austin3515

We are being told that it is acceptable to reallocate forfeitures on a per capita basis to anyone with an account balance, even if their 415 comp is zero for the current and prior plan years. Has anyone come across this before? If so what is the basis for allowing it? Curious as to why it works. I have heard this from a big recordkeeper and an ERISA attorney has confirmed it is also doable.

I would just say that people do not know when they are going to retire when they are even 40 years old, let alone 25. If you're getting to be 55 and 60 years old, absolutely you should be sharpening your pencil. 65 seems as good a guess as any is what I mean. I also would say that your date of retirement probably is not as important as how long you're going to be among the living :). So if you're life expectancy at 65 is 25 years (God bless!) then I would say your investment strategy would probably be the same whether or not you stop working.

Bruce1 not sure what the motives are here. 1) Is it the names? So for example if one company is a landscaping business and the other is a real estate agency perhaps the employer names would be confusing. I'm sure others would think I'm way off base but if you kept all elections perfectly identical (including the same provider) and had two "plans", the term "no harm no foul" does come to mind... The IRS rule is obviously to make sure both companies are treated the same. What would the IRS correction be if two identical plans were used, one for each entity? Everyone was eligible for the same SIMPLE. To all of those who say "What is the big deal it's just a name" I would only say they may very well have a reason where if you heard it you might say "oh that's a good reason, I get that." 2) Is it banking? I would assume the financial institutions can handle this.

From ERISApedias text book (which I highly recommend--I found this in no time using their AI feature!). Corrective Distributions After April 15. If excess deferrals (and income) for a taxable year are not distributed by April 15, the taxation and distribution rules change drastically. First, distribution of the excess deferrals is not permitted after April 15 unless a normal distributable event under Code 401(k)(2)(B) (i.e., age 59-1/2, hardship, termination of employment, or disability) occurs. Second, for tax purposes, undistributed excess deferrals are treated as if they were proper elective deferrals when contributed. This means that they are taxable income to the participant when they are distributed. The effect of these rules is that uncorrected excess deferrals are taxed twice: first in the year of deferral and then when distributed. Excess deferrals that are not distributed by April 15 also are treated as employer contributions for purposes of Code section 415 when they are contributed to the plan. [Treas. Reg. section 1.402(g)-1(e)(8)(iii)] Example: Suppose that Roberta (from the prior example) did not receive a distribution of her excess deferrals before April 15, 2018. The excess deferrals would remain nonexcludable in 2017, and would be part of Roberta’s taxable income in that year. The $2,500 excess that was already taxed may not be distributed from the plan to Roberta until she experiences a normal distributable event under Code section 401(k)(2)(B). In 2022, Roberta attains age 59½ and can take a distribution of elective deferrals from the plan. If she removes the $2,500 at that time, it is taxable income in 2022. (The exemption from including the distribution of excess deferrals in income that existed if the distribution is taken by the following April 15 evaporated when the distribution was not timely made.) As a result, Roberta is effectively taxed twice on this amount – once in 2017 and once in 2022.

I think the problem is the IRS has not answered the question explaining what this means. We are left to guess. I like your chances a LOT more doing this exact thing via -11g which as I mentioned below includes a far lower bar which the IRS has already informally blessed. From the 2010 ASPPA IRS Q&A: A company sponsors a discretionary profit sharing plan that has tiered allocations and utilizes cross testing to show nondiscrimination in amounts. Owners are allocated a contribution equal to their 415 limit. All other participants are allocated a contribution equal to 5% of compensation, which satisfies the gateway minimum. The Plan fails nondiscrimination testing. The plan could have passed by providing a 6% contribution to all eligible participants, instead of a 5% contribution. Is the plan sponsor obligated to correct the failed testing by contributing more to the current participants, or is it permissible to put in a corrective amendment and permit entry and provide a 5% contribution to an individual who was previously ineligible (assuming that would permit the plan to pass nondiscrimination testing)? Either proposed correction is possible, but both probably require an amendment to the plan that satisfies Treas. Reg. § 1.401(a)(4)-11(g), in both form and timeliness. In form, such an amendment generally either confers additional benefits to existing participants or existing benefits to additional participants. In either case, the amendment must be both “definitely determinable” and nondiscriminatory.

For the plans I was referring to where I am doing the LTI disclosures outside of Relius, I found a way to export all of the amounts that I needed into an Excel spreadsheet. I was never able to automate the calculation (nor did I need to because I could pull them from Relius).

I don't know you have to offer a QDIA as the default for auto enrollment... We were just on a webinar where that was what they said. HEre is Ilene's write-up from a while ago. https://ferenczylaw.com/flashpoint-and-not-a-moment-too-soon-in-fact-a-little-late-mandatory-automatic-enrollment-guidance/ The QDIA Requirement and Plans with No Participant-Direction The MAE rules require that the automatic enrollment structure meet the requirements for an eligible automatic contribution arrangement (“EACA”), including both the permissible withdrawal provision and the requirement that there be a QDIA for automatically enrolled participants. This begs the question: what about 401(k) plans that don’t provide for participant direction of investments? This question is not answered. The MAE Regs reiterate the QDIA obligation, without much elucidation. This clearly requires practitioner comments. Until the final regulation is issued, Ilene and Derrin think it would be a reasonable interpretation of the statute for a trustee-directed plan to invest automatic deferrals in QDIAs, without expanding to allow participant direction of investment. Actually, maybe it is ok. I just don;t know what that last sentence means. Is it as I suggested that you can have a balanced allocation and meet the rule? I am pretty sure that is what she is saying. A balaced fund is listed as one of the available QDIA's (target date funds being another).

414A(b)(4) An eligible automatic contribution arrangement meets the requirements of this paragraph if amounts contributed pursuant to such arrangement, and for which no investment is elected by the participant, are invested in accordance with the requirements of section 2550.404c-5 of title 29 [ie., a QDIA], Code of Federal Regulations (or any successor regulations). Are pooled trustee directed plans gone for good? That's too bad because they were a real cheap way of getting a small 401k plan in place. Participant direction is expensive (investment advice, recordkeeping, etc). Also what if the pooled plan was invested 50/50? Isn't a 50/50 option eligible to be used as a QDIA?

-11(g) benefit requirement: (ii) Benefits not reduced. Except as permitted under paragraph (g)(3)(vi)(C)(2) of this section, the corrective amendment may not result in a reduction of an employee's benefits (including any benefit, right, or feature), determined based on the terms of the plan in effect immediately before the amendment. That's a lot different than a statutory requirement to increase accrued benefits. Again the point is taken that what does any of this mean in the context of a discretionary contribution, however, I like my chances much better based on the -11(g) language, especially since there is a lot of history on using -11(g) as described (including IRS Q&A's where they said it was acceptable--some ASPPA thing right?). Anyway I kinda like my "Suzie gets 7% amendment" where Suzie is not presently eligible for an allocation. That seems like the winning ticket to me. Not sure if anyone else sees it differently.

Provided it is reasonable. Eliminating allocation conditions is not the same thing as increasing accrued benfits. But how about this: Do an amendment that specifically says Julie gets a profit sharing allocation of 7%. That amendment will be increasing accruals for Julie. The discretion in the document covers everyone else. Therefore the amendment will have the exclusive impact of increasing benefits... At least it is something if you were really in a pinch.

Oh I have a definition of fringe that I am a big fan of: "Compensation that has nothing to do with how much you work or how well you work."

The relevant text is: "...an employer amends a...profit-sharing...plan to increase benefits accrued under the plan...". I agree, and the question is really how can you even define that text in the context of Discretionary allocations?

I was not aware of this new provision. I am curious, what if the purpose of the amendment is to reduce how much you need to contribute to the plan to get testing to pass? Is that a "Retroactive plan amendments that increase benefit accruals"? I think it would be hard to argue yes... One option that I have used before is to set up a whole new profit sharing plan. if you set up a new plan under the new retroactive provisions in SECURE 1.0, and then merge it in, you have a clean slate for plan design. I have vetted this one through proper channels... Probably excessive in most cases but I have used it twice before for the really significant scenarios. You can merge the new plan into the original one pretty quickly without a permanence issue because the new plan will be "part" of the old plan. It is not being terminated.

Note that these payroll companies have already rolled things out to their clients. If ADP programmed their system to do mandatory Roth 1/1/2026 and there is a delay, that means ADP has to spend REAL MONEY to: a) Reprogram their system to not implement Mandatory Roth b) Reprogram their system AGAIN to turn it back on. It's easy to assume that those things are not a big deal, but I've heard stories that these types of changes are monumental. Not to mention the time and energy required to train clients and explain all of this.

Could you imagine you run ADP, spend thousands of hours and millions of dollars to get something up and running and then have the feds get cold feet and you have to spend even more money? I'll tell ya if I was the judge I would have a very sympathetic ear. Irresponsible governance has a hard dollar cost. ADP knows to the penny what it's spending on all of this.

Just saying if I was one of the 5 payroll companies named above who collectively probably process 85% of all payroll based on headcount for the US I would band together and say "tough _______ we're moving ahead." Programming and unprogramming and reprogramming is so ludicrous that a ludicrous response is 100% reasonable.

LOL. Such a funny conversation explaining to people who get these insane penalties that it's because of 10 year budget scoring and trying to make it budget neutral on a spreadsheet, even though they know the penalties will never be assessed.

I just cannot imagine that there will be any delays in mandatory Roth catch-ups, right? I mean ADP, PayChec, Paylocity, PayCor, Paycom collectively must have spent hundreds of millions. Recordkeepers made substantial investments. I just cannot imagine it would not cost tens of millions more to delay. And then there is part about S20 being revenue neutral, paid for in large part by these mandatory roth catch-ups. But here is an article from Willis Towers Watson saying it is possible. It can't be possible though, can it? I could see them saying "any good faith effort will be treated as not a failure even if something slips through the cracks." But not put it on hold altogether. https://www.wtwco.com/en-us/insights/2025/08/roth-catch-up-requirement-effective-date-developments

I think the employer is required to add it to the w2. I think I read that somehwere.

I read the statutes for SECURE 2.0 but not for payroll matters, LOL. And my real point in mentioning is on behalf of John Doe manufacturing employee working 20 hours of OT per week, including double time on weekends and triple time on holidays, and coming to find out this is a fraction of what it was billed as. "We're not taxing overtime" is what I heard. John Doe did not read the statute, and if he just caught the headlines, this was never mentioned (and I probably watch and read more news then average American, though admittedly others read far more than I do).

I did see that the IRS actually did publish a draft W-4 on which employees can estimate their qualifying tips and overtime to adjust their withholding. Additional research told me that as a technicality, amending the W-4 in this way does not affect the legal definition of wages for withholding--only a change to 3401(a) itself would do that. So the W-4 just allows employees to request lower withholding but does not exclude qualifying tips and overtime from the definition. I suppose 3401a could be viewed as a starting point, from which the employee can make certain adjustments. Anyway, that is what I learned from google and AI. Curious if anyone can validate. Were you all aware that when they said "overtime is tax free" they meant just the "half" in "time and a half"? So for example, if the pay is $10 an hour, $15 for over-time, it is just the $5 extra that is eligible for the deduction. I did not realize that. I'll bet there are millions of hourly employees who did not realize that. No one ever clarified (that I ever heard), and now the exclusion from income is 1/3 of what was communicated. Anyway, I definitely had no idea so figured I would say something to you guys!

If a plan uses the W-2 definition of compensation, then it is pretty clear that tips and overtime are included in Box 1 of W-2 and thus the exclusion of overtime and tips will not affect comp. But what about if the definition of comp is based income for purposes of withhdoling? If the IRS clarifies that qualifying tips and overtime are not subject to withholding, won't that create a problem? I am hearing that the IRS may do just that for 2026. I haven't seen anything written about this so I am very curious...

its funny because we use Relius but we've always used the 3 months of service and not worried about the difference. We're not calculating year end contriubtions for these plans. These are the larger plans that are doing pay-period match calculations, sans true-up. That's a general rule of course, never say never. If participant counts are off here and there that's not something I would worry about.

Unfortunately the months of service field on their system is a drop down where you have to pick a number. Our documents person came up with this though 1) Pick 3 months of service elapsed time for eligibility. 2) In the custom language addendum enter the following (paraphrasing, we are being more specific but hey trade secret!): For purposes of determining eligibility 3 months of service means 90 days of service. 3) In the SPD there is a custom language module where you can specify text that appears at the beginning of the Eligibility section before anything else ("Top"). In that custom language field you can type: "The term 3 months of service as used below shall mean 90 days of service." Still clunky but better than the fail safe language which will confuse anyone who reads it (because the obvious assumption will be that it is there because it is relevant).

uggh my bad. I think you are referring to my lack of consistency. It seems to be either 60 or 90 with the clients who are using this convention (or 30 of course). In paragraph e. (which is ____months of elapsed time) we enter the following exactly: “90 days of service –approximately 3 (three)” Then the SPD and the AA both say “90 days of service – approximately 3 (three) months of service” and the failsafe eligibility language won’t display.