austin3515

Question 1 (proposed answer) Maybe I have it. I think it is because 403(b)(7) applies to the entire custodial account, and only provides a hardship exception for payroll deduction contributions, whereas 403(b)(11), which applies to distributions from annuity contracts, only adds distributio restrictions to elective deferrals. There is no statutory language that limits the availability of in-service distributions for non-elective deferrals. This is consistent with the EOB which indicates that amounts held in annuity contracts, other than elective deferrals and QNECs/QMACs (in other words Match and Nonelective), can be distributed after any "event" such as attainment of any age, years of participation, etc. I think this reading actually answers Question 2 as well.

Question 1 The way that I read Section 602 (and the new paragraph 403(b)(17), 403(b)'s may only permit hardship distributions from elective deferrals, QNEC's and QMAC's. Nothing else is listed. No one seems to be saying that 403(b) plans that were previously allowing hardships from Employer Contribution accounts are no longer allowed to do so, so I must be missing something. But the plain English words in (17) do not list any Employer sources besides QNEC's and QMACs??? Question 2 Sort of related to Question 1 - people seem to be saying that the hardship rules are now aligned for 403bs and 401ks, but 403(b)(7) plans (mutual fund funded plans) seem still exclude employer contributions, while insurance based programs do not (that's from my reading in the ERISA Outline book). I assume this is generally agreed? I'm surprised it's not mentioned in many of the write-ups I've read because I've always found that particular inconsistency to be by far the most baffling provision in all of retirement plan law.

There is also no point to the relief. Making something more complicated in an effort to make that same process more simple is crazy. I'm nowhere near old enough to retire so I am bitter.

I really did get a good laugh out loud chuckle when I saw that the relief for sending out notices to unenrolled to participants was to send them a notice. I mean that is really hysterical.

My own unsophisticated commentary is that the "unenrolled participant exception" is too complicated for most. It requires 2 different sets of notices to be sent out to two different groups of people. That's real clunky. And don;t get me started on the new electronic delivery rules. It's bazaar. So complex I'm sure half of all plans are just going to go back to paper notices. Sure maybe Empower and Fidelity can program their systems to track who gets paper and who gets electronic but not my guess is many recorkdeepers will not be able to do it. It's as though they have no idea how most employers are structured, and what their focuses are. They think every 401k plan is with Empower on a full 360 bridge. So disconnected from reality.

I just hope they quickly add this self-correction program. Not everything I would have hoped for but a helluva lot better than the actually filing.

Sounds like the kind of advice that was the basis for my post 👍 Any recommendations on timing?

Certainly one side of the coin is to find that email and say "see I told you so". But regardless I have heard from many many people that this is not such a great approach. Also, theoretically, that "I told you so" email is saved in my workpapers, and those we do not get rid of.

HA from what I have heard that is precisely why you don;t want to keep them forever!

Just trying to decide how many years worth of old emails to save.

Practically speaking almost no one will do this, but the question is, is it an option. There are a lot of payroll software packages that are very antiquated (I'm sure some still run on DOS). There is not a team of programmers out there working on upgrading those services. So in order to avoid compliance failures they may just eliminate them altogether. Anyway, antiquated software is the first thing that comes to mind as an answer to your question (especially one being used on a large scale).

FWIW this is from Empower and they said not optional. I have to agree with you guys though I read the statutory language and nothing says a plan is not qualified unless it offers this increased limit, or catch-ups in the first place. My plan document for sure has a box to say no catch-ups.

I hope my comment before was not read as to question your credibility? I've re-read it a couple of times and I don't see that. IF anything, as I suspected, you are way up market from me. And that really was my point, what a plan sponsor with 50,000 employees is capable of is drastically different than a client with 50 or 75 employees, which is where the bulk of my business lies. I know you have clients less than 200 people and maybe they have more of an appetite for this stuff than my clients do. Since you have experience programming recordkeeping systems, I'm curious to know how easy you think it's going to be for recordkeepers who track eligibility to reprogram their systems for this. I think it's going to be a real challenge. And in particular I think there is going to be a lot of missing data that they will need to backfill for clients who transferred to their platforms in the last couple of years, and I have not heard boo from any of them on this topic. It's going to be a real shock to the system because I know a lot of them are tracking eligibility for their clients. I'm definitely concerned about the volume of data they have to be missing.

Just out of curiousity, are you a TPA dealing with payroll people who are responsible for this stuff? Even the CFO's and Chief HR People who have ultimate responsbiliity? What's the average size plan you are working with? We may just be in two different markets. I say 95% of those companies less than 250 employees will NOT want to deal with this nonsense. Could they? I mean I suppose any of them could do it. Do they want to allocate all of those extra resources to keep 10 or 15 people out of the Plan (which is often the difference between 1,000 hours in 12 months and 500 hours in 12 months even for 150 to 200 employees). And I guess I have the data to back it up. I've gone over this with maybe a 15 to 20 clients so far and all but 1 says "nope, please keep it simple for me." Just so we are clear: Current: 1) Did they work 1,000 hours in first 12 months - if yes you're done, they are eligible.. 2) If not, Did they work 1,000 hours in a plan year? If yes, you're done they are eligible. 3) Repeat step 2 until they are eligible (if ever) Revised: 1) Did they work 1,000 hours in first 12 months - if yes you're done, they are eligible.. 2) If not, Did they work 1,000 hours in a plan year? If yes, you're done they are eligible. 3) If 1) is no, did they work 500 hours in their first 12 months? That is 1 year. Make a note somewhere safe and hold onto it because you'll need it later. 4) Regardless of whether or not 3 is yes or no, did they work 500 hours in a plan year? If so, make a note because you'll need it later. 5) If you have 2 yeses between 3 and 4 for two seperate years, they need to be offered eliigibility for 401k. Their vesting must be updated based on 500 hours (not the 1,000 hours you likely apply to all of their co-workers) so make sure your vesting is tracked accordingly (including if you ever change recordkeepers or TPA's). 6) Even though 5 is done you are not done yet. You still need to perform step 2 every calendar year. You do what you want to do but I am strongly advising clients to avoid this $#%$# show.

Listen that review alone is still complicated. Hours in first 12 months, and hours in subsequent plan years is a complex requirement of plan administration,. That's my point. IT is an exponential increase in complexity to add these additional levels of review. Obviously if clients want to do it, I'm not firing them as a client or anything. But I am being proactive about having these discussions and making sure they know just how complicated it is. I'm a little surprised at the lack of agreement on the simple fact that this is more than most sponsors can handle.

I was referring to a plan with 3 months elapsed time (for example) and 12 months / 1,000 hours for SH Match. For a plan like that, the LTPT relief you’re talking about is not available. Therefore if a safe harbor match plan with this eligibility does not extend the safe harbor to all eligibles it does not qualify for the top heavy exemption and needs to provide the THM to anyone with a year of service and age 21 - a deal breaker for a SH match plan. So I think although Congress probably intended to allow a SH Match plan to switch to 3 months eligilbity for 401k and a year of service for SH Match and still maintain the exemption (because the new rule has a fraction of the value one might expect), a careful reading with all applicable cross-checks does not get there. I remain hopeful that they will fix this. If their goal is to encourage liberal 401(k) eligiblity this is a huge impediment to that design. Most of my SH Match plans would mke a change like this . Most of them want to do this already but will not because of the top-heavy rules.

It doesnt say that which is very disappointing thing. So top-heavy sh match plans really get no benefit. I think that is widely acceptd by the "pension elite" (Watson, Ferenczy, etc). At least I recall they said as much in their articles and webinars.

Now that we have some top-heavy relief and some audit relief that is going to be a much more popular option. Thanks!

Well and of course not all plans are top-heavy, there is that aspect as well. And not all plans have that many people who WOULD be eligble under LTPT rules but NOT eligible under 1,000 hours/12 months. It is those plans in particular that I am advising changes to 500/12 months.

That doesnt work because if someone does not work 500 hours in 6 months, the fall back is required to be 1,000 hours in 12 months. And then guess what? IF they don;t meet that now you have to review for 500 hours in 2 years. So this eligibility is the most bazaar of all becasuse it requires 36 different reviews of eligibility for one person (yes I'm exaggerating a lot but it's a nutty design). I should clarify that I work with a lot of small sponsors. I think the term "small" for these purposes goes up to a couple hundred employees. A straight 1,000 hours in 12 months is a challenge for that market. Adding this level of complexity for those smaller employers is something that I see as critical because I KNOW it was too complex for them to want to deal with it (even if they could handle it). I still haven;t gotten that Amen I was looking for...

First I've heard of anyone pointing that out, thanks!

I think that maybe I was not clear enough. Plan A has eligibility of 1,000 hours in 12 months. The LTPT Rules will be incredibly burdensome to track, particularly since they changed the rules from 3 to 2 years and included complex transition rules. Even if they can track all of that the vesting rules are an additional burden. What I am proposing to clients who want to keep things simple is to just change their eligibility from 1,000 hours in 12 months to 500 hours in 12 months. This avoids all of the insanity in the eligiblity rules created by these new standards. I understand that there are other alternatives, and I understand the top-heavy rules. My quesiton really has to do with the fact that even the most sophisticated clients are going to struggle figuring out who worked 1,000 hours in 12 months, and if not 500 hours in 12 months and 500 hours in a subsequent plan year or 1,000 hours in a plan year after that. It's just too much review to be the least bit practical. So I am talking to clients about changing eligibility to avoid all of that insanity (such as amending eligiblity to be 500 hours in 12 months--which by the way for most employers is barely a change at all since "most" employees are full-time (of course I understand that is not always the case).

The more I read these rules the more convinced I am that the only possible option is to avoid these rules altogether by designing eligiblity rules to avoid exlcuding LTPT Employees. So for example the most simplified approach here will be to change the 1,000 hours in 12 months eligiblity to 500 hours (at least for 401(k)). There are other options, but I am concluding that what is not an option is for a client to try and administer these LTPT rules in the context of a plan with 1,000 hours and 12 months "normal" eligibility. Can I get an Amen?

I just tried the math as you wrote it and it comes out the same way.

The increased catch-up limit is the greater of $10,000 or 150% of the regular limit. The regular limit in 2023 is $7,500 and 150% of even that limit is $11,250. Yet I cannot find a single article that references this contradiction. I realize the $10,000 is indexed for inflation but so is the catch-up limit. The 150% is so far ahead I can't see the $10,000 (even indexed for inflation) will ever be relevant. The lack of commentary on this is so glaring I am starting to wonder if I'm the one missing something?