We administer a 3 participant 401(k) plan.

It had always been communicated that all 3 were 33/1/3% partners.

For the 2023 plan year (12/31/2023) we prepared and filed a Form 5500-EZ. However, we subsequently found out one of the "partners" was actually an unrelated employee during the 2023 year.

We are thinking of filing an amended Form 5500-SF for the 2023 year, the way it should have been filed. Does anyone think there will be trouble doing this? In other words maybe the IRS will come back and indicate that the original filing did not qualify for an EZ, therefore the amended return (the 5500-SF) is considered late for about 8 months?

Thanks.

With the new Roth Catchup Rules for Highly Paid Individuals starting next year, I am trying to make sure that I understand the Rules for recharacterization.  I understand that one of the methods for recharacterization is In Plan Roth Rollovers (if completed timely and the plan permits).  My question is this:  If a participant is under age 59.5, would this be done as an In Plan Roth Transfer and the 5-year recapture rule apply?  

Some of you help those xls and please help me calculate these 2 owners participants max lump sum distribution limit with most liberal plan.  These owners has the plan invested in the stock market so they have extreme excess so they want max limit and they can change the plan language to whatever you like as long as it's legal.

[1]  Date of birth 10/3/1973, employment starts 5/1/2018, plan start 2021 and plan end 2026, W-2 $140,000, interest rate 4%.

[2]  Date of birth 3/29/1974, employment starts 5/1/2014, plan start 2021 and plan end 2026, W-2 $265,000, interest rate 4%.

If you can share the xls with me, that's super.

Thanks in advance

--Julian

I have to send in a ticket to inquire about this. But, if you are restating effective, say, 1/1/2025, but you have one or more provisions in Appendix A with a different date (for example, adding Roth provisions effective 1/1/2026) the Reference guide, and more importantly, the Summary of Plan Provisions do not properly reflect this - has to be edited manually.

401k plan match was provided in 2023 when participant wasn't yet eligible (90 day mark wasn't hit until Jan 2024). 
Participant has been advised that a year timeframe is when it was supposed to be corrected, they were advised that ERISA guidelines do in fact apply to ERCPS in this case, and that the timeframe for adjustments has passed.

Plan admin is advising that an “excess allocation” which must be corrected in accordance with section 6.06(2). An Excess Allocation is corrected in accordance with the Reduction of Account Balance Correction Method set forth in this paragraph. Under this method, the account balance of an employee who received an Excess Allocation is reduced by the Excess Allocation (adjusted for Earnings).

Who is right? 

And furthermore if the correction is to be made, is the proper method to pull distributed funds from the account immediately? 
 

This question involves a 403(b) plan, but should apply equally to other DC plans. So, employer wants to change to a 18-month cliff vesting schedule.

Not sure this would necessarily work using the standard 1,000 YOS for a year of vesting. An employee could easily have 1,000 hours in less than 6 months in year 2, then terminate, so the "18 month" requirement wouldn't work.

So, what if they use elapsed time. Seems like using one of the "other" options in the adoption agreement, and using elapsed time, you could use 1.5 years (and yes, service spanning could come into play) but I think this would be allowable. Am I missing something? (And I'm not opining as to whether this is advisable or not, just if it is allowable.)

Any/all comments are welcome!

On April 30, Empower announced the Empower S&P 500 Index Separate Account, a zero-expense fund to track the S&P 500® index. It’s available to a retirement plan (but not a § 403(b) plan) that’s an Empower Workplace recordkeeping customer.

If a plan is a target of this offer and has an S&P 500 index fund in the plan’s investment alternatives, is there any reason a plan would not want this zero-expense fund?

Have a company (a) that acquired company (b) via a stock acquisition.  Company B terminated the plan prior to acquisition.  It has been found that company b filed form 5500, but stated in part VII that assets were both distributed to participants, as well as transferred to A's plan in 13c(1).  Would it make sense to have company b amend this return?  Further any issues with company a ignoring even though company b administrators work for them?       

A plan allows rollover contributions once an employee becomes eligible at 3 mos of service.

If the recordkeeper inadvertently allowed 2 rollovers  prior to the participants being eligible in the past year, is a retroactive amendment allowing rollovers immediately sufficient to correct this? 

We have a client that over the past couple of weeks has been paying severance pay due to layoffs.  Included with the severance pay is the participant's unused PTO.

The severance is not eligible for 401(k) but the PTO is.

Question - this payment is done "off cycle"  however, the actual funding of the deferral takes place with the next regular payroll file feed to the recordkeeper.  This means there is a lag of 3 -5 days before the deferrals from the off cycle are submitted.

The client normally funds the deferrals the day of payroll, but the off cycle will be 3 - 5 days before funding. Client is concerned there is an issue and the off cycle should be funded before the regular payroll file feed. - HR is concerned this will mess up payroll and require manual posting.  Also, there may be chance,  HR sends the deferral file and payroll also picks up the payment.

Since the client funds the contributions the day of payroll and waits 3 -5 days for the off cycle the client is concerned the auditors will flag this as a late deposit.  This has always been the practice however the recent layoffs, has caused some concern if this is an issue.

Clearly, the contributions are funded as soon as "administratively" feasible from the date they are withheld. The payment is made well before the infamous 15 days under the DOL reg.

Any thoughts if there are issues with continuing the process as is?

Our firm uses Datair (now CalcAir) and I have to admit, I am blown away by how rudimentary the software is. It has a clunky UI and is not very intuitive, even for seasoned retirement specialists. If you were to choose a new RK software that assisted with making Compliance Testing a breeze, made document building more simplified, etc., what features would you want?

What about a software you could use year-round that helped TPAs managing multiple retirement accounts (401(k), DB, CB, etc.) keep up with their clients' plans in terms of CT and employee eligibility, deferrals, 5500 proactivity, etc.?

Has anyone received IRS approval of a correction in VCP that was less participant-friendly than EPCRS guidelines would have required? (For example, IRS approved a 25% QNEC when EPCRS guidelines would have required 50%?)

For anyone who has filed a VCP application in the last couple of years, how long is it taking the IRS to get back to you?

Thanks!

I feel comfortable about preparing the late filings as well as using DFVCP. One thing I am wondering about is the fact that the plan sponsor terminated the business that sponsored the plan a few years ago and started another business. I do not know whether another retirement plan was started. The client is a dentist, so the type of business remains the same.

What effect, if any, does the termination of the original business - the one that sponsored the plan, have on the late filing process and the Post PPA restatement?

I have a limited amount of money to spend on tehcnical resources.  I find that the ERISApedia Ask the author service is indispensable.  It comes with the qualified Plan eSource.   I am curious if others have done a deeper dive into whether or not the ERISApedia publications are comparable to the ERISA Outline Book.  IT is hard to imagine not havintg the EOB but I am intrigued by ERISApedia's AI functionality, I just watched a demo.

What do you think?

Looking for opinions and code interpretations.

Takeover cash balance plan. Prior actuary was using UP-84 for post-ret AE and CB conversion. TPA taking over administration changed to Applicable Mortality Table. With the new table, the annuity equivalents of the cash balance accounts are lower, which is not unexpected. 

There's some disagreement about whether the change to the annuity value would be a 411 violation. While the annuity equivalent is lower, the plan document defines the accrued benefit as the hypothetical account balance, which is not lower. 

How have others approached this?

I believe this is an easy question but I want to be 100%.  Plan sponsor has 2-1% owners who are employed by the business.  The other 98% is owned by the mother of one of the 1% owners and she does not work for the plan sponsor.

Clearly seems the 1% owner would have her ownership attributed to him then as a 99% owner.  I know some nuances changed in the last several years.

Comments?

Thank you,

Tom

I have a client who is set to terminate their Defined Benefit Plan in conjunction with the sale of their business. It's a stock sale and the buyer intends to continue maintaining the seller's 401(k) Plan. The DB Plan is significantly overfunded. According to the current Plan document, reversions are not an option when handling the distribution of residual assets. Instead, the Plan says any excess should be allocated among participants. We intend to reasonably increase benefits in a non-discriminatory manner and transfer the rest to the 401(k) Plan, which will serve as a Qualified Replacement Plan. The buyer's attorney insists that because the Plan does not allow for a reversion, use of a Qualified Replacement Plan is not an option. He's pushing for a determination letter. It is my understanding that IRS 7.12.1.17.1.2 (11-10-2022) explicitly says we can use a Qualified Replacement Plan in the event that a reversion is not allowed or has not been in place for 5 calendar years. The attorney is still arguing that because such language is lumped in with reversion language, the reversion provision is required. The attorney is also arguing that we would need to amend the document to say we're using a QRP for residual assets. When making use of a QRP, do you usually amend the document to say residual assets will transfer to a QRP? Also, if you could share any references that clearly specify a QRP can be used independent of a reversion, I would greatly appreciate it.

We administer a 70 participant 401(k) plan that does allow for participant loans. The plan loan policy restricts loans to a few categories of need. To pay past due taxes, To use to purchase a principal residence, for moving expenses etc.

They had a participant who they later found that lied on his plan loan application and the loan proceeds were not used for the purpose he stated. The loan has been in place for about 6 months and he is current on all loan repayments.

Because he lied on his application, the plan sponsor wants to demand full repayment of the loan by year end and if that does not happen, they want the balance of his loan to be offset and become a taxable distribution to him.

The plan document allows for an offset that becomes a taxable distribution to the participant in cases of non-repayment or delinquent repayments of the loan. However, the document does not seem to allow for a loan offset / taxable distribution just because he was not truthful on what the loan was going to be used for.

We think that they cannot just offset the loan so it becomes a taxable distribution even if the participant lied about what he was going to use the proceeds for.

Does anyone agree? Disagree?

Thanks.

Most recordkeepers we work with (we are a TPA) allow for online loans.  Their procedure does not appear to have a separate online Promisssory Note for the participant to complete.  

Curious if anyone else still prepares the promissory note in these situations or not.

Thank you

The client started a 401(k) plan in 2022, but did not terminate the DB plan until 2024.  Can excess assets be made to the 401(k) started in 2022, or do I have to start a new 401(k) plan within 12 months of the last distribution?