austin3515

If a plan has the Rate of Return pegged to something like the S&P500, and the S&P goes down 20% in 2025, but then goes up 10% in 2026 , what happens to participant hypothetical accounts? For example, if someone's hypothetical account was $10,000 on 1/1/2025, it stays at $10,000 through 12/31/2025 because the benefit can never go down. My big question is will there account still be at $10,000 at 12/31/2026, because the 10% return in 2026 was not enough to make up for the losses in 2025? i.e., is it a cumulative tracking? Or is the ROR always just pegged to the ROR specified in the doc for that year, with all prior returns (or losses) ignored?

For this one, I actually think the IRS is correct. The COLA section does not reference an increase for these. The COLA section calls for increases in B(i) (regular catch-ups) B(ii) (SIMPLE Catch-ups), and Paragraph (E) (Super Catch-ups, which is why I think the IRS is wrong). But there is no COLA provided for B(iii) which is the elevated SIMPLE IRA catch-up limit., That one is hardcoded to 110% of the 2024 limit. No COLA increase. Obviously a technical correction would be needed on that. Really puzzled on why they thought there was no COLA for the super-catch-up though.

This is odd. The same scenario applies to the enhanced limits for the catch-up contriubtions on SIMPLE IRA's with fewer than 25 people. They left it at $3,850 for those plans even though they increased it to $4,000 for plans that are not under 25 people. That's ludicrous. I can't believe this is not going to be addressed 😱

I sure this doesn't end up being a scenario where we all send out our updates and they change their minds. I forget what happened a few years ago with a change in the SSTWB that was a mess. It's unlikely that Mercer and Milliman are not reading this correctly.

1.401(m)-2(d)(4) appears to be the linchpin on this. IT's the one that say the ratio of an HCE's match to their deferrals cannot be greater than that of any NHCE. Not sure what you all think but I don;t see anything that explicitly says that requirement cannot be performed on a consolidated basis between both matches. One requirement is that you have to satisfy one of the SH contributions--this plan does. A fixed match cannot be based on deferrals in excess of 6% of pay. This plan presumably will not do that. The last relevant requirement is that the match rate for HCE's can't be greater than NHCE's. When combined, the NHCE's will be greater (because the HCE's will be excluded from the SH Match). The reg does not say "excluding the Safe Harbor Match." I would never do this without submitting an ask the Author question of ERISApedia, but I am definitely curious if you all see something in the reg that would cause a problem. (4) Limitation on rate of match. A plan meets the requirements of this section only if the ratio of matching contributions on behalf of an HCE to that HCE's elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) for that plan year is no greater than the ratio of matching contributions to elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) that would apply with respect to any NHCE for whom the elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) are the same percentage of safe harbor compensation.

They must have read my post 🤣🤣🤣

All that being said, is the arrangement I described not roughly analogous what many others are doing? I can't imagine Morgan Stanley invented this approach?

Let's boil it down to a simple example. All of the employees at my company (for example) are eligible for a $5,000 bonus every year if we hit our goals. We only get that bonus for 2025 if we are here through 12/31/2028. It is then paid out 1/31/2029. The same thing applies every year (rolling). There is nothing wrong with this because it is not a deferred compensation plan, correct? No compensation is ever being deferred because as soon as the substantial risk of forfeiture lapses, it is paid out (within 30 days which counts as a short-term deferral. Is my understanding correct?

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2025-03a Do people agree that if a plan is designed as a top-hat plan specifically, the concerns outlined here are not applicable? The Morgan Stanley plan does not sound like a plan exclusively for HCEs and management. Sounds like a plan offered widely to all advisors. I assume that is the issue. And I further assume that because the benefits are paid when vested there is no deferral of income anyway which eliminates concerns about "funding." Do I have this about right?

Sure would be nice what the issue is with profit sharing. You have said the plan does not include a profit sharing provision. I suppose there could be $2MM of profit sharing from past provisions on a 6 year graded schedule. If that is the case then I get that. But if you're goal is just to keep it simple, everyone in their own group is a lot simpler than the language I mentioned.

Well this is how I see it: (E) sets the beginning number alone. The beginning number alone is 150% of the 2024 catch-up limit. After 2024, the reference to 2024 is moot. Why? Because (C)(i) says the amount in paragraph (E) is adjusted for inflation. I actually don't where the other view would come from?

I don't think anyone mentioned the bold text below? 414(v)(2)(C). Doesn't that suggest COLA adjustments? (C) Cost-of-living adjustment (i) Certain large employers In the case of a year beginning after December 31, 2006, the Secretary shall adjust annually the $5,000 amount in subparagraph (B)(i) and the $2,500 amount in subparagraph (B)(ii) for increases in the cost-of-living at the same time and in the same manner as adjustments under section 415(d); except that the base period taken into account shall be the calendar quarter beginning July 1, 2005, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500. In the case of a year beginning after December 31, 2025, the Secretary shall adjust annually the adjusted dollar amounts applicable under clauses (i) and (ii) of subparagraph (E) for increases in the cost-of-living at the same time and in the same manner as adjustments under the preceding sentence; except that the base period taken into account shall be the calendar quarter beginning July 1, 2024.

you could ask an ERISA attorney if an exclusion like this would work. You would uncheck the HCE exclusion box in the Safe Harbor section and instead say in the "Other" box: "The Employer shall determine each year, on a discretionary basis, which HCE's (if any) shall receive an allocation of Safe Harbor Nonelective Contributions. The Employer may further determine each year the amount of each HCE's allocation of Safe Harbor Nonelective Contributions, provided the allocation does not exceed 3% of Compensation for any HCE." This does not get you out of any top-heavy minimums mind you. There is no checkbox for the above which is why you would want to check with ERISA counsel. You might even submit it to Relius and see what they say. I think they'll give you a pretty good answer. There is nothing legally wrong with what I wrote as far as I know. Curious to hear what Belgarath would say!

I don’t see why you couldn’t do that but not sure how you do it without names. CFO and CEO might be the same as names anyway. Again the normal approach is profit sharing. Maybe the reluctance is vesting though.

If this a calendar 2025 plan year end it’s not too late to add the provision.

Just don't forget that counting hours generally means tracking LTPT which is no bueno. I caution clients in the starkest of terms away from dealing with those rules. They are absolutely impossible to comply with. I dont care who you are, what recordkeeper, etc. They are 100% infeasible. It's laughable they even wrote it into law.

Is everyone in their own group for profit sharing? That would be the typical method of accomplishing this.

Well that is one heck a gigantic loophole, isn't it? I suppose you have to be 59.5 to take advantage generally but holy moly.

I honestly can't tell if you guys are answering the direct question I posed, which is does mandatory auto enrollment automatically make an otherwise ERISA exempt plan subject to ERISA? You have provided a lot of great information but I just don't think you have answered that question directly (at least not that I saw). So Peter for example, you definitely asked my quetion more eloquently and thoroughly than I did, but I don't think you suggested an answer?

you would have thought but it's not in the proposed regs I don't think. In fact the Employer has to have some "policy or procedure" in place to prevent this before it can use the in-plan Rth conversion correction method. I can't think of anything practical to do that.

hmm I really thought that anything to do with state law was pre-empted. I remember for Florida there used to be some stupid stamp tax that ended up going away when it was clarified that ERISA pre-empted. There are some lawyers on here though who might be better to clarify...

If a new 403b is subject to mandatory auto enrollment, can that plan still qualify as ERISA exempt? I know the question has been asked -- has it been answered?

I think this section of the proposed regs ius pretty relevant because I believe it must be followed to use the "in plan roth conversion" correction method? 1.414(v)-2(c)(3)(i). (3) General correction requirements —(i) Practices and procedures. For a plan to be eligible to use either of the correction methods described under paragraph (c)(2) of this section with respect to an elective deferral that is a catch-up contribution because it exceeds a statutory limit described in § 1.414(v)-1(b)(1)(i), the plan sponsor or plan administrator must have in place practices and procedures designed to result in compliance with section 414(v)(7) at the time the elective deferral is made. As part of these practices and procedures, the plan must provide that the elective deferrals of a participant who is subject to the Roth catch-up requirement under paragraph (a)(2) of this section, but who has not made an affirmative election to make catch-up contributions as designated Roth contributions nor made designated Roth contributions equal to the applicable dollar catch-up limit earlier in a calendar year, are automatically treated as designated Roth contributions after the participant's pre-tax elective deferrals made during the calendar year equal the section 401(a)(30) limit on elective deferrals for the taxable year that begins in the calendar year. Similarly, the elective deferrals of such a participant who has not made an affirmative election to make catch-up contributions as designated Roth contributions nor made designated Roth contributions equal to the applicable dollar catch-up limit earlier in the limitation year must be automatically treated as designated Roth contributions after the participant's pre-tax elective deferrals result in the participant's annual additions for the limitation year exceeding the section 415(c) limit for the limitation year.

I get it, if a "Highly Paid Individual" goes over the 415 limit but NOT the 402g limit, their catch-ups need to be coded as Roth. 1) What happens if the discretionary profit sharing that puts them over is deposited after the end of the year? Is the only option the Roth conversion correction? 2) Does anyone have any ideas for how to handle a plan that is contributing 15% of pay throughout the year, where they will hit the 415 limit during the year well before they hit 402(g)? I almost wonder if we should tell these Highly Paid Individuals to contribute $7,500 of Roth first to avoid any issues. These seems like it's going to be a real challenge for some plans. Obviously it is few and far between, but when it applies I think its going to be a pain. Curious if others have any grand ideas.

Maybe I missed it above, but I always point to the uncomfortable scenario where even a 50 year old taking out a 30 year loan might be a tad unrealistic since they will be an octogenarian by the time they are done. I don't know about y'all but I'll be living near the beach sipping Pina Coladas at noon long before then if everything goes according to plan 😂