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??

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.