Most of you probably get the BenefitsLink Bulletins, but if not, see the following. I expect a huge sigh of relief from many places...

https://www.irs.gov/pub/irs-drop/n-22-33.pdf

If a person defers the full 402(g) basic limit with full catch-up, when do the catch-ups occur? If deferrals were pro-rata during the year, do they occur with each payroll period? Or do the catch-ups only occur in months after the basic 402(g) limit has been reached?

I understand that an amount is not a catch-up until the basic limit is deferred.

However, assuming the basic limit is met, what is the crediting date for the catch-ups? For fiscal year plans with 415 concerns, the timing of catch-ups is important, because catch-ups are not additions. My position has been that catch-ups are the last dollars contributed in a calendar year and are not pro-rated for tax purposes, regardless of how the TPA characterizes the timing. 

Imagine this situation: A government employee makes elective salary-reduction contributions under a § 457(b) plan. The plan receives only salary-reduction contributions. Later, the employee is found to have stolen from his employer. In the criminal case’s plea agreement (for a reduced sentence), the defendant agrees to pay restitution to his former employer.

Trying to get money for himself with no setoff or pay-over to his former employer, the participant asserts that the § 457(b) plan must not deny him his distribution because to do so would be contrary to the plan’s exclusive-benefit provision. (Assume the plan’s provision is no more than § 457(g)(1) requires for the plan to § 457(b)-eligible.)

Has anyone worked on or observed a situation like this?

How do you think the exclusive-benefit issue should sort out?

We have a new client who wants to establish a Profit Sharing Plan for 2021.  The client (12/31 FYE)  tells us that they already filed their 2021 taxes (and did not put their return on extension.)

My gut response is 'it is no late' since filing deadline as passed.

Now what is the client filed an extension (deadline now 10/15), but still has already filed their corporate return  last week.  Does this change my response?  I am thinking so, since the corporate return was extended.  Do you agree?

If anyone can provide documentation to support or refute my answers, please provide.  Thanks.

We have a SHNE no PS.  Client (with "help" from broker) decided to add voluntary contributions up to the 415 limit.

Three owners, two are doing the max up to $62K between elective, SH and voluntary. 

To play it safe, ran both ADP and ACP tests, apparently plan passes both on the basis that the unused portion of the employee deferrals were moved over to pass ACP.

Does this make any sense?

Hi

Approached by a hedge fund manager/partner.

They want to set up a 401k plan and invest in their own hedge fund.

Any comments on if can be done?

Thank you

We have a client who needs to correct a missed deferral opportunity.  The error occurred last year over the course of three payrolls.  The plan has auto-enrollment and therefore qualifies for the safe harbor correction method.  This issue is that the participant is terminated and will not receive compensation any longer.  Because the regulations state that:

The plan will correct the deferrals by the first payment of compensation on or after the earlier of:

• 9 ½ months after end of Plan Year when failure first occurred
• Last day of month following employee notification of error

Can the plan use the safe harbor method and not make the QNEC even though the participant will not receive compensation?

Hi, in January of 2022, a participant distribution was processed form funds in a pooled account.  The participant received his net amount, and the employer received a check for the federal tax withholdings.  Now, 6 months late, he is asking us what to do with the check.

My understanding is that it needs to be remitted to the IRS either through EFTPS, or by sending by mail with Form 945 and 945-V.

The client does not want to send electronically.  The only 945 form I can find is the 2021 form, but this is a 2022 payment.

What does one do in this instance when there is not an applicable for for the current year?

Thank you all!

I have a potential client who is having issues with 2021/2022 contributions.  It appears that the prior TPA allowed ineligible participants to defer into the Plan.  What is the normal procedure in this case?

If the money is returned, does the employer have to make the employees whole if the investments are down?

I am the owner of Company X

Company X sponsors 401k/SH/PS plan

As owner, I am eligible to defer, excluded from SH (as HCE) and do not want any PS (no top heavy issues)

Is my salary included for determining deduction limit?

How about, if I only get SH (assume non-elective 3%)

Thank you

Employee Leasing company wants to sponsor a 401(k) for their inhouse employees only. Can they exclude employees leased to other organizations? Are there limitations or testing requirements to consider?

Ever filed a 5558 extension for a one-person plan, and it was then determined that for one reason or another (assets<$250k, or no contribution made by 12/31), that 5500 not needed to be filed. Does the 5558 create an audit problem?

This has to do with an unresponsive new plan sponsor.  We are thinking, if there is indeed an accrued contribution to ultimately file 5500ez on an accrued basis, even though under $250k. However if they ultimately do not make a contribution, there is nothing to file, but a 5558 would have been filed.

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.