A 401(k) plan has many participants making very small contributions - $4-$5 a week in some cases.  The plan sponsor records participant termination dates with the recordkeeper after each pay period.  The recordkeeper has taken it upon themselves to forfeit small balances for former employees after the plan sponsor enters their termination date.  They are forfeiting employee pre-tax and Roth salary deferrals without any direction from the plan trustees and with no apparent reason other than it's their "policy" not to cut a check for less than $25.  In one instance they forfeited $80 of an employee's pre-tax salary deferrals - about $20 at a time because the plan sponsor made 3 $20 deposits after the employee's termination date was entered.  All of the others we have found were $10 or under.

Has anyone out here come across this practice and is there anything I'm missing that would allow it?  The plan document certainly doesn't say a small balance can be forfeited vesting be damned.  I'd feel better about it if some of the experts on BenefitsLink have experience with similar approaches by recordkeepers and/or have had the IRS or DOL approve the practice.

My question involves the merger during the 410(b)(6) transition period of 2 401k safe harbor plans with the same safe harbor match but Plan A has a plan year ending 9/30 and Plan B is a 12/31 calendar year end plan. The goal is to consolidate into Plan B by 1/1/2023 since the coverage transition period ends 12/31/22. What is the best way to accomplish this? Options I see are 1. freeze plan A 9/30 and adopt Plan B on 10/1 (transition period ends but does it matter?) so participants will be in Plan B with mirror safe harbor match, and then 12/31/22 merger Plan B into Plan A, or 2. change the plan year of Plan B to a short plan year from 10/1-12/31 and maintain safe harbor status, and then since both Plan A and Plan B will be calendar year plans they can merge on 12/31/2022. This option creates 2 5500's as well,  a plan amendment and also the need for new safe harbor notices for the 10/1 short plan year, so it appears more burdensome. I do not think create a short plan year violates the transition period rule? I appreciate any comments, thoughts, help since I have not really had this issue post-transaction. Thank you!

I know many of you must have run into this.

You have a physician client who's practice sponsors a qualified plan. One problem though. The physician has a 10% interest in a Dialysis Center. Oh yes, and he is a Kidney specialist. ASG? Certainly seems like one. They would not want to consider an additional 15 employees for their plan. However, there is doubt (in this case) that his office together with the Dialysis Center provides services for the public. Even though he refers some of his patients there, he also refers some to the other center in town of which he has no ownership interest.

Has anyone run into this type of sticky situation? 

Thanks.

I'm curious to know if anyone has any language for use in a multi-employer plan QDRO that addresses how the AP's share will be affected in the event that the participant receives either a lump sum or installment payments as a result of the Plan's qualifying for funds under the recent Butch Lewis Act?

Thanks in advance! 

If a participant terminated let's say in July 2021 and made no further payments on the loan, but the loan was not reported on a 2021 1099-R, can the EMployer report under a 2022 1099-R under EPCRS?  I think yes.  The program indicates that this is an option in the event of a "deemed distribution under 72(p)."  Even though this is a loan offset when I look at 72(p) it seems sufficiently broad to conclude that what I describe is a deemed distribution under 72(p).  The terminology of course gives me pause so I'm not 100% confident in my  answer...  EPCRS Section 6.07 is the site.

So, suppose the 12/31/2021 statement was already mailed, but without the lifetime income illustration.  Can the illustration be sent now as a "stand alone" or must the EBS be re-sent with the lifetime illustration attached? I believe it is the latter -  I haven't seen anything allowing a stand-alone in this situation - wondered if I've missed anything. 

Has there been any guidance released relating to if or how the Annual Funding Notice should be modified to reflect the funding relief of the American Rescue Plan? I think the interest rate changes shouldn't be a big deal given the guidance from when MAP-21 was released, but should we attempt to demonstrate the impact on the MRC of the change from a 7-year to 15-year amortization period, along with an amortization fresh start?

Hi

Owner only DB plan. Hard frozen in 2021 before any benefit accrual. No income for 2021 and 2022. Also terminating in 2022.

Plan is slightly underfunded.

Software states fails 401a26. No PBGC coverage. Never had any employees.

As no key is benefitting, should pass 401a26 automatically, correct?

Thank you

The IRS is auditing a plan client and requesting proof that SPD's were distributed to plan participants. Further IRS is requesting specific proof that other notices were sent such as benefit statements that are required for DB plans every 3years. This is a small plan and no such proof exists since in most cases the SPD's and other disclosures were hand delivered or sent by regular mail. Participants can't recall specific SPD receipt.   I don't see any requirements under ERISA or the tax code requiring specific proof of delivery of SPD or other disclosures to participants, such as by certified mail. Further, regarding SPD's, even if the IRS claims SPD's were never distributed, becasue of lack of proof, I don't see any penalties under the tax code or ERISA. The only penalty I am aware of  is failure to provide an SPD to a plan participant upon request. No such participant SPD requests were made.

Group:

Client's ESOP is under audit. Along with a number of affiliated entities.

Due to health reasons clients' former TPA resigned in early 2021 and a new TPA was hired. 

The auditor has inquired about an alleged $22k contribution in the plan year under audit (2018).  However, the 5500 does not reflect any

contribution.

I can't seem to reconcile where the former TPA came up with the $22k of contributions.  Nor can I reconcile plan stock forfeitures.

We have already informed the auditor that a former TPA prepared the annual reports and 5500's.  and are working with the new TPA.  I'm well aware that the taxpayer/client may still be held liable for any record keeping fines/tax assessments notwithstanding errors caused by the former TPA.

Q:  Would you inform the auditor that there were no contributions and the auditor's report inadvertently stated that there was a contribution?

This does not change the participants share account values.

Also state that the taxpayer is in process with new tpa to amend the report to properly reflect no contributions.

Thoughts and comments appreciated.

If a US-based employer (with existing 401k plan) establishes a wholly owned subsidiary in Puerto Rico is there a requirement they either a) must setup a PR plan for those employees or b) if they do, is there a requirement to offer same match, PS, etc provisions.  Thank you

This is for my own personal situation. My wife took a new job this year. The 401(k) plan does not exclude pre-participation compensation from the definition of compensation, and it has a year-end true-up (and a 30-day wait before participation).

By my reading, that means she should have been eligible for match on her whole year's compensation, including before she was eligible for the plan, not just her compensation while a participant. Does that sound right? Or does a plan document not need to exclude pre-participation compensation; it's just assumed by default that pre-participation comp isn't eligible unless otherwise stated?

Note that the plan only matches on the first 6% of deferrals, but she deferred 8% each period after she became eligible. That unmatched extra 2% could've been counted toward her her pre-part comp if pre-part comp is eligible. In other words, if you look at her whole year's comp and her whole year's deferral as a percentage of that comp, you get a bigger total match than you do when just looking at the period after participation.

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401(k) provisions (these come from the full plan document, not the SPD which is pretty silent on most this stuff):

- Provides a Match: "ACA Safe Harbor Matching Contribution to each Participant equal to 100% of the first 4% of the Participant’s Elective Deferrals plus 50% of the next 2% of the Participant’s Elective Deferrals to the extent that such Elective Deferral amount does not exceed 5% of the Participant’s Compensation."

- Matching is done by payroll period 

- Has a True-up: "in an amount equal to difference between the Employer Matching Contributions actually made during the Plan Year and the Employer Matching Contributions that
would have been made during the Plan Year if the Employer Matching Contributions were made on an annualized basis and not on a payroll-by-payroll basis."

- Compensation:

  "(a) Unless otherwise specified, the term Compensation means Form W-2 Compensation, and includes (i) elective deferrals under a salary reduction agreement authorized in Section 3.2(b) or under any plan described in Sections 401(k), 408(k) and 457 of the Code sponsored by the Employer; and (ii) salary reduction contributions to a cafeteria plan described in Section 125 of the Code and sponsored by the Employer. 

  (b) Unless otherwise specified, the term Compensation excludes:

   (i) differential wage payments paid while on active military duty;  
   (ii) post-severance compensation (any compensation paid after the last day of employment); and
   (iii)  the following Code Section 415(h) safe harbor exclusions: [fringe, expenses, relo, welfare pmts]"

- Participation: "Eligibility for participation shall commence on the Entry Date coincident with or immediately following the Eligible Employee’s completion of the Eligibility Requirements"

-Eligibility Requirements: "[E]ach Eligible Employee who is not a Participant as of the Effective Date shall be eligible to become a Participant on the first Entry Date coincident with or  immediately following his or her completion of one month of Service and attainment of age 21."

- Entry Date: "shall mean the first day of each calendar month, unless otherwise specified in Appendix B."

Note that despite being capitalized in the plan document (see the excerpt on Compensation above), "W-2 Compensation" is not a defined term in the plan doc.

[I also think there's a typo in the Match definition. The last reference to Elective Deferral -- "to the extent that such Elective Deferral does not exceed 5% of the Participant's Compensation" -- should be to "ACA Safe Harbor Matching Contribution.

Company is acquired and they terminated their 401(k) Plan. The termination Resolution indicates that the Plan Termination Date was 12/30/2021. Mus the CYCLE 3 Restatement, with SECURE and CARES Acts Amendment be adopted before the Plan Termination Date?

Different rules for a Stock sale or an Asset sale?

Thank you.

A sole proprietor showing a loss on his Schedule C.

Is he allowed to have a 401K deferral. 
If he can, what is the maximum he can defer?

The plan sponsor is a 501(c)(3) org and can sponsor a 403(b)... Either ERISA or Non-ERISA.   The CalSavers program requires the employer to have a plan for exemption.  CalSavers is an IRA so I think a Non-ERISA plan would satisfy the exemption, but CalSavers is a little vague about this.  Any knowledge or opinions on this subject?

Thanks

Patricia Neal Jensen, JD, VP

FuturePlan

It seems questionable to me that the following is permissible, but thought I'd solicit other opinions, as it is a sticky question. Thoughts? Thanks!

Plan is a QACA, with 1-year vesting. The plan currently utilizes the Plan Year (calendar) as the vesting computation period.

Client wants to amend the plan, for vesting purposes only, in 2022, to be elapsed time. 

At the very least, even IF it is permissible, it would require a 30 day advanced notice.

Is it permissible?  When the service crediting method is changed from Years of Service to Periods of Service, the participant receives credit for the GREATER of ..."(the Periods of Service that would be credited to the Employee under the elapsed time method for service during the entire computation period in which the transfer occurs, or the service taken into account under the Hour of Service method as of the date of the amendment.)" 

So, let's say a participant has less than 1,000 hours as of the date of the amendment - let's say May 1. Participant would receive 5 months of service as credit toward a "Period of Service." But, let's say participant terminates employment in October, with 1,000 hours or more of service. Participant would only get credit for 10 months toward a "period of service" for vesting purposes, so would NOT have a 12-month Period of Service, but would have had 1-year of service for vesting under the prior method. This would seem to violate the following requirement of IRS Notice 2016-16 for prohibited mid-year amendments. (My emphasis)

1. A mid-year change to increase the number of completed years of service required for an employee to have a nonforfeitable right to the employee’s account balance attributable to safe harbor contributions under a QACA pursuant to the safe harbor rules under § 1.401(k)-3(k)(3) or 1.401(m)-3(a)(2).

I am currently working on a Sched. H in which my predecessor had reported a figure in Part 1 Line 10 for the past few years. The accounts in question are really pooled separate accounts. My predecessor included a Sched. A that was blank for each of the prior years. Trust and Insurance were also checked off for the funding arrangement but no assets are with an insurance company.

My question is if I "move" the value that shown at the beginning of the year to where it should be ( registered investment accounts), will that raise a red flag? If I leave it where it was and make the ending balance zero, FTW is looking for a Sched. A still.

The ending balances would still be the same.

Or do the prior years need to be amended?

Any help would be appreciated.

It is my understanding, the loan gets offset when the participant has a distributable event.  Therefore, if the plan allows for distributions at age 59 1/2, and the participant is still employed. the loan will offset when the participant turns 59 1/2.

But what happens if the 59 1/2 withdrawals are restricted to deferrals only and the loan was taken from deferrals and match?  For example, a $10,000 loan was taken: $6,000 from deferral and $4,000 from match.  $5,000 was paid back, so his loan balance is $3,000 in deferral and $2,000 match.

Loan defaults, deemed distribution processed.  Participant still employed, and turns 59 1/2 on May 1.  Plan allows for distributions of deferrals only at age 59 1/2.  So he has a distributable event (for deferrals) on May 1.  Does $3,000 get offset?  All $5,000?  None?

Having a discussion about this.

What do you consider a plan related expense?

Thank you

Hi

I know this was discussed before but cannot find it.

A sole-prop has multiple business's and files multiple schedule c's. Let's call them X, Y and Z. No employees.

Pension plan is sponsored by X only.

X net amount is 200k - only sponsor of the plan.

Y net amount is 50k

Z net amount is negative 75k.

If I recall correctly, net c for pension is the sum of all 3 i.e. 175k and this is the amount se tax needs to be calculated.

Do I recall correctly?

Thank you