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I have a client who just got a call from a "former participant" requesting to cash out his profit sharing plan account balance. 

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Is there a way to get the job listing posts out of my stream?  I find they are clogging up my feed.

At this point, going on nearly NO details - just a quick second-hand question based on a phone call from a plaintiff's attorney. We will of course be telling the client to talk with his legal counsel. But as much as I understand the situation so far:

A participant terminated employment in 2023. He was an owner, and was bought out. Apparently, there is some sort of a lawsuit - the nature of which I have no idea, but the terminated participant is apparently getting some sort of settlement, and wants to know if he can contribute to the 401(k) for 2025 to save on taxes. The plaintiff's attorney wants to talk to us, apparently.

This is way above my pay grade/knowledge, but I'd like to have some idea for my own background. I "think" I generally have an idea that a "restorative payment" which is determined under the facts and circumstances (Revenue Ruling 20something-25 - can't remember specific number) is not considered a contribution subject to 404, 415, etc., etc.) But this dealt with fiduciary breach-type situations as I recall.

Assuming for the moment that this lawsuit is for other reasons, perhaps wage issues, unjust termination of employment, whatever, if the settlement is considered wages, then if he was still employed by the employer, he should be able to defer up to the normal limit. But, since he terminated in 2023 I don't believe he could defer into the plan. Could he?

Please don't waste a lot of time on this, because as I said, it'll be handled by the client's ERISA attorney, and/or the plaintiff's attorney and/or tax counsel. But for my own edification, if you might have any quick general info based on your experience, I'd be grateful for anything you might care to share. We've been fortunate to never have run into this situation.

Thanks!

P.S. - The Revenue Ruling I was thinking of is old - 2002-45. No wonder I couldn't remember...

Hi

As not being a DC person and dealing with very few DC plans, I have a really stupid question as I could not find anything on it.

Owner only plan, owner (over 50 years old) makes 50k in w-2 and makes full deferral plus catch up.

They are required to have Roth catch up, correct?

The plan also needs to be amended to provide Roth deferrals/catch up as well by 1/1/2026, correct?

Sorry if this was asked before.

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I just want to make sure I am understanding the rule correctly.

Facts:

• Plan doesn't currently allow Roth deferrals
• Owners have SE Income
• 2 owners are 50+ and will defer up to their catch-up limit
• Employees have W-2 wages
• No employees are 50+
• No employees have FICA wages greater than $150,000

They are possibly moving from brokerage accounts to a Platform in 2026, and will likely add Roth deferrals at that time. They would prefer to no allow Roth until they are at a platform because they will have even more accounts to move. 

This Plan is not required to add Roth deferrals NOR remove Catch-up contributions right now because they don't have anyone that the Mandatory Roth Catch-up applies to, correct?

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A client established a 401(k) plan as of January 1, 2020, for which it never obtained a fidelity bond. The plan administrator filed Forms 5500-SF 2020-2022 and 5500s for 2023 and 2024, and correctly check the "No" box for the question of whether during the plan year the plan was covered by a fidelity bond.  The client recently obtained current and retroactive fidelity bonds for all years going back to 2020, and the question is, can, or should, the plan administrator file amended 5500s for plan years 2020-2024 to show that the plan was covered by a fidelity bond?

Thanks for your time!

Employer maintains an FSA plan that provides for a grace period.  Calendar year plan.  Regs state that if it has a grace period it cannot also provide for a carryover.  The Regs state that it can be amended prior to end of year to change.  So, under the Regs, a calendar year plan permitting a grace period in 2026 relating to 2025 could be amended to instead use a carryover to 2026 of unused 2025 health FSA amounts (as limited) if amended by December 31, 2025.  I didn't think you could do it this late but the Regs state differently.  However, Notice 2013-71 states "If a plan has provided for a grace period and is being amended to add a carryover provision, the plan must also be amended to eliminate the grace period provision by no later than the end of the plan year from which amounts may be carried over. The ability to eliminate a grace period provision previously adopted for the plan year in which the amendment is adopted may be subject to non-Code legal constraints."  

Can someone expand on what "subject to non-Code legal constraints" means?  I have some thoughts but would like to hear from others.

Because of differing ways of calculating COLAs, it looks like the 2026 SIMPLE IRA catch-up limit for plans with 25 or fewer employees (or bigger plans where the employer has elected the 1% extra employier contribution) is $3,850, while the catch-up limit where a bigger employer has not elected the extra 1% is $4,000. This is exactly the reverse of what Congress was trying to accomplish.

Am I interpreting that correctly? Thank you!

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I often find it confusing to determine eligibility for rehired employees. The plan’s eligibility conditions are age 21 and 1 year of service, with a monthly entry cycle. The rule of parity does not apply.

Employee A was hired on 4/14/2022, terminated on 9/08/2022, and completed 590 hours. The employee was then rehired on 10/03/2023. If rehired 07/09/2023 what is the case of determining eligibility.

In this situation, should eligibility be calculated from the original hire date or from the rehire date?

Could someone also explain, with examples, how eligibility is determined for rehired employees who rehired within one year versus after one.

These days, for the most part, new plans must have an auto-enrollment feature.

But can the ER stop the auto enroll after a few years?  Or must it be in there forever?

Does Secure address that?

The calendar year end 403(b) plan in question is required to have the mandatory automatic enrollment provision as of 1/1/2025, as per SECURE. That is not in question. The question is how to correct a failure under EPCRS.

The plan document did not include an automatic enrollment provision, and participants have not been automatically enrolled. There is no match contribution. 

A retroactive corrective amendment to add the provision, effective as of 1/1/2025 seems appropriate. 

And then analysis for a missed opportunity to defer - specifically a failure to implement an automatic contribution feature. 

Does it then follow that the plan can rely on the on the reduced QNEC provided in Rev Proc 2021-30 Appendix A part .05(8)? 

"(8) Special safe harbor correction method for failures related to automatic contribution features in a § 401(k) plan or a § 403(b) Plan. (a) Eligibility to use safe harbor correction method. This safe harbor correction method is available for certain Employee Elective Deferral Failures (as defined in section .05(10) associated with missed elective deferrals for eligible employees who are subject to an automatic contribution feature in a § 401(k) plan or § 403(b) Plan (including employees who made affirmative elections in lieu of automatic contributions but whose elections were not implemented correctly). If the failure to implement an automatic contribution feature for an affected eligible employee or the failure to implement an affirmative election of an eligible employee who is otherwise subject to an automatic contribution feature does not extend beyond the end of the 9½-month period after the end of the plan year of the failure (which is generally the filing deadline of the Form 5500 series return, including automatic extensions), no QNEC for the missed elective deferrals is required, provided that the following conditions are satisfied:

(i) Correct deferrals begin no later than the earlier of the first payment of compensation made on or after the last day of the 9½-month period after the end of the plan year in which the failure first occurred for the affected eligible employee or, if the Plan Sponsor was notified of the failure by the affected eligible employee, the first payment of compensation made on or after the end of the month after the month of notification;
(ii) Notice of the failure that satisfies the content requirements of section .05(8)(c) is given to the affected eligible employee not later than 45 days after the date on which correct deferrals begin; and"

This seems like an aggressive interpretation of the correction options but I am open to being swayed that it others think it is perfectly reasonable and not aggressive at all. 

What say all of you?