I'm struggling to figure out if a defined contribution plan can maintain a life insurance policies for terminated participants.  The EOB basically reiterates what's in Revenue Rulings 54-51 and 57-213, which essentially says a plan may not maintain "ordinary life insurance" {read "whole life"} after a participant "retires".  I'm not sure what "retires" means in this context.

The IRS preapproved document we use includes the standard IRS language, which is as follows:

BPD Section 10.08(d) says, “Life insurance policies under the Plan, which are held on behalf of a Participant, must be distributed to the Participant or converted to cash upon the later of the Participant’s Annuity Starting Date (as defined in Section 1.12) or termination of employment.”

And then Section 1.12 says in part, “Annuity Starting Date. The date an Employee commences distribution from the Plan. If a Participant commences distribution with respect to a portion of his/her Account Balance, a separate Annuity Starting Date applies to any subsequent distribution. If distribution is made in the form of an annuity, the Annuity Starting Date is the first day of the first period for which annuity payments are made.”

Any insights would be greatly appreciated!

I would greatly appreciate anyone's insight on the below - 

The main question is what all entities are required to be included on part iv of Form 1094-C when a stock sale causes an entity to cease to be a member of one Aggregated ALE Group and become a member of second Aggregated ALE Group mid-year. 

A simple example scenario -  SellCo is one of a number of a wholly-owned subsidiary of HoldCo and is an ALE Members of the "HoldCo Aggregated ALE Group". Mid-year HoldCo sells all of the stock of SellCo to BuyCo causing SellCo to become an ALE Member of the "BuyCo Aggregated ALE Group" (which assume includes other wholly owned-subsidiaries of BuyCo). 

What I am specifically wondering is for the subsequent 1094-C which all entities are required to be listed in part iv of the 1094-C filed by SellCo. (Other Ale Members of Aggregate ALE Group): 

1.  All ALE Members of both the HoldCo Aggregated ALE Group and all ALE Members of the BuyCo Aggregated ALE Group, or 
2. only ALE Members of the BuyCo Aggregated ALE Group. 

I would greatly appreciate anyone's thoughts as I have come up empty handed on this (as well as any additional thoughts on whether this would impact the part III(d) Aggregated Group Indicator reporting.  

Under soon-to-be-enacted Internal Revenue Code § 414A, some new § 401(k) or § 403(b) plans must include an automatic-contribution arrangement.

For small-business employers not excused as too new or too small, could this new tax-qualification condition slow down creations of new plans?

Hello,

I want to ask for your thoughts on Secure 2.0 Section 109 Higher Catch-up Limit To Apply At Age 60, 61, 62, and 63.

Am I understanding that at age 64+ the higher catch-up amount is no longer allowed? Seems like that is exactly what the wording says, but just seems odd. Is there a reason for only allowing a 4 year window? If you are age 64+ in 2025 then this has no impact on you? Or am I missing something? 

Thank you

Good morning everyone!  Have an old client that had terminated the Plan back in 2017 (all participants had been paid out).  The problem is that they left a Forfeiture Account open, that remains open today.

Obviously we'll need to file Form 5500 for the back years, since there was still money.  The question is what should be done with that Forfeiture money?  There will be some expenses, due to the required filings, but how should the rest be allocated?  Does it need to go to the participants who had previously been paid out?  What if those participants can't be found?  The owner, who was one of the three participants, has unfortunately passed away.

Thanks everyone!

Client passed away this year. She was a dentist and ran her business as a sole prop. I work for the decedent's financial advisor and am working with her CPA on her estate issues. The CPA does not know what should happen with the remaining contributions that were scheduled for this year. Can we accept a post-death employer contribution if she was a sole proprietor and there is technically no separate employer? Thanks. 

Plan has 1 year/ 1000 hours for eligibility. There was an amendment done to allow an employee into the plan early. Basically anyone employed on such and such a date is allowed into the plan. Client is putting in a PS contribution before year end. She does not want to include the employee who was let in early in the PS allocation. There is nothing in the document that state this employee is not entitled to an allocation. Document states that any participant who has worked at least one hour during the year is entitled.

What can be done? Amend the document now? 

BTW, that participant is me!

I have a custodian who did a total distributions this year (2022) for two people (both NHCEs both had RBDs of 4/1/2023) that were rolled over but each had a RMD that was supposed to be processed prior to rollover.

I'm pretty sure the fix is that the participants need to be instructed to remove the RMD plus earnings from their IRA as an excess IRA contribution and the Plan needs to issue two 1099-Rs one for the taxable amount of the RMD with code 7 and the other the rollover for balance. Is this the correct fix?

Is this an eligible fix under self correction or does it require VCP filing? It's not like the Plan can make an RMD from their remaining balance as the remaining balance is now $0.00.

When the Internal Revenue Code of 1986 becomes amended by this week’s Consolidated Appropriations Act, 2023, many provisions that permit a before-retirement payout, including a or an:

eligible distribution to a domestic abuse victim,

emergency personal expense distribution,

hardship distribution (for a deemed hardship),

qualified birth or adoption distribution, or

unforeseeable-emergency distribution (under a governmental § 457(b) plan),

permit reliance on the claimant’s written statement that she meets the tax law’s standard for the kind of distribution requested.

(A plan’s administrator may not rely on such a “certification” if the administrator has actual knowledge that the claimant’s statement is false.)

Let’s leave aside the public policy discussions about whether it’s wise to allow early access to savings purposed for retirement income. And let’s leave aside discussions about whether a self-certification regime invites a claimant’s incorrect, or even false, statement.

Do you see any disadvantage, from the administrator’s perspective, of allowing these self-certification regimes?

I paid the 1500.00 fee and filed for penalty relief for not filing ez 5500 from year 2013-2020 in august 2022.On 11/21/22 I got cp283 letter from IRS for tax year 2013,2014 and 2015 that says I owe 150k penalty for each of these years.  I had called IRS and he kept putting me on hold to see if I was eligible for a " referral " whatever that means which I wasn't. All they could tell me was that those years were not eligible for form ez 5500. He gave me a fax number to EP Accounts and said I could ask for forgiveness for reasonable cause.

On tax year 2023-2015 5500 i wrote in red ink at top "Delinquent Return Filed under Rev. Proc. 2015-32, Eligible for Penalty Relief" because there was no box d to check. Is it possible that they just didn't pay attention to this and that is why they told me they are not eligible for penalty relief? Is my only recourse now asking for an abatement for those years? I can't get through to IRS to ask additional questions. Should I assume this is the issue and fax a copy of tax year 2013-2015 to EP Accounts. Due date is 12/21/22 if that makes any difference.

I didn't catch the effective date for Secure 2.0 provisions - ie plans that are hoping to adopt a plan by 12/31/22 would they still get the 100% tax credit?

I've noticed advisors and cpa's still prefer adoption by 12/31, even if we are now allowed to delay until tax deadline.  But that may need to be changed based on this provision, at least for this year.

Client had a DB plan and terminated it and rolled his balance to his 401(k) plan.  This was not a merger and transfer.  It was a termination and he electively rolled to his 401(k) plan, waived annuity, spouse waived annuity.  We are showing it in the 401(k) records as an unrelated rollover.  Now he wants to do a big in-service distribution to a Roth IRA.  He is 57.  the plan document allows for in-service distribution of rollover source funds at any time.   I asked the former actuary who says the DB rollover lost its nature as pension when electively rolled into the K plan and so in-service is allowable.   Part of the rollover source is SEP as well.  And so the same question applies to in-service from a rollover source that resulted from a former SEP.

Summary - can a 57 year-old can he take as in-service part of his 401(k) rollover account which resulted from a terminated DB plan? 

Thank you!

Tom 

Hi

Looking at a run for someone.

I think the TPA who shall not be named here somehow left it all to the client to run the 2021 numbers. Very bad communication with the client.

401k+SH+PS are the 3 provisions. SH is non elective 3%

Was just told that they will make the 2021 SH deposits prior to 12/31/2022. I never worked with this before as I always make sure all deposits are made timely i.e. by the due of corporate tax return, in this case, 9/15/2022.

When performing 410b+401a4 testing for 2022 projections, do I need to include the 2021 figures? There is plenty of room for deduction, so it is not an issue.

Thank you

We sent in extensions for both 2/28 and 3/31 and so far at least one in each batch was rejected even though we are 100% certain we mailed them in at least a few days before the due date.

Anyone having the same issue?

I have a potential client that is possibly looking to establish a 401(k) Plan before the end of this year. It is too late to make this a Safe Harbor Plan as we are past October 1st. Some time ago I recall reading about a method to maximize deferrals in the initial year using what I think was called the "popcorn" method. Has anyone ever heard of this? You would use this method in the initial year of the plan and then amend the plan the beginning of the following year making it a Safe Harbor. I might be totally off base on this one, but, I thought that I would ask. Either way, Happy Holidays to everyone.

Can't seem to get this straight in my head.  Participant passes away late in 2022 and has already taken his 2022 RMD.  Spousal beneficiary (also a plan participant) has not yet taken rollover of husband's plan balance.  She plans to rollover his balance in 2023 to her personal IRA. 

Is a 2023 RMD required from the deceased participant's plan account prior to the 2023 rollover to spousal beneficiary's personal IRA?  (Both participants are owners, well over age 72 and have already been taking RMDs from their plan account balances.)

If the rule of parity states:
If an Employee does not have any non-forfeitable right to Employer contributions, exclude eligibility service before a period of five (5) consecutive One-Year Breaks in Service/Periods of Severance - No

and the one year holdout state:
If an Employee has a One-Year Break in Service/Period of Severance, exclude eligibility service before such period until the Employee has completed a Year of Eligibility Service after returning to employment with the Employer - No

How far back are we required to look to determine if an employee who joins has any service that should be included because both of these rules do not exclude it? Is there a certain criteria given by the IRS or if it is not determined in the plan document is it like since the company began? 

Hey Relius users - anyone recall where the specification is to tell the system it's a short plan year?  I used to be able to log in to the old relius.net, which had all of those types of questions/answers but I can no longer access that.   The new FIS log in doesn't appear to have a similar Q & A section and I didn't want to have to wait to post an "incident" for such an easy question!

Thanks in advance...

Client has a 401k plan with age 21 and 12 mos service requirement for the purpose of employee deferrals, matching, and profit share.  The client hired two employees earlier this year, both of whom are HCE's (owners' spouses).  Client is wondering if it's possible to retroactively amend the eligibility to 6 mos to allow spouses to defer in 2022?  Or, is it possible to create a new class of employee with separate eligibility criteria for these two allowing them in the plan immediately and leave the age 21/12mos criteria in place for all others.  Plan otherwise passes ADP testing (no employer contributions are being made to the plan) and coverage testing.  

advisor I work with let me know that he has a client that had some employees enroll in 2021, but he never withheld anything, and did not deposit anything for these employees. Can they correct under VCP? how should they handle the fact nothing was ever withheld? I'm having some difficulty trying to figure out the best course of action.

if the SIMPLE is being treated as a qualified plan would be, then I think that this applies:

P test. .05 Exclusion of an eligible employee from all contributions or accruals under the plan for one or more plan years. (1) Improperly excluded employees: employer provided contributions or benefits. For plans with employer provided contributions or benefits (which are neither elective deferrals under a qualified cash or deferred arrangement under § 401(k) nor matching or after-tax employee contributions that are subject to § 401(m)), the permitted correction method is to make a contribution to the plan on behalf of the employees excluded from a defined contribution plan or to provide benefit accruals for the employees excluded from a defined benefit plan. (2) Improperly excluded employees: contributions subject to § 401(k) or 401(m). (a) For plans providing benefits subject to § 401(k) or 401(m), the corrective contribution for an improperly excluded employee is described in the following paragraphs of this section .05(2). (See Appendix B, Examples 3 through 12.) (b) If the employee was not provided the opportunity to elect and make elective deferrals (other than designated Roth contributions) to a § 401(k) plan that does not satisfy § 401(k)(3) by applying the safe harbor contribution requirements of § 401(k)(12) or 401(k)(13), the employer must make a QNEC to the plan on behalf of the employee that replaces the “missed deferral opportunity.” The missed deferral opportunity is equal to 50 percent of the employee’s “missed deferral.” The missed deferral is determined by multiplying the actual deferral percentage for the year of exclusion (whether or not the plan is using current or prior year testing) for the employee's group in the plan (either highly compensated or nonhighly compensated) by the employee’s compensation for that year. The employee’s missed deferral amount is reduced further to the extent necessary to ensure that the missed deferral does not exceed applicable plan limits, including the annual deferral limit under § 402(g) for the calendar year in which the failure occurred. Under this correction method, a plan may not be treated as two separate plans, one covering otherwise excludable employees and the other covering all other employees (as permitted in §1.410(b)-6(b)(3)) in order to reduce the applicable ADP, the corresponding missed deferral, and the required QNEC. Likewise, restructuring the plan into component plans is not permitted in order to reduce the applicable ADP, the corresponding missed deferral, and the required QNEC. The QNEC required for the employee for the missed deferral opportunity for the year of exclusion is adjusted for Earnings to the date the corrective QNEC is made on behalf of the affected employee. (c) If the employee should have been eligible for but did not receive an allocation of employer matching contributions under a non-safe harbor plan because he or she was not given the opportunity to make elective deferrals, the employer must make a Page 84 of 140 corrective employer nonelective contribution on behalf of the affected employee. The corrective employer nonelective contribution is equal to the matching contribution the employee would have received had the employee made a deferral equal to the missed deferral determined under section .05(2)(b). The corrective employer nonelective contribution must be adjusted for Earnings to the date the corrective contribution is made on behalf of the affected employee.