Senators Durbin, Smith, and Warren implore Fidelity, a non-fiduciary, not to allow retirement plans’ fiduciaries even to consider whether to allow an account that invests in bitcoin as a possible investment some participants might choose for a portion (but no more than 20%) of an individual’s account. https://www.durbin.senate.gov/imo/media/doc/durbin_bitcoin_72622.pdf

The letter’s opening sentence asks “why Fidelity . . . would allow plan sponsors the ability to offer plan participants [a choice about whether to invest in] Bitcoin.” Not openly stated is a worry that some plans’ fiduciaries’ decision-making—about whether a participant should be allowed a choice—might be imprudent.

If one reads the letter as an effort to persuade Fidelity to change its business decision, it asks that Fidelity act as a super-fiduciary, preventing plans’ fiduciaries from making an imprudent decision by not presenting a choice to them.

BenefitsLink neighbors, what do you think: Should a retirement-services provider sometimes recognize that many customers lack enough expertise to evaluate prudently everything that might be offered, and so limit what the provider offers?

We have a 401(k) and and ESOP.  We recently had a 415 violation (one participant) that we are trying to correct.

The ESOP provides that, in the event of a 415 violation, allocations under the ESOP should be reduced as necessary to not exceed the limitation.

The question is, do we have to correct that way?  We would prefer to give the one participant his full allocation under the ESOP and instead correct the 415 violation by kicking out elective deferrals under the 401(k) Plan.  We realize this isn't in line with the plan document, but is this something we can correct by amendment (i.e. amending the plans so that a 415 violation is corrected by kicking out elective deferrals under the 401(k) rather than reallocating allocations under the ESOP)?  Or do we even have to amend -- can we just kick money out of the 401(k) and say that there is no issue anymore that needs to be corrected pursuant to the ESOP language?

Thanks you.

Please note, the failure is for the 2021 Plan Year.

Is the deadline for calendar year plans Monday August 1 since 7/31 falls on a Sunday this year?

Terminating plans with forfeiture balance - there are couple of terminating plans with small balance in the forfeiture account ( example: $ 500 or $1000), the plan sponsor don't have any invoice hence the only option they are left with is to re-allocate to the eligible participants.  The plan sponsor is required to determine the eligible participants for which they will require to refer the plan document, however since the $ amount is less they just don't want to do this and they end up re-allocating the funds equally or on a pro-rata base to the ones who were active during the plan termination.  Now this leads to testing failure.  How can this be avoided is there any exception on the re-allocation, so that they don't fail the testing. 

Client's wife (HCE) contributed $19,500 both to her husband's 401(k) plan, and the 401(k) plan for another company she works for in 2021.  This was discovered in July 2022.

As I understand it, while EPCRS permits the participant to distribute the excess even after April 15, it may not be the best outcome for the participant.  Without going through EPCRS, any excesses remain in the 2 plans, a 1099-R is issued on the $19,500 principal for the year of excess (2021), and the funds, when distributed, become taxable again.

Without EPCRS

The spouse receives a 1099-R for 2021 reporting a taxable event in the amount of $19,500.  20 years later, at age 65, she takes a distribution, and it is once again taxable to her (plus earnings), but without the 10% early withdrawal penalty . . . correct?

Further question:  Is this undistributed excess eligible for rollover, or must it be tracked separately and processed as a taxable distribution (with applicable earnings) when a distributable event occurs?

With EPCRS

The spouse has not attained age 59 1/2.  Therefore she would be subject to the early withdrawal penalty for 2022 when she takes the distribution, and the client pays the TPA to do the painful work of preparing 1099-Rs for both 2021 and 2022.  But, the money is out of the plan, and the problem disappears.

Because the April 15 grace period has passed, does she pay an early withdrawal penalty for both 2021 and 2022?

Ugh, I know I'm overthinking this, but the more I research the worse it gets.

Thank you!

I have a Cash Balance Plan that is about to terminate.  The question is, which participants become 100% vested at termination?

Obviously anyone who is currently active in the Plan becomes 100%.

What about terminated, non-vested participants who have had less than a 5-year break in service (there are former employees who have anywhere from a 1-4 year break, but are not actively working)?

The law says that post-severance compensation can be included if paid within 2 1/2 months of severance.  Our TPA wants to put it in their system that post-severance compensation is included if paid within 75 days of severance.  They says 2 1/2 months is vague and potentially variable (given leap years), so their system would work better if they use a set number of days.

Is this allowed?  Is "75 days" a good faith interpretation of the meaning of 2 1/2 months?  Or should we insist on "2 1/2 months" as the appropriate time period?

I've never actually run into this situation before, (wish I hadn't now...) and I'm struggling with the implications.

A 501(c)(3) non-profit (let's call it Loquacious Lumberjacks) intends to purchase 100% of the stock of a for-profit corporation (let's call it Anteater's Anonymous). Clearly a controlled group under 1.414(c)-5(g), example 1.

LL sponsors a 403(b) plan, that includes a match. AA sponsors a 401(k) plan, about which I know nothing at this point.

Now, LL can continue to satisfy the Universal availability requirement of 403(b) by excluding employees of AA as permitted under 1.404(b)-4(ii)(B). 

However, when it comes to coverage/nondiscrimination testing, I'm not 100% sure how it works. It appears that under 1.410(b)-6(g)(3),  for coverage testing, AA is permitted to treat the employees of LL as excludable employees, as long as they meet a couple of requirements - (1) no employees of LL are permitted to participate in AA's plan, and (2) at least 95% of AA's employees are permitted to participate in AA's plan. Let's suppose they meet these requirements. And under 1.410(b)-7(f), for AA's purposes, contributions to LL's plan are disregarded if AA makes profit sharing contributions (although oddly, the reverse does not appear to be required).

LL does not make PS contributions, so that leaves only matching contributions. For the matching contributions under LL, it would seem that nothing in testing would change, since AA's employees are excluded for Universal Availability purposes, so cannot receive the match. 

I'm not at all certain that I'm not missing something. Any comments would be VERY appreciated.

Should a business owner keep fiduciary insurance policy (because of a QRP while business was active) for a few years after closing or selling their business? This could include ERISA bond coverage, employment practices liability, and a fiduciary and crime policy. Any related thoughts....

401(k) Plan was adopted 1/1/20.

There have been no deposits through 6/30/22.

How long can a plan continue to be a plan without any actual plan activity?

The following may or may not be hypothetical.

HE and SHE are considering becoming Husband and Wife.  Second marriage for both.  Both have adult children from first marriage.  Both age 70.  Both have investments that fall into the common categories:

a)   individual investments, such as stocks, bonds, mutual funds, none of which are part of an IRA or qualified plan.

b)   small cash accounts (checking, savings, CDs).

c)   retirement accounts, including all of the following: traditional IRA, Roth IRA, 403b plan (governmental), and 401a plan (ERISA-covered).  All retirement accounts are individual accounts, not defined benefit.  None of these accounts have reached Required Minimum Distribution.  All accounts existed long before HE and SHE met each other and have no potential beneficiaries other than children.  There are no real or potential QDROs.  All current accounts have named children as beneficiary(ies).

d)   There may be other property with small (but non-zero) value such as vehicle, artwork, real estate, antiques.

Both parties want the following to happen:

• Current retirement accounts will not be commingled.
• Upon the first to die, the retirement accounts and investments of the deceased will remain in existence and the income (and/or RMD) will be payable to (for the benefit of) the survivor.  The principal of the retirement accounts and investments would NOT be available to the surviving spouse unless the spouse's investments become exhausted.  Non-investment property (i.e., items that do not produce income) of the first-to-die (such as a car) might remain with the surviving spouse or go to the surviving children of the deceased (to be determined).
• Upon the death of the second, the ownership of all remaining investments (in all categories above) will pass to the children of the original owner.  For example, if HE dies first, at the time SHE dies, all of HIS investments and IRAs and accounts will become owned by HIS children, and all of HER investments and accounts will become owned by HER children.

What method(s) can be used to accomplish this?

Would the marriage automatically alter any beneficiary designations in effect for any of the above investments or accounts?

Does it require both pre-nuptial and ante-nuptial agreements to document the intent and actions?

What have I forgotten?

Some background:

1. Client currently has a safe harbor match plan (Plan 001) that was restated for Cycle 3 effective January 1, 2022. Document was executed December 2021. I am not aware that this plan has been frozen any time in 2022.
2. Client has decided to add a Cash Balance Plan for 2021 but determined that the profit sharing formula in the current 401(k) Plan for 2021 would not work.
3. Initially, the client requested a new profit sharing only plan (Plan 002) effective for 2021.
4. They have now come back and ask that we add deferrals to Plan 002 effective October 1, 2022 and add safe harbor nonelective at the same time.

My observations:

1. I agree that the client can establish a profit sharing only plan effective January 1, 2021 so long as the document is executed by the due date of the client's extended corporate tax return.
2. Client is an S-corporation, so document would need to be signed by 9/15/22.
3. I know that it is allowable to add safe harbor to a current PS only plan so long as you allow for 3 months of deferrals. So, under normal circumstances, deferrals and safe harbor could be added no later than October 1st and would need to be executed by 10/1/2022, which is not an issue since the document for Plan 002 will need to be signed by 9/15.
4. My concern is the existence of Plan 001 and that the same employees would be covered under both plans in the same plan year.

Can a client sponsor both a safe harbor match plan (Plan 001) and a safer harbor nonelective plan (Plan 002) in the same plan year?  Any guidance and support you can provide would be greatly appreciated. Thanks.

I am curious if anyone has run into a similar situation as a colleague of mine.

Plan assets are well below the $250,000 filing requirement, but Form 5500-EZ has always been filed.  For the 2020 plan year, a filing was made after the extended due date.  The IRS has assessed an extremely large penalty.  When my colleague spoke with the IRS, he was told that since the form was filed (even though it was not required), the penalty applies.  The IRS representative did offer the option to write a letter asking for the penalty to be waived but gave no guarantee of relief.

This makes little sense to me.  (I know, what else would you expect from the IRS.)  What do the rest of you think?

Does anyone have a sample 204(h) notice?  I have a Cash Balance Plan terminating, so it is required to be sent 15 days prior to termination correct?

Thanks in advance!

I have been doing this a LONG time, but I think I may have missed an important class somewhere along the way.

1)  If a plan offers self-direction, the participants are getting monthly statements from the brokerage firm (ie, Merrill Lynch) or online platform (ie, Empower).  These statements should satisfy the quarterly requirement.   I do not prepare quarterly statements because my clients do not wish to pay me to do so. 

2) If a plan does not offer an annuity form of payment, what purpose do these silly things serve?  

Thanks.

I haven't seen any official guidance on the following situation, and I wondered if there was something that I missed?

Suppose a plan excludes "truck drivers" for all purposes. They are excluded even if they have satisfied the plan's 1 YOS/1,000 hour requirement. Plan passes coverage with flying colors.

Now skip ahead to 2024 (*or possibly 2023 if SECURE 2.0 further complicates things). Must the LTPT truck drivers be allowed to defer?

It seems like the grossest type of stupidity if they must be covered, while excluding people in the same employment classification who satisfy a 1 YOS/1,000 hour requirement.

If there hasn't been any official guidance I've missed, anyone have a pipeline with some IRS folks for "unofficial" conversations that they might have had?

Due to an error by the recordkeeper, the vested benefits paid to many terminated participants were understated and balances that should have been vested were forfeited.  This occurred for several years and we are now filing a VCP application to correct.  The participants' accounts will be reopened and the restoration of the vested benefits will come from the plan's forfeiture account.  The missed earnings will be calculated based on the plan's rate of return for the intervening years.  The recordkeeper has acknowledged responsibility and will pay for the missed earnings amount.  

Can the recordkeeper just fund the missed earnings directly (i.e., deposit the amount into the participants' accounts)?  Alternatively, should the earnings also be restored from the forfeiture account and the recordkeeper then reimburse the plan sponsor outside the plan?  

Any downsides to the two approaches?

Thanks for all input and/or past experiences.

We have a Profit Sharing Plan that was sponsored by a sole proprietor.  The business he owns has employees who are participants in the Plan.  The Sole Proprietor passed away.  His will left his assets to a revocable trust.

Does the revocable trust become the plan sponsor?  Can a revocable trust be a plan sponsor?

Has anyone had an issue like this?

Hi, 

One of the participant is trying to rollover his 401k Plan into his SIMPLE however there was no funding for 2 years (into his SIMPLE).  if the there was no funding for 2 years is it true the part will not be able to rollover the funds to his SIMPLE? 

Thanks 

We have an employee who just got approved for LTD after 6 months. He has been working part-time (about 20 hours/week) after his STD expired 6 months ago

He has decided to continue to work part-time. Our benefits eligibility is 20 hours/week 

He currently has a health FSA. Our policy has been to terminate all benefits with exception of continuing medical and employer paid basic life at 1x pay and offering COBRA for dental & vision one someone gets approved for LTD. This is the first LTD who has returned to work 

Can we terminate his health FSA or other benefits since still actively employed and benefits eligible?

Is LTD status a "change in status" event? if so what benefits can be changed?

Our fully insured carrier has a Return to Work Incentive of up to 12 months as long as monthly earnings from job+ LTD benefit not more than 100% of predisability pay

For him to get full LTD he will need to reduce his hours to no more than 16 hours/week which makes him ineligible for benefits

To make things more interesting we are no longer going to terminate anyone on an LTD status so not sure yet how that affects the equation:)

Thanks in advance for any help

Lexy