AlbanyConsultant

Plan allows for immediate distributions, and participant K separates from service and takes her money out ASAP. Now we're doing the annual admin, and she is due $40 in safe harbor nonelective. If the sponsor puts it into her account, it will get eaten by distribution fees; K will never see any of it. But I don't think that the sponsor should benefit from this situation. Is there a best practice for doing something relatively meaningful with this $40? Thanks.

We're still discussing how to fix 2024, but now I'm looking ahead to 2025... Employees get two paychecks per month: one of regular salary, and one commission. Can we write a deferral election form to specifically say that "I elect to defer X from my salary compensation and Y from my commission compensation"? I'm guessing that the document can't actually say Y=zero because that's really just an exclusion. But I'm thinking if the participants choose it (without being coerced or pressured, of course), then we can amend the comp exclusion out, and it's just the per payroll SHM on the deferrals from salary compensation. I acknowledge that this is kind of shady, and that an IRS agent might not love it under audit, but I'm thinking it's defensible (if the plan sponsor really wants to be that aggressive). How out of line is this thinking?

There are some threads here that come near this, but I can't find anything that really gets to this situation... especially with a safe harbor plan. Plan excludes commissions from the definition of compensation for all sources - deferral, safe harbor match (deposited per payroll with no true up in the AA), and profit sharing. For the first several years of the plan, the owner and child have had 50%+ of their total compensation paid as commissions, so 414s would always pass as most NHCEs have commissions of 10%-20% of total comp. Until now; in 2024, child is not paid at all, and owner restructured so that all his compensation was regular wages. Sure, I can point to the caveat in my letter each year that this is a terrible idea and only is valid due to the large percentage of commissions that owner & child take, and let us know if that changes... but now that it fails, what actually happens? There's no PS for 2024, so that's fine. There's no ADP test, so is there no effect on the deferrals? Plan sponsor insists that all participants understand that there will be no deferrals on commissions. For the SHM, I presume that I have to calculate it on an annual basis including all compensation. But here's the thing: that might end up lowering the deferral percentage and therefore the match (example: deferring $2,500 on $50,000 elig comp yields 5% and you get the maximum match; now if we compare $2,500 to $83,000 total comp, that's 3% and you get a lower SHM). What's the right way to proceed with this? Thanks.

OK, now I'm pretty sure it's optional. If I'm wrong, I'm sure someone will helpfully correct me.

Is the Section 310 change to top heavy minimums (don't have to give them to participants who are otherwise excludable) an option, or is it just The Way It Is? I'm not seeing a clear answer; too much "may" and not enough "will" or "must". I'm looking at a plan with immediate eligibility for deferrals but YOS/semi-annual entry for SHNEC and PS, and is top heavy. Before, I would warn them that yes, you are saving the 3% as safe harbor in the first year or so you hire someone, but you'll have to give them 3% as top heavy, but they liked the vesting aspect of that so refused to change. Now... are the new hires right out entirely (there is no PS this year)? Or is this something that they will get to make a decision on? Thanks.

I had something similar a couple of years ago. DOL contacted me for a client that we stopped working on ~20 years ago. The plan sponsor gave them my number, saying that we were their "plan administrator". And since that was what the DOL had us as in their records now, they were very very very reluctant to accept that we had nothing to do with anything for the past two decades. They finally left me alone when I was able to dig up an allocation report from 2002 (!) and swore on a stack of 410b tests that was the most recent information I had from right before they fired us, but it was several calls over several months with "Find anything else yet? You know you are the Plan Administrator..." Um, no, and goodbye.

This seems obvious to me, but I want to be sure that I'm on good footing here (or at least as much as possible). S/E participants have their compensation determined after the end of the year, but they need to make a deferral election by the end of the year. It seems to me that if they are in a plan that is subject to mandatory automatic enrollment, then if they don't complete a deferral election of some kind by 12/31/xx, then they are subject to the automatic enrollment percentage and that is they only deferral they can do for the year. This is mostly true for a new partner who joins the plan - when they first become eligible, they may not necessarily need to complete a deferral election form as soon as they become eligible (though it would be smart if they did), but definitely something should be in place before the end of the year. If they choose to defer during the year, then obviously it must be pursuant to a written election form, and therefore they are out of the mandatory automatic enrollment rules. So that's fine. All the usual caveats about evergreen elections vs. ones that are specific to the current plan year and wording them to allow the maximum each year, etc. apply. Hmmm. If a deferral election form says "I want to defer $X for 2025", what about 2026? Is there no deferral election, and therefore they are teetering on being subject to the mandatory rules again (until they make a new election)? Thanks.

Thanks for the suggestions. I've tended to read the "overpayment" rules as applying to DB plans, not DC plans. Guess that's just a me thing. Believe me, I'm definitely looking into how this got done twice with no one confirming the status of the first payment!

Short version: Participant A requires a 415 refund every year, and the participant and/or plan sponsor don't change anything, so it keeps happening, so we do a distribution each Fall. For 2022, we processed a refund in November 2023, but in January 2024 A called to say that the refund didn't reach her. After some panic, it was re-processed in January 2024. The refund for 2023 was processed November 2024, no problem. Now upon further discussion, A realizes that she did get the distribution in November 2023, so she got it twice. A is 49 years old, not eligible for any in-service withdrawal from the plan. So step one will be to try to get A to return one of the distributions ($11K). But she's already got a 1099R for it, and getting a recordkeeper to change it is going to be nigh-impossible. So, really, what is A's incentive to return the money? She's paid the taxes on it; if she returns the money, it gets taxed again on the way out? I suppose we could try to set up an after-tax source at the rk, but... still, why would A want to return the money? For the plan sponsor, they have to ask for the money back. And if A doesn't return it...? Document the process, multiple requests, but ultimately they can't really DO anything if she doesn't return the money, as far as I can tell. What am I overlooking? Thanks.

So it's something that simple: if you can't elect to defer Roth, then you can't do this. Which implies that that same goes for PS-only participant-directed plans... but we don't need to sully a DB forum with DC stuff. LOL Thanks!

I am no cash balance (or DB in general) expert, so when a potential client asked that since they can do their PS as Roth (not that I'm recommending that!), why can't they do their cash balance as Roth... I didn't have a good answer. I don't see anything about this anywhere, so I'm assuming it's just not a thing. Is the logic that since it's not individual accounts, you can't tax it properly? Thanks.

Oh, yes - chat already scheduled! Actually, this is all in the loan instructions we provide, so maybe "reading comprehension" will be the first thing discussed...

I can't believe that I can't find a previous topic on this... Pooled 401k plan in a brokerage account. Participant L (who does not defer) takes out a loan... and the office manager who doesn't know any better codes it as pre-tax deferrals. It's a 9/30/24 PYE and the loan was taken in August 2024, so we just discovered it 4+ months in. To the plan, this is a non-issue, right? L owed $200 per paycheck, and that is what was deposited. The only 'allocation' is when we do the recordkeeping, so if we say those are loan repayments, then they are credited as loan repayments. Or do those not count as loan repayments, but rather deferrals... that weren't asked for? And what about L's W-2? It correctly shows pre-tax deferrals, because that is what happened. Any advice appreciated, thanks.

I'm working on setting up a new combo plan for a one-person sole prop business. Halfway through, I realize that there is no EIN for the sole prop business. The sole prop rightly does not want to use their SSN on the plan documents, so I recommended that he get an EIN for his sole prop. Then I get is an email from the CPA saying that they created an LLC (taxed as a sole prop) effective 12/1/24 and got an EIN for that, and that should be the plan sponsor. I'm not sure this solves the problem. Can I say that ALL the 2024 income is counted under the LLC? I guess it will depend on what's on the Schedule C. And can I even use the full 2024 limits if the LLC is the only sponsor of the plan (I get tripped up on the pro rating rules, even when following along the EOB)? I thought of having the original sole prop also adopt the plan... but then I'm back to where I started with the sole prop not having an EIN so I have to use the SSN on the plan document (though not on the 5500-EZ, so maybe that's a little better). All my projections are of course based on his full year expected compensation. Is there a solution here? Or is it not a problem at all? Thanks.

The match is only going to be ~2%, so I assumed that it was not part of the safe harbor process. So the ADP would be current year (and safe harbor), but the match would be prior year.

I've got a plan that is currently using the 3% safe harbor NEC, and they want to add a small match as well. This is a plan that historically gives bad data late, so I'm trying to think of ways to deal with the 3/15 ACP deadline. I was thinking that if I added it with prior year testing, then all I really need to do is get HCE data by Feb or so and then I can do the ACP test by 3/15 and deal with the rest of the census data as we get it. I don't do a lot of prior year testing, so I'm not sure if that would work. If it's added for 2025, what NHCE ACP rate do I use for the 2025 testing? Thanks.

I've got a pre-enactment MEP (established years ago). New Company G started up in 2024, wants to join the MEP effective 1/1/25. They have 15 employees. It seems like we get to use the 3-year grace period here for G and they don't have to start automatic enrollment until sometime in 2027 (or 1/1/28?). Am I interpreting this correctly? Or at least reasonably? Putting aside the wisdom of doing it from the start for the moment...

To the last point, yes, $1,500 would be trivial to an entity this size. I mean, I wouldn't necessarily want to be the one explaining it to the board, but I suspect that they have been frustrated enough with this over the years that seeing this resolved is worth it. Presuming that it is done within the parameters of what is OK or close enough to it so as to be defensible, I suppose. These are great ideas! Not sure about the second one; they have contact with all of these people (see next comment), but the others might be promising... can we just declare that Spinoff Plan B is going to consist of solely the remaining contracts for terminated participants at Provider A? I get that there's additional work involved with creating a second plan etc. The plan's financial advisor has reached out to all of them, showing the fee structure they are currently under and how it compares unfavorably with the new plan investments that they can elect to transfer to. For a while, the company even offered to pay any surrender charges, and these participants still elected not to move. We hear that the FA on these old accounts (which is not the FA on the new accounts) reached out to them and told them that their former employer was trying to confuse them. New FA did actually speak with some of them, and he is offering to do so again. In fact, he is also offering his services should they wish to roll out to personal IRAs instead (knowing that he has to tread carefully here). I'll see if I can get my hands on the contract. Thanks for the idea.

I've got a 403b plan that tried to move from recordkeeper A to recordkeeper B several years ago. Despite numerous plan documents saying it is an ERISA plan, RKA is insisting that the accounts they hold are non-ERISA accounts and therefore the plan sponsor can't move the accounts. The financial advisor did a bunch of presentations showing that RKB has lower fees and this convinced about 90% of the people to move, but there are ~15 who just haven't, for whatever reason. They are all terminated, and all have $7K+ vested balances. We're launching a new attempt to reason with RKA, but we are expecting it to fail. One of the directors asked if they could incentivize the participants to either take a distribution or authorize the transfer to RKB. $100 cash, say. Since the financial advisor didn't immediately shoot it down, I said that I'd look into it. How insane and/or illegal is this idea? More importantly, are there any other good ideas? Thanks.

I've got two 403b plans where there is definitely no controlled group and no ASG. However, they do operate closely together, to the point where employees are shared. Over the years I've made the plans identical, but now I'm thinking about a 403b MEP. The main consideration is that the want to continue to not have automatic enrollment. Both plans are pre-2022, so they are currently not required to offer it, but the way I'm reading the IRS clarifications, if Plan A becomes a MEP by Plan B merging into it, they will be subject to the SECURE auto enrollment rules. Is that correct? Thanks.

IIRC, this was the consensus of the "Ask the Experts" panel at ASPPA Annual.

I've got this auditor on a couple of my large plans who insists on pro rating the final payroll and including that accrual on the 5500 Schedule H and audit report. Example: weekly payroll, final week included on 2024 W-2 is the payroll of 12/28/24. He will prorate the 1/4/25 payroll as 3/7 belonging to 2024, so therefore 3/7 of the deferrals on the 1/4/25 payroll must be counted as 2024 receivables and added to the 2024 reporting. I refuse to add them to my administration, so we've got a reconciling item for that. This is insane, right? I'm no CPA, but I can't find any justification for this. And it adds a bunch of extra work, which is even worse. I'm meeting with the auditor next week, and I'm looking for something I can use to convince him to back off on this. Any suggestions? Thanks.

Dad owns 100% of Dad's company. He did a full asset sale to Son (his son, age 21+), who has created a new company for this. The employees are terminating with Dad's Company and are being hired by Son's Company. Dad is terminating his plan effective 1/1/24. Son is looking to start up a plan in early 2025. Are we (they) going to run into the successor plan rules because of the relationship between Dad and Son? There was no direct ownership by Son in Dad's Company, and there is no direct ownership by Dad in Son's company. Thanks.

Their mortgage woes could qualify. A hardship can be taken to prevent foreclosure and/or eviction. While that is usually a little more severe than just "being late", maybe the loan holder can issue a statement that $X is overdue and foreclosure proceedings are imminent. The plan sponsor may feel that is enough to allow a hardship for $X. Unfortunately, the $Y needed for car payments and daycare won't satisfy the IRS safe harbor hardship rules. As an aside, these are the situations that Congress thinks it is solving by adding in the Employee Emergency Distribution and the PLESA. EEP, maybe, but if they really think that participants are going to fund a 'rainy day account'...

We give them an authorization form that explains that they have options and they have to choose to either do their whole signing dance, or they can authorize us to efile it for them. it discloses that their signature will be posted to the EBSA if we efile. You can Google it - some TPAs have their forms online. Procedure-wise, we send it with the 5500, they sign both and send them back to us, and we file them. I like that it makes it easier for us to track - it's worth the little extra work on our end. And now the important part: Are we taking the NLDS over Philly?