AlbanyConsultant

Had a participant in RMD status die in 2023, and her account was to be split amongst her five daughter beneficiaries (which, ugh, but at least there was a valid beneficiary form!). Three of the beneficiaries took their distribution in 2023. Each share of the account is <$3K, and the plan has a $5,000 (I guess $7K now) forceout limit. Presuming the remaining two don't elect to take their distribution in 2024, do we have any options? Of course, we need an RMD based on the 12/31/23 balance, fine. But can we force these amounts out of the plan? The recordkeeper is ready to do so - they don't have any problem sending it to an IRA custodian. Just not sure that I'm 100% comfortable going along with that. Thanks!

I think we're all getting to the same point... while you COULD do this, if you do it carefully, there's no real benefit to doing it. At least, none worth the headaches if something gets messed up along the way. One person I mentioned it to suggested that maybe the two brothers had separate companies when the plans were created and then merged their businesses, and no one thought about how that might affect the plans. Of course, he's an optimist and likes to assume the best in people. LOL

Asked to consult on this, and it is certainly something I've never heard of before... Business (don't know yet if it's a partnership or an S-corp) is owned by two brothers. Maybe 50/50. They have no other employees. The financial advisor set each one of them up with an "owner only 401k plan" from a brokerage house, each in one brother's individual name. My first thought was "Hey, that's not right." And, sure, it isn't. But... is there a way that it COULD have been done correctly? A business can sponsor more than one plan. Each plan excludes... the other brother, an HCE. If they had set up the plans as Business Plan One and Business Plan Two, there's no coverage issue, no matter what kind of [defined contribution] contributions are done. And then you have... two legit one-person plans? This sounds crazy. Sure, you'd have to start filing two 5500-EZs when the combined total is $250K+, but can you really get away with this for a few years? Is it worth it? Whoa. Of course, it wasn't set up correctly, and each brother has $400K+ in their "own plan" and no 5500-EZs (or -SFs) have ever been filed, so we've got a bunch of things to look at and fix, but... is this a legit strategy if done correctly? I know, if you think you've got a brilliant new idea, just ask the people who have been filed/gone to jail before you, but...

In this MEP, eligibility for deferrals is immediate and for SH/PS it's 1 YOS and semi-annual. I know, yuck. But all the members follow it. A new company (a partnership, if that matters) wants to join 7/1/24. The entity was established 3/31/24. Presuming there is no prior service to count: Deferrals - this is an individual calendar year determination. The only thing that might cause an issue here is if I have to pro rate comp and someone ends up with a pro rated amount less than they defer. SH/PS - typically, this wouldn't be an issue (however, see TH discussion below). Let's say that they want to do an immediate entry waiver for all those employed on 7/1/24 so they are eligible for the SH/PS on 7/1/24. Again, no short plan year, with the only possible issue if someone defers so close to a pro rated 415 limit that any ER contribution puts them over the top. And PS has no last day or hours requirements, so if I have to allocate something to pass cross-testing, that's fine. Plus it's 100% vested, so no vesting service counting potential issue. TH - many of the smaller companies in the MEP have it where the owner(s) defer the max in the initial year and the regular employees don't defer much, so it's TH and the nonkeys have to get 3% even though they aren't otherwise eligible. Fine, granting immediate entry would cover that. Based on the no "short plan year", my gut says that I get to use full-year numbers for everything. Could it be that nice and simple? 😁

Because clients don't understand things and some advisors won't listen to reason? I agree that's the better solution. My best guess is that they want to get out of the safe harbor nonelective as fast as possible and go to the SIMPLE IRA with match because almost no one defers. It's SECURE 2.0 Section 332. The name of the section is "employers allowed to replace simple retirement accounts with safe harbor 401(k) plans during a year", but not vice-versa.

I know that SECURE 2.0 allows you to terminate a SIMPLE IRA and start a 401k/SH plan in the same year after 1/1/24 (got to love those pro ration calculations!), but what about the other way around? The fact that I'm not finding that you CAN do it makes me think it's not allowed. Thanks.

[I know the answer is it SHOULDN'T be done, but I'm looking for CAN.] Got a pooled 401k plan that is transitioning to individual accounts. There are enough people such SDBAs for all of them would be horribly inefficient, so they decided to go with a fund platform. However, the FA just told me that they will do SDBAs for the owners. This immediately set off all the alarm bells. Of course it's a bad idea, but what is the latest and greatest about how it can be done with some degree of confidence that it will pass the sniff test? I'm thinking: 1. No minimums allowed to open one. Note sure about minimums on any particular investment. 2. All participants must be given the option to do so. We've got a few plans that have had this set up for years (and keep resisting change), and on those we already have a boilerplate participant election form. 3. 404a5 fee disclosure notice. I was thinking about a set fee for the SDBAs each year to represent the additional time spent reconciling them; I'm not sure I could easily get the SDBAs to send me the fee from the account each year, but I think would be OK. Ideally, there's some kind of citation that I can use to argue against this, but failing that, I at least want to put this on as solid ground as possible. Any thoughts? Thanks.

Thanks. That makes sense.

Taking over a plan, and the plan sponsor mentions the profit sharing allocation. "I usually contribute $60K to be split among the participants at location A, and $50K to be split among the participants at location B." Oh, must be a class-based allocation, right? I look at the plan document, and the AA language says: OK, I guess this supports a separate integrated allocation for each location (though a review for top heavy is plan-wide, not location-specific). My real questions are: 1. What about someone who is getting comp in both locations. I suppose it's not a big deal if the total is less than the SSTWB (or whatever lower amount the integration is based on), but let's say one has $110K in each location? 2. Does this have to be tested in any other way? Normally, integrated tests are all good if they follow the formula... but since all participants aren't party to the same allocation, it seems additional testing is needed. I intend on restating this to a class-based individual-level plan ASAP, but that doesn't help me for the Plan Year I'm inheriting. Thanks.

Hmmm. Reading further, that says: We're not considering any of the items in (i). Is a participant who is not earning a regular paycheck (from the plan sponsor) a good credit risk? Or isn't it at least a relevant F&C? But maybe then we're delving into "does the Plan Administrator have to factor in the participant's entire financial situation"... and no one wants that. Or even going back to this in (a)(3)(i): I read this as if the participant or the Plan Administrator suspect that the loan will not be repaid according to the terms, then it's not a valid loan from the jump. Proving that, of course, is the hard part. I get that this is mostly me playing Devil's Advocate. I'm just trying to advise in the most comprehensive matter (and I know that their board is a bunch of lawyers who will parse things down to the micro-level!). I don't think we'll pass BRF; there are a lot of per diems. How this issue never came up before, I'll never know. I totally agree that switching to PD will still be a problem, but I'm at least trying to limit the potential problems. That's an interesting idea to limit the non-payroll repayments to PD participants. Thanks!

Can a plan loan policy have a provision that per diem employees are not eligible to take a loan? I've got a plan where they often move employees to per diem (I don't know the mechanisms or legality behind that, but let's assume it's kosher), so participants who are still considered active will want to access their money. So they take a loan... and then don't work again for three months, so the loan gets behind and eventually far enough behind to need to be defaulted. Defaulting a loan is a process, and something that no one wants to deal with. Plus, there's the question of was it really a valid loan in the first place (the situation that brought this to light is one where the participant was told she was being changed to per diem and then requested a loan immediately) if the Loan Administrator know that it couldn't be paid back through regular payroll deductions. Maybe it was a fiduciary breach by the plan sponsor, maybe it was an intent to get around the distribution rules by the participant. So that's what led to the question. My gut reaction is no, but then is it OK for the plan administrator to continually deny loans to per diem employees and therefore create a de facto exclusion? [If it matters, we are in New York State, where participants have the right to request that their loan stop being paid through payroll deduction, regardless of what the loan policy says. This is not something that we recommend our clients make known.] Thanks.

Thanks, Bill. I think I've got two plans left with LI, both with the same advisor. Any time I mention getting rid of the policies, he tells me I don't understand insurance (this is true) and that I'm not seeing the bigger picture (which is probably something like "they pay the FA higher fees!"). So I've given up. I had always treated LI as an option like a self directed brokerage account - if you offer it to one, you have to offer it to all. Am I not looking at that properly? Because I have a bunch of plans (unfortunately) where the owner is in a SDBA and the participants are on a platform, and I handle it like I've been handling LI; each participant has to sign an acknowledgement that they do not want a SDBA. But if I can amend the plan to stop offering those in and say that the ones already extant are grandfathered, that would be great.

I've got a plan that we've been working on for a couple of years, and the three original partners (who were the only HCEs) have life insurance policies in the plan that they rolled in when they left their previous firm 20+ years ago. Since I took over, I've been telling them that they therefore have to offer life insurance to all participants, and provided them a cobbled-up form to have the other participants decline such an election. I can tell you that no NHCE has ever opted for life insurance, though whether that is a result of those forms, or just not saying anything... well, I've advised them as best I can on that score. Anyway, 2 of the 3 original partners have left, and their policies are now gone. There are new HCE partners to replace them, and they do not have insurance. The last doesn't want to come up with $250K to purchase his policy for the plan. I'm wondering if I can somehow grandfather that in and have the document say that it is no longer offered going forward effective on some date. Am I going to run into a BRF issue? Thanks.

Exactly. I agree 100% - it's a complication that nobody needs.

I agree with the sentiment that there must be a written election in place by the end of the year to describe the deferrals for the self-employed owners. Usually we recommend that they write it descriptively, such as "the maximum allowed for the year that does not violate deferral or maximum annual limits. Some people I've worked with over the years have suggested that the "seven business day" clock for deferral deposits starts when the Schedule C or K-1 is completed. I've never had an auditor ask for that level of detail, but maybe that is something you want to consider.

This is the first time since we've been doing this MEP that a new company is joining mid-year. MEP has the same eligibility for all member companies: immediate for deferrals, YOS/semi for SH/PS (I know - I've tried to get them to change). New member company (company just created last week) is joining effective 6/1/24. We expect them to be top heavy, so all those non-keys active on 12/31/24 will get 3% for TH minimum even though they are not eligible for any employer contributions... well, now that it's 2024, we can actually not do that per SECURE 2.0 (all employees will be otherwise excludable for 2024 since they were all hired in 2024). But they want to be able to give the participants (including themselves) profit sharing for 2024. As long as it is stated in the plan document and/or adopting resolution, is it OK to waive the eligibility requirements for anyone employed on 6/1/24? Bonus question: since there is no short plan year, there would be no pro rating the limits for 2024 for this member company, right? Thanks.

Came here to say exactly this. I'm not a fan of this idea of sending auditors around the country idea.

No, this isn't an EACA, and the plan document does not allow only the "net" match to be made. I think it's common for a platform vendor to have a deposit tagged to a certain plan year, and it's becoming more frequent that they are using that information to limit transactions under the idea of trying to prevent errors. YMMV on how useful that is. A couple of years ago, I had a sole prop who deposited $10K in deferrals in January for himself for the prior year but he coded it in the current year. When he went to make his full deferral deposit for the current year in the current year, the platform blocked it because it was counting that prior year's receivable and it flagged him as going over the limit. It took way too much effort to get that first deposit changed. But I can see how they are trying to "help". I think we've all had this happen once or twice; luckily that is not the situation here. I think this is a good takeaway - while they give you a miles-long contract, hopefully, it specifies things like this so you can know what to expect.

Interesting. I suppose that might be a reasonable thing to say if the match was discretionary - I'll have to check if this one is.

Something I would have been sure of yesterday, but now... Plan has been around forever and fails ACP this year. The 2023 match has not been deposited yet, but the affected HCE has plenty of match source money from previous years. The platform is refusing to process the refund because the contribution to which it refers has not been deposited. is that a reasonable position to take? Thanks.

If they just said that their contract doesn't allow it, that would be one thing. But to say that it's "illegal" is another. And the withholding thing is a separate matter entirely. It's clear that we are dealing with people who don't know the rules - either the regulations OR what their contracts specify. I'm a little concerned that it's taking so many levels of escalation to find even a passing familiarity with the law. I do agree that we have to work within the bounds of the platform's contract - if they can tell us what they are, that would be nice!

I found a somewhat related post here, but what I've got is a little different. One-person plan, Roth deferrals and profit sharing. The sole prop (who is age 50+) has 2023 net Schedule C income of $29,000, and he wants to max. My pension software tells me that his 1/2 FICA is $2,100 (rounding), therefore net compensation is $26,900. Can he do the entire $29,000 as Roth deferrals? I think it triggers the catch up rule that it can't cause a failure in the year allocated... but I've never seen it applied to 100% of compensation. If not, I can split it and make some as profit sharing, but it would be simpler to be able to have it all one money type. Thanks!

We're currently on hold with our client and a platform that I'll call This Retirement Platform. The plan has a terminated participant who has a less than $5,000 vested balance. It's an ERISA plan (there are ER contributions). It has taken us several DAYS to get someone to accept that this is legal. I wish I was kidding. Currently, TRP (by which I mean This Retirement Platform, of course, not naming names) is telling us that such an transaction (a) has to be medallion guaranteed due to "some 2020 law", and (b) must have 20% withheld because it's leaving the 403b plan - yes, even if we're sending it to a rollover IRA. They can't cite the actual authority for either of these positions oddly enough. Has anyone dealt with a retirement platform that has tried these tactics before? Any success pathways (other than "no, give me your manager") or tips to share? Thank you for allowing me to spill the Tea; it's a hard Row here, but I guess the Price was good at some point. Thanks.

First time I've seen this... Client sends me a Quickbook payroll detail with a line for Tuition Assistance in the "Employer Taxes and Contributions" section (the section that shows things the ER pays, like the company part of medicare, the company part of SS, 401k match, etc. I asked about it, and the client said that this was the up to $5,250 that the ee can get without being taxed. This was new to me, so I did some research and found this (I didn't keep where I found it, though; I just copy/pasted it to a Word doc): Anyone familiar with this kind of thing? "Reimbursement" is what I'm focusing on. The client has three employees getting this, all over the $5,250 threshold. Let's say one of them is at $7,000. Do I need to count $7,000 or $1,750 somewhere? I'm thinking "no", and I'd like to assume (ha! I will try and confirm) that no part of this is in the Gross Pay. If it matters, the plan uses W-2 comp and also excludes "taxable employee benefits" from comp. Any guidance is appreciated, thanks.

Thanks!