Company has a PTO purchase program under its cafeteria plan in accordance with Proposed Regs Section 1.125-1(o)(4).  The program provides that unused elective PTO will be cashed out before the last day of the year.  If the cash-out payment satisfies the definition of "Compensation" under the Company's 401(k) plan, is there anything that would prohibit employees from deferring the cash-out into the 401(k) plan?  Would this somehow be considered a violation of the prohibition against deferred compensation under a cafeteria plan under 1.125-1(o)(4)?  I can't seem to find any guidance on this.  Thanks!

I have a 1 participant 401k/PS (sole prop.) plan that received 100% of excess assets from a terminated DB plan in 2017. Plan was amended as a QRP. The QRP has been funding the ERPS contribution beginning in 2017.   The owner/TEE opted to invest these assets as opposed to keeping them in a non-interest bearing account.  Year 7 will be 2024 and based on the MV as of today, it looks like there will still be assets remaining in the QRP.  Can someone advise me on what the excise tax will be for any remaining assets that revert back to the ER.  Is there anything else I should be advising my client on with respect to this situation?  Thank you.

Hi, 

The plan termination date is 10/07/2022, and all contribution has been completed.  Since this is a safe harbor plan will a safe harbor notice needs to be sent to the participants?  The 30 days notice. 

Thanks 

I'm sorry, I'm horrible at searching for the answer.  

If a small business (husband and wife) in Alaska bring in employees to help during the summer and those employees are leave never satisfying the eligibility requirements (1 year, 1,000 hours, last day) , can this plan still be considered owner only and file a form 5500-EZ?  

Good morning!  Just want to make sure there's no issues with another Plan we are taking over:

1) They fund their Safe Harbor Match on a payroll-by-payroll basis.  If someone opts to start contributing in the middle of the year, can they simply match from that point forward (calculated on a payroll basis) or do they have to do the calculation on the full years salary and true the participant up?

2) The prior TPA allowed them to include commission compensation for the sales staff, but exclude it for everyone else.  Is that something people have seen before, where the definition of compensation is different, based on the class of employee?

Thanks in advance everyone!

Until about a month ago I was certain I knew how this worked, but I am getting push back from a plan sponsor and their legal counsel. I am hoping someone here may be able to point me to guidance (even if informal) on how this should work.

Traditional average pay DB plan. Pension plan formula is based on the highest consecutive 12 months of earnings. Plan year is 7/1 - 6/30. Earnings are as follows:

• Plan Year beginning 7/1/2019= 400,000; 2019 comp limit = 280,000
• Plan Year beginning 7/1/2020= 300,000; 2020 comp limit = 285,000
• Plan Year beginning 7/1/2021= 325,000; 2021 comp limit= 290,000

Approach 1: apply the comp limit to each 12 months of earnings, then look for the highest, and divide by 12 to get the FAE. In this case, that would mean using 7/1/2021-6/30/2022 earnings capped at $290,000/12 = $24,167.

Approach 2: find the highest 12 months of earnings, then apply the cap, and divide by 12 to get the FAE. In this case, that would mean the highest 12 months of earnings is $400,000 in 7/1/2019, capped at $280,000 /12 = $23,333.

I recall the recommendation that a contribution to a DC plan, even just a small deposit, should be contributed at least once every three years in order to show the intent of permanency.  This was presented to me as a guideline rather than a regulation.  Presuming this is not a regulation, if the sponsor of a profit sharing plan has said it will not make contributions for at least five years, would the plan be required to be frozen via amendment if it is to keep operating?  If so, what would be the latest effective date for the amendment, the start of the fourth plan year after the year for which the most recent contribution was made?  Due to the plan holding many illiquid assets across numerous accounts, the sponsor has said it would be preferable to keep the plan going and pay admin fees than to try to liquidate/rollover the assets and then go through the trouble of starting up a new plan sometime in the future.            

Facts:

401k Safe Harbor with Cross Tested Profit Sharing.

Employer formed LLC effective 1/1/2021, was sole-prop for 20+ years prior to this.

First payroll date was technically 1/12/2021, with bi-weekly payroll thereafter, however, the new LLC bank account was not yet established so all employees were paid a reasonable "Advance" on 1/12/2021 equal to estimated pay (estimated hrs * hrly rate reduced for estimated taxes etc). All employees are hourly paid. It should be noted the 401k estimated deferrals were not remitted over to the plan at this time. The plan was to reconcile all with the 1/26/2021 pay date, in the new LLC account with the new system being implemented.

Thereafter the new LLC business account was established, new system set-up, and the first official payroll was processed for 1/26/2021 pay date. With this payroll, the bookkeeper logged all hours year to date (i.e. including hrs for pay date 1/12) making gross wages correct for year to date (both 1/12 and 1/26). Taxes and 401k* were determined, the "1/12/2021 advance" figures reflected,  and the resulting net pay to employee determined. *Herein lies the problem: only 1/26 pay date's 401k amounts were accounted for, missing were the 1/12/2021 amounts. Total 401k reported as of 1/26/2021 $956.25 -- this amount was short by the 1/12/2021 payroll's total 401k withholding $922.50.

Good news/bad news: The bookkeeper caught her mistake when she remitted the deposit over to the Plan and deposited $1,878.75 -- 1/12/2021's $922.50 plus 1/26/2021's $956.25. (This 1,878.75 matches the employee deferral elections in place and gross wages paid.)

Only problem was she never went back into payroll and made adjusting entries to "account" for the correct 401k amounts remitted over to the Plan. Therefore, the three participants affected received the $922.50 in their net pay (i.e. in their pocket). Because of this the W2s are correct as issued.

Questions:

Can the $922.50 be deemed an employer corrective contribution and a notice issued at this time, or, should it be considered an "unallocated suspense" amount to be applied at a later date? My concern with the former is that it is more than the prescribed correction -- is this acceptable (can correction be more than guidance prescribes) or is it prohibited?? And if the latter, can the employer apply it towards the 2021 Safe Harbor (3% non-elective) contribution to be deposited by 10/15/2022?

If the $922.50 can not be deemed an employer corrective contribution at the time is was deposited, a correction is needed for the missed deferral opportunity (1/12/2021 pay date). Is it the missed known amount per participant or 50% of the average NHCE deferral rate?

All employees are still employed; no Correction Notice has been distributed. It is a balance forward plan.

Thank you so much.

Background:
A potential client adopted a one-participant 401(k) plan (AKA Solo 401(k) plan) in 2015. The plan assets were over $250K by the end of 2020 and the brokerage account services provider didn't file Form 5500-EZ.

Question:
1)    Can this plan use the Penalty Relief Program for Form 5500-EZ Late Filers to fix the error?

       https://www.irs.gov/retirement-plans/penalty-relief-program-for-form-5500-ez-late-filers

2)    Are there any additional things I need to take into consideration?

I have a combo plan - 401k PSP and CB plan - and the documents were signed in February 2022 for the plan year effective 1/1/2021 (calendar year plan).  

Does SECURE allow for us to "skip" 2021 filing since it was signed in 2022?

Recovering from Ian here...Thanks!

We have a new client for 2022 that has a profit sharing plan. There have been no contributions to the plan since 2017 (there will be no future contributions) and in the adoption agreement we prepared for them effective 1/1/2022 we indicated that the plan was frozen on 1/1/2022. Their previous TPA never amended their adoption agreement to show it as frozen. We aren't terminating the plan because there are several investments (real estate, private equity) that are not liquid and for some reason the owner doesn't want to find an IRA custodian to deal with it. 

When the plan was established in 2013 there were two 50/50 partners and no employees.  They filed Form 5500-EZ's from 2013 through 2017. They hired an employee mid-2017 who became eligible for the plan on 7/1/2018 but has never received a contribution so has no account balance. They have filed Form 5500 (Schedule I) from 2018 - 2021.

Partner A bought-out Partner B mid-2021 and Partner B's profit sharing plan account balance was rolled-over to an IRA on 12/31/2021.  Now we have a single-member LLC as a plan sponsor for 2022 with one account balance and one employee who does not have an account balance and never will.

Can we file Form 5500-EZ for 2022 forward or are we stuck with Form 5500? I am questioning whether or not the employee needs to be considered a participant because while the plan was not amended to be frozen, it has been frozen for all intents and purposes since 12/31/2017 which was before she became eligible.

In case anyone not aware--all parts of Florida are extended until 2/15/23.

Asked by someone as i never heard of this before.

Can they file the 5500-EZ before certifying schedule SB?

Thanks

Client is a high end restaurant where employees are paid a minimal wage, with income primarily from tips.  (They get very good tips.)  While these tips are actually reported on on Form W-2, they are not paid through the firm.  Instead, the employees declare tip values to the employer, who then includes in records for taxes and such.  When taxes, health premiums, etc... are applied, many of these employees actually owe the firm money and must pay back the firm these costs with a check they provide to the employer.  My first question is are these employees required to be covered?  Looking purely from an IRC 410(b) Ratio Percentage, the answer would be yes.  (They are a big chunk of the workforce.)  Another concern is that these employees have no monies paid under the payroll system that could be deferred, outside of a personal check the person writes and gives to the firm to pay back any deferral processed through the payroll system.  From a "paycheck perspective", these employees have zero income (no check) but do show W-2 Wages from the tips they declare to the employer.  So how can such a person make a deferral?  My guess is that they make the election against the "W-2 Wage Amount"  (base pay plus declared tips) which the firm contributes, which they employee must then repay to the firm with a personal check.  In summary, my 2 questions are how do you handle coverage and deferrals of these types of employees?

So, we all know the SAR is typically due 2 months after the 5500 deadline.

But is that 2 months from the "real" deadline of 7/31, or is it 2 months from the 8/1 date that came about from 7/31 being a Sunday?

And hey, 10/1 is a Saturday so now can we go up to the following Monday 10/3?

💣  (blow your mind!)

These blasted things. The DOL has stated:

Section 105(a)(2)(B)(iii) of ERISA provides that participant-directed individual account plans that furnish quarterly benefit statements under ERISA § 105(a)(1)(A)(i) must include the lifetime income illustrations on only one pension benefit statement in any 12-month period.

So let's look at a participant directed quarterly valuation plan. Suppose the 12/31/2022 valuation is completed, and the valuation and lifetime income illustration is sent on February 15, 2023. Then the 12/31/2023 valuation and lifetime income illustration is sent on March 31, 2024. This is more than 12 months later. What's your interpretation on this? Is it out of compliance? 

Hi -- we have a company that terminated its pre-approved 401(k) plan very recently. The plan timely adopted the Cycle 3 restatement, but did not adopt the interim amendments prior to the termination. The resolutions do reserve the authority of officers to execute any amendments necessary to effectuate the termination, and the assets have not been distributed yet.

Section 7 of Rev. Proc. 2016-37 provides that:

Notwithstanding Sections 5 and 6 of this revenue procedure, the termination of a plan ends the plan's remedial amendment period and, thus, generally will shorten the remedial amendment period for the plan. Accordingly, any retroactive remedial plan amendments or other required plan amendments for a terminating plan (that is, plan amendments required to be adopted to reflect qualification requirements that apply as of the date of termination) must be adopted in connection with the plan termination regardless of whether such requirements are included on a Required Amendments List.

It doesn't say that the amendments absolutely have to be adopted prior to the termination, just in connection with it. So I am wondering if we can make a reasonable argument that the interim amendments can still be adopted in connection with the termination if they go ahead and adopt them now? The resolutions adopting the amendments would of course reference the provisions from the prior resolutions and the Rev. Proc. Or do you all think we should not risk that and just do VCP? There are some timing pressures that make VCP not desirable.

Thanks for your thoughts!!

I understand that for Davis Bacon prevailing wage contributions, they must be deposited quarterly, as opposed to the 401(k) contribution deadlines.

I don't think it's included but has anyone ever reported that on the delinquent contribution line of the 5500?

I have to figure out what kind of penalties there are for this.

I've recently come across a new type of order purporting to be a QDRO.  Colloquially termed "marital" or "post-nuptial" QDROs, these are court orders that transfer property rights to a current spouse but no divorce or legal separation is anticipated; the sole purposes of the court action is to get the court's sign-off on the order.  They're entered pursuant to state domestic relations law (for example, some states that permit them have laws governing post-nuptial agreements, similar to prenup laws). Since these are court-signed orders awarding marital property rights to a spouse pursuant to domestic relations law, they technically satisfy 206(d) and would seem to require approval by a plan. Of course, they appear contrary to the spirit and intent of the law. 

These orders are gaining traction and several law firms are promoting them as a means to get a distribution when a participant is not otherwise eligible under plan terms. There's negligible case law on them. I reached out to the DOL and was told it's not yet an issue on their radar, nor have they opined on it.  All of this is reminiscent of the sham divorce issue about a decade ago, where the court told the administrator to take an order at face value and not dig into the motivations. 

Have any of you come across this yet? Thoughts?

Business owner is shutting down his practice, moving states, and opening a brand new practice.

Although it's the same line of work, for practical purposes he is planning to create a new S-Corp in the new state and shut down the old one.

There are and will not be no other employees.

Any reason he cannot just keep the same 401(k) plan and rename it under the new Corp?