401kology

From an attorney friend: if the 415 limit applies you don’t allocate anything over the 415 limit, even if it would otherwise be required. If you do an allocation in excess of 415, then using self-correction is questionable. No telling if the IRS would be sympathetic when applying SECURE 2.0 because they could argue that you don’t have ‘adequate’ practices and procedures in place. While I’d by sympathetic and allow the participant to receive the full employer contributions, the current EPCRS procedure only has an exception to practices and procedures if it relates to deferrals and nonelective contributions. So it seems that (assuming that is how the plan document reads) that not exceeding the 415 limit trumps the requirement to fund the safe harbor match.

Thank you both. I am in 100% agreement that the safe harbor match must be funded as that is due to the participant and is 100% vested. We are seeing this occur more frequently with the interest in After-Tax contributions. I would always advise that the employer have policies and procedures in place to cap the AT at a dollar limit that would preclude the plan from failing any 415 limits, but as you both know we always find out after the fact. @lou thanks for including the 1099-R reference, as I do believe in some situations that corrected 1099-Rs must be issued and then the issue working with a bundled provider is if they will issue the corrected forms. I am actually speaking at the ASPPA Spring National and have suggested this topic for the ask the experts session. Obviously if the participant still exceeds the limit, then letters are issued with instructions to the new custodian to distribute amounts that were not eligible for rollover and/or issue corrected 1099-Rs for the amount of the AT that was rolled to new plan and not eligible for rollover.

Thank you both, the issue here is that the match owed is a safe harbor match with required annual true-up, so it must be funded and the return is typically the un-matched after-tax first. The issue is that the participants have taken distributions, so there is no AT to return. I can't wrap my head around not funding the safe harbor match that is required, even though the participants have already exceeded the 415 limits. That was where it seemed reasonable to allocate the true-up but then have that refunded to the ppt as a 415 excess refund. And yes - that is the exact terms in the plan document the correction of which is pursuant to EPCRS.

Assisting a sponsor that discovered that the 415 limits were tested before the final true up. The participants are due additional safe harbor match, that will cause more excess that needs to be distributed. Participants that are affected should have had after-tax refunded but have since rolled over account balances to new employers plans. Would depositing the true up and processing the excess from the additional allocation be permitted since that is all that remains in the plan? The only other solution is to issue the letter that they have to take the excess out of the current plan and then let them know they have additional that can be rolled over, which does not sound correct. Anyone run into this situation? The 415 excess must be corrected, but the regs only address the order not necessarily what to do if the other sources have been distributed.

Answered my own question: MEPs & PEPS all use the Multiple-Employer Box with a DFE identified on Schedule D (if applicable) and Schedule MEP DC Group of Plans use the DFE box Code D and Schedules DCG

I think I have read the instructions to the 5500 so many times that I have talked myself into circles. I know how to file traditional corporate type MEPs with the new Schedule MEP, my questions is regarding PEPs and PEO Type Plans with DFEs that are not a DC Group of Plans (GoPs) filing on DCG. The PEPs and "open" MEP type arrangements have a DFE, but on Part 1(A) of the 5500 - is the DFE box checked for all group type arrangements, Code D? True for PEPs and GoPs alike? I could not tell if PEPs also filed using the DFE box with Code D from the instructions. I think that the 5500 instructions collectively refer to these as "defined contribution groups" (in my head that is a GoP filed on DCG). So PEPs and PEO type MEPs would also complete Schedule D (Part I & III) plus Schedule MEP - is that correct? If there is anything I am missing, just let me know. TYIA!

While I am aware that in order to permissively aggregate 401(k) plans that must have the same plan year, same HCE definition and use same testing methods for ADP/ACP, what I am wondering is if anyone has experience in 401(k) plans with different plan years (one runs on a CY basis and the other is a 6/30). How is the coverage tested - as a snap shot at each plan year end? Of course, we found out well beyond the transition period. And, am referring to outside counsel but for my own edification was curious as to others experience? Like, assuming it fails - how do they correct coverage with QNECs? TYIA!

Also thank you Lois for sharing my blog on the topic!

Keith - The process will depend on the specifics of the arrangement. We have successfully worked with providers on spinning out the plan to a stand-alone plan and there are ways to have the stand alone plan be a continuation plan which is helpful if it is a safe harbor plan. I do not know of any standard procedures, but generally if the sponsor intends to maintain the plan, then they would cease participation in the PEP and spin out to a stand alone plan. Depends on what recordkeepers are involved as to how difficult the process is.

Agreed - thanks!

Related to this topic, had a plan that removed the AE feature effective 1/1/2024. Employees who were auto enrolled in 2023 continued to have the deferrals deducted in 2024. That impacted about 600 employees. Obviously we do not believe they notified the affected parties that the AE deferrals would continue. Anyone had this happen and would the 2024 deferrals all be ineligible?

Client forgot to enroll an eligible employee and has missed deferrals in a tax exempt 457(b) plan that the employer participates in. My understanding is that, since there is limited opportunity to submit corrections to the IRS under Section 4.09 of EPCRS, that practitioners interpret that to mean that corrections for 457(b) plans can generally follow those prescribed under EPCRS for qualified plans. So in this case we would corrective contributions for the participant's missed opportunity to make a contribution/invest (e.g., 50% of missed deferral) as under EPCRS.

I have the exact same question and noticed you had not gotten a response yet however mine is in the Tax-Exempt 457(b) space.

Thanks Kenneth! For the record, I do not like it given the landscape of forfeiture litigation. But, I see this as a new strategy popping up and wanted to hear what others thought.

Because of the recent litigation regarding usage of forfeitures, I wanted to get some back up for how this is being viewed in 401(k) and other participant directed account plans. Forfeitures must be used according to the plan document and most big providers have the standard "pay plan expenses" and reduce employer contributions. Some also have the prorata allocation. Given all of that, we have seen it recommended that the forfeitures be used for participant education, specifically financial wellness. That also being a way to deplete the forfeiture account when the plan sponsor is paying the fees and/or does not have contributions to reduce. Any thoughts on this being a reasonable "plan expense" noting here that I have reviewed §2550.404a-5 as well as the settlor vs permitted plan expenses the DOL has opined on and it does indicate educational seminars and retirement planning software is permitted. So if it is permitted - does the financial education need to be specific to retirement planning or is overall financial wellness ok or is there some gray area? Thanks!