A 403(b) plan for a non-profit has only a single participant with an account balance.  The participant terminated long time ago.  No one else currently uses the plan and the organization wants to terminate it.  The terminated participant does not reply to any contact requests.

The account is held on a platform at a large national insurance company.  Their instructions were for the non-profit to send a letter of instruction saying the plan is being terminated.  The account would stay at the insurance company as a 403b account but would no longer require an employer signature.  

But if it is still considered a 403b account....can we really say that the plan is terminated?  Could we file a final 5500 with $0 assets at EOY if the account is still a 403b account?

Thanks for any thoughts on this.

A 2023 BenefitsLink discussion aired some observations about whether an employment classification of intern is or isn’t a classification sufficiently distinct from an age or service condition that a plan may exclude an intern who met age and service conditions for treatment as a long-term-part-time employee. https://benefitslink.com/boards/topic/71384-ltpt-interns/.

Interpreting ERISA § 202(c) for a situation that might involve some similarities, the IRS states:

“The student employee exclusion in section 403(b)(12)(A) of the [Internal Revenue] Code is a statutory exclusion based on a classification (students performing services described in [I.R.C.] section 3121(b)(10)), rather than on service.”

And:

“Although [26 C.F.R.] § 31.3121(b)(10)-2(d) provides that hours worked is a factor in determining whether an employee is a student, as well as providing an unsafe harbor if an employee normally works at least 40 hours per week (which is equivalent to 2,000 hours a year), the statutory student exclusion is not based principally on service.”

Additional Guidance with Respect to Long-Term, Part-Time Employees, Including Guidance Regarding Application of Section 403(b)(12) to Long-Term, Part-Time Employees under Section 403(b) Plans, Notice 2024-73, 2024-41 or 2024-42 I.R.B. --- (to be published Oct. 7 or 15, 2024), available at https://www.irs.gov/pub/irs-drop/n-24-73.pdf, at A-5 & footnote 7 (emphasis added).

Does this change our thinking about whether a for-profit employer’s plan may exclude an intern from elective deferrals?

Good morning,

I haven't worked on plans part of a master trust(MT) for awhile

2 DC plans 001 & 333 are part of MT

No audit was done for MT but Form 5500 filed

Instead, each plan filed their own detailed Sch H with audit reports and auditor mentioned in 2022 audit notes about the plans being part of MT

Is this ok?

In the past, I have filed the audit with MT Form 5500 and the plans would just list their $ in MT on Sch H. 

I'm also questioning the use of plan #333? this is a union 401(k) plan- no other employers

Much thanks,

Lexy

In mid August, the debit card tied to my HSA account began getting declined even though I have significant funds in my account. It remains non-functional almost two months later.  
 

The institution which provides this service was selected by my employer. Health benefits including HSA are part of my compensation. 
 

The HSA provider indicates that they experienced some kind of technical issue which is effecting my account.  They change their story each time I call and cannot provide me an ETA for resolution. After two months, I’m concerned that I may never gain access to my funds. 

Are there specific compliance rules that pertain to this situation?  Is this regulated by the FDIC? Can I report this? Should I speak with an attorney?  Do I have the option to move the funds?

Thank you in advance for any guidance you can provide. 

Hi,   I have a plan situation one of the plan that got terminated back in 2021 has now received a small $ amount due to SDB earrings.  Is it common to see SDB earrings getting posted into a terminated account? should these funds be even posted into a terminated plan? 

Also, since there is a posting of $83 into the terminated plan will the plan sponsor require to amended the 5500? 

Thank you. 

I'm having a hard time finding a good source for when a disaster is a Qualified Disaster for purposes of Qualified Disaster Recovery Distributions.  

Im 99% sure that for prior disaster recoveries, it was limited to areas FEMA designated as eligible for individual assistance rather than only public assistance. 

Does anyone have a good source to confirm or refute that only areas designated for individual assistance qualify?  I think this will come up rather frequently for those of us with clients in the southeast.

Next hurdle is whether the participant is a qualified individual, but we can clear that through self certification...

Thanks!

A governmental 401(a) plan excludes part-time, temporary and seasonal employees, subject to a 12-month, 1000 hour fail-safe, which makes the exclusion inapplicable if satisfied.  The only plan benefit is an employer contribution equal to 5% of plan compensation to the account of any participant who defers at least 3.5% of compensation under the employer's 457(b) plan.  The 457(b) plan excludes part-time, temporary and seasonal employees but does not grant an exception for employees who complete 12 months of service and 1000 hours.

The exclusion under the 457(b) plan, therefore, has the effect of depriving part-time, temporary and seasonal employees who meet the 401(a) plan's fail-safe from receiving any benefit under the 401(a) plan, as these employees are not able to defer under the 457(b) plan.

This circumstance appears to me to present a tax qualification issue for the 401(a) plan.  Any thoughts? 

Does the assumed 3% missed deferral apply to both HCEs and NHCEs in a 3% nonelective safe harbor 401(k) plan.

I believe it does so that for the period of exclusion the HCE would get .5*3%=1.5% QNEC but of course not receive the 3% safe harbor contribution since not an NHCE.

401(k) plan where employer missed depositing deferrals for an employee.  The missed employee deferrals totaled $30,500.  A QNEC will be made to correct this plus a match and earnings.

Can he continue to defer to the plan and receive a match since we are still in the same plan year ?  

Thanks!

Wife of owner has worked but has not been on payroll.  The plan requires 1000+ hours age 21, one year of entry.  Is she eligible due to being the wife of owner or must she have been on payroll with the required service to actually enter the plan.

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