At least the problem was discovered very early on.......

This is a new start up solo 401k plan eff 1/1/23, only 2 months ago.  The owner is a sole prop.  While his compensation to be used for the plan was supposed to come from his sole prop business, a miscommunication somewhere resulted in him believing he could use income from other sources that would not be eligible for use in the plan.

He already made a few deposits in 2023 (not sure whether they were to be 401k, roth or after-tax).  But at this point, all parties involved just want to "walk away from the plan".  IE, take the money back out of the plan account and pretend it never happened.  Given that he is the only participant and there have been no government filings, is this acceptable or is there a better way to handle this?  What about earnings in the account?  If there is no tax deduction being used for any of the deposits, I would assume any earnings that were associated with the deposits would just be non-retirement earnings, just like it came from savings account or something similar.

Any comments are appreciated.

Sec. 102 uses the language "Tax Credit."  I am getting questions about its application to 403(b).  I think, unfortunately, that it cannot be applied as nonprofits do not pay income taxes, but I am reading about the application of the Health Care Tax Credit to nonprofit employers via the FICA tax and also an IRS article on filing a 990-T to claim the credit (again, Health Care at the time of this IRS article).  I am beginning to think that the application of this Sec 102 to nonprofits will require further input by the IRS.  Any thoughts or comments?

Question regarding and ADP Test Failure.  We have a failed ADP Test for a client with 4 HCE:

2 HCE are under 50, and not eligible for a Catchup
1 HCE maxed out his contributions ($27k), so therefore we are already ignoring the $6,500 catchup in the ADP Testing
1 HCE, who is over 50, contributed $13,000 for 2022

Can we "re-classify" $6,500 of the HCEs 401(k) to a catchup, thus excluded them from the test?

If we test this HCE with $6,500, we will pass the testing so I just wanted to confirm. 

Thanks in advance!

I set up 2 plans in early December 2022 that became effective 1-1-23. Are these plans subject to the new auto enroll rules?

They were signed and "established" prior to 12-29-22, but not effective until 1-1-23.

I'm new to testing and using Datair.  I have a 401k plan Safe Harbor Match, with cross tested PS, one year and age 21, 1,000 hours and dual entry but the employer only ever does PS (against our plan design maximization).  I have small veterinary practice with one owner, 6 part time that don't meet service requirements, one ineligible due to age, and one terminated with 1051 hours.  Plan is top heavy.  My software is telling me I have failed every test but I think it is wrong.  ADP/ACP - no deferrals, 410b should pass because no NHCE's are eligible, and last day of the plan year provision should allow for a full contribution for owner   

Does anyone know if participants that become eligible because of the LTPT rules will ALSO need to be follow the EACA rules?

Client has a plan with a standard safe harbor match. Participant went on the system and changed her deferral percentage. She also increased her catch-up amount by $10. The recordkeeping system does not recognize both a deferral percentage and a catch-up so only the catch-up portion was picked up by payroll. Hence, since July 2021, only the catch-up amount has been taken out of her check. She just noticed this a year and a half later.

Since this is a safe harbor plan, what would the missed deferral calc be based on? In other words, would it be based on the 8% that she wanted or just on the maximum match of 4%?

Since 403(b) plan Employers generally don't file tax returns, is there a 404(a) limit to what the Employer can contribute?  Is it the same a for-profit companies, 25% of pay?

And when are the ER contributions due, since there is no tax form deadline?  12/31 the following year? (assuming calendar year)

Is any of this discussed in the regs?  Where?

Hi

Company A is a medical office, small i.e. less than 25 active participants. Owned 100% by MD

MD also owns couple of restaurants with employees.

2 part question:

Q1: If all included in the DB plan, Company A being the sponsor and the restaurants being adopting employers, is this DB plan covered by PBGC? The total active participants will still be under 25.

Q2: If only Company A adopts the plan and excludes the restaurants, no PBGC coverage, correct?

Thank you.

A plan participant under age 59 and 1/2 has recently become permanently and totally disabled. He has 100,000 cash in his 401(k) plan and a 40,000 loan. He wants to withdraw his entire account balance because of dire financial hardship. The plan provides that upon disability the plan participant can withdraw the entire account balance. The plan does not deem that the loan must be paid under these circumstances and the loan is not in default. Here, even though the participant is under 59 and 1/2 there will be no 10% penalty given total and permanent disability.  The participants total account balance should be $140,000, i.e., 100,000 cash and a 40,000 note receivable. However, upon distribution he will only be in receipt of $100,000 cash and not the note receivable. However, if he withdraws the $100,000 cash is this deemed a loan offset of $40,000 ($140,000 account balance less $100,000) that is included in taxable income?  However, my understanding is that a loan offset only occurs if the loan is in default and here it is not. If it's not a loan offset then it's a $100,000 taxable distribution with a $40,000 loan outstanding with the plan. So the participant can ether try to make loan payments or preferably let the loan go into default whereupon its a deemed distribution not subject to the 10% penalty. Another possibility is due to concerns that the IRS may challenge his permanent and total disability diagnosis, he may decide to take a $100,000 hardship withdrawal and let the loan go into default and accept the deemed distribution. Any thoughts on this analysis especially regarding this not being a loan offset?

https://public-inspection.federalregister.gov/2023-02653.pdf

After considering the public comments, the Agencies decided to adopt the proposed counting method change for defined contribution individual account plans by adding a new line item on both the Form 5500 and Form 5500-SF for defined contribution pension plans to report participants with account balances at the beginning of the plan year (there already is a line item for reporting the number of participants with account balances at the end of the plan year). Instead of using all those eligible to participate, defined contribution plan filers will look at the number of participants/beneficiaries with account balances as of the beginning of the plan year (the first plan year would use an end- of- year measure) when determining if they are eligible for small plan reporting options, e.g., the Form 5500-SF. Conforming changes are also made to the short plan year filings and the “80-120” Participant Rule instructions to reflect this new counting method. See Appendix C for details on changes to forms and instructions related to this audit related participant counting method change.

Hi - I have a new EBP audit where the predecessor completed 103(a)(3)(c)/limited-scope audit with only certain investments certified and then had a note breaking out certified vs non-certified investments and disclosed in the notes that they did full-scope procedures on those non-certified investments. The report reads that same as a limited-scope normally would but just references the 2 custodians that certified statements were received. The 5500 is marked as limited-scope.

I don't believe I've ever seen this and was wondering if anyone had and if this is even allowable to apply limited-scope procedures to certain investments and full-scope to others?

The participant changed their election in 2021 from 3% to 0% but the payroll continued to deduct 3%.  The failure was discovered in 2023. The plan has no match and is subject to ADP testing.

How should we correct. technically, these were impermissible deductions.  Are we supposed to return the contributions + earnings/losses to participant and re-run the ADP testing?  

Is there a way to code people in Relius who work less than 20 hours a week to NOT show up in the coverage teating?

Other than an override?

I have a plan that is freezing on 3/4/23 with 100% vesting of all account balances as of that date, and then terminating on 3/31/23. There are small accounts $5000 and under for terminated participants that have not been cashed out yet and the recordkeeper informs us that there is no time to do the normal cash-out process where a distribution package is mailed to the terminated participants (with normally a 30 day period to respond or the account will be automatically rolled over to the IRA) and therefore the non-vested amounts cannot be forfeited. My question is - can we forfeit the non-vested amounts prior to the 3/4 freeze date without a corresponding cash-out process? They will get the termination package after the 3/31 termination date. Issues/comments? Thank you!

Hi

DB plan with whole life insurance. Calendar plan

Insurance contract/effective May 2022 and with 30k annual premium, no other illustration was provided.

In December found out that premium payments were being made monthly 2.5k/month so during calendar 2022, 8 payments were made for a total of 20k, all from the corporation.

I have always used premiums paid only during the plan year but now the agent is pushing me to use 4 additional payments made/to be made in 2023 so that the total of 30k is applied to 2022.

I understand that they are contributions to be discounted to val date but my concern is the valuation of the CV as of the val date - EOY val.

I have the 12/31/2022 CV from the insurance company and did the RP 2005-25 calculation. No issue if I was using what was paid in 2022 only.

How do you incorporate the payments made in 2023 to 12/31/2022 val date and determine what the 12/31/2022 CV would be under RP 2005-25?

As they are planning to make the minimum required contribution, a proper determination of all assets is imperative.

Hope my question makes sense.

Thanks

We have a participant who intended to make a salary deferral election effective January 2023, but submitted it too soon so it was implemented effective December 2022.  They asked us TODAY to refund it.  I can't find any legal justification for refunding it to them--it was a valid, although premature election; they did not exceed any IRS limits and they have no distributable events.  They are under 59 1/2.  Is there a loophole I am missing?  

I have had 2 different clients receive a Notice saying they did not deposit their 945 taxes timely.  One for 2021 and one for 2022.  The 2 different clients' letters are each dated Feb 20, 2023.  Is anyone else seeing this?  Just curious.

We (TPA) created a new calendar year-end plan with a 9/1/2022 effective date so there is a short initial plan year.  There was no predecessor plan because it is a new company formed in early 2022 and we were using the dates requested by the plan sponsor.  Upon receipt of the year-end census data we found that nobody was eligible until 11/1/2022 due to the service requirement in the plan, and that there are approximately 350 eligible participants on 11/1/2022.  The plan sponsor operated the plan properly and those employees were enrolled on 11/1/2022.

I know an audit is not required due to the plan year being less than 7 months, but I am also considering whether we should file a Form 5500-SF since there were technically 0 participants on the first day of the plan year, or if a long Form 5500 should be filed.  It feels "off" to file a 5500-SF simply because the plan sponsor asked for a plan effective date that was earlier than anyone would be eligible for the plan, but I've never had this happen before so I'm hoping someone may have an opinion and would be willing to weigh-in. 

HCE's participate in the 403b plan to avoid the ADP test. All employees are eligible for a match and we're failing ACP Testing.  Someone in the office asked "can we shift deferrals to the ACP Test".

Any Seinfeld fans out there - "You just blew my mind."  Because of course the only deferrals in the ADP test for this plan are for NHCEs so I can shift 100% of the deferrals to the ACP test which will basically exempt this plan from ACP testing.

Aside from the sheer obnoxiousness of this really cool idea (I might be terrified to do it in practice), what is to stop me?