Hi! I'm hoping that I can get some experts to weigh in here. I'm excited about the new process for determining if a plan is subject to an audit starting with the 2023 plan year - it's now looking at participants with a balance - yay! However, it leads me to wonder if the definition for large vs small plans will be extended to the DOL safe harbor regarding timing of employee contributions for small plans. I looked at the federal register and it doesn't specifically link to 5500 status, it only states "100 or more participants". 

What are your thoughts on this? I'm thinking that unfortunately, we are going to have a larger difference of small vs large now between the SH rule and the 5500 filing than in the past [since 100 ppt filers did not have to file a large 5500 until they hit 120]. Thank you!

Can a participant who inherited an IRA from her late spouse roll over the IRA into the 401(k) plan in which she participates? The plan allows rollovers from all permissible sources.  Can she then take a loan from these rolled over assets, given the plan allows loans from all sources?

Can the 3-year pre-normal retirement age catch-up apply to allow employer nonelective contributions in excess of the applicable dollar amount ($22,500 in 2023)?

Thanks in advance if anyone can help me with this.

My company farms out the payroll to a very large payroll company. Our last pay period of 2022 went from 12/19/2022 to 1/1/2023. 1/1/23 was a holiday and since it fell on a Sunday, was celebrated the following Monday and went on the next paycheck (no one worked that day at all). Which means all earnings on that final 2022 paycheck issued on 1/6/23 were earned in 2022. 

For some reason, this payroll company used the new year (2023) HSA deduction amounts that each employee selected in November to begin with the new year for 2023 earnings instead of the 2022 HSA deduction amounts for each employee. (This is the amount each employee contributed to their HSA account each paycheck)

I cannot get them to correct this or show me any proof that they are allowed to withhold 2023 HSA deduction amounts on 2022 earnings

So I guess my question is- Is it legal to use the following years HSA deduction amount on the previous years earnings if that previous years check is distributed in the following year, but contains no following year earnings?

I hope that makes sense and thanks again.

An employee had withholdings done as pre-tax instead of Roth and didn't notice until they saw their W-2.    I'm sure Ascensus will just say have the plan sponsor give us instructions and we will move the contributions and earnings (loss actually) from pretax to Roth.

Is there a prescribed fix for this?  Seems fixing payroll is the only reasonable correction.  Not sure what else would be equitable.  

Thank you.

Buyer is purchasing Seller in a stock transaction.  Seller has agreed to terminate Seller's 401(k) Plan immediately before the closing.

After closing, Seller will perform final testing and make any necessary refunds.  Is it possible to refund through payroll so the participant's W-2 is accurate, or must it be handled by 1099?

For example:  Before closing, Employee defers $22,500 in Seller Plan.  After testing, Employee receives a $6,000 refund.  After closing, Employee defers $6,000 to Buyer Plan.  Would Employee's W-2 show $28,500 in the 401(k) Box (since payroll provider is the same), and also receive a 1099 to show the $6,000 refund?  Or can we just adjust the W-2 to show $22,500 in deferrals for the year?

Can a MEP plan use Top Paid Group for testing?

Are ATM corrections subject to the 3/15 deadline? (for 1/1 plans)

A client want's to take a second loan.  I looked at the IRS' explanation and it is not how I have been calculating 2nd loans.  In the end I have been more strict (it appears).  Am I wrong?

Here is the link to the IRS' example

IRS Example / My comments in blue

Jim’s vested account balance is $80,000. He borrowed $27,000 eight months ago and still owes $18,000 on that loan. Jim wants to take a 2nd loan.  What can he borrow?

Maximum second loan if amount still owed on first loan
Jim’s current loan balance is $18,000. This amount plus the new loan cannot exceed the lesser of:

1. $50,000 – ($27,000 - $18,000) = $41,000, or
2. $80,000 x 1/2 = $40,000

Jim’s total permissible balance is $40,000, of which $18,000 is an existing loan balance. This leaves a new maximum permissible loan amount of $22,000 ($40,000 - $18,000).

I always said that you take the vested balance to find the maximum loan amount for the 1st loan.  
If a 2nd loan is requested regardless of whether the 1st is paid off or not, this is how you calculate the maximum allowed:

  First, determine what the maximum loan amount can be right now
  Next, If the participant has an existing loan (or had a loan in the past 12 months), look to see what the highest balance of that loan was and subtract it from what the participant's could borrow now had s/he never had a loan
  THAT is what they can borrow.

Using the IRS' example I would say that Jim could only borrow $13,000  ($40,000 maximum allowable less highest outstanding balance in the past 12 months or $27,000..... 40,000 - 27,000 = 13,000), not $22,000

It's a big difference.  The IRS' example is more beneficial.  Have I been wrong all these years? 

Bank executives have employment agreements that allow 2 times pay as severance for voluntary separation from service within one year after a Change in Control defined by reference to 409A definition of Change in Control Event.

Bank wants to incorporate a Holding Company and do a statutory share exchange where all of the Bank shareholders exchange their Bank common stock shares for Holding Company shares, leaving Holding Company as owner of all shares of Bank common stock, and Holding Company will then have same shareholders that Bank had before the transaction.

No Bank shareholder is related by attribution rules of 318(a) to any other Bank shareholder. No Bank shareholder owns more than 30% of the outstanding shares of Bank.

Bank has asked if this is a Change in Control Event under 409A, for purposes of the employment agreements of the Bank executives. After this transaction, if one of the Bank Executives leaves voluntarily, would he or she be entitled to the severance pay under his or her employment agreement?

I know this shouldn't be a 409A Change in Control Event, as nothing has "really" changed, but I'm having trouble pinning down why in the regs under 1.409A-3(i)(5)(v), (vi) and (vii). Even if the shareholders of Bank are treated as acting as a group, (because they are involved in an acquisition of shares involving the corporation they all own) the Holding Company is a separate "person" and as an entity it does acquire more than 50% of the voting stock of the Bank in the transaction.

After the transaction, the 318(a) attribution rules don't help with respect to the original shareholders, with respect to Bank stock or Holding Company stock, as none of them own more than 50% of the Bank stock or the Holding Company Stock before or after the transaction, and the attribution rules of 318(a) measure stock ownership of each shareholder even if they are "persons acting as a group" for other purposes.

Also, since the Bank stock will remain outstanding after the transaction, the exclusion from the definition of Change in Control of 'transfers to a related party'  of 1.409A-3(i)(5)(vii) respecting Change in Ownership of a Substantial Portion of Assets does not apply the way it might in a merger where the stock of the target does not remain outstanding after the transaction. 

Can anyone point to the regulation under 1.409A-3(i)5(v), (vi) and/or (viii) that excludes this transaction from the definition of Change in Control Event under 409A?

A company with 30 employees has a non elective safe harbor contribution of 3%.  They would like to change to a safe harbor match with a 4% match (or using the match formula).  Can this change be made anytime with participant notice or must it be done at the beginning of the next plan year with participant notice?  If it can be done during the year:  what kind and how much of a notice do the participants need to be given.  Thanks for any help!

Participant terminated from company in 1985 and requested her distribution be rolled over into a taxable account.  Funds appear to have erroneously been rolled into an IRA and no one has any records anymore; individual tax returns were shredded, brokerage company was sold to another, previous Employer no longer has records.  IRS and FTB say they don't have 1099s going back that far. Participant is now required to take RMDs.  Is there any way to avoid taking an RMD from the IRA into which the funds were erroneously rolled over?  We can't find anything to support the claim that an error was made.

Have a plan that was top-heavy at 12/31/22 (62%).  From my understanding the plan is top-heavy for 2023.  The prior service provider calculate TH minimum contribution for the sponsor based on 2022 census/contributions but told them it would need to be deposited by March 15, 2024.  Wouldn't the top heavy minimum be based on the 2023 census/contributions instead of 2022 census/contributions?

A participant in a pure profit sharing plan is claiming that a direct rollover must be permitted at any time and for any reason regardless of whether the participant is otherwise eligible for a distribution (which the participant is not). The participant relies on Treas. Reg. § 1.401(a)(31)-1, Q/A-1. 

The rules I've reviewed do not explicitly say that a distribution must otherwise be available under the terms of the Plan. Anyone come across some authority to rely upon that an eligible rollover distribution is not permitted at any time and only if a distribution is otherwise available under the terms of the Plan? The direct rollover section of the Plan is not helpful. 

Just want to get some input on the following situation:

A plan has been terminated and assets have been liquidated as of 12/31/2022. I worked on the discrimination testing for the plan and it turns out the plan fails discrimination testing. I have recharacterized the affected participant's excess contributions as catch-up and it turns out the affected participant will need a refund distribution of less than $20. When the affected participant withdrew his funds, it was a cash distribution so it makes things a little easier. With that said, which are the best options:

1. Have the asset platform create an additional 1099-R to account for the excess contributions?

2. Leave it alone since the affected contributions will already be taxed since he took out a cash distribution

Would like to know your thoughts on this. 

We think Relius is telling us their system will be off line this weekend?  Can someone please tell me this is not the case?  The timing clearly could not possibly be any worse.

Hi,

An MP Plan, owner only, terminated 22 years ago. The owner (plan sponsor and only participant) now received from unclaimed funds, a check made out to the "xyz corporation mny purch" (plan sponsor)  for $200,000. There is no plan account anymore. To facilitate a non taxable rollover of this money purchase check to the IRA of the owner, can the check be deposited into the Corp account AND then within 60 days be transfered into the owner's IRA? Similar to a plan distribution that was deposited into the personal account of a participant, that can be transferred to an IRA within 60 days to be a non taxable distribution? Thank you very much for any insights on this.

A 401(k) Plan defines compensation as participating compensation based on the entry date of the participant.  When there are multiple eligibility periods and entry dates for the various contribution types, (deferrals, Safe Harbor Non Elective and Non Safe Harbor Non Elective), for purposes of the Gateway test, which participating compensation is used for 414(s)?  Thanks!

RP 2021-30, Appendix B, .07(4) provides a correction for early inclusion of an "otherwise eligible" employee. What about an employee (NHCE) in an excluded classification who was mistakenly allowed to defer, and received employer safe harbor nonelective contributions?

Since EPCRS provides certain pre-approved fixes, but those fixes are not the exclusive methods of correction, do you think this fix (retroactive amendment) would be acceptable, to allow this person to participate? Or, must the deferrals plus interest be refunded to the participant, with the employer contributions being forfeited as an excess allocation, and used accordingly?

Other thoughts? Have not ever seen this particular situation that I recall. It seems "reasonable" to me to permit the amendment to remove this person from the excluded classification, but might be risky. Wouldn't even consider if it was a HCE...

Thanks.

I'm not sure whether to post this in 401k, DB or this message board.

We administer a combination 401k/new comp PS/ cash balance DB  (non- PBGC)

Accountant telling me another client sponsors same type of plan design, but his client is also doubling the max by contributing non-deductible as well.

Unless I'm missing something here, aren't the non-deductible contributions considered Roth and therefore excess contributions??