My plan has failed the ADP test, resulting in a refund. The HCE receiving the refund has both pre-tax (deferral) and Roth contributions.

Is the refund amount discretionary for the employee to choose between pre-tax deferral and Roth contributions, or is there a specific sequential order for deducting it (e.g., first from pre-tax deferrals and then from Roth)?

Are there any IRS rules governing the sequential order for processing such refunds?

I am not necessarily looking for specific advice but I was wondering if anyone has had this or something similar occur.

Employer was assessed a penalty of $40K under the ACA's shared responsibility provisions (the details don't matter).  At no time did the employer send the IRS any amounts with respect to this assessment.

Employer worked with counsel (me) to abate the penalty, which the IRS agreed to do.  

A few months later, the IRS sent Employer a check for $40K plus interest.  Employer wrote back and said that the check was sent in error and requested IRS guidance on how to handle it.

No response from the IRS.

A few months later, the IRS sent another check in the same amount to the Employer.  The employer responded similarly to what it did before.

A few months later, the IRS sent yet another check in the same amount.  Employer called the IRS and the representative told the Employer to send the checks back.  Employer did so, along with a brief explanation.

All was good until this past November, when the IRS sent a note saying that it was still working on the matter and would respond in 60 days.  Last week the IRS sent another check, this time in the amount of $50K or so, reflecting additional interest.

That is all.

I can't believe that I can't find a previous topic on this...

Pooled 401k plan in a brokerage account.  Participant L (who does not defer) takes out a loan... and the office manager who doesn't know any better codes it as pre-tax deferrals.  It's a 9/30/24 PYE and the loan was taken in August 2024, so we just discovered it 4+ months in.

To the plan, this is a non-issue, right?  L owed $200 per paycheck, and that is what was deposited.  The only 'allocation' is when we do the recordkeeping, so if we say those are loan repayments, then they are credited as loan repayments.  Or do those not count as loan repayments, but rather deferrals... that weren't asked for?

And what about L's W-2?  It correctly shows pre-tax deferrals, because that is what happened.

Any advice appreciated, thanks.

Is this correct:

If a business has all HCE employees (each earing well in excess of the HCE compensation limit... in fact in excess of the 401(a)(17) limit), when it comes to allocating a PS NEC contributoin, can the allocation be discriminitory?  Can the owner of the business max out himself and contribute zilch to everyone else? Even pick and choose who might get a NEC contribution?   Seems to be passing the tests when I run them all.  

I've never had this kind of a situation.  If all good, I'm pleasantly surprised (and so will the business owner be).

Thanks

Being a one-person TPA firm, I don't get vacations or any time off where I can completely unplug. I have been doing DC plans for 30 years and have been on my own for over 22 years and haven't had a true vacation since going out on my own. Now that I am approaching retirement age (5 years to go), I would like to be able to take some much needed time off (after tax season, of course).  So I am looking to sell my business in 2025. (My book is very clean.) A few years ago, I also starting doing consulting for another TPA firm... helping them with their 401k plans. (Glutton for punishment, I know!) I told that TPA firm that I am looking to sell my book of business and they are very interested in buying it and want me to come work for them (remotely) for as long as I would like, or I am willing to. 

I have researched and researched selling a service business and the multipliers are all over the place... from 1x annual to 5x annual. They use the same software that I do, so the switch should be pretty seamless as far as that goes. And having no employees, there are no salaries for them to acquire... other than mine... and very little (if any) added expense, I would think. Has anyone recently purchased a one-person TPA firm such as mine? Or sold one? I was wondering what price to expect the offer to reasonably be and any details (such as how long did the seller work for the buyer after the sale, what period of time (if any) did the buyer spread the payment over, any customer retention provision, etc.). 

Of course I would have an attorney review the contract, but any assistance or insight you can give me would be greatly appreciated.

Thanks!

Hello,

I discovered that I had not filed the 5500 for a single person 401k plan for 2022 and 2023. There was a miscommunication between me and my CPA and I though he had handled it.

As soon as I discovered this, i promptly filed the information returns.  Then I get a letter from the IRS that I owe the maximum of $150k in penalties.  Any suggestions for approaching this with the government?  Many thanks. 

I have a shared QDRO where the form of payment for the AP is whatever is chosen by the ptp. Doing the math, if I apply the calculation for the marital portion (50% of the marital portion calculated using a coverture fraction) first and then apply the J&S factor for the chosen form of payment to the two pieces I come up with different figures than if I apply the J&S factor to the whole benefit and THEN apply the marital portion calculation. Which method is correct?

A participant who was already receiving RMDs died in 2024.  He has 3 children as equal beneficiaries (no spouse).  We are getting ready to roll their 1/3 interests (about $1.8 million each) to their IRAs.

As they are Non-Eligible Designated Beneficiaries, I am reading that they are subject to the 10-year rule AND still must take an annual RMD distribution based their (or the decedent's) life expectancy.  They will want to take the minimum RMD and so I assume they would choose their life expectancy, each one being different based on their DOB.  Does this sound right? 

We would then direct the balance to be rolled to their IRAs.  Not that it matters to us as they are out of the plan at that point but would the 10-year rule continue with the IRA, meaning 9-years are remaining under the 10-year rule?

I will research further but thank you for comments. 

Tom 

Can someone please point me in the direction on where I can get a basic idea of how to calculate the 415(b) limit for a Cash Balance Benefit?  I just want to have an understanding of it.

Thanks in advance!

I have a client with 2 owners and 2 employees. Under the 40% rule, I can provide meaningful benefits to the 2 owners only.

Can I set up a cash balance plan with 2 owners only?

Adoption Agreement says that we cannot exclude anyone in favor of HCEs. So, the only other way around is to offer eligibility to everyone but give $0 benefits to the 2 non-owner employees. Is this how it is normally done? It appears counterintuitive that you tell them they are eligible to become participants in the plan but with $0 benefits. Also, how does it affect other administrative compliance requirements such as SPDs, SARs, etc.?

Thanks!

Good evening, I hope everyone had a Happy Holiday and has a Happy New Year!

Just a quick question regarding the benefits in a Cash Balance Plan.  If the document says Employee A gets a benefit of $100,000 and Employee B gets $20,000.  Is there a required salary they need to get to get that benefit, or since the document states a set dollar amount as long as the testing passes there is no issue (the only two employees are 50% owners, so discrimination isn't an issue).

Theoretically, can Employee A take a $10k salary and still get the $100,000 benefit?

Thanks in advance!

We have a plan that amended their plan to stop safe harbor on 1/1/2025 (signed 10/10/2024) but did not distribute the SMM until 12/20.  The safe harbor notice was not distributed. The regs indicated that the 30 days notice is for plans that are amending DURING the plan year, which this plan is not doing a mid-year amendment.  The SMM requirement is 210 days notice.  Participants are allow to change their deferral election every pay period and they are moving to a fixed match formula that is allocated at the plan year-end.  Has anyone else found specifics on the notice requirement for a beginning of plan year amendment to remove safe harbor? 

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Hi, I am working at two jobs one W2 and one 1099 this year and am thinking about setting up a Cash Balance Plan. I know I have to hirer someone to help set this up but I want to understand some basics first. Can someone help explain to me how this will affect my Solo 401k pretax contributions? I read the limit is 6%, but 6% of what? Here are my rounded numbers:

W2 >$168,000 (maxed out $23k employEE)
1099 Gross Pay $415,000 (separate sole proprietor)
Total Expenses $55,000
Net Income after Pension $360,000
1/2 SE Tax $4800 (360k *0.9235 *0.029 *0.5)
Cash Balance Plan $150,000 (estimated)
Adjusted Net Profit $205,200

So is it 6% of $205,200 = $12,312?

Thank you.

IRS issued a penalty for my client for filing after 10/15, when in actuality, they did file, but our software did not make it through to DOL.

I'd like to be able to amend under "Special Extension" FEMA Disaster Zone Declaration 36-12 as well as IR 24-234 (9/10/24).

The IRS Notice mentions a delayed due date of February 2, 2025, which also states the extension also applies to "information returns" of which 5500-EZ applies.

Worth a shot???

Health plans and COBRA are not my area of experience. A question has arisen regarding the continuation of COBRA.

Can an employer elect can to extend the COBRA coverage past the maximum length of time for certain terminated employees/dependents?

Found this on the DOL website. It appears it can be but.....

Q11: How long does COBRA coverage last?

COBRA requires that continuation coverage extend from the date of the qualifying event for a limited period of 18 or 36 months. The length of time depends on the type of qualifying event that gave rise to the COBRA rights. A plan, however, may provide longer periods of coverage beyond the maximum period required by law.

When the qualifying event is the covered employee's termination of employment or reduction in hours of employment, qualified beneficiaries are entitled to 18 months of continuation coverage.

When the qualifying event is the end of employment or reduction of the employee's hours, and the employee became entitled to Medicare less than 18 months before the qualifying event, COBRA coverage for the employee's spouse and dependents can last until 36 months after the date the employee becomes entitled to Medicare. For example, if a covered employee becomes entitled to Medicare 8 months before the date his/her employment ends (termination of employment is the COBRA qualifying
event), COBRA coverage for his/her spouse and children would last 28 months (36 months minus 8 months).

For more information on how entitlement to Medicare impacts the length of COBRA coverage, contact the Department of Labor's Employee Benefits Security Administration at askebsa.dol.gov or by calling 1-866-444-3272.

For other qualifying events, qualified beneficiaries must be provided 36 months of continuation coverage.

Appreciate any information.  Thank you!

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A wreath 'a Franklin, of course.

Merry Christmas all.

Client with calendar year 401(k) plan and fiscal year C Corp(1/31). The client (one man plan) made a 45k in December of 2023 which the accountant is deducting for fiscal year end 1/31/2024 and then a $30,500 contribution at the beginning of January of 2024.  The accountant says it was his intention to process a payroll in January of 2024 which he never did.  I am inclined to call it commingling of corporate assets with plan assets  from the beginning of January till February 1. 2024 and deduct it in the fiscal year ending 1/31/2025 calling it a prepaid contribution.  They just processed the clients 401(k) deferral for 2024.  It is my understanding you can not prepay a 401(k) deferral.  Does anyone have another idea about how to handle this contribution?  For the record I never tell someone to pay their profit sharing contributions before the end of the year... it just gives up options.

I have done a lot of research on this and talked to more than one attorney and this seems to be landing as follows:

1) When mandatory auto enrollment is being added to a plan that was effective before the EACA was effective, a "sweep" is not required. This can happen when either a) new plans established after 12/29/2022 with auto enroll mandated 1/1/2025; OR b) when a new plan is not subject to auto enrollment right away because of the <10 Employee exception and the new business (3 year) exception.

2) When mandatory auto enroll applies to a new plan on the effective date of the Plan, a sweep is required.  The law is less clear to me here, but if a Plan's Elective Deferrals are effective 7/1/2025, then there must be an active EACA on that date. So everyones plan entry date is 7/1/2025 and if no one is enrolled on 7/1/2025 then the plan did not include an EACA on 7/1/2025. That part I think is straightforward enough regarding why a sweep being required makes sense.  I had suggested in one conversation limiting application of the EACA to people who would have become eligible on 7/1/2025 even if the Plan was effective years ago but no one liked that idea (and thus not doing a sweep).  I personally think it works but I don't want to go too rogue.

I am somewhat surprised that there is not a lot more conversation and a lot more articles on this very topic.  This is going to be front and center really now as we establish new plans.  I am curious to know if anyone has come to these same conclusions or something different.  Too bad the IRS is letting us squirm without any guidance.  To me, to sweep or not sweep is the most important question facing our industry today.

Please discuss!

Good afternoon everyone.  Someone is questioning me, so now I'm second guessing myself.  The max deductible contribution for a Cash Balance is:

Funding Target + Normal Cost + Cushion Amount (Funding Target /2) - Assets

I have that correct, right?