John K

Yes, good question. Business A sold all assets to business B, but business A (along with the plan) remained separate and did not change ownership. Business A has shut down their bank account but is still responsible for funding the final employer contribution.

An employer sold to a new entity and shut down their business checking account prior to payment of final employer SHNE and PS contributions. TPA was notified last month and has the plan terminating in 60 days. I am not aware of how an employer contribution would be funded by anything other than the business account. They want to use their personal account, but I am fairly certain this is not an option. Any advice for remittance of the funds? Thank You

I have a plan that was not designed in a manner that works well for the business. Eligibility is immediate and 95% of employees are seasonal/part-time and in college. Regarding automatic enrollment in 2025, can the sponsor use the employee's initial opt-out from when they were hired as an election to defer 0%? Or does there need to be a formal (in writing) opt-out following the EACA notice that was distributed?

Gina, Cuse, and Lou, I figured this would be the case, just as it is in a DC plan. Appreciate your time and input!!

May a business fund a defined benefit plan with any source of income? Specifically schedule E income?

Thank You both for your replies. I like the approach regarding the rollover being deposited to an account that isn't technically associated with the trust (It does not exist). Although, it was held at the recordkeeper and documented as if held by this trust. The institution did not request any documentation to set it up. When I pull the trust report from the recordkeeper, there is a beginning balance on 1/1 and this was their first 5500.... so, I believe that the 5500 displaying a beginning balance will most definitely trigger an audit. I can't write in 0 as beginning of year asset value because that would most likely be seen as fraudulent. My mind is racing to find a way to handle this in a clean and compliant manner and attempt to keep the IRS out of the situation. Unlikely... Keeping this thread going would be neat to see if there is any feedback out there, but I think this is a case for an ERISA attorney.

Someone had setup accounts at the recordkeeper and allowed an inbound rollover to hit in mid-December before the plan went live January 1. There is no guidance on this issue because it should never happen, but here it is. My thoughts tell me this would call for a 5500 in the year the plan first received any monies. The part I'm not sure about would be the trust and plan effective date being after that first rollover hit. There was technically no plan in place at that point. An amendment wouldn't really make sense here either... Has anyone ever heard of this situation before?

A plan sponsor's accountant did not fully transmit payroll contributions to the plan for 10 months of the year. (How they did not notice the substantial amount of money built up or warnings from the recordkeeper is unknown - Excess of $75k). It looks like the IRS states that significant mistakes made in the aggregate may be self-corrected by making a corrective contribution by December 31. (SCP) However, in my opinion, this is one of the worst mistakes that can be made while operating a plan. Would anyone know of a reason this wouldn't fall under SCP? It seems too significant, but maybe it is not.

I think I'd rather be arrested than have to see a plan become disqualified 😆

Can someone please help cite IRS code that states it is unlawful to take in-service withdrawals of elective deferrals and safe harbor funds before age 59.5?

Business A and business B are related, but their plans are not part of a controlled group. Business B is purchased by business A in November and the TPA included all income/contributions from both entities in the testing for business A's plan (SHNE was paid to plan A after the merge). However, each business was operating separate plans before that. I don't believe this is an issue because the plan's benefits are identical. Would testing need to be completed separately for plan B? Would both 5500s be marked as yes for permissive aggregation?

There is a new audit client that did not attach the accountant's review of the 5500 upon filing. Would anyone be able to cite the potential ramifications and penalties for an error like this? I believe this would have to be corrected through VCP or DFVC, but I'm pretty sure the penalty would be under DOL/IRS discretion.

Great point, Peter. I believe they've prevented withholding anywhere possible due to extremely high medical expenses, but I will mention it (Excess of 1M). Unfortunately, this is not a situation where the withholding can be avoided. They will just have to wait for the refund. Thanks for your comment!

Thank you, WDIK & C. B. Zeller! This has come down to a clarification of terminology. It is an eligible rollover distribution from a qualified employer plan. The 'nonperiodic payments' section of the W4-R instructions was the culprit for their misunderstanding. Only applicable to IRAs... Thanks again!

This is a bit of a weird question, but would anyone be able to cite IRS code that dictates the 20% mandatory withholding policy? There is a participant that has immense medical expenses that are itemized on their return and will not owe any taxes. The CPA wants to know why I can't waive the mandatory withholding. They've sent over a W-4R and explained that according to the IRS, this form will allow the election of 0% withheld. I'm certain that this does not allow the withholding to be lower than 20%, but I can't find a good citation to express this. I am aware of topic No. 412, but they are caught up on the 'lump sum' 'entire account balance' language. The plan allows the participant to take a partial distribution, but I'm pretty sure this mandatory withholding rule would still apply.

This may be an odd question, but I'm having issues with finding clear language on timing of amendments. I typically only deal with situations where the plan is being amended starting at the beginning of the next plan year. Are there limitations on amending the plan mid-year? I know that there are, but my understanding is that the permissible amendments must increase benefit to participants (Ex: Introduction of mid-year safe harbor plans). Otherwise, the change must be made prior to start of the plan year. The sponsor would like to allow after-tax contributions and change the PS allocation from SS integration to new comparability. I believe the after-tax could happen mid-year, but not the allocation method change. Would anyone know where I can find more detailed language on mid-year amendments?

The auditor found a few employees that 'should have' entered the plan and received PS funds, according to the faulty re-stated adoption agreement that states the elapsed time method is used (sent previously, so the IRS has the faulty docs). The plan has always operated with the 1,000-hour requirement and it was never amended to use the elapsed time method. This is where I'd like to make a corrective amendment to the adoption agreement (on account of a drafting error), but it is 'decreasing' benefit, and found due to an open audit. That's where I feel like the audit CAP resolution is required..... No response from the auditor yet. I'm not sure I answered your questions properly, but thanks for your input! I'm a new QKA, so dealing with these historical errors is pretty intimidating... especially given the fact this scenario could result in large additional contributions and years of lost earnings.

Thank you both for the valuable information. I was reading about audit CAP on the IRS website but was a bit unsure if this issue would fall into the scope of this correction method. Notice 2023-43 is exactly what I was looking for. Cheers

Under an IRS audit, it was discovered that the most recent statement of the plan documents indicated that eligibility used the elapsed time method. The prior (correct) statement indicated the eligibility required 12 months of service in which you work 1,000 hours. The plan has always been operated with the 1,000 hour requirement. Would this require a submission through the VCP or would a self-correction in the form of an amendment suffice? The fact this was discovered under audit and is a 'further restricting' amendment has me worried that this would require the correction filing and fee to the IRS. (Plan is profit-sharing only / no deferrals)