A bit of a brain teaser here.  A proposed arrangement would provide installment payments to an employee (or beneficiary) over a period up to 3 years only upon the employee's disability or death that occurs while employed and prior to a change in control of the employer.  The 409A regs provide that 409A does not apply to a plan to the extent that it provides disability pay or death benefits.  For this purpose, "disability pay" and "death benefits" are defined under the FICA regs.  

The FICA regs (31.3121(v)(2)-1(b)(3)(iv)) provide that payments under a plan in the event of disability are disability pay to the extent that the disability benefits payable under the plan exceed the lifetime benefits payable under the plan.  The regs define "lifetime benefits" as the present value of the benefits that could be payable to the employee under the plan during the employee's lifetime.  Because the only other benefits payable under the plan would be after the employee's death, it appears that the payments upon disability are "disability pay" not subject to 409A.

Similarly, the FICA regs provide that payments under a plan in the event of death are death benefits to the extent that the total benefits payable under the plan exceed the lifetime benefits payable under the plan.  Using the same definition of "lifetime benefits" as above, it appears that the disability payments (which could be payable during the employee's lifetime) would prevent the death payments from qualifying as "death benefits," thus subjecting the arrangement to 409A.  But this seems like an odd result, considering the similarity of the provisions for disability pay and death benefits, so is there an argument that benefits that constitute "disability pay" are disregarded in determining "lifetime benefits" so that the death payments constitute "death benefits" and the entire arrangement is not covered by 409A?  

We don't administer very many plans that have insurance but this particular plan is a one participant traditional defined benefit plan that we inherited. When the plan was established, the proper amount of insurance was purchased (no more than 100x the projected benefit).

Is this 100x rule effective just for the year the insurance was put in place?  I would think so for the following reasons:

1. The company could have an unexpected downturn in business resulting in smaller average compensation and therefore a smaller benefit than anticipated.

2. The plan could be frozen at some point for a few years or so and then the participant might end up with a smaller benefit than what the original projected benefit was.

Thanks.

Noob 2024 testing & 5500 SF questions here:

1. For a 401k plan (accrual basis, Basic match SH w/ Proft Sharing contributions ) with both vendor and brokerage accounts - if a brokerage account includes only one participant out of 30 employees on census and  deposits to that account  total $68000 for example -  is the entire $68,000 included in with the total of the vendor/recordkeeper total contributions on 5500-SF or just the max allowable annual limits by source? In this example 30,500 Roth and max  SH match. The  plan hasn’t decided on PS contribution amount for 2024  

2. How do you determine the contribution source if the brokerage account statements list only ‘deposit’?

This is my first plan with both vendor and brokerage accounts, and I’m unsure how the two are handled together on the 5500, and how the brokerage account deposits are broken down by source  

Thanks!

Is a non-owner spouse considered an HCE for 2024 if they were married to the owner at the beginning of December in 2024? Would the wife be looked at as HCE for all of 2024 in testing?

I'm trying to figure out the rules when a plan is terminated just before the employer is acquired, and its employees are thereafter covered by the acquirer's plan. 

Let's call the acquired company A and its plan, Plan A. The acquiring company's plan is Plan B. The IRS site says that the 415 limit is prorated for a terminating plan, but not in the case of an individual who joins a plan late in the year. And of course, plans of a single employer are combined. 

In this case, presumably Plan A must apply a prorated 415 limit to contributions made before its termination. But because the employees of A have been employed by the same entity all year, and Plan B did not have a short plan year, presumably Plan B must combine its benefits with those of Plan A in calculating the 415 limits for Plan B. 

But does the reverse apply? Must Plan A combine its benefits with those of Plan B in calculating the 415 limits for Plan A? Common sense would seem to say no. Plan A had a short plan year, and no contributions were made to Plan B on behalf of A employees during that short plan year. But I haven't found authority directly on point. 

Is it possible for a plan with a safe harbor match to also offer a discretionary match and still retain its safe harbor status, i.e., avoid adp/acp testing & TH mins?  In other words, a triple stack match without a fixed match - could that still be considered a safe harbor plan?  If so, what would be the limitations on the discretionary match?

I was wondering if a 1099R is needed to report a transfer from a governmental 401k plan to a governmental defined benefit plan to purchase service credits? Form 1099R instructions state to not report a transfer but appear to apply in the context of 403b and 457b plans. Thanks for any insight!

1099R Instructions

For the first time, in an IRS audit, the auditor requested copies of participants' drivers licenses to verify dates of birth. Has anyone else experienced this? While this is a creative way to verify DoB, it seems to be sort of an itrusion as I don't berlieve most employers capture this information. They may visually verify the license when completing the I-9, but not capture the image.

Just curious to see if this is a new ask, generally, or merely confined to one office.

My plan is top heavy for 2024 plan year. Top heavy minimum is required for current year.

However in the mid of the current plan year i.e., on 06/01/2024, plan amended to opt for SH Match contribution (My understanding is that plan is subjected to both ADP & ACP because mid year inclusion of SH contribution). In this case, I think TH minimum is required for non key employees.

There is no compensation exclusion in the plan.

1. If there is DOP comp is excluded, how to handle this scenario.

2. If the plan is opted SH provision, it is exempted from TH minimum if it is had SH at the end of the plan year.

3. TH Minimum is exempted whether plan having either SH Match or SH Non elective with no other Employer contribution.

I'm curious to here any other points or opinions. 

If there, it is helpful by providing provision code or IRS documents which it is explaining.

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.?