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Brain cramp, and I just want to make sure I'm not crazy. Due to a plan merger, short plan year ends October 10th of 2024. If I'm reading the instructions correctly, for a short plan year, the filing due date is the last day of the 7th CALENDAR month after the end of the short year. This would mean due date is May 31, 2025. Right? Then a 5558 extension would extend the due date to August 15, 2025.

Seems simple, but I'm getting some pushback, and I'm always willing to entertain the possibility that I'm a few cards short of a full deck. 

I have a DB plan where the plan effective date is for 2024, providing a vested benefit accrual as of 12/31/2024, but the plan did not fund until August 2025.   The RBD for the participant/owner was 4/1/2025.   Did she miss her first RMD even though there were no assets in the plan to take an RMD from?   Or maybe I am over thinking it.  This RMD is mute because it is for 2024 which is based on a 2023 accrued balance that did not exist?  Maybe her first RMD is actually due by 12/31/2025 for 2025 plan year based on 2024 accrued balance.

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I have a question about the timing of loan re-amortization to avoid default. I have reviewed Notice 2023-43, but would like to ask for thoughts.

Participant took a loan with a term of 3 years. Employer failed to start loan payments and the employee missed the first 4 payments. The employer found the error and began payments on the 5th scheduled payment. The plan uses the cure period so the loan is not at risk of defaulting assuming all future loan payments are paid timely. However, the employee and employer would like to bring the loan current, but the employee does not want to make a lump sum payment of 4 payments. The idea is to re-amortize the loan keeping it within the 3 year original payoff date and increase the payment amount slightly to still pay off at the original due date.

Do you see a problem with re-amortizing before the loan is in default? EPCRS talks about refinancing after default, but is there a reason why you can't refinance before default? I am getting a lot of push back from the TPA that re-amortization cannot be done unless the loan is in default (we don't want to miss payments on purpose, just to get into default so we can refinance).

Thanks

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The FT William pre-approved document allows us to select whether the Investment Fiduciary will be if not the Trustee.  Has anyone ever seen this used to name someone other than the Trustee (my plan does not have a directed trustee).

It looks like the default investment fiduciary is the plan sponsor. That doesn;t seem normal though because the norm is for the trustee to sign off on investment changes for example.

The new Federal income tax deductions are effective for income earned starting January 1, 2025. This may have an impact on how payroll reports tips and overtime pay when providing 2025 census data. Note that payroll does not yet have full guidance about the new rules.

The new law is much more complicated that one would think.  It creates a Federal deduction for tips that can be taken on a personal income tax form.  It does not exclude tips from all payroll taxes.  The exclusion is solely for Federal income taxes.  Tips are subject to Social Security and Medicare taxes, and any applicable State and Local taxes.

There is a cap of $25,000 on the amount of tips that are deductible, and this phases out as income rises above $150,000 (for single filer) and phases out if income reaches $400,000 (for single filer).

Not all occupations qualify for the tips deduction. The IRS is required to publish a list of occupations eligible for the tips deduction by October 2, 2025.  If you earn tips in an occupation that does not appear on the list (when it is published), you get no tips deduction.

While you are looking at income taxes, also keep in mind that there is a new deduction up to $12,500 (for single filer) available on overtime pay.

*Re-posted from 401(k)/Tips*

About a higher-wage participant’s age-based catch-up, what is an effective opportunity to elect against Roth contributions?

For Internal Revenue Code provisions about a higher-wage participant who must make age-based catch-up deferrals as Roth contribution (or get no such catch-up), a proposed rule lets a plan provide a deemed election for Roth contributions. Among other conditions, the plan must provide a § 414(v)(7)-affected participant an “effective opportunity” to make a different election.

About what is or isn’t an effective opportunity, the proposed rule points to 26 C.F.R. § 1.401(k)-1(e)(2)(ii): “Whether an employee has an effective opportunity is determined based on all the relevant facts and circumstances, including the adequacy of notice of the availability of the election, the period of time during which an election may be made, and any other conditions on elections.”

For the audience we seek to reach (age 49 or older, 2025 FICA wages > $150,000) and the choice the election asks, what facts do you think makes an effective opportunity?

For a small plan with not many § 414(v)(7)-affected participants, one might give this notice with lots of “touch” and without needing a heavily programmed plan-administration regime.

But imagine a plan with at least a thousand § 414(v)(7)-affected participants, who specified all deferrals as non-Roth contributions, and didn’t respond before 2026 to 2025’s communications imploring them to make revised deferral elections.

When would you send such a participant a notice of the employer/administrator’s intent to treat a non-Roth election as a Roth election (absent an election for no catch-up deferral)?

In setting a time for a notice, must it relate to when within the year the particular participant would be switched from non-Roth to Roth? Or is a notice given in December 2025 good enough?

Recognize that for some a needed switch from non-Roth to Roth might be as late as summer, and for some it might be as soon as January.

What makes sense?

Client has a plan that excludes the following from eligibility:

highly compensated non-key employees, key employees making less than $100K and non-shareholders making more than $28,000.

Everyone else is eligible and gets a 4% match.

Is this discriminatory on its face?  seems like anyone in the middle wouldn't get the match

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If a plan provides that an employee will become a participant eligible to receive employer contributions "immediately" upon meeting the eligibility requirements, and the eligibility requirement is 2 eligibility computation periods in which he completes 1,000 hours of service, does the employee enter the plan on the last day of the second eligibility computation period, or the day after? 

In this situation the eligibility computation period is the 12-month period beginning on date of hire and then switches to plan year.  Date of hire is 1/1/2022 and plan year is calendar year. So eligibility computation periods are 1/1/22 - 12/31/22 and 1/1/23 - 12/31/23.  Does the employee become a participant on 12/31/23 or 1/1/24?   

I have generally interpreted similar terms to mean that the day has to be completed for the eligibility period to be completed, meaning the ECP ends at 11:59 on 12/31/23 and then the employee becomes a participant immediately at 12:00 am on 1/1/24. But the TPA's interpretation is the employee became a participant on 12/31/23.  

This is a money purchase plan, if that's relevant, and the issue is whether the participant should have received a contribution based on his compensation for the day of 12/31/23.

For minimum distribution, what date’s ownership counts to determine a 5%-owner?

Here’s my not-entirely hypothetical:

A partnership is the plan sponsor and only participating employer of an individual-account § 401(a)-(k) retirement plan. The plan year is the calendar year. The partnership’s tax year is the calendar year. Every partner is on the calendar year for one’s tax year. The partnership has no mandatory retirement age, nor even a presumed ordinary retirement age.

A working partner will reach age 73 during 2027 (and expects to continue working into her 80s).

“For purposes of section 401(a)(9), a 5-percent owner is an employee [including a deemed employee] who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains the applicable age.” 26 C.F.R. § 1.401(a)(9)-2(b)(3)(ii) (emphasis added) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(3)(ii).

Does this mean the measurement date is December 31, 2026?

Under the partnership agreement, a partner’s capital interest can change any day. For example, a partner might get distributions from capital, or even might withdraw capital. A partner’s profits interest, if measured as a percentage of the partnership’s profit, can change because the partner’s interest is measured by several factors, including (for a relevant year or other period) the partner’s revenue generation to her practice, expenses specifically allocated to her practice, origination credits for having introduced a client to another partner’s practice, and a proportionate share of the partnership’s general overhead allocated to all practices.

The plan’s administrator wants to get the measurement date right so it neither fails to meet § 401(a)(9) nor unnecessarily (and improperly) directs an involuntary distribution the plan does not provide.

BenefitsLink neighbors, how’s my guess?

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We might take over a 1 participant DB plan. The plan is in its ninth year.

The plan has adequate assets to pay all benefit liabilities. Looks like it always has. The problem is that no AFTAP was ever done. So benefit accruals are frozen for years 6,7 and 8. If we get the current AFTAP timely signed, it is at 122%. If this is done, are all prior benefit accruals (from years 6,7 and 8 automatically restored?

Thanks.

If tips are no longer subject to payroll taxes, should they go into a plan as Roth?

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