There's a question on the 5500-SF: Has the plan failed to provide any benefit when due under the plan?

If a plan did not process the mandatory cashout, do we answer yes?  

The 5500-SF instructions only reference RMDs.

But does it include other distributions?  Like the cashouts?  Or when someone requests a distribution but it languishes for some reason.

Preparing to start a DFVCP filing for the plan years 2019 through 2023. The plan was terminated during 2019. There were twelve participants (all with balances) at the start of the 2019 Plan Year. At the end of 2019, there were two participants remaining and one of the two had an ending account balance of only $0.75.

We plan to amend the 2018 Form 5500-SF for a couple of reasons. In the process, can we "not count" the participant with the $0.75 balance in the participant counts at the end of the 2011 Plan Year? Would it make any difference? 

Let's say we do count the participant with the $0.75 balance at the beginning of 2019, and the account custodian took the $0.75 as a fee in Jan-2020. Then there was only one participant with a balance, and that participant still has a balance today (May-2025). Can we file a Form 5500-EZ for 2019 if our inactive participant count is two on Jan-01 but only one on Dec-31? 

Keep in mind that we are filing under DFVCP beginning with the 2019 return. If we must file a Form 5500-SF for 2019, can we then file Form 5500-EZ for the remaining years through the plan's final return?

I've just never come across this.  If a participant works over 1,000 hours during the Plan Year but is on FMLA at the end of the year, does that still qualify them as being employed as of the last day of the Plan Year and therefore eligible for a Profit Sharing Contribution?

My gut is the answer is yes, I just wanted to confirm.

Thanks!

Hi

S-corp has 50/50 2 shareholders - unrelated to each other and no other employees

From 2024 EZ instructions

Covers only one or more partners (or partners and their spouses) in a business partnership (treating 2% shareholder of an S corporation, as defined in IRC §1372(b), as a partner)

Looks like 5500-EZ can be filed, correct?

I must be having a senior moment here, but let’s say we have an employee with a W-2 of $25,000 and he contributes $23,500 as a deferral, so the net W-2 is $1,500.

The accountant is telling me the profit sharing contribution can not be 25% of $25,000!

I believe he is confusing the higher wage earner whose max contribution includes the employee elective contribution .

Ford recently denied my claim for my ex-wife’s share of my pension benefits under the General Retirement Plan (DB) that I submitted after she passed away last year.  She had not received any of her share of the benefits.  I took a lump sum for my share when I retired. 

Our QDRO is from 2008 and doesn’t address lump sums (they weren’t offered until 2012).  The key points from the QDRO are:

SHARED PAYMENT APPROACH:  This QDRO utilizes the shared payment approach, whereby the Alternate Payee's assigned share of the benefits remains based on the life expectancy of the Participant.

DEATH OF THE ALTERNATE PAYEE: If the Alternate Payee predeceases the Participant either prior to or after her commencement of benefits, the Alternate Payee's portion of benefits shall revert to the Participant.

The denial letter from Ford includes several excerpts from plan documents on lump sum eligibility and amounts along with QDRO rules for Separate Interest that all seem irrelevant.  There is no explanation except for this last confusing paragraph:

Records indicate that you elected to receive a lump sum benefit payment with a commencement date of August 1, 2022, and your lump sum payment was processed on October 15, 2022. Per the terms of your Qualified Domestic Relations Order ("QDRO"), if the contributing Participant elects a lump sum form of benefit payment, the Alternate Payee's portion of benefit will not revert back to the Participant if the Alternate Payee predeceases the Participant prior to benefit commencement. As a result of the Alternate Payee's election, the portion of her pension benefits will not revert back to you. Exceptions to the Plan rules are not permitted. Therefore, your request is denied.

Is there a valid reason in here that I’m missing on why I shouldn’t get her share of the benefits? If not, can anyone recommend a good lawyer?

For 2022-2025, an employer has contributed an employee's 401(k) deferrals into her personal IRA.  I'm curious if anyone has seen this situation and how it was corrected and/or suggestions on how to correct.

I'm a little bamboozled on this one. Schedule C income is, say, $2,000. Owner "defers" and deposits $19,000 in December of 2024. Accountant tells her she has to distribute it, and Fidelity transfers it to one of her personal accounts, and tells her there are no tax implications whatsoever.

Now, I don't see how this can be classified as anything other than a 415 excess, to be corrected under EPCRS. Excerpt from 2021-30, Section 6.06(2).

Excess Allocations that are attributable to elective deferrals or after-tax employee contributions (adjusted for Earnings) must be distributed to the participant. For qualification purposes, an Excess Allocation that is corrected pursuant to this paragraph is disregarded for purposes of §§ 402(g) and 415, the ADP test of § 401(k)(3), and the ACP test of § 401(m)(2). If an Excess Allocation resulting from a violation of § 415 consists of annual additions attributable to both employer contributions and elective deferrals or after-tax employee contributions, then the correction of the Excess Allocation is completed by first distributing the unmatched employee’s after-tax contributions (adjusted for Earnings) and then the unmatched employee’s elective deferrals (adjusted for Earnings).

Normally, this distribution adjusted for earnings would be taxable. But, since it isn't deductible in the first place, is she only taxed on the earnings, if any? 

100% owner died in 2017 at age 90 - he was obviously in RMD status.  His two sons (who became 50-50 owners of the business) were/are 50-50 beneficiaries of Dad's account.  Dad's money is still in the plan (it's a pooled profit sharing only plan).

The change in the SECURE rules is throwing me off.  How do we determine the RMD factor for, say, 2025?  It looks like the date of birth for the oldest son has been used, but I'm not sure that's correct.

Thanks.

If a plan makes haphazard profit sharing contributions to various people, relying on the "each participant is a separate allocation group" method, must it pass the ratio percentage test for coverage due to the nondiscriminatory classification test in the Average Benefits Test?

A few days ago, a question was asked on this board about issues that might be raised when the plan's investment advisor is approached by a participant for individual investment advice for the participant's personal (non-plan) portfolio.

Looks like this could become a hot issue for plan sponsors as advisors seek to "turn participants into lasting clients".  See this upcoming NAPA webcast:  Grow Beyond the Plan: How to Convert Participants into Lifelong Clients

What sorts of fiduciary issues does this raise for the plan sponsor -- and the investment advisor? What about contractual provisions that the plan sponsor should ensure are included in the advisor's service agreement?

 @Paul I@Peter Gulia

I have a client who was in the process of terminating their cash balance plan with their TPA. They got impatient and wanted to speed up the process. In 2024, they withdrew all the plan's funds from the plan's account and deposited the funds into their business bank account. They intended to distribute each participants' funds, in the proper amounts, from the operating account.

Does anyone have experience correcting an error like this with the DOL and IRS? Could this be corrected under VFCP as a below-market interest rate loan to a party in interest? What do you think the proposed correction under VCP should look like? We have already advised them to transfer the funds bank into a trust account for the plan. Thanks!

It is my understanding that the QDIA is required for affected plans (that employ more than 10 employees) that use the required EACA feature under the SECURE 2.0.

Is there a QDIA requirement for QACA plans also (assuming the plan employs more than 10 employees and must have an Automatic Contribution feature)?

Thanks!

From my quick search in House-passed H.R. 1 (the “One Big Beautiful Bill”):

I found no amendment to titles I, III, or IV of the Employee Retirement Income Security Act of 1974.

I found nothing that would amend the Internal Revenue Code’s conditions for a tax-qualified or eligible retirement plan.

Section 110016 would revise Internal Revenue Code § 25B’s credit to include contributions to a § 529A ABLE account in qualified retirement savings contributions.

Beyond ERISA and the tax Code, amendments of the Administrative Procedure Act, the Congressional Review Act, and other law would call for yet more elements of information to be included in rulemakings and reports to Congress. These could lengthen the work it takes to make a rule or regulation.

Section 112211: “The Secretary of the Treasury may not regulate, prohibit, or restrict the use of a contingent fee in connection with tax returns, claims for refund, or documents in connection with tax returns or claims for refund prepared on behalf of a taxpayer.”

I’m not counting changes to retirement plans for US government employees.

Did I miss anything retirement-plans practitioners care about?

We have an HSA where we make employer contributions at OE only.  Accordingly, mid-year hires do not get employer contributions during their first year.  I know employers have the ability to set their own contribution intervals (e.g. annually, monthly, etc.), so I think this is alright.  But are there any issues with nondiscrimination or comparability rules?

Has anyone started receiving audit request - I have had two of my clients audited in last 2 months

Ian Ayres and Quinn Curtis, in Retirement Guardrails: How Proactive Fiduciaries Can Improve Plan Outcomes (2023), suggest several ideas to improve participant-directed investment.

They suggest that a plan sponsor need not be limited to a binary choice of including an investment alternative, or leaving it out of the plan’s menu. If a goal is preventing some participants’ unwise use of an investment while not depriving participants of the availability of that investment, the professors suggest limiting a participant’s allocations to such an investment.

I’ve seen percentage restraints applied to an employer-stock fund, but haven’t seen this for other funds.

Does any recordkeeper offer a service of limiting, according to the plan sponsor’s specifications, the percentage of a participant’s account that may be invested in a fund?

Imagine an employer believes it can’t or won’t, even with a nondiscretionary service provider’s help, administer an individual-account (defined-contribution) retirement plan. The employer prefers to engage a discretionary 3(16) service provider for as many responsibilities as it will take.

Are there some kinds of plans for which, considering size or some other fact or circumstance, a 3(16) provider won’t offer its services?

Two employers participate in a plan under one company. If a client is going to acquire one of those companies, what are the options for the 401(k)? They can't merge the whole plan into theirs since there is another employer, correct? Is the only option to terminate those employees from the sellers plan and let them roll over into the buyer' plan?

A literal reading of IRS Notice 2024-02 seems to suggest that each person needs to be told their own personal precise amount of 401(k) remaining for 2025 based on their own YTD SIMPLE IRA Contributions:

"Yes. Under § 1.401(k)-3(d)(2)(ii)(D), a notice must accurately describe the type and amount of compensation that may be deferred under the plan for the notice to satisfy the requirements of section 401(k)(12)(D), (13)(E), or (16)(B)(iii) of the Code."

1) the notice is due 30 days before the switch so this is not possible.

2) Nothing in this seems to really suggest that an individualized notice is required for every participant.  We are hearing some say that not only do you have to provide them an estimate of what remains for the year 30 days in advance of the switch, but that you also have to follow up after the switch to provide the exact amount available for the year.

While I can see the interpretation of the text, to me the spirit of the communication is to disclose the total limit available for the entire year between the SIMPLE and the 401(k).  If the above is in fact the requirement, it becomes almost prohibitive in terms of making a transition like this.  Small employers cant always get nice Excel exports, and fewer have the ability to do all of the mail merges needed.

Please tell me what you guys think!