Gina Alsdorf

document, document, document.

Sounds like there is a very large prohibited Transaction. I have seen people criminally charged for less egregious things.

@ERISALawyr I think from a facts and circumstances perspective the more a bird walks like a duck, quacks like a duck, flies like a duck the more likely it is to be a duck. *also not legal advice*

I have seen this before. I have a lot of questions but very few answers here. I think this is a very legal question you are asking and would require actual legal advice and it will be very dependent on facts and circumstances. There are a lot of questions someone would want to ask. What authority did the business manager have? Did they do any work on other benefits? If a sponsor never authorized the adoption how was it put into place? Who paid the bills for the plan? Was a separate EIN filed for this "trust"? Was a 5500 ever filed? How long did this continue before it was caught? How did deferrals happen if no one approved it? How were employees enrolled? Were deferrals tax reported as deferrals at any point? No matter what, this will be a pain to sort out. I have to ask, did this employer just never look at payroll?

See below, the requirement for a safe harbor notice, and I assume the removal of a safe harbor notice, is a facts and circumstances test, it must be a reasonable time period before the plan year. Whether 11 days was a reasonable time period, is a facts and circumstances determination. Basically, I would ask whether it gave the individuals a long enough time to change their deferrals, or alter there behavior based on the change in the plan. https://www.irs.gov/retirement-plans/notice-requirement-for-a-safe-harbor-401k-or-401m-plan#:~:text=General rule%3A Generally%2C the safe,beginning of each plan year. "General rule: Generally, the safe harbor notice must be provided within a reasonable period before the beginning of the plan year. The timing requirement is deemed to be satisfied if the notice is provided at least 30 days (and not more than 90 days) before the beginning of each plan year. If the notice is not provided within this time frame, whether the notice is timely depends upon all of the relevant facts and circumstances."

The Secure 2.0 Act changed the rules. Read below for more information. Since you are replacing with a safe harbor plan, you may be in luck. https://www.morganlewis.com/blogs/mlbenebits/2024/07/secure-2-0-simplifies-corporate-transactions-with-mid-year-termination-rules-for-simple-ira-plans

I didn't notice this was 409A forum!

You haven't said what kind of plan this is, this is not legal advice but a change in NRA that is more restrictive can result in a cutback. You need to understand all aspects of the plan to determine whether there would be a cutback. A couple examples come to mind: Where a plan permits in-service distributions at NRA, changing would be an impermissible cutback of a retirement option, with respect to the accrued benefits and also NRA affects vesting if there is vesting, people fully vest at retirement.

Surviving "spouse" I am betting the definition section of the plan covers this clearly.

It sounds like it was reported to the IRS in other fashions as well. This is messy. No question.

In those circumstances, I think a discussion is merited and considerations need to be given what actually happened. An ERISA attorney can discuss options and help define risks. Was the plan supposed to be cross tested with a 401(k) Plan? (Asking because I am curious).

If it was never funded, was there ever a trust? A trust needs a Res. Can a plan document alone create a plan? Especially if no notice is given to anyone (you are silent on that here). These are the questions I would ask.

Those would be prior to implementation of the EACA, so I am going to say no. Yes there needs to be a new opt out. And I would personally absolutely consider changing eligibility.

"A loan will be considered to bear a reasonable rate of interest if [the] loan provides the plan with a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances.” - I always hated this regulation. There is really no other similar circumstance in the marketplace...

Correct, but you will still need to test.

This is one of those areas where you want to make sure you are in line with industry practices, regardless of what your contracts say. You may also want an indemnity from the sponsor for any distribution that is made pursuant to your policies and procedures and is later determined to be fraudulent. I do know one TPA I remember verified the address with the employer when checks were issued, but I believe they were a 3(16). I also know there is a service called GIACT that a lot of RKs use that verifies the bank account when ACHs are used, to ensure the same name and birthdate are associated with the account as with the participant. I would find out what the RK has in place on this front. The biggest issue is encouraging sponsors to educate their employees about using secure passwords, Phishing and Spear Phishing attempts, these are honestly one of the biggest sources of fraud. Good article on the types and ways people are vulnerable to ATO: https://www.security.org/digital-safety/account-takeover-prevention/

She should talk to a benefits attorney. Regardless, I would get a copy of the plan document/summary plan description. Sometimes plan provisions include revocation of beneficiaries on marriage. If this happens to be a governmental plan, state law could also possibly revoke as well. As a side note - they should have known from his death certificate he had a spouse, typically it would include this information, unless they hadn't yet filed their marriage certificate.

I think most administrators keep check sheets showing the QDRO determination if they do it in house. It seems like these are outsourced more and more but yes, letters and communication all part of the process.

Do you have a copy of the contract, and what does it say about amendment? I have seen at least one that allowed for amendment by the sponsoring organization. The Insurance Company has no duty to deviate from their filed contracts. In fact they have to follow them, and can get in trouble for market conduct if they treat individuals differently under the same contract, so unless it is amended you will have an issue trying to move them. I am curious whether you have actually talked with the 15 individuals about moving like has someone had an actual conversation with them? That might be worth it to get rid of the potential liability. Probably the easiest way to get them moved is to talk to the owners.

What kind of businesses and what kind of plans?

@MoJo I think you have the right of it, why anyone wouldn't adopt now to save the trouble later I have no idea.

I wonder if there won't be a project by the IRS to catch those, seems like an easy target.

It depends on what you are looking for. Who are your employees? Are they tech savy, there are a couple of platforms that focus on small plans, that are no frills. If you want them to have customer service, then I would look at TPA's or bundled service providers. There is usually a minimum charge with these folks though.

I have worked for three large recordkeepers, they always get the documents to move a plan. They sometimes restate the same provisions onto a new VS document but they don't usually change the existing provisions unless there is an amendment.