This is hypothetical:

Owner wants to add a facts & circumstances hardship provision to plan in order to take a large distribution.

As plan administrator, he will be the arbiter of "heavy and immediate" need.

What if the plan gets audited by the IRS and they determine the need really was neither heavy nor immediate?  Like, maybe he used it to purchase a stake in a thoroughbred race horse or a down payment on an office building.

What is the redress?  pay it back?  Disqualification?

Secure Act 2 permits sole proprietors (and LLC taxed as a sole proprietor) to adopt a 401k plan including salary deferral contributions effective retroactive to the first day of the prior tax year up to the due date for filing the sole proprietor's individual tax return for the prior year. Why didn't this section of the act include partnerships? Can a partnership adopt a 401k plan retroactive to the prior year and allow partners to make retroactive salary deferral contributions?

Is there a way in the plan doc to cut off the need to look back to the beginning of the company to determine eligibility. For hours of service can we say you have to complete X hours of service within the last 5 years to be deemed eligible? I know there is the option for specified months - hours of service, but this still does not seem to take away from the fact that we would have to look back to the start of the company to determine if anyone ever met these requirements in case they are hired again.  We are trying to find a way to not have to look back to the beginning of the company in cases where people may be rehired to determine if they completed the eligibility requirements before. 

What advanced notice, if any, is required to be given to plan participants when there is a significant change in health plan benefits due to a stock purchase transaction? 

Here's the situation - Company A is about to be bought by Company B in a stock purchase transaction. Company A currently participates in Parent Company's fairly rich health plan as part of a controlled group. Company A's participation in Parent Company's health plan will cease at the time of the transaction and Company A will sponsor a new MEC plan going forward. 

Parent Company (the Seller) doesn't want to give any notice whatsoever prior to the transaction. Purchaser is concerned about potential liability related to claims not covered by the MEC plan, that would have been covered by the Parent Company's richer plan, if employees are given zero notice. 

Does the 60 day advance notice requirement for changes during a plan year apply? I would think not, as the new MEC plan's plan year will not begin until the day following closing so it's not really a mid-year change. But it seems illogical that no notice is required in this situation. 

Any thoughts appreciated!

The wrong compensation was used in the allocation of the 2020 profit sharing allocation.  The Plan Sponsor left off a bonus for 3 employees when they reported the compensation to the TPA.  We have determined an additional $5,000 + investment earnings must be deposited to the Plan.  For 2021, the earnings percentage was 11%.  For 2022, the earnings percentage was -18%.  

Do you use the negative earnings for 2022?

BACKGROUND:

403(b)(9) non-electing church plan offers an in-plan annuity. 

In the absence of a Form W-4P, the default withholding for annuities initiated prior to 2022 has been "married with 3 allowances".

It is my understanding that the Plan must notify annuitants annually of their right to elect withholding that differs from this default rate. 

QUESTION:

For these pre-2022 initiated annuities, is the Plan able to continue withholding at the old default rate of "married with 3 allowances" indefinitely, for annuitants that never submit Form W-4P in future years?

Section 305 of the SECURE 2.0 Act of 2022 division of the Consolidated Appropriations Act, 2023 undoes some limits on the Internal Revenue Service’s Self-Correction Program.

In a BenefitsLink discussion, Luke Bailey invites considering “whether VCP [the Internal Revenue Service’s Voluntary Correction Program] will be the rare exception going forward, replaced almost entirely by SCP, in light of SECURE 2.0 Sec. 305[.]” https://benefitslink.com/boards/index.php?/topic/70104-brain-cramp-employer-has-two-401k-plans/#comment-327871.

To open a discussion:

Who decides that the plan’s administrator had “established practices and procedures” that allow one to use self-correction?

Who decides that a failure is inadvertent?

Who decides that a failure meets the further conditions for an “eligible inadvertent failure”?

Who decides that a correction fits within what a Revenue Procedure allows?

How does a plan’s sponsor or administrator get comfort that a failure was eligible for self-correction and is sufficiently corrected?

If a client wants a comfort letter, may a practitioner who is neither an attorney-at-law nor a certified public accountant render the letter?

If a third person (for example, an acquirer of shares of, or business assets from, the plan’s sponsor or a participating employer) wants a comfort letter, may a practitioner who is neither an attorney-at-law nor a certified public accountant render the letter?

Dentist is retiring and another dentist in the office is taking over the practice.  New EIN and Employer name.   Can the existing 401k simply have a change in Plan Sponsor/EIN?  What if the retiring dentist has receivable contributions under his practice name/EIN that will not be paid into the plan until after the change? 

Form was filed a few months late but no correspondence has been received yet from the IRS.  Although it's my understanding that penalty relief can be applied for even after the IRS has sent a letter assessing penalties, there always exists the possibility that the DOL may instead send such correspondence, at which time the option to obtain penalty relief disappears. As such, it would appear that the best approach would be to file an amended return at this time (i.e., before the feds contact the client) via the IRS penalty relief program for EZ forms - agreed? Thanks in advance for all assistance.    

Effective immediately (Well at least for calendar year plans) are we no longer required to obtain any support at all for hardships?  The conversation will be "How much do you need?"  "$5,000"  "Are you able to certify it is for one of these pre-approved hardships things?"  If they say yes, they are eligible and that is that, right?  Literally anyone can take a distribution for any reason at any time as long as they are comfortable lying through their teeth to get the money they desperately need (at least as they would define that), right?  Does something bad happen to them if they lie?  Is it subject to any audit at all?

Hardship Distributions. Current law allows distributions on account of immediate and heavy financial need or an unforeseeable emergency, and the amount must be limited to the amount necessary to satisfy the financial need. Certain listed events are deemed to be on account of hardship, and employees are required to submit records documenting the safe harbor event. Effective for plan years beginning after December 29, 2022, plan administrators can rely on employee self-certification that they experienced a safe harbor event and that the requested amount does not exceed the amount required to satisfy the financial need.

Here is the scenario,

Single member plan.  Owner took a loan, then COVID hit and business fell off (non-existent).  The loan was suspended and ultimately the business failed.  To close the plan the owner needs to understand how to calculate the defaulted loan balance.  What is the process.  Should interest be added?   Just use the last principal balance?  

Thanks

Husband Owns 51% of CORP A with >50 employees

Wife Owns 100% OF Corp B.-Solo 401k. Only Employee

Both have their own 401k plans.

CORP B does not derive any revenue from CORP A but they are in the same line of business(Consulting).

Are these two considered Controlled Group or Affiliated Service Group?

thanks

Employer has a 401(k) Plan - Plan A. Employer, for reasons as yet unknown, (although I suspect sales commissions MAY have been a factor, but maybe not) established another 401(k) Plan as well - Plan B. Employer transferred most of the funds from Plan A to Plan B, but there was no plan merger agreement, no plan termination of Plan A, etc. The rest of the funds will apparently be transferred once there is no surrender charge.

Can the employer just randomly transfer funds from plan A to Plan B? No option given to participants, it was just done - and no distributable event such as a plan termination. I'm thinking this has VCP written all over it, although I'm not sure what the "fix" would be.

Am I missing something absurdly basic?

Never have I seen anything like this...

For someone born in 1959, is 73 or 75 the “applicable age” that sets a required beginning date?

The Consolidated Appropriations Act, 2023’s SECURE 2.0 Act of 2022 division includes this section 107:

SEC. 107.  INCREASE IN AGE FOR REQUIRED BEGINNING DATE FOR MANDATORY DISTRIBUTIONS. 

(a)   IN GENERAL.—Section 401(a)(9)(C)(i)(I) is amended by striking “age 72” and inserting “the applicable age”.

(b)  SPOUSE BENEFICIARIES; SPECIAL RULE FOR OWNERS.—Subparagraphs (B)(iv)(I) and (C)(ii)(I) of section 401(a)(9) are each amended by striking “age 72” and inserting “the applicable age”.

(c)  APPLICABLE AGE.—Section 401(a)(9)(C) is amended by adding at the end the following new clause:

“(v) APPLICABLE AGE.—

(I)  In the case of an individual who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, the applicable age is 73.

(II) In the case of an individual who attains age 74 after December 31, 2032, the applicable age is 75.”.

(d)   CONFORMING AMENDMENTS.—The last sentence of section 408(b) is amended by striking “age 72” and inserting “the applicable age (determined under section 401(a)(9)(C)(v) for the calendar year in which such taxable year begins)”.

(e)   EFFECTIVE DATE.—The amendments made by this section shall apply to distributions required to be made after December 31, 2022, with respect to individuals who attain age 72 after such date.

Someone born in 1959 attains 73 in 2032, and attains 74 in 2033. Someone born in 1959 fits both clause (I) and clause (II).

Imagine six Congresses (for twelve years) begin and adjourn with no enactment of any revision.

Is there any reading of this statute that harmonizes clause (I) and clause (II)? If not:

Is age 73 or age 75 the applicable age for someone born in 1959. What is the reasoning for your choice?

And here’s a perhaps more immediate question:

A summary that explains a plan—whether a summary plan description or a summary of material modifications—must “be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan. A summary of any material modification in the terms of the plan . . . shall be written in a manner calculated to be understood by the average plan participant[.]” ERISA § 102(a), 29 U.S.C. § 1022(a).

How would a summary you write explain the “applicable age” that sets a required beginning date?

Section 603, Elective deferrals generally limited to regular contribution limit. Under current law, catch-up contributions to a qualified retirement plan can be made on a pre-tax or Roth basis (if permitted by the plan sponsor). Section 603 provides all catch-up contributions to qualified retirement plans are subject to Roth tax treatment, effective for taxable years beginning after December 31, 2023. An exception is provided for employees with compensation of $145,000 or less (indexed).    

I think I know the answer, but thought I'd solicit opinions.

Suppose you have a state where state withholding is NOT mandatory - let's use NY as an example. Can a plan refuse to do state withholding on a taxable distribution, since it isn't required, even if the participant WANTS to have state tax withheld? I know that many platforms will accommodate the request, but I believe it is not required.

Thoughts? Thanks, and Happy New Year!

Let's say a 457f plan says participants balance becomes vested at age 55.  The participant is currently 50.  Can the plan be amended (At the employers election) to become vested at age 54 instead?  What about 53?  Is this strictly forbidden no matter what, or can these kinds of changes be made within certain parameters? 

For services about an individual-account (defined-contribution) retirement plan, here’s a few key due dates, and whether each is (or isn’t) adjusted under the Treasury department’s rule about a return or payment due on a Saturday, Sunday, or legal holiday. For Form 5500 reports, the Labor department follows Treasury’s rule.

January 15, a Sunday, is adjusted to Tuesday, January 17.

March 15, a Wednesday, is not adjusted.

April 15, a Saturday, is adjusted to Tuesday, April 18.

If a Federal tax return is due on a Statewide legal holiday of the State in which the filer resides or a holiday of the District of Columbia, the return is timely if filed by the next day that is not a Saturday, Sunday, or legal holiday. 26 C.F.R. § 301.7503-1. In 2023, the District of Columbia’s Emancipation Day is observed on Monday, April 17. D.C. Code § 28-2701.

Internal Revenue Code of 1986 § 7503 might provide no adjustment for something a retirement plan provides—for example, a corrective distribution—rather than an act the Internal Revenue Code commands.

June 29 (180 days after 2022 ended), a Thursday, is not adjusted.

July 29 (210 days after 2022 ended), although a Saturday, is not adjusted.

See 29 C.F.R. § 2520.104b-3 (Summary of material modifications to the plan and changes in the information required to be included in the summary plan description).

July 31, a Monday, is not adjusted.

September 15, a Friday, is not adjusted.

October 15, a Sunday, is adjusted to Monday, October 16.

What does the little Champagne bottle call his father?
Pop!

Happy New Year 2023