Can a Simple IRA for a business with less than 25 employees be established only for W-2 employees and exclude contractors paid through 1099?  If it can, anything they need to be careful about?

Company has existing 'Solo 401(k)' Plan.

Contributions were made once, in year started up, > 5 yrs ago.

Now there are employees and they would like to offer them opportunity to participate.

Actually, they would like a brand new plan.

Is there an issue to terminate existing 'solo' plan and start a brand new plan, or rather do a complete restatement?

Eligibility in 'solo' is immediate but they would like 21/1.

We have a situation where we may have failed to promptly notify a participant of receipt of a QDRO.  He claims he first became aware after the QDRO was qualified (but it hasn't yet been processed, though we're about to).  

If true, is there a penalty associated with the failure?

I assume that the AP isn't penalized and we can still process the QDRO, even if there is a penalty on the Administrator.  Is this correct?

I swore I wasn't going to think about 2.0 today, but when I let my guard down, things pop into my head.

Curious as to thoughts of others. Many plans revert to calendar year for service counting after the initial eligibility period. If you handle the LTPT employees the same way, then they could come in even faster than strictly required? Suppose DOH is 11/1/2023. From 11/1/23 - 12/31/2023, works 100 hours. From 1/1/24 - 10/31/24, works 600 hours. So if service counting reverts to plan year, then employee would have two years of service crediting, and enter on 1/1/25. Alternatively, if plan uses anniversary years, this employee likely wouldn't end up being eligible until 1/1/26.

I'm not clear as to whether the plan can "carve out" these employees via the SECURE 2.0 Amendment, and use anniversary years just for LTPT? I'm assuming the answer is no, but I haven't done any analysis on that question.

Assuming it is not possible (or even if it is possible) would you change your plan (or LTPT portion of the plan, if permissible) to anniversary date service crediting? I wouldn't... too complicated, and these people generally aren't going to defer regardless, so if they end up entering earlier than strictly required under the law, big deal.

Of course, I'm on a seriously overloaded 2.0 circuit at this point. I shouldn't think about this garbage on a Friday....

Hi Everyone,

How does the following provision in a DB Plan document sound to you?   " For Employees paid both on  a commission and base pay basis, compensation shall be limited to $60,000."    Thank you as always.

A Balance Forward Profit Sharing Plan had an age 72+ non-owner Participant retire in late November 2022. The Participant Elected a Rollover to an IRA for the rollover eligible portion, and waived all tax withholding from the Minimum Required Distribution portion. Total Vested Account approximately $25,000, Minimum Required Distribution portion is approx $1,200, leaving approx $23,800 rollover eligible.

The Employer requested a single check from the Plan Account made payable to the IRA FBO the Participant for the entire Vested Account Balance. This check was issued in December 2022 and mailed to the IRA custodian. The 2022 Form 1099-R is not yet issued.

Question 1 A and B: Since the tax filing deadline has not come to pass and the 1099-Rs have not yet been issued, A. can the Plan issue two (2) 1099-Rs, one reporting a taxable distribution in the amount of $1,200 with zero taxes withheld (because they were waived by election) and distribution code 7, and, a second reporting the Rollover Eligible portion (approx $23,800) as a non-taxable amount, with rollover code G, while the Participant requests the $1,200 be removed from the IRA account? B. If completed before the tax filing deadline it may be removed with out penalty - correct?

To note, the Plan is a balance forward plan with a 1/31 plan year end. From the plan's perspective there is no interest adjustment necessary since all was paid prior to the last day of the Plan Year 1/31.

Question 2: Is a VCP filing required? If yes, is there a defense not to do so given the amount involved that would stand up to review, e.g. the User Fee exceeds the amount involved?

Question 3: if by chance the IRA custodian has yet to settle the check, could the Plan put a "stop payment" on it and have the checks reissued as elected by the Participant?

Thank you.

I have a small business 401k and PSP which has language which allows a one-time irrevocable election not to participate. An older ex owner executed this election after disclosure of the plan, but before it became effective. I assume they did this because the money would be subject to RMDs soon, and they didn’t want to have to manage another account. They received no compensation or other consideration for electing not to participate?

Is this valid? I am worried that they may claim they should have been covered, especially on the profit sharing side after some time has gone by. 
 

Is the proper way to confirm this by requesting a private letter ruling?

Hi. A physical therapy practice offers all employees (doesn't matter full-time, part-time, HCE, NCHE) and their families a workplace perk. They have a policy where employees and families receive a discount on any physical therapy services they need. The employee provide insurance information and insurance is then billed. The employee is responsible for paying all cost share amounts. After that, the employee pays no more than $75 per visit. 

My questions are:

1. Is this structure permissible?

2. Does this policy create an ERISA-covered plan that would require a plan document, 5500, etc.?

Thanks.

A CPA came to us with this situation.

A woman suffered a stroke a year or so ago.  She needed cash to buy some type of long term care or medical policy. Not sure exactly what it was, but it doesn't matter for this question.

In late December 2022 she took a $450,000 cash distribution - $90,000 was W/H.

A couple of days later, but still in 2022, she unexpectedly died.

The money is no longer needed and the husband would rather it not be taxed.

Normally she would have 60 days to roll it over if she came up with the withholding.  Husband said he could afford the $90k, but the wife is deceased, so I don't think there is a way to do that.

If it was in the plan, he could roll it to a spousal IRA, but I don't think that can happen without having the distribution reversed first.

The check for the $360,000 has not been cashed.  Husband has it in his possession.

I doubt the plan can reverse it.

Can the plan limit the damage by voiding the $360k check and making the distribution $90k - 100% withheld?

Any other options, or are they stuck?

We use Fidelity as our 401(K) Administrator that allows those age 50 or older to elect pre-tax/Roth and catch-up. The problem is that many of our employees are electing catch up when they will not be maxing out on their pre-tax/Roth IRS limit. We only match on pre-tax and Roth.

This leaves us with the issue that what should be regular pre-tax or Roth is being captured as catch up in the payroll contribution side of things. We do not true up at year end or termination to ensure the match is correct so this is one issue.

However, I believe this can be corrected with some rule built in to only deduct regular pre-tax and/or Roth until capped out and then catch up deductions would begin. But I am not having much luck selling this.

Could anyone share how this is done in your system to avoid this type of issue? We use Workday payroll.

Thank you!

I have a client that utilizes individual brokerage accounts for their participants' investments. The Plan requests beneficiary elections from all participants, as does the Custodian. The participant files a beneficiary election with the Custodian, but NOT the Plan. If the participant dies, does the beneficiary election on file with the Custodian stand or would you default to the plan document provisions?

Suppose a plan that is participant directed merely adds another mutual fund as available. Doesn't change any of the alternatives already available. Is there a 30 day advance notice requirement before the new mutual fund can be available? 

Its January, 2023 and we realized that there was a minor mistake on the 2018 5500-S/F filing.  The client would like to file an amended 5500-S/F.  EFAST will only allow back to 2020. Can we still file an amended return for 2018 on a 2020 form, or is there no way to file an amended return at this late date?

Thank you

I've been looking at the various options for administration and document software or subscription service.  It seems the only options are:

ASC

ftWilliam

Datair

FIS Relius

Are there any others?  

Thank you, 

Listening to a presentation today on SECURE 2.0 and I left with the impression that this is literally impossible to implement.  Anyone else?

Between Roth as catch-ups, match as Roth, mandatory auto enrollment (with Auto Increase to boot), 37 new distribution options that you can only take once every 3 years.

Sure I'm exaggerating but only a little.  I just can't see implementing this stuff with a small service business that has 25 employees.

I am have been tasked with setting up a NQDC plan for a few key executives at our small company and it has my head spinning a bit.

Basically the owners of the company want to set aside an annual discretionary amount for a few key employees.  The contribution would be tied to employee and company performance.  The amount is intended to be a SERP (no employee deferrals)  and become available after the employee retires. Most of the target employees are 10-15 years away from retirement.

We are looking at the standard clauses providing for acceleration in the event of death, disability, change in control.  Also provision regarding non payment for termination for cause or going to work for a competitor.

I will admit I am getting somewhat confused  regarding the difference between vesting and triggering event.  I have talked with a couple of folks who state that it is normal for employees to vest over a 5-10 year period.  For example can 50 year old employee have a 5 year vesting schedule at 20% per year but the plan specify that payment is not made until they reach normal retirment age?

My lack of clarity of over the vesting / triggering question leads me down the path of the what is the correct reporting and payment regarding payroll / FICA.   I have some done some research and want to make sure we handle any issues regarding the special timing rule for FICA correctly.

What the owners have in mind is to make these annual discretionary contributions, perhaps tie a return rate on the contributions to the S&P500, and pay the employee out either in a lump sum or in 3 years after retirement.  The funds would be available at the later of age 65 or a separation from service (some employees may work until 67).

What I think I know so far:

- This would be a defined contribution SERP plan.

- It would be a non account balance plan.

- Distributions from the plan should be reported on a W2 and are subject to income tax when paid

- If FICA is not paid according to the special timing rule, then FICA would would also be owed at the time of distribution under the general timing rule.  FICA would be paid by both the employee and employer.

What I am confused about and seeking guidance

- The difference between vesting and triggering 

- When would the FICA tax be due? Does the special timing rule apply?

- If the special timing rule applies, how is the amount determined?

- What am I not thinking about that I should be?

I have a client who is starting to grow through acquisitions.  Client sponsors a SH 401k. They have purchased a Company (Stock purchase not Asset). New firm has a SIMPLE. I know there are transition rules that allow this arrangement to continue through the end of 2023.  They are about to complete another acquisition (or more) as Asset purchases. The target has a 401k and they want to allow that new staff to join when acquired.  I believe the SIMPLE has to continue and that staff should not be eligible/contribute to 401k

If they amend the current Plan to recognize the new group(s), don't they lose the 410b6c exclusion that allowed the first acquisition to complete the SIMPLE for 2023? Can we amend to only allow the asset purchases to enter the Plan early? Any guidance is appreciated!

I'm trying to search this topic on-line and not finding much.  Don't deposits coming in from a Real Estate LLC investment count as contributions in a 401(k) plan?  If not, how would they be identified as?

Can anyone comment on how long the IRS has been taking to issue plan termination favorable determination letters following submission of a 5310 in the past few years? Are ESOPs taking longer? 

TIA!

Which SECURE 2022 changes are in effect now?

Assume a § 401(a) plan with a § 401(k) arrangement for elective deferrals (non-Roth and Roth), but no matching or nonelective contribution.

Assume the plan has no automatic-contribution arrangement, and no auto-escalation provision.

Assume the plan’s year began January 1, 2023.

Assume the plan’s sponsor will amend and restate the documents within the remedial-amendment period.

Which SECURE 2022 changes now are mandated as a tax-qualification condition?

Which SECURE 2022 changes are permitted?

Let’s use our BenefitsLink community to see that we have a thorough list.

Remember, even if there’s a long delay about plan documents, we operate the plans now.