David D

For those TPA firms that only use the services of an enrolled actuary for doing the actuarial valuation, SB and PBGC if required, but your firm is responsible for the compliance testing, what software do you use? Is there any standalone testing software that you have found to work, or do you primarily do the testing in some variations of excel? Thanks!

@fmsincDavid - That is true with 401k plans that are primarily now on a record keeping platform where each participant can log in at anytime to see their account balance. But that was not true before 401kl plans became popular, nor true for those employers that have not added a 401k but simply have a trustee directed DC plan. In those plans, usually a TPA does the accounting once a year, or quarterly on paper, but the money is still all in one pool that everyone shares proportionately in the gains/losses of the trust. In those instances the interest is not credited back to the participant, but goes in to the trust and everyone shares proportionately. Currently in our office I would say about 25% of our plans still operate that way. If you prefer not to refer to it as loan, it is money that the participant was able to take out of the plan as a tax free distribution and pay it back over time. In the event the plan terminates, the loan becomes payable in full, and if not paid back, the tax free distribution now becomes taxable.

If the plan is frozen and zero accrual (meaning 401a26 is no longer an issue), the the 3% Safe Harbor becomes the minimum. If not a safe harbor, then the DC minimum becomes the minimum so it could be less than 3%. The "trap" that sometimes comes up is when the DB plan is a standalone, and it's "frozen" only applying the meaningful benefit to all to minimize future contribution requirements. In that case, the key employees get the 1/2 percent minimum accrual, but the non keys must get the 2% accrual. This is never a good result.

It does provide business opportunities for TPA's, but how does a TPA find out someone has one of these plans? As Bill mentioned, typically these plans come to a TPA when someone realizes there are issues that need to be corrected. "Free" 401k plans are really just a free document. They do not involve any compliance, including 5500EZ filing if needed, contribution limit monitoring, loan monitoring, etc. More often than not, those plans are brought to a TPA when either they are in need of a cash balance plan, or, if someone advising the client realizes there is an issue. Often it is at that time that these business owners learn that total business income does not equal plan compensation for contribution limits, that plan loans are not just you can take the money when you want to do something else with it, that you don't avoid the $250,000 limit by having 4 different plans each under that limit, or sometimes even as simple as "owner only" does not mean only the owner is the one contributing. Unfortunately to many, the free aspect outweighs compliance.

If you file the 1099-R electronically there is no need for a 1096. If you are not filing electronically I think you will only be able to get a 2019 1096 by requesting one from the IRS. Yes, the participant will owe taxes and penalties on the $75,000 (unless they actually reported it). I am certain the auditor is aware of the significant potential liability.

I think the Safe Harbor "Maybe" plans were much more prevalent prior to SECURE. Now that the retroactive amendment to 3% SH Non Elective if done by 12-1, or 4% if after 12-1 that is how most now operate. For those plans you issued the "maybe" notice by 12-2-2025 for the 2026 plan year and the definite notice by 12-1 -2026, then the next plan year notice was due by 12-2. Most document providers combined that into one notice that was due 12-1. I think most are no longer doing that as they can now choose to adopt a Safe Harbor for the plan year they are in as long as they do it by 12-1 for the 3%, or later for the 4%. SECURE also eliminated the notice requirement for the SH Non Elective, but in practice most still provide it because in that notice it says they have the right to remove the SH mid year. If you elect not to provide notices then you can't amend mid year to remove it (other than proving economic loss).

The client may want to get some legal counsel on this. I believe once the check has been written, you can not undo that. Revenue Ruling 2025-15 confirmed that once a check is written the distribution occurred. That re-iterated what an earlier RR said that simply not cashing a check does not undo the distribution. I think IRS has also opined that as long as it can be confirmed the check was sent to the correct address, that is constructive receipt.

When a plan terminates, the loan becomes due. Since the plan no longer exists, as it is an investment of the trust, all trust assets are distributed to close out the plan. The loan is an obligation of the participant and is non transferable, but I have seen on occasion that the QDRO attorney specifies how the split is determined when loans are involved.

I had the same reaction when I first came across it, but each line where you can make a choice starts out with: An Eligible Employee.... (which are defined earlier with Union, non resident and all the rest) Been too many years, I don't remember why the inconsistent language We wait on Albany Consultant to hopefully shed some light.

Austin3515 - Definitely depends on how the doc reads. If they are excluded under eligible employees they would be excluded, but the ASC doc that I see most often has this: EFFECTIVE DATE OF MINIMUM AGE AND SERVICE REQUIREMENTS. The minimum age and/or service requirements under AA §4-1 apply to all Employees under the Plan. An Employee will participate with respect to all contribution sources under the Plan as of his/her Entry Date, taking into account all service with the Employer, including service earned prior to the Effective Date. To allow Employees hired on a specified date to enter the Plan without regard to the minimum age and/or service conditions, complete this AA §4-4. Deferral Match ER    An Eligible Employee who is employed by the Employer on the following designated date will enter the Plan on the designated date without regard to minimum age and/or service requirements (as designated below):  (a) the Effective Date of this Plan (as designated on the Employer Signature Page).  (b) the date the Plan is executed by the Employer (as indicated on the Employer Signature Page).  (c) [insert date no earlier than the Effective Date of this Plan] An Eligible Employee who is employed on the designated date will enter the Plan on the designated date without regard to the minimum age and service requirements under AA §4-1. If both minimum age and service conditions are not waived, select (d) or (e) to designate which condition is waived under this AA §4-4.  (d) This AA §4-4 only applies to the minimum service condition.  (e) This AA §4-4 only applies to the minimum age condition. The provisions of this AA §4-4 apply to all Eligible Employees employed on the designated date unless designated otherwise under subsection (f) or (g) below.  (f) The provisions of this AA §4-4 apply to the following group of Employees employed on the designated date:  (g) Describe special rules: [Note: An Employee who is employed as of the designated date described in this AA §4-4 will enter the Plan as of such date unless a different Entry Date is designated under subsection (g). The provisions of this AA §4-4 may not violate the minimum age or service rules under Code §410 or violate the nondiscrimination requirements under Code §401(a)(4).]

Austin 3515, I read it as all employed on a specific date were in, but the employer took it as well, if you don't work 1000 hours, that does not mean you. I agree, the language is super critical.

I believe the QNEC for the missed deferral is zero. Since the plan made everyone eligible on the effective date, that overrides the ability to put those people in the otherwise excludable group for testing. You will not have a coverage problem, but you may have an ADP problem depending how the doc was written. You would also have a top heavy minimum in these calcs in which your QNEC for the ADP failure can go towards that as you are not making a QNEC for missed deferrals.

I have seen documents and participant disclosures written where the employer pays active participant charges, both TPA and recordkeeping and terminated participants pay those charges. Of course, they are usually written that they pay for the year following the year they terminate.

It depends on whether your firm plans on filing a 2025 5500 for those plans or not. I think the industry is split on that as some firms take the position of always filing a 5500 as part of their annual administration cost, and some never file and indicate on the following year return that it was a late adopted plan.

We paid for one last year from an ERISA attorney that provided us a notice we could use and the required HPI participant notice. It's important to note that i believe the Practices and Procedures had to have been in place at the time the deferral was made. https://www.law.cornell.edu/cfr/text/26/1.414(v)-2