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Record Keeping platforms - these are most of our distributions by far.  TPAs generally get notification, log in, check vesting and approve.  Is anyone doing anything extra to be protected?  I'm thinking of requiring the plan sponsor to contact the participant (who likely is terminated) to confirm their request if the distribution is over say $10,000.  A 3rd party could have hijacked their login credentials.  If a problem, I'd expect the plan sponsor would point fingers at the TPA - "you approved it."  I'm not sure all platforms require both TPA and plan sponsor.  We do our part but we don't know if the sponsor always has to approve as well. We will need to confirm.

Broker accounts and DB plans - for these, we provide distribution packets, plan sponsor requests funds be sent to us, we issue checks, deposit tax into EFTPS as needed and do tax reporting.  We do not get funds for larger amounts - brokers get letter signed by Trustee to distribute as the participant has elected.  For all check distributions we request driver's license unless small (under $1,000) to be provided to us at the same time they send their election form - not separately.  Still there is risk the election form could have been completed by a 3rd party who also had access to the driver's license.

All ideas welcome!

Thank you,

Tom

I am seeking clarification on when deemed Roth should cease to apply.

The final regulations are clear that deemed Roth would cease to apply when a participant is no longer subject to the requirement because their box 3 FICA wages fall below the indexed threshold on either their original or corrected W-2. Is there a requirement to revert a deemed Roth election back to the prior pre-tax election every 1/1 and/or after the Roth catch-up requirement is fulfilled?

Assumptions: $24,000 402(g) limit and $8,000 catch-up limit in 2026, no lower plan limits, calendar year plan

Scenario 1: Plan has separate pre-tax catch-up and Roth catch-up contribution rates that are deducted concurrently with pre-tax and Roth contribution rates. A highly paid individual subject to the Roth catch-up requirement in 2026 has $10k in eligible comp each pay period and is contributing 5% pre-tax, 5% Roth and 5% pre-tax catch-up at the end of 2025 and does not elect to opt out of deemed Roth catch-up by zeroing out their pre-tax catch-up rate.

My interpretation of the final regulations is that a pre-tax catch-up contribution should become available once the participant has contributed their catch-up limit in Roth YTD, i.e. after $8,000 Roth and Roth catch-up has been made in pay period 8.

Q1a: Would the deemed 5% Roth catch-up election automatically cease to apply and revert back to a 5% pre-tax catch-up contribution rate starting pay period 9 without the participant making an affirmative election back to pre-tax or would it only revert if/when the participant makes that election?

Q1b: If the participant is required to make the affirmative election back to pre-tax catch-up, is only making the pre-tax catch-up contribution rate change available after pay period 8 sufficient or do they need to be able to make the election sooner?

Scenario 2: Participants spill over to catch-up. A highly paid individual subject to the Roth catch-up requirement in 2026 has $10k in eligible comp each pay period and is contributing 10% pre-tax and 10% Roth. The plan has elected to look at combined pre-tax and Roth contributions in determining when the deemed Roth applies (opposed to only pre-tax). When the participant hits the 402(g) limit with pre-tax and Roth on pay period 12, their catch-up contribution rate is deemed to be 20% Roth beginning on pay period 13.

Per the paragraph 88 of the final regs commentary, “in order to ease administrative burden for plans, in determining when during the year to implement a deemed Roth election under final regulation § 1.401(k)-1(f)(5)(iii), a plan is not required to take into account elective deferrals made by a participant earlier in the year as designated Roth contributions. Thus, a plan may provide that a deemed Roth election will be implemented with respect to a participant once a participant's total elective deferrals for the year (including any designated Roth contributions) equal the section 401(a)(30), 402(g)(7), or 457(b) limit, as applicable. Further, after implementing the deemed Roth election, the plan would not be required to recharacterize any designated Roth catch-up contributions made pursuant to the deemed election as pre-tax for the purpose of counting any designated Roth contributions made earlier in the year by the participant toward satisfaction of the Roth catch-up requirement. However, since the plan must also provide such a participant an effective opportunity to make a new election that is different than the deemed election, if a participant who is subject to the Roth catch-up requirement makes an affirmative election to make pre-tax catch-up contributions, the plan would be required to take into account any elective deferrals made by the participant earlier in the year as designated Roth contributions when determining the amount of the pre-tax catch-up contributions to be corrected in order to comply with section 414(v)(7) (such that the pre-tax catch-up contributions must be corrected—that is, either distributed from the plan or corrected in accordance with a correction method set forth in final regulation § 1.414(v)-2(c)(2)—only to the extent that a participant's catch-up contributions for the year exceed the participant's designated Roth contributions made over the course of the year).”

Q2a: When is the plan required to let the participant opt out of the deemed Roth catch-up? After pay period 12 when they hit the 402(g) limit? Or earlier such that they would keep their 10% pre-tax and 10% Roth contribution rates until they hit the combined 402(g) and catch-up limits on pay period 16?

Q2b: What is the best way to track a participant’s election to opt out of deemed Roth catch-up in a spillover plan? In a plan with separate catch-up rates it seems clear that zeroing out the catch-up rates would satisfy the effective opportunity to opt out of deemed Roth.

Q2c: Assuming the participant’s 10% pre-tax and 10% Roth contribution rates become a 20% Roth contribution rate effective pay period 13 in 2026, is the plan required to revert the participant’s rates back to 10% pre-tax and 10% Roth beginning 1/1/2027 if the participant is a highly paid individual and subject to the restriction again for 2027?

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I simply cannot remember my resource as it is a number of years, or maybe it's just the 5500 instructions themselves, but I had understood that the Characteristic Code 4L was for Business Travel Death Benefits and that AD&D uses 4Q for Other Benefits.

I'm curious how other professionals record that?

A 401k plan auditor found an error in a client's calculation of compensation. The auditor discovered the error and went back one year and found that the error occurred in the prior year as well. We are trying to assess how far back the error goes. (But the substance of the error is not what my question is really about.)

In the meantime, the auditor will not release the audit for 2023. They are being particularly stubborn about it. The employer has filed its 5500s without the audit for 2023, but we do need to re-file with the audit report. In addition, the new auditor for the 2024 cannot finalize its report without an ending number for 12/31/2023. 

Any advice for convincing the auditor to release its 2023 audit with a footnote? In addition, any thoughts on filing a 5500 while a plan sponsor is in the midst of a correction?  Wouldn't the employer be excused from any perjury claims under DOL rules because the information was accurate before the correction is made?

Thanks in advance!!!

Hello!

Client has a plan with self-certification of hardships. All requests are automatically approved based on employees "signing off" that they have the required proof of hardship. Client did an audit and found an employee was abusing this, contacted them, and found that they have been taking Hardships without any immediate need.

Client is looking for guidance on how to correct this. Initial thought was that the employee should repay what was taken that didn't have proof, however, the legal team at the provider stated that this wasn't allowed. They were given the following:

"The sponsor of a retirement plan that allows hardship distributions cannot reclaim a hardship distribution after it has been disbursed to the participant. Rather, the sponsor can refuse to approve a hardship request prior to distribution if the participant is deemed not to have an immediate and heavy financial need or if the sponsor has actual knowledge that the participant's self-certification of hardship is false.
The plan sponsor does not have the authority to "reclaim" money already distributed because hardship distributions are subject to taxes and potentially a 10% penalty. Reclaiming the money would essentially be canceling an early withdrawal, which isn't permitted under IRS rules after the funds have been paid out."

Is this correct? I feel like I have seen this done at other places I have worked.

If this is allowed, and the participant does not work with the client to pay back the funds, what should be done in that case?

Thanks in advance for any responses.

US company was purchased by a UK company and we're winding the plan down.  The US people are all gone - at least anyone in any management capacity.  Can the person who is handling the plan at the UK company sign as Plan Administrator (and/or Plan Sponsor), or does that have to be a US citizen?  All I can find is that it has to be signed under threat of perjury, which makes me think that the signer must be subject to US law...  Thanks.

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Has anyone ever heard of this company? A client of mine just told me they called her (with a heavy accent) and said they represented my firm and were doing an independent review of the plan. We all know about cold calling based on public DOL data (nothing to do about that) and even scare tactics using the Judy Diamond "score", but saying they represent me is a a new low.

Is it possible for a terminated plan to file Form 8955 with an end date different than the 5500.  

Example: plan final 5500 2/28/2025; 8955 3/31/2025.

Comments?

Tom

I know for PBGC covered DB plans, you must give notice to the participants 60-90 days before plan termination.  For Safe Harbor plans, you must give notice 30 days before plan termination.  Are there any requirements to notify the participants in profit sharing plans or non-PBGC covered DB plans?  Do you have to give 15 days notice before plan termination, or can we make the termination date the same day we are preparing the amendment in these cases?

A business is 100% owned by an ESOP. 

The question came up about RMD.  The employee involved was a >5% owner 10 years before the business sold to an ESOP and he was well below the RBD age.

I think we are ok with no RMD to this person.

Thanks in advance for comments.

Tom

For some reason, a plan has allowed a lower paid participant to contribute Voluntary After Tax instead of as Roth 401(k).  Annual contributions are around $1,000.

I can't seem to think of a reason why this would be better for the participant.

Aside from that, Voluntary After Tax Contributions are not even in the Plan Document, so I'm wondering if it's an oversight and they can be reclassified at the recordkeeper as Roth Contributions.

https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR2b7577e2af5412b/section-1.436-1

URL: https://www.ecfr.gov/current/title-26/part-1/section-1.436-1#p-1.436-1(a)(3)(ii)(B) 

Citation: 26 CFR 1.436-1(a)(3)(ii)(B)

Application of section 436 after termination of a plan —

(A) In general.  Except as otherwise provided in paragraph (a)(3)(ii)(B) of this section, any section 436 limitations in effect immediately before the termination of a plan do not cease to apply thereafter.

(B) Exception for payments pursuant to plan termination.  The limitations under section 436(d) and paragraph (d) of this section do not apply to prohibited payments (within the meaning of paragraph (j)(6) of this section) that are made to carry out the termination of a plan in accordance with applicable law. For example, a plan sponsor's purchase of an irrevocable commitment from an insurer to pay benefit liabilities in connection with the standard termination of a plan in accordance with section 4041(b)(3) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and in accordance with 29 CFR 4041.28, does not violate section 436(d) or this section.
__________________________________________________________________________________________________________________________________________________________________________________________________

Please indicate if unpredictable contingent event benefits form part of the exceptions for plan terminations.

Hello. We have a new hire that elected Roth, but the contributions were mistakenly set to pre-tax. This only occurred on his third paycheck. I’ll be working with our 401k provider to move the funds to the Roth account, but What else do we need to do to correct this? Is a qnec necessary?