A company failed to process participants' after-tax elections during January 2024. Company corrected by depositing a 40% QNEC early in 2024. 

Then a handful of participants proceeded to max out their contributions, exceeding the 415(c) limit. (Basically, client let contributions continue in 2024 as if QNEC had never been made; it wasn't factored in when applying the 415(c) limit.)

Essentially, the participants would not have been owed anything if the company had waited to correct because those participants ultimately hit the 415(c) limit.

Is it appropriate to forfeit money out of the QNEC source, with the view that the correction was never required? Or do they have to fix the 415(c) limit issue by distributing the after-tax contributions?

(Side note: I always advise plan sponsors to wait until after the plan year has ended before making corrective contributions, just in case they aren't owed. However, they don't always ask.)

I saw a communication from a record keeper which provided a discretionary match participant notice template.  It seems to imply that a notice is required when any discretionary match has been funded. 

My understanding has been that this notice, due 60 days following the final funding of the match for a plan year, is only needed if the match was a "flexible" discretionary match and that this notice is not needed for a "rigid" discretionary match.

Did I miss a change in the notification requirement?

Thank you,

Tom

Hi

A Happy New Year to all of you. Thank you in advance for any insights on this.

1.  If there are only $76,000 IN ASSETS, in a veba plan. that has not had a contribution for at least 15 years , and all participants in the plan were terminated 10 years ago at least, still required to file a 990-EZ, since assets for all plans for this entity are under 250K? Also, in general is a 990 still required to be filed for Veba plans or a 5500 SF is sufficient? 

2.IF YES, must the 990 be e-filed, and mailing it in is not allowed anymore?

3. Can this Veba plsn merged with a mp plan of the same entity...(with of course properly allocating, ie prorating, the assets for each of the 2 plans annually)?

Thank you, as always, for any insights

If as part of a severance agreement, employees are given funds to purchase COBRA, is that reportable to CMS?  I understand that if a settlement, severance, etc. payment to a Medicare - eligible individual if the payment relates to past or future medical expenses, but if the settlement just includes funds to use for COBRA (we don't know whether they actually purchased COBRA or not), do we have to report?

Another question related to an earlier post -- the employer made an excess contribution to an employee's SEP-IRA in December 2024.  Per EPCRS, the financial institution returned the excess funds plus earnings to the employer in January 2025.  This employee is due an RMD for 2025.  For purposes of the RMD calculation, do you deem his SEP account balance to be exclusive of the erroneous allocation that was subsequently withdrawn (which I would do if this was a profit sharing account that received an incorrect deposit from the employer) or do you treat it strictly as a cash basis IRA balance as of 12/31/24?  To me it's logical to adjust the balance to reflect the correct accrued benefit, but I haven't found any supporting guidance for this position.

Thanks. 

IRS Notice 2024-2 provides some guidance on this. Specifically, I want to see if you disagree with my reading of Q&A L-2:

Q. L-2: If an employee designates a matching contribution or nonelective contribution as a Roth contribution, for which taxable year is that designated Roth matching contribution or designated Roth nonelective contribution includible in the individual’s gross income?

A. L-2: A designated Roth matching contribution or designated Roth nonelective contribution is includible in an individual’s gross income for the taxable year in which the contribution is allocated to the individual’s account. The preceding sentence applies even if the designated Roth matching contribution or designated Roth nonelective contribution is deemed to have been made on the last day of the prior taxable year of the employer under section 404(a)(6) of the Code.

 It seems clear to me that the meaning of this is that "allocated" in this context means "contributed." So if in July of 2025, a profit sharing contribution is made on a Roth basis, even though it is "allocated" for 415 purposes to the 2024 plan year, it is nevertheless TAXABLE to the employee in 2025.

Any agreement/disagreement/other thoughts? Thanks.

Our ESOP lays out the statutory requirements for distributions.  Our Distribution Policy has the details.  Can we literally just change anything in the Distribution Policy as long as we stay within the statutory requirements?

For example, the ESOP says we can require participant to wait until the plan year that is five years after the year of employment termination.  The Distribution Policy says we will distribute small accounts (say, $10,000 or less) in the year following separation.  Can we change the Distribution Policy to say all accounts (no matter what size) have to wait five years?  

This still complies with the statutory requirements and is consistent with the ESOP language, but is it a problem that we are treating similar employees differently (i.e. small account balance participants have very different treatment before and after the Distribution Policy change)?

Thank you!

A plan participant terminated employment in June 2024 with an outstanding loan. The plan permits immediate distributions upon termination.

• The participant received a distribution in June 2024.
• The loan was not offset against with the distribution and subsequently defaulted between September 30th and October 1st, 2024. This appears to comply with the "2-quarter rule" for loan repayment requirements & default.
• As the participant was not rehired, the loan accrued interest from the distribution date until the default date.

Issue:

The participant's 2024 1099-R includes interest accrued on the defaulted loan, even though the loan was not offset against the distribution in June.

Questions:

1. 1099-R Accuracy: Should the participant request a correction to their 2024 1099-R before filing their taxes? Is the 1099-R likely to overstate the taxable distribution due to the inclusion of interest accrued between the distribution date and default date?

2. Plan Policy and Procedures:

   • Are there any specific laws or regulations that address this situation?
   • Does the plan document or loan procedures outline the treatment of outstanding loans upon termination and distribution?
   • Is it reasonable to expect the plan sponsor to actively seek information about the participant's loan repayment intentions at the time of distribution to avoid potential interest accrual?
   • Given the plan's offset provision, why wasn't the loan offset at the time of the distribution?

Is there a requirement to provide notice to participants if a plan is not going to make a discretionary match one year?

Recently I have faced below scenarios and I don't have much clarity on it. Did anyone explain it for me??

My plan doesn't not excluding Union employees and having both union and non union employees. At the same there is few employees who is union is satisfied the LTPT eligibility. Whether these LTPT Employees is included in Union ADP Test or treat them as excluded and not to include in Union ADP test?

Can distributions be made out of a 401(k) plan when the employer is in bankruptcy? QTA has not yet been appointed yet (hearing next week).  All funds have been frozen pending appointment of the QTA.

I apologize if this isn't the proper group to post. 

Anyone use Judy Diamond to obtain updated lists of retirement plans for marketing purposes?

I always thought the DOL website would have similar information but maybe not in a all on one solution which provides reports and analysis based on 5500 filings.

Does anyone use judy diamond? Other marketing provider to target retirement plans for marketing?

Thank you in advance.

We have a not-for profit client who did not direct that a match be calculated and funded for 2023 due to key personnel changes.  Now they realize this and they want to fund a 2023 match. The match is fully discretionary.

We are advising against this since it will go to some former employees who left in 2024.  If they insist, we can calculate on 2023 census and file an amendment 5500 for 2023.  WE are instead encouraging them to fund a more generous match for 2024. 

I guess my questions is - how far in the future can you fund a prior year when you aren't concerned about the tax deduction deadline?

Thank you,

Tom

I am confused about a provision in the recently-issued proposed regs The IRS says that a plan may allow deemed Roth catch-up elections for affected participants who have mistakenly elected pre-tax. The regs also say that a deemed election provision is a prerequire for using the two new correction methods. But wouldn't a deemed elected provision allow a plan to automatically allocate the catch-ups to a Roth account, thereby negating the need to make a correction?

Obviously, I'm not understanding this correctly. Any help would be greatly appreciated.

I have learned that most insurers will not quote, let alone issue, annuity contracts to ongoing defined benefit plans covering individual participants. Does anyone have at least a few names of any insurers that will quote and issue annuity contracts in this context? Thanks in advance.

Some takeaways on the new proposed adequate consideration regulations noted below.  Comments do not predict any revisions by the Trump administration, but the DOL did a credible job in the preamble discussion in terms of rationalizing its positions.

1.  The 1988  proposed regulations have been withdrawn officially.  So it would be very difficult to argue reliance on them in future disputes/litigation.

2.  It will be more challenging to minimize a discount for lack of marketability based on the put option rules.  The DOL notes that the put option belongs to the participant and not the plan, and fair market value is determined based on the plan’s ownership.  This is a change from the 1988 proposed regulations.

3.  It will be harder to justify a control premium.  DOL would expect the Trustee to exercise more authority over management and the board.  It remains to be seen how many trustees want to do this.

4.  The concept of justifying a control premium based on acquiring control in the future per a binding agreement has been eliminated.  However, these transactions have diminished greatly.

5.  ESOP transactions that are designed so as to minimize stock appreciation will be heavily scrutinized.  Preamble references a settlement with a public company involving preferred stock that converted into common upon release based on current value, so that the participants did not receive the benefit of common appreciation based on when the preferred was acquired.

6.  In the accompanying proposed prohibited transaction exemption safe harbor for ESOP acquisitions, indemnification of both the trustee and independent appraiser will be prohibited.  Not part of the proposed adequate consideration regulations, but a reflection of how the DOL views some ESOP advisors.  This view is reflected in the preamble to the proposed regulations.

We have a participant who just took a full distribution for termination and she had an outstanding loan balance. She wanted us to withhold taxes for the outstanding loan balance as well as her distribution so she wouldn't have to pay them. What we did is put the distribution in at Schwab with the total gross balance as the entire vested balance plus the outstanding loan, then calculated federal and state taxes based on that number, then put the outstanding loan balance in "less loan balance" to offset the actual payment amount to be correct. The partipant's accountant is asking whether the loan balance, which is now a distribution and being taxed, is going to be taxed as a part of 2025, when this total distribution happened, or as 2024, when she took out the loan. Will it be a seperate 1099 for 2024 with the loan balance or will it all be part of the 2025 distribution?

Suppose you have a one participant DB where the participant is 77 and has been taking RMDs all along.

His first RMD was taken on March 15 a number of years ago and since his RMD is calculated as an annual annuity payment, every March 15 he has taken his RMD.

As of December 31 2024 the plan terminated.

The plan has obtained his benefit elections and he wants all assets distributed by January 31, 2025. Actually, not a problem as we have everything ready to go.

Question: is it acceptable that his RMD (usually taken on March 15, which would be March 15, 2025) will now be taken on January 31, 2025?

Thanks!

TL:DR--Does Fidelity monitor 402(g) limits for individuals who participate in two unrelated plans if both those plans happen to be recordkept at Fidelity?

I work in an industry that employs highly-compensated people who are often highly-compensated by two employers and are eligible to contribute to two 403(b) plans.   We inform people in a number of ways that the 402(g) limit is a "person" limit as opposed to a separate limit for each plan to which they contribute.  Usually our 402(g) refunds are due to new employees who contributed to both their old and new employers' plans, but I have a case now which I have never seen before.

We received an email from a participant who has two current employers and contributed the max to both plans for the years 2018-2024.   (2018 was the first year she contributed to ours.)  Our advice was "get thee to a tax advisor ASAP" but her response was interesting.  We had previously had our plan recordkept at Fidelity but changed recordkeepers in 2019.  Her other employer's plan is still recordkept at Fidelity and she says that in the past Fidelity had enforced the 402(g) limit because they had access to the salary deferral data for both plans.  She blames her overcontribution on our recordkeeping switch--although that does not explain how she was allowed to defer twice the annual limit in 2018.  

In all my many years in this position I have never seen Fidelity limit any of our participant's salary deferrals based on their deferrals to another plan.  They would give us regular monitoring reports and stop our participants' deferrals when they reached the max in our plan, but never, as far as I can tell, based on activity in another employer's plan.   Fidelity clients, does this make sense to you or is this participant just trying to deflect the blame from her own lack of attention?  I don't imagine this population prepares their own tax returns but I guess it is possible, but it surprises me that a tax preparer or the IRS themselves has not picked up on this before now.

We learned that a CPA was deducting a sole proprietor's deferrals on his 1040 for some years when we were record keeping it as Roth as the client intended.  We will see if the client wants to amend 3 years but obviously the plan recordkeeping must be fixed since this information has come to light.  It goes back a number of years further than the 3-year amendment period. It is a brokerage account not a recordkeeping platform so we reclassify in our admin system.  The client seems to be blaming us and is saying how he lost all this Roth opportunity.  Our questions - did you look at the reports we provide you each year?  Did you ever mention Roth to your CPA?  The CPA just stuck the 415 max on his 1040.

I will recommend Roth conversion for a couple years which will reinstate him back to where he wants to be for the most part.  And I will recommend adding a DB plan to offset the income.  He's a perfect candidate.   He mid 50's, makes $900,000+ and just has 4 younger eligible employees.  He's complaining about lost opportunity because he's says he's in 41% tax bracket now and when retired will be 20%.  He's got this backward!   I estimate that in 15 years his RMD might be $100,000 so if he pays 20% in retirement but saves 41% now - what is the problem.

My approach will be - the tax deduction for years has saved you tremendous amount of taxes. And when distributed you will pay tax at a much lower rate than what you saved up front.  I know some will say - what about tax-free earnings on Roth.  I did an analysis years ago which showed that if the tax rate is the same front end and back end and if tax savings are invested and earn the same rate as the plan, there is no difference between Roth and Regular in total payouts over retirement years.  I know it will be tough to get the client to understand this. 

There was a good article by Larry Starr in the early Roth years.  I will try to find that.  He made good points as to why Roth isn't all its cracked up to be.  Does anyone know of any good published piece questioning the value of Roth for some.  I realize for some it is a good option - low income, those starting out in careers.  And I realize funding as Roth most often results in better retirement readiness because most don't save and invest the tax savings when funding as regular. 

Thank you for any comments.  

Tom