I have just be hired by an employer that has not filed Form 5500 for many years.  The employer can only find records for 10 years  They are missing records for more than 10 years. Will the missing years be a problem if they go though the DOL's Delinquent Filer Program.  Will the relief only apply for the filed years?  Will the employer be subject to full penalties  for the years they cannot file?

Larry Grudzien

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Are services as a directed trustee considered "fiduciary" services as contemplated by this exemption? I would expect that it is really aimed at preventing self-dealing, and the residual fiduciary obligations of a directed trustee do not rise to this level.    

Of the many tax-qualification conditions and other rules a recordkeeper’s system hopes to help a retirement plan’s administrator apply, a few might turn on whether a participant is an employee or is a self-employed individual (who might be treated as a deemed employee).

Among these, a § 414(v)(7) restriction against non-Roth catch-up deferrals does not apply to a participant who is a self-employed individual (who has no FICA wages).

I’ve seen in recordkeepers’ systems Yes-or-No indicators for whether a participant is: union-represented, treated as an insider for trading in employer securities, an officer of the employer, or a super-officer.

Does a recordkeeper have an indicator for whether a participant is an employee or is a self-employed individual?

(I recognize a use of this depends on the census information furnished to the recordkeeper.)

A sort for participants who might be § 414(v)(7)-affected might look for those with compensation that suggests that FICA wages for a relevant year might exceed $145,000/$150,000. But without a further sort, that might result in “false positives” by including deemed employees who have compensation but no FICA wages. (Imagine a professional-services business in which hundreds of workers are partners.)

Could an employee-or-self indicator sort out this out?

If a recordkeeper lacks such an indicator but has a field for ownership percentage, might one use that as a way to classify a self-employed individual? For example, if a worker’s ownership percentage is less than 1% (so it doesn’t trigger other rules) and perhaps as little as 0.0001, could that classify the participant as one who can’t be § 414(v)(7)-affected?

(I’m mindful that an employer has the facts, and could control the plan administrator’s communications. But I seek to learn about what communications a recordkeeper can do without the employer/administrator’s effort.)

Both former spouses work in the same company. If the rollover due to QDRO is moved from one spouse's 401(k) account to another's (within the same plan), would it be considered a Related Rollover or an Unrelated Rollover (for Top Heavy purposes)?

Thanks,

An employer wants to have a 3 month eligibility and 520 hours worked within the 3 month period.  I was very confident telling the employer that if you want to attach an hourly requirement to a shortened eligibility period, using 1,000 hours for a 12 month period as my base, hours would need to be prorated accordingly, i.e., 250 hours for a 3 month eligibility period.  The advisor pushed back, asking for the document provision that does not allow 520 hours worked in a 3 month period.  Reviewing the adoption agreement and basic plan document, there actually is nothing in the document that prohibits having this in the adoption agreement.

The employer is aware of the LTPT rules and also aware that no matter what the plan's eligibility requirement is, if an employee completes 1,000 hours in a 12 month period, they must be allowed to enter the plan unless they are in an excluded class.

Does my alternative arguement to not allow this in the document hold water?

While the document allows flexibility, IRS rules under IRC §410(a) still apply:

• A plan cannot impose eligibility conditions that effectively prevent participants from qualifying within the maximum permissible timeframe.

• If you reduce the service period to 3 months, the required number of hours must be reasonable for that duration. 520 hours over 3 months (~40 hrs/week) is seen as unduly restrictive by IRS standards.

Therefore, even if the document doesn’t prohibit it, adopting a 520-hour rule in a 3-month window could jeopardize plan qualification if audited.

I'm having a lot of trouble with the 280G rules.

I have a Disqualified Person who is 100% vested in separation pay.  If the DP leaves for any reason, she gets a big payment.  She also gets the same big payment (same $ amount) if she is terminated within 6 months of a change in control.  We are going to have a change in control and she is going to be terminated.  I don't know if the separation payment should be included in the parachute payment calculation.

• On one hand, she is already vested in the total amount of the payment and would have received the payment upon termination regardless of the CIC.
• On the other hand, she is being terminated in connection with the CIC, so the payment is contingent on an event related to the CIC.

The question is, does the payment go into the parachute payment calculation?  Since she was already fully vested in the payment, is there some discount on how much is included in the parachute payment calculation.  I know the regulations provide rules for "vested" amounts that are accelerated due to the CIC, but I don't know if that applies here -- and even if it does apply, we have no idea how much the payment was accelerated, since we have no idea when termination would have occurred if not for the CIC (would she have worked 5 more years?  15?).

Unfortunately, it gets more complicated than that, but the above is the "easy" version of the issue.

I would really appreciate any insight (with the recognition that no one is providing legal advice).

With the new rules, must plans allow all participants the ability to make Roth deferrals?  Or can a plan just have the Roth only for when it's required for catch-up?

2 hypothetical scenarios so making things up:

Scenario 1: A QRP receives 105k in excess assets from a DB plan and will allocate in 7 years. It is invested in a 0% interest bearing account.

Year 1 must allocate 15k (1/7th of 105k) so end of Year 1 balance is now 90k

What are the Year 2 and Year 3 requirements assuming minimum will be allocated

Scenario 2: Same as above with the exception it is invested in an account that will have 10% return

Year 1 must allocate 15k but now end of Year 1 balance is 99k

What are the Year 2 and Year 3 requirements assuming minimum will be allocated?

Thanks

Internal Revenue Code § 414(v)(7)(A) sets $145,000 (inflation-adjusted) as the limit on a preceding year’s FICA wages for a participant not to be constrained to make age-based-catch-up elective deferrals as Roth contributions.

Here’s the “Cost of living adjustment” provision: “In the case of a year beginning after December 31, 2024, the Secretary shall adjust annually the $145,000 amount in subparagraph (A) for increases in the cost-of-living at the same time and in the same manner as adjustments under [I.R.C. §] 415(d); except that the base period taken into account shall be the calendar quarter beginning July 1, 2023, and any increase under this subparagraph which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.” I.R.C. § 414(v)(7)(E) https://www.taxnotes.com/research/federal/usc26/414?highlight=414.

Assuming all relevant years are calendar years:

I estimate that, for 2025 FICA wages to drive how § 414(v)(7) applies for 2026, the $145,000 will become $150,000.

BenefitsLink neighbors, is this likely?

Or would a § 415(d)-method calculation come out differently?

Two related companies filed their MEP 401(k) plan's single 5500-SF annually over many years. The common ownership ended, and the MEP split into two separate plans effective March 31, 2024. I am trying to understand how to handle the 2024 5500-SF reporting for one of the companies - the one that became my client just recently. 

Was a short plan year filing due for the MEP? I do not think one was done. Can either company file a full year 5500 for 2024? What should be considered in order to make these determinations?

On Jan 1, 2024 we implemented a loan policy that allows a loan on the amount of 50% of vested balance not to exceed $50k.  When our recordkeeper updated the system to reflect the new loan policy, they did not include the 50% of vested balance part.  We had 12 employees in 2024 take out loans in excess of the 50% of their vested balance.  Some loans were 90% or more of the vested balance.  This is 100% fault of the recordkeeper as they have admitted.   What recourse do we have against the recordkeeper?  What options for corrections do we have.  The recordkeeper showed us one option where the participant will have 60 days to pay back the excess or it will deemed a distribution.  Has anyone else experienced this type of failure?

I have a question as to whether this spin off 401k plan is grandfathered or not for purposes of the mandatory automatic enrollment. Plan adopted a PEO on 2/1/2023. Plan spins out into its own single employer plan on 1/1/24. Is the plan required to adopt the mandatory AE provision under Section 101 of SECURE 2.0? Thank you!

What websites do folks prefer to use when looking up actual text of code and regulations? 

Last year my preferred one became Bloomberg https://irc.bloombergtax.com/public/uscode/toc/irc

Because it included the full cite on each line and I did not need to scroll up to figure out if it was (k)(9)(ii) or whatever. But that seems to have gone away. At least it doesn't display for me. 

Does anyone else use a free website that has that particular formatting? I really got used to having it. 

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Our client currently has a money purchase plan. They no longer want the money purchase plan and want to replace it with a 403(b) plan. Would it be considered a merger? Or do we have to terminate the MP plan?

Are there any special considerations when doing this? 

Provider is telling us that we cannot change the investment provider mid-year. So for example, let’s assume it is February and the pan sponsor wants to move from Fidelity to Charles Schwab (neither Fidelity nor Schwab are involved here they are just an example). We are being told nope not an option you can’t leave us until January 1 next year. I believe it has something to do maybe with form 5305.

Even if there is something that is technically true about this it just seems bizarre that a sponsor would be hamstrung from making a change for better pricing / service because of a technicality. Have others heard of this? Are they being too literal or risk averse? This would basically mean the sales process for SIMPLEs is shut down for the first 7 or 8 months of the year…

In determining whether a one-participant plan has exceeded the 250,000 threshold, all one-participant plans of the *employer* must be aggregated.  Does the *employer* include members of an affiliate service group?  There are one participant plans sponsored by different members of an affiliated service group.  Citations to the statutes or instructions are helpful but not necessary.  Thank you.

A plan sponsor is looking to adopt a retroactive amendment effective 1/1/25 to change their safe harbor match plan to be a safe harbor nonelective (3%) plan, primarily because of the gateway test benefits for their profit sharing. Are they legally allowed to reclassify the safe harbor match contributions they made from 1/1/25 to now as non-elective, essentially using it as a kind of credit when they true up at the end of the year? That would result in everyone having gotten a 3% contribution for the plan year. On one hand, my instincts say that adopting the amendment as of 1/1/25 would mean the safe harbor match provisions would no longer have been in place, so it wouldn't have to stay as match, but on the other hand it feels like it could be sketchy as it was made under a different contribution source structure. Anyone have insight on this?

I vaguely remember reading that you no longer needed to file a Form 5558 and that the extension was automatic.  Am I mis-remembering something?  Or is it that they can now be filed electronically for the 2024 Plan Year, as opposed to sending the paper filing?

With the deadline on July 31, I wanted to make sure I wasn't just imagining something.

Thanks in advance!