Here's the situation: Company A sponsors Plan X, a multiemployer defined contribution plan. The plan allows in-service hardship withdrawals under a more liberal definition than the one used in IRS regulations applicable to 401(k) plans until recently. The plan's primary form of distribution is an annuity, with the ability to elect a lump sum, with spousal consent. Service Provider M filed an application for a determination letter with the IRS and checked that the plan was a money purchase plan. The IRS issued the letter with a caveat that the letter was conditioned upon adopting a plan amendment characterizing the plan as a money purchase plan. The plan has been consistently operated as a profit sharing plan. Company A proposes to file a VCP application with the IRS permitting the plan to be amended to be characterized as a profit sharing plan from its inception. In effect, the plan is correcting the error by plan amendment to conform to its operation. There are no additional qualification errors.  Is the IRS likely to approve the proposed correction?

Employee level question -

Employee elected maximum allowed into employer's Health FSA plan.

Employee is terminating and has 2 questions:

1. Is employee required to submit FSA claims prior to last day of employment (ie mid month), or last day of coverage (ie last day of month), taking COBRA out of the picture
2. Can employee then elect any FSA amount with new employer, regardless of how much was either put into the account of first employer or reimbursed/used at first employer?

Hi

I just did the calculations and the participant gets $3.25. They will make the deposit into the account for late deposits.

@15%, the penalty is 49 cents.

Is there any requirement to file 5330?

This seems so ridiculous.

We found out recently that when we changed plans we did not provide the blackout notice to non-employee participants (i.e. former employees). By the time we corrected the error the new plan was up and running.

Does anyone have experience with this or recommend any steps to take? I've seen the $131/day penalty which gets a little pricey when there were ~40 people who didn't get the notice. Appreciate any help. 

Company A sponsors a traditional calendar year 401k plan. Employee A contributes $19,500 during 2021 (not catch up eligible) to said plan. Company A goes out of business and terminates their plan May 2021. The plan fails the 2021 ADP test and Employee A receives a refund of $9,500. 

Employee A is hired by unrelated Company B. Employee A contributes $9,500 to Company B's 401k plan during 2021. 

Question - can the $9,500 ADP test refund be considered a return of excess deferrals and therefore the 402g failure has been corrected? 

Thank you

I have client who started SIMPLE with less than 100 employees.  They have grown over the years and have exceeded the 100-employee threshold for a few years (beyond grace period).  I see the IRS permits "correction" of this issue via EPCRS VCP -- 

https://www.irs.gov/retirement-plans/simple-ira-plan-fix-it-guide-you-have-more-than-100-employees-who-earned-5000-or-more-in-compensation-for-the-prior-year

by stopping all contributions to the SIMPLE and making the required VCP filing and sinning no more.

Question:  If we make this correction now per VCP, can the client start a new 401(k) Plan to permit contributions for the remainder of 2021?  There does not seem to be any discussion in the EPCRS corrections literature regarding possible establishment of new plan going forward.  For a bit of a wrinkle on this, what if the company is being acquired and buyer sponsors an existing 401(k) Plan and demands the SIMPLE be terminated prior to closing.  Can seller's employees participate in buyer's 401(k) post-closing in 2021?

Thanks

Hi, 

What scenario will fall under the QPLO. 

1. Plan is Terminated, Participants are Terminated On or After that Plan Term Date; Loans are Offset as part of plan action to close out the assets on the plan (within one year of part’s term date):  When participant defaults on the loan after termination but less than one year from termination  is it a QPLO? Can Defaulted loan be a QPLO? I though only active/current loan can be a QPLO.  

     2. Plan is Terminated but not Frozen; Participants are Active and able to Contribute and Make Payments on Loan:  If the participants are able to continue to make loan payments after           the plan has terminated, a resulting default will not be a QPLO because the participant had the ability to make payments but did not, is that correct? 

Thanks

Employer prefunds non-elective contributions for all employees (HCEs and NHCEs) to an EExEE cross-tested plan.  These prefunded contributions are allocated to the accounts of individual participants at the time of contribution, and the participants have investment control of the funds.  The Plan does not have a PYE employment requirement.  Employer adopted a policy saying that allocations for HCEs that leave before year end are at the sole discretion of the employer.  An HCE terminated mid-year.  The HCE had received pre-funded allocations before termination.  After year end, Employer exercised its discretion not to make any contributions to the terminated HCE, and withdrew those contributions from the HCEs account, allocating them to the accounts of other participants.  Can the Employer do that?  What does the Plan need to say to allow it, and what regulations apply?

Thanks in advance.

Employer sponsors a welfare benefit plan – the 2018 Form 5500 was filed with code 4R.  For 2019 the plan was under 100 participants and a Form 5500 was not filed.  The participant count in 2020 was below 100 but the employer was purchased by another company during 2020.  Do we need to file a Final form 5500 for 2020?

Hi, this is my first post here.

Here is the situation. EE received a small paycheck due to working less hours. The Paycheck was for $700 dollars (enough to cover premiums). $200 taken out for Medical insurance ($500 left in paycheck), then a $320 HSA deduction came out ($180 left in paycheck), then a Dependent FSA deduction of $192 was next in the hierarchy order to come out, but because there was only $180 left in the paycheck, the $192 Dep. FSA deduction did not come out (it is coded as all or nothing). Because there was not enough funds for the Dep. FSA deduction to come out, all further deductions stop including her 5% 401(k) election which was next in line to come out.

My question is, did we needed to take out the 5% 401(k) out of the remaining $180 paycheck? (jumping the Dep. FSA deduction), or should we taken out a partial $180 Dependent FSA deduction and no 5% deduction (because the paycheck is down to zero)? Or, is it okay not to pull the 5% deduction and not Dep. FSA deduction and pay the EE the remaining $180 (which is what we did).

I appreciate any help with this.

For a hardship withdrawal, is the 20% tax withholding required?

Thank you

The Employer terminated a Cash Balance Plan and 401(k) Plan 2020.   The last distribution in the 401(k) Plan was June 1, 2020.   Will start new plans effective 6/1/2021 with short plan years from 6/1/21-12/31/21.  Looking for confirmation:

1. Cash Balance participants will earn full Contribution Credit for 2021.   Cash Balance TNC for both minimum and deduction is not prorated and essentially is the same if the Plan was effective 1/1/2021?

2. The maximum annual addition for the 401(k) Plan is prorated for the 7 month plan year.

3.  The maximum Compensation used for allocations is prorated for the short plan year.

4.  Nondiscrimination testing Compensation can be average of 3 full calendar years?   So the Employer Contributions to the 401(k) Plan could be allocated on Compensation after 6/1/2021 but testing is annual Compensation?

Thank you.

I setup a plan for a CPA.  He is a single member entity and files an EZ form .  He called me in a panic this morning after reading the EZ instructions.

Mandatory electronic filing.   A filer must file the Form 5500-EZ electronically using the EFAST2 Filing System instead of filing a paper Form 5500-EZ with the IRS if the filer is required to file at least 250 returns of any type with the IRS, including information returns (for example, Forms W-2 and Forms 1099), income tax returns, employment tax returns, and excise tax returns, during the calendar year that includes the first day of the applicable plan year. If a filer is required to file a Form 5500-EZ electronically but does not, the filer is considered to have not filed the form even if a paper Form 5500-EZ is submitted

Now as a CPA he prepares a myriad of returns for his clients.  He is telling me that because he prepares more than 250 returns on behalf of his clients  that he is required to file his EZ return electronically.   I don't think so and tried to explain to him that my interpretation of the instructions is that if his business files 250+ returns on behalf of the business itself then he would need to file electronically.  Because he as a CPA who prepares returns on behalf of his clients, those returns don't count.    

Correct?

Plan offers loans that are paid back via payroll deduction.

Is there any reason how/why loan repayments can stop?  Can the participant ask the plan administrator to stop loan repayments citing they can't afford it?

"One month of vesting service is provided for any month during which an Employee is credited with at least 1 hour of service."

This seems like one of those unusual circumstances where a provision appears to be quite generous, but just does not check the boxes in the right way. This provision is neither elapsed time, nor based on a minimum number of hours in a vesting computation period.

Therefore, I don't see how this rule complies with ERISA?  Do others agree?

The husband is a Participant in a Plan that will reduce his pension annuity benefits when he begins to draw Social Security benefits, that is, it is an "integrated" plan.  The parties have agreed that the wife will receive 50% of the marital portion of his retirement benefits (and are agreeable to either a shared interest allocation or a separate interest allocation). 

The question is whether or not it's possible to somehow freeze the wife's share of the husband's pension annuity so that her share will not be reduced when the Social Security causes the reduction in the husband's pension benefits.  As you may know, Social Security benefits are not considered to be "marital property", so if I cannot fix the problem her share of his benefits will decrease, and his benefits will increase, by an amount of his Social Security benefits not paid to his wife.  It is too late to consider workarounds like paying alimony equal to the wife's net loss. 

I have prepared QDROs for 33 years and never seen this addressed in any QDRO packages prepared by any Plan Administrator, or any any of the QDRO treatises I have on my desk.  

Thanks for your thoughts.

David    

We have a new client who is tax-exempt as a 501(c)(13) company.  They are looking to establish a 403(b) Plan, but based on what I've read it doesn't look like they'd be eligible to establish one.  Would they be eligible, or would they have to instead go with a 401(k)?

Thanks in advance!

I have an owner-only plan that has no 401k provision, it's pure profit sharing. He W-2's himself $20,000 per month, so he's paid himself $140,000 so far this year.  He would like to contribute $30,000 to his profit sharing plan for 2021 this week. 

His current TPA is telling him that he needs to wait until after the end of the year; that "the rules say" he can't fund it during the plan year. 

I've never heard of this - is there anything in the regs that disproves this? Thanks in advance - 

Sue

https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/temporary-implementing-faqs-lifetime-income-interim-final-rule.pdf

Business will be terminating this year as owner is retiring.  They want to terminate the safe harbor 401k effective 9/30/21 as to get everyone paid out by YE.  Not sure of actual termination date of business but intent is to get everything wrapped up by eoy.  I assume this would qualify as a reason that a plan could maintain safe harbor status for a short year but want to confirm.