable

Do I have it right so far?  One question I can't find the answer to or am just missing it is "if the plan closes before the 5 years is up and the ROTH account is rolled over to a ROTH IRA, no penalty?  All good?  but there is still the remainder of the 5 years to go before distributions can be taken tax free?"

Thanks

A summary plan description I’m reviewing includes this paragraph:

If your distribution is an eligible rollover distribution and exceeds $200, you may instruct a direct rollover of all or a portion of your distribution to an eligible retirement plan. But you may instruct a direct rollover of a portion less than all of your account only if each portion is at least $500 (with this minimum counted separately for each portion of Roth or non-Roth amounts).

Are those amounts still current?

I have seen this statement, or similar wording, in several places, and I think I must be misunderstanding something. If the pre-approved plan language for eligibility allows for, say, "3 consecutive months of service from the Eligible Employee's employment commencement date and during which at least 250 hours of service (not to exceed 1,000) Hours of Service are completed. If an Eligible Employee does not complete the stated Hours of Service during the specified time period, the Employee is subject to the 1 Year of Service requirement..."

So, if an employee works less than 250 hours in that first three month period, they become subject to the 1 year of service requirement. Suppose they work 600 hours during the next 3 (or 2) consecutive plan years. Why would they not be considered LTPT?

The LTPT rules will only affect 401(k) plans whose eligibility requirements require employees to complete at least 500 hours of service in a 12-month period to participate. 401(k) plans that require fewer hours - or none at all - will never produce a LTPT employee, making the new rules moot.

Division A has match going in every pay-period because these are basically salaried office workers.  The vast majority of the HCEs are in division A.  There are a bunch of employees with more sporadic work schedules and the client does not want to provide them with the match unless they work 1,000 hours and meet the last day requirement.

1) Straight coverage, my ratio %age fails but a hair, but my Average Benefits Test passes by a mile,

2) If I treat the timing as a BRF then I am still good because even if I treat the pay-period match as a BRF I'm over the nondiscriminatory classification threshhold.

Am I thinking this through correctly?

In my many years of practice, I have never ran across this question: Can a plan have an "inservice rollover" provision for any reason?  No age restrictions or years of service provision. I have never seen this in a pre-approved plan document. Several internet providers are saying this is possible and we know how reliable the internet is. 

Could it be done with an IDP?

For plans that have 401k entry on the first of month after meeting eligibliity, which payroll do they start it with when twice monthly payroll at the end of the prior month is on, say the 5th?

that payroll which is paid after date of eligibliity or the next one which includes the date of eligibility for which payroll is run?