This is related to a question I asked a few days ago about interpleader, but let's put the interpleader issue aside.

Treas. Reg. 1.401(a)(9)-5, Q&A-4 is pretty clear that the year of death RMD for an individual who was past his or her RBD must be paid to the decedent's beneficiary in the year of death.  But suppose that the plan really can't determine who the beneficiary is, because there are competing possible beneficiaries each of whom raises significant fact issues against the other. These fact issues cannot be resolved by the end of 2022 and it would be imprudent to pay the 2022 RMD (which is a significant amount) to either party by the end of the year. So the plan probably won't pay it to anyone until 2023.

I'm confident that the plan's failure to pay the RMD as required under the regs will be corrected under SCP next year when it pays the amount to one of the parties. I'm also confident that the recipient can easily get the 50% excise tax waived following the normal procedure. If anyone thinks I'm wrong about either of those judgments, please let me know, but otherwise my question is whether anyone is aware of any formal or informal guidance on this subject from IRS (I have not been able to find any) or faced the situation themselves and discussed with someone at IRS. If so, inquiring minds want to know what they said.

Thanks.

Situation:  Plan is Top Heavy

2 HCE, one owner, one not )and non-Key)

2 NCHE

owner defers max

2 NHCE defer enough to get 3% match

Non-owner (N/O) HCE does not defer at all so no match

N/O HCE is due 3% TH contrib.  That gets contributed to the discretionary source.

Is there a problem here?  No NHCE getting a 401(a) allocation.

What's the remedy?

Is there any harm in keeping it that way?

At the brokerage house, they would have to create all new accounts with a trust id and transfer them from the old accounts.  Evidently there's lots of paperwork involved.

I have a question regarding the calculation of the cushion amount under 404 for a cash balance plan since the plan was amended to freeze and then to increase benefits (for HCE’s).

The facts are as follows:

- only 2 participants in plan are HCE’s

- cash balance credits; 85% of salary for both participants; salaries for both participants have been in the 240K range.

- plan was amended in early May 2020 to freeze benefit accruals (contribution credits); There is a 1,000 hour requirement and neither participant received an accrual in 2020.

- plan was amended effective 1/1/2021 to unfreeze benefit accruals (adopted at the end of 2021); new contribution credits are a flat 250K for both participants.

Since the plan was amended to increase benefits in 2021 for HCE’s, the cushion amount in the maximum contribution calculation cannot reflect the increase in benefit formula for 2 plan years.  This would affect the maximum contribution calculation for the 2022 and 2023 plan years (the funding target for the 2021 valuation used the frozen accrued benefit).  Please correct me if I’m wrong.

With respect to the cushion amount for the 12/31/2022 valuation, my inclination is to use the 85% of salary formula through 12/31/2021 for the funding target (for the cushion calculation) with $0 cash balance contribution credit for 2020.    My confusion comes from the fact that the plan was frozen before the increase in benefits to the HCE's. 

I need some help with this.  Participant turned 70 1/2 on 11/16/2019.  DOT 12/31/2003.  Deferred RMD to 4/1/2020.  RMDs were suspended in 2020. Did not take one in 2021.  Should the first one have been in 2021?

Thanks in advance! 

Client asked this and I'm hoping for someone to confirm my findings.

Beneficaries of a Roth 401k are subject to the 5-year rule based on the decedent's first deposit year. Non-Spouse Beneficaries of a Roth 401k must withdrawal the funds within 10 years. 

Assume a participant converted funds in 2022, then passed away in 2023. The Beneficiary could make tax-free withdrawals beginning 1/1/2027, and the entire account must be distributed by 12/31/2028. 

In other words, I'm hoping to confirm that a beneficiary may only have a 5-6 year window for tax-free withdrawals in this example. OR, is the 5-year rule eliminated for beneficiaries?

If a plan has a start date of 1/1/2022 but elective deferrals are not allowed till 12/21/2022 and eligibility emails were sent out on 11/21/2022 for participants to determine their contribution %'s. If an employee was fired on 12/1/2022 are they considered participants in the plan or because they were fired prior to the first elective deferral being allowed are they not considered participants? If they employee has to make a safe harbor contribution to save the plan would that employee receive that distribution? Also will they be considered in the calculation of ADP and ACP? 

Please help. My wife and I run a small business with no employees.

We save as much money as we can in a one-participant 401k plan that is now required to file a Form 5500-EZ each year by July 31 as it has accrued over 250k in assets for myself and my wife.

We had a tough year this year and with everything going on we filed our Form 5500-EZ a few weeks late, hoping it would not be a big deal. We received a CP 283 notice with an enormous penalty that would be a real financial hardship for us.

I understand that, having received a CP 283, we're no longer eligible for penalty relief under for Rev. Proc. 2015-32. Do you think there is some way we could try to file an amended return to still be eligible for this relief?

Is there a way to beg for some kind of one-time abatement of penalties? If we're in the grey-area of "reasonable cause" due to personal issues is there anything we can do to be more likely to get relief? By phone or by mail? Talking to multiple agents?

If the due date for the fine without interest is coming up, but we haven't figured out how to get abatement yet, is it better to pay the penalty and hope it gets refunded later, or incur interest if that makes it any more likely to be able to eventually be able to reduce the penalty?

Thank you all so much for your help and advice.

John

How are other TPA firms handling this new notice requirement? Will your firm be taking responsibility for filling out the notice and sending it to all your clients who have this flexible discretionary matching feature in their Cycle 3 document? When would you distribute the notice- at the beginning of each plan year to all the affected clients?

Thank you.

Suppose you have an attorney (lets call him Steve) who was a 90% owner in a law firm from 2010 through 2020. The firm dissolves in late 2020 and Steve forms a new law firm as a 50% partner with another attorney on 1/1/2022. They will not have any employees.

Question: If they start a defined benefit plan effective for 2022 could Steve's compensation and service from the prior law firm be counted in the new company defined benefit plan?

Same question except suppose Steve was only a 10% partner in the prior law firm?

Thanks.

Owner of 1-person plan just died, shortly prior to end of year and prior to taking his RMD.

Trustee is unable to be legally appointed prior to eoy.

I'm pretty sure since the plan requires RMD's, that an authorization signature is not required. The recordkeeper is insisting it is.

Additionally, since the RMD is formally taken out after date of death, I'm thinking the 1099-R is still treated as RMD, but perhaps should be marked as Death, even though this is not a Death distribution?

Can a sponsor "convert" their SEP from Form 5305 to a prototype document governed SEP?
 

Doesn't this happen every year - the FIRE system goes down for December?  What are we supposed to be doing for 8955-SSAs due by 12/15?  Just file them ASAP when it comes back up on 1/6/23 and wait to see what happens?

I don't recall ever running into this personally before, which is hard to believe (maybe I've just gotten my 2/28 plans done earlier in the year before?)...

The question is, suppose that A dies and it's not clear whether B or C is entitled to A's 401(k) account. The plan administrator decides to interplead the benefit into Federal court. Assume also (which may not be the case) that the interpleader rules require that the funds be deposited into the court. Finally, assume it takes a couple of years before the court reaches its decision.

Does this mean that a distribution has occurred for 1099-R and withholding purposes when the transfer of funds is made to the court? It seems to me that the only practical answer (although it is also not without complication, especially where RMDs may be involved) is that the court is the plan's agent and that reportable distributions for 1099-R and withholding purposes do not occur until the court cuts a check to B or C, but I cannot find any guidance on this. It certainly would be hard to tell B and C that either of them have income for Federal income tax purposes if neither of them has received any portion of A's account yet, and one of them will probably not ever receive any portion of it.

I'm hoping it turns out that we don't have to pay the funds into court in order to interplead, but that has not yet been ascertained, and so am posting this to see whether any of the BenefitsLink experts have had any hands-on experience with the issue.

I found the following discussion on BenefitsLink from 15 years ago:

Not a lot of analysis in the above post or, apparently, in the following 15 years, and I have not been able to find anything else on the topic.

Does anyone utilize the Schwab Savings Bank asset and also produce their own quarterly statements using the Statements provided in Report Writer?  We currently are trying to add this as an option, but are running into issues as I am not great at Crystal reports.  Just looking for some advice from someone who is doing this.

Thanks!

I believe I'm clear but need reinforcement:

Plan termination, qualified plan loan offsets, some participants over age 55 but under 59 1/2 - the IRS Code for the 1099-R forms would be a 2M, is that correct?

I know those under 55 get a code 1M and those over 59 1/2 get the 7M code.

Edited to add:  I should clarify that these participants are also separated from service as the company has closed.

The following is a prior BenefitsLink exchange that only had two posts:

I completely agree with Roxie99's summation of the issue. A reader could draw from Section 4.07 of Rev. Proc. 2021-30 the negative inference that SCP is not available for a terminated plan. However, it's not really clear from the text that the IRS intended this inference.

I don't see why the IRS would want to foreclose the use of SCP for a terminated plan. For example, suppose that a few months after a plan was terminated the plan sponsor discovers that a few participants were overpaid a few hundred dollars and also that some participants were underpaid a small amount because the employer had not made some contributions it was committed to making. These were inadvertent administrative errors and the employer would like to self-correct in the prescribed fashion for these errors, but the ability to do so is being questioned because the plan has been terminated.

Has anyone had any hands-on experience with this issue with IRS, or possibly heard someone from IRS at a conference expand on this issue either way? Have some practitioners just assumed that IRS did not intend the negative inference and used self-correction for terminated 401(a) and 403(b) plans, without this having been called into question by IRS or anyone else?

Hi

I am no 401k expert so looking for any suggestions on options.

PS plan signed Sept 2022 for 2021. Only PS provisions. Covered owner+employee.

Now in year 2022, wants to add 401k deferral option but the problem is, the employee was fired (embezzlement of company assets) in May with over 500 hours. No other employees.

I know that I have to provide PS allocation to the employee for 2022, if owner decides to make one.

What can I do if the owner wants to defer (will take full year salary next week)? Employee never had a chance for deferrals.

Owner is over 50 and expected 2022 w-2 is 100k and employee's final w-2 is 15k.

QNEC is an option, may be 4%SH additional is an option, what else can be done? 5% limit of deferral to the owner?

Any thoughts are appreciated.

Thank you.

For a § 401(a) plan stated using IRS-preapproved documents, a user’s reliance on the IRS’s letter is not lost merely because the user changed or added some “administrative” provisions the Revenue Procedure sets up some limited tolerance for.

For a § 403(b) plan, the 2013 Revenue Procedure omits a similar tolerance.

Is that correct? Is that still current?

Is it so that a user must do no change beyond what the adoption-agreement form allows?

I have a plan that is starting a Basic Safe Harbor Match effective 1/1. Their Custodian will not be ready to accept contributions until 2/1. If we make the plan effective 1/1, but deferrals not allowed until 2/1, will they need to do ADP/ACP testing for this first year?