Small plan is top heavy.  This year, the net s/e income for each partner was zero (or a small negative)... and of course they already deposited their deferrals during the plan year.

Of course deferrals have to be refunded.  But what about TH?  Does this kick in, and a what rate (since I can't calculate $5,000 divided by zero compensation)?  Or do they get a pass because it's all being refunded?  I remember threads here that discuss deferrals refunded for ADP refunds are still counted, but I think this is a little different.

Thanks.

What are the requirements and timelines for participant notification that they're plan is being merged/adopted by another common owner in a controlled group?  Any input would be appreciated.

The 401k plan includes Basic SH Match provisions, but no one made deferrals in 2023, so no ER SH contribution is required and no testing is required.  Does the question at 14b refer to design only , so SH option should be selected, or is it N/A in a year with no 401(k)(3) testing requirement?

Thoughts?

Thank you.

Back on 9/13 the IRS released IR-2024-236 providing tax relief for Louisiana due to Hurricane Francine. The "IR" release says nothing about Rev. Proc. 2018-58. In most cases though, the IRS releases a state-specific release at the same time as the "IR" release - and this state-specific release will have an "Affected taxpayers" section that typically covers deadlines under 2018-58. But the IRS has yet to publish a state-specific release for Louisiana.

Does anyone know why the IRS hasn't released this and is there any way to confirm whether 5500 and other deadlines related to a qualified retirement plan are extended to 2/3/25 for Louisiana? I tried calling the IRS disaster hotline but the individual I talked to did not understand what I was asking and just directed me to the FEMA page.

I see that we've discussed several issues relating to "overpayments" in this forum, but they seem to be focusing on employer contributions and incorrect allocations.

What about where the plan sponsor deposits too much into the deferral bucket (bad math, or whatever), and the participant takes their immediate distribution.  No other participants were harmed, and I'd argue that the plan doesn't have to be "made whole" because that money shouldn't have been in there in the first place.  Is this just a 'send a letter and if you get the money back, that's great' situation?

Thanks.

The circumstances are that this is 401(k) Plan in transition from one TPA/RK to another. At the previous TPA/RK each individual had a separate account, while at the new TPA/RK there is a core account in which investments are pooled, daily valued with individual balances tracked by RK - the individual accounts (which function the same as a brokerage portal at the custodian). Functionally, each individual had a brokerage portal with the custodian that are then all associated with the Plan's master Trust Account - now that is one investment option available for them, or they can invest in mutual funds in the main account.

During the transition period, an EE entered the Plan; the prior RK would not establish an individual account for this EE, as the Plan was deconverting, and the receiving RK was unable to create an account for them as the master Trust Account & associated individual accounts were not yet registered to the new RK. There was a 'master' Trust Account in the Plan that the deposits flow into and are then transferred to each individuals account accordingly; these are actually separate accounts.

Because the ER was not able to get an individual account opened for this individual, their deposits were sent to the master Trust Account and sat there in cash, uninvested. AFAIK this was not an interest bearing account. Once the transition was completed, the individual completed enrollment including setting an investment allocation and the funds were then invested according to their allocation in the core account.

My understanding is that since the deferrals were segregated from the ER's general accounts and deposited in the Trust Account albeit uninvested, they were not considered late deposits. The issue posed by that is potential liability due to a fiduciary breach.

1. The question at hand is if the ER can allocate lost earnings for this participant for the period they were unable to direct their investments. The ER would like to do so, calculated according to the VFCP calculator.
2. Would depositing lost earnings mitigate their potential liability, if permissible?

Hello, 

For midyear changes - what constitutes an eligible QE for an employee to terminate an HCFSA midyear, and then start an HSA? As background: our FSA is a general-purpose FSA, not limited-purpose nor post-deductible. We recall one of Brian Gilmore's responses on this topic (1/5/2023 "Spouse added FSA, what do I do?" more information below). We want to confirm the following scenario would be in compliance: An employee waived health insurance but elected the Health Care FSA. Then, midyear, they lose their other health insurance (say through a spouse) and that is a QE to allow them to enroll in our health coverage midyear. The employee chooses the HDHP which has an HSA. Question: Does the QE that allows the employee to enroll in health insurance midyear, combined with their choice to elect the HDHP with HSA, also allow them to terminate the HCFSA in order for the HSA to be set up prospectively? We understand from the 1/2023 Q&A referenced above that someone can enroll in an HSA midyear if the HCFSA terminates due to an eligible QE.  If the scenario above is not eligible, can you please give an example of how an employee could make this switch midyear? 

As reference from the previously mentioned Q&A, Brian had noted the information below, and we are looking to the bold section:
"The spouse's general purpose health FSA is unfortunately disqualifying coverage for both the spouse and you. Spending the health FSA down to zero doesn't change that. The health FSA will remain disqualifying coverage for both you and the spouse for the full plan year. The only exception would be if the spouse revokes the health FSA (permitted election change event needed) or terminates (and doesn't elect COBRA for the health FSA)--in which case you could prospectively start HSA contributions on a prorated limit basis (HSA eligibility is determined as of the first day of each calendar month)." 

Thank you in advance for your insight! 

With all the disasters going on, I'd like to confirm the following scenario. This seems straightforward to me, which always scares the heck out of me and makes me assume I'm missing something. Suppose a client is in an officially presidentially declared disaster area. Client had already obtained an extension to October 15. The disaster declaration postpones the business tax filing deadline to (whatever date.) Plan is not a pension plan subject to minimum funding deadlines.

Since 404(a)(6) allows a contribution and deduction for prior year if done by the tax filing deadline, including extensions, then the disaster filing extension presumably also extends the CONTRIBUTION deadline, and not just the actual filing of the business tax return?

Tax law’s remedial-amendment regime often involves a few years’ lags between when a plan’s administrator implements a provision “in operation” and when the provision is expressed in the plan’s document, often an IRS-preapproved document.

For optional changes, recordkeepers seem to get a sponsor/administrator’s instructions—yes or no, this-way or that-way, even if many of these are obtained using implied-assent presumptions.

But what about a required change? If there is yet no document for a plan’s sponsor/administrator to sign or accept (and no choice that need be made), does a recordkeeper inform its customer about a plan provision that changes because ERISA commands it or tax law requires it as a condition of the plan’s tax-qualified treatment?

Imagine a plan sponsor has no lawyer, no third-party administrator, no adviser; only the recordkeeper.

Would such a sponsor/administrator know that it must ignore an exclusion the plan document states (and typically the summary plan description explains) to make eligible for elective deferrals those of its employees who meet the long-term-part-time conditions?

What have recordkeepers been doing? Does a recordkeeper inform plan sponsors? If so, how much does a recordkeeper explain about the long-term-part-time provision?

A CPA asks me, If I have a small business with a DB Plan, 3 owners, no employees. Can they file 5500EZ?

Thank you,

Rene

How is the maximum Defined Benefit calculated for older NRA's like ages NRA 70 or NRA 85? 

Thank you,

Rene

A bunch of employees at our company received this notice on 8/16/24.  None of us were aware that we were part of this program.
To this date, we have not been told anything else or status of what is going on.
What are some of the appropriate options we should be considering?  Just merely wait and see?
Meanwhile, I am one of the employees that was ultimately terminated on 9/27/24, due to cost cutting measures, directly/indirectly tied to this debacle that has apparently caused financial hardship to the "Company".

NOTICE BELOW

"Company" put a retirement plan in place in 2020. We are now actively working to make sure that retirement plan complies with federal and state law.  Even though you are not paid employees through "Company" it has been determined that you should still qualify under the plan.  While the employer will be contributing on your behalf, we have decided to freeze that retirement plan. Attached is a notification to inform you that we are freezing the retirement plan. We are working with third party actuaries to calculate your specific benefit and will provide that information to you very soon. 

To: Participants in the "Company" Defined Benefit Plan (the “Plan”)
From: (the “Company”)
Date: August 16, 2024
Re: "Company" Defined Benefit Plan – Changes in Your Future Pension Benefit

Current Plan Formula

Currently, under the Plan, the annual benefit payable as of your normal retirement age (age 63) is generally calculated as an amount equal to ten percent (10%) of your average annual compensation since the Plan’s inception date (January 1, 2020) multiplied by your years of credited service as of the Plan’s inception date (January 1, 2020), which shall not exceed ten (10) years. The resulting annual benefit will be paid to you as of your normal retirement age under the Plan.

Change to Plan Formula

Effective as of August 31, 2024, the Plan will be amended to freeze the Plan. As a result of such amendment, no Plan participant will earn any further benefit accruals, no further compensation will be recognized, and no further service will be recognized for purposes of the Plan. The amendment will not result in the loss of any pension benefits accrued through August 31, 2024. The benefits accrued as of August 31, 2024 will continue to be held in the Plan’s trust on your behalf as a participant in the Plan and will be paid in accordance with the terms of the Plan.

General Obligations

This Notice is designed to satisfy the Company’s obligation to notify you of a cessation of future benefit accruals with respect to your retirement benefit under the Plan, as required by Section 204(h) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and Section 4980F of the Internal Revenue Code of 1986, as amended. This Notice is intended to explain the changes to the Plan in non-technical terms. Please note that if there are any discrepancies between the information provided in this Notice and the Plan document, the terms of the Plan document will govern. Participation in the Plan is not a guarantee of continuing employment with the Company or any of its affiliates.

Do we know for certain if the increased catch-up limit for ages 60 through 63 is mandatory if a plan allows catch-up contributions, or is the increased limit optional so the same catch-up limit could continue apply to all catch-up eligible as in pre-2025 if the plan wishes to do so?

I've seen what I thought was a reliable source indicate that the change appears mandatory if the plan offers catch-up, but more guidance is required.  I've also just received information from a recordkeeper that is indicating the decision to have catch-up and not have the increased limits is optional.

Thanks.

Many of you know that BenefitsLink is headquartered in the mountains of North Carolina.  Thankfully, we're safe and sound, albeit without cell service and primary internet (thank goodness for StarLink!).

Many around us are not.

We know that Florida and Georgia experienced significant damage. The mountains of North Carolina and Tennessee took a devastating hit. 

Over 2' of rain fell in a large swath of the NC mountains; the runoff put rivers at historic flood levels.  Power, cell and internet service are all down over a large area, roads are collapsed or otherwise impassable, and many homes and small towns are completely isolated -- or washed away. 

Two of the four interstate routes in/out of Asheville -- the two that cross the mountains to the west -- have washed out; a third route (to the east) is blocked in several places.

The damage is almost unbelievable -- and the affected area is almost the size of Massachusetts.

This area is not equipped or prepared for this level of catastrophic destruction.  Mountain people are self-reliant survivors, both individually and collectively, but this will be quite a stretch. 

It will be a long, difficult road forward. 

Please keep all in this area in your thoughts and prayers.  And if any of our BenefitsLink neighbors have been affected, please reach out on this thread - we'll do what we can to help.

Lois and Dave

In my plan design I always put in that vesting does not apply when someone dies or becomes disabled.  How is this applied if the employee terminates, the balance is left in the plan and then they die?   I bumped the vesting up to 100%.  Am I correct?

We have a plan sponsor who created a new 401k plan for the business effective 1/1/2023.  Auto enrollment starts 1/1/2025, but they have only 6 participants, so they can be exempt from the automatic enrollment requirement.  However, if/when they exceed 10 participants sometime after 1/1/205, would they then be required to offer auto enrollment?  That would seem to be bulky in a plan document/SPD to have this entire auto enrollment section but include a blurb that its not effective until the company exceed 20 employee.

Thank you

§ 2530.203-3 Suspension of pension benefits upon employment.

URL: https://www.ecfr.gov/current/title-29/section-2530.203-3 

Citation: 29 CFR 2530.203-3

This section sets forth the circumstances and conditions under which such benefit payments may be suspended. A plan may provide for the suspension of pension benefits which commence prior to the attainment of normal retirement age, or for the suspension of that portion of pension benefits which exceeds the normal retirement benefit, or both, for any reemployment and without regard to the provisions of section 203(a)(3)(B) and this regulation to the extent (but only to the extent) that suspension of such benefits does not affect a retiree's entitlement to normal retirement benefits payable after attainment of normal retirement age, or the actuarial equivalent thereof.

Retirement plans seem drafted to encourage distributions occur only under controlled circumstances. Therefore, individuals who resume employment would seem helpful, as these persons have established an alternate source of income. Therefore, allowing distributions to continue, if against the prerogative of these individuals, seems counterintuitive. To present an analogy, individuals who decide to reduce the sodium/salt intake of their diet, receiving as gifts saltshakers, which do contain salt. The individuals do not request and would prefer not to receive these saltshakers, yet the saltshakers still arrive containing salt.    

Is there a hard rule that states plan sponsors with both a Defined Benefit and a Defined Contribution plan must be tested together if each plan passes nondiscrimination testing on its own? And if there is no hard rule, what is the exception?

Caught in an endless loop of Chat Bots and Non Humans when simply trying to get protocol for IRA forced rollovers from Inspira.  Anyone know or what platforms are practitioners using for forced IRA rollovers?

Client has a Safe Harbor Match plan with immediate eligibility. They exclude part-time employees as there are many who work just a few hours a year due to the type of work. ie ushers, etc. Plan has failed the minimum coverage test. How can this be prevented from happening in future years? Any ideas would be appreciated.