AlbanyConsultant

I've got what used to be a paired MP-PS plan where we merged the MP into the PS 20 years ago back when that was all the rage. Of course, that MP money is still tracked separately for purposes of making participants who have that money get the proper spousal consent for a distribution. Now I've got a participant who is saying that when she Legally Separated from her spouse, as part of the separation agreement he waived all rights to her plan benefits. There is no other plan paperwork to his effect - I presume he is on the beneficiary form as her beneficiary (which predates the separation agreement). This is a new one to me. Is this legit? I feel pretty confident that she is still considered married for plan purposes, but can the spouse waive his rights that way? Thanks.

Right - I always forget that part when the eligibility is different. Thanks!

I thought I was right on this, but I'm looking at what the prior TPA did last year and it doesn't match up, so now I'm questioning myself... MEP has immediate entry for deferrals and statutory (1 YOS/ semi-annual) for SHNEC and PS. This particular adopting employer is top heavy by percentage but is choosing to only do the safe harbor this year. This makes them exempt from the TH minimum, correct? As in, those who are eligible for the deferral only (like those hired in 2022) don't need to get any allocation. Just like any single-employer plan. I was pretty sure of this until it came back to me that the TPA who did this calc for 2021 gave the 2021 hires a top heavy minimum for 2021 because they are top heavy (and they also did not do any profit sharing in 2021). To me, that's an error and I don't intend to repeat it, but I figure I'd better double-check, so... is there something MEP-specific that I'm overlooking? Thanks.

No, really, this one works - it's a one-person plan. The owner is maxing his Roth deferrals. He's even going to make his max $20K PS as Roth because he's in a self-directed brokerage account, so we can make that work. That leaves $20K to be put in as voluntary after tax, which the document allows. I figure that should be put into a different account since that has a different tax treatment. And then what is the best way forward? My thought was that it was better to roll that VAT money to a Roth IRA instead of doing an in-plan Roth conversion; it helps keep the plan under the $250K to avoid the 5500-EZ for a little longer. Are there any particular benefits or problems one way or the other? I don't see any rules about the timing of the Roth conversion. I'd think that depositing the VAT on Day One and, say, converting it to Roth inside the plan is just a thinly veiled excess Roth plan contribution, but I guess the regs don't see it that way. Obviously, the goal is to minimize gains in the VAT so there is no taxable income to report (maybe leaving it in cash will take care of that). I suppose there's still a 1099-R to report the base amount... another reason in favor or rolling to an outside Roth IRA! Thanks!

Can a 401k plan continue to function without Roth in a post-SECURE 2.0 world? Ignore the 'corner cases' where no one defers any catchup (whether because they defer low or there is no ADP failure recharacterized) or no one earns more than $145K (seriously, $145K? Like we needed another limit to track?). If someone earning $150K is required to make their catchup as Roth, then the plan has to allow Roth deferrals, right? I know we don't have all the answers yet, but it seems unlikely that there will be a special carve-out we can use to not amend the typically older plans that never had Roth in them before to allow Roth deferrals. And that amendment would have to be in place before any regular Roth deferrals are allowed, because the SECURE 2.0 amendment coming to a document near you in 2025 will only cover the catchup amounts. I - and I'm sure most of us - have a whole segment of plans that just want to keep things nice and easy, and I'm looking for a way to do that here... and not finding it. I'd rather the plan run smoothly than charge for correcting plan errors, personally.

A CPA reached out to me today to tell me that he was amending 2020 and 2021 tax filings for the Employee Retention Credit (under CARES, I think), and how would that affect the employer contributions for those years? Basically, certain business are getting to amend COVID-era (like it was so long ago) tax returns to claim a tax credit for retaining their employees if they met certain criteria (I don't care what the criteria are since I know my business didn't qualify for it). This increases the net income for the year - sometimes significantly - and therefore for a sole prop or partnership entity, this affects the net compensation. Has anyone else been hearing about this? How are you handling it (ideally with the minimal amount of disruption)? I'm concerned that if we include it in 2022 (or 2023) based on the deposit date, then it will reduce the amount that can be contributed for the current year (or next year). And, since the CPA is amending the 2020/2021 tax return, it would be nice (though not required) if things lined up. Any thoughts are appreciated. Thanks.

I'll share the answer - I had someone call the IRS and she got through easily (I know!). The rep said to print the screen that the system is down and we can use that to justify filing after 12/15 (presumably, as long as we file reasonably soon when it is back up).

Doesn't this happen every year - the FIRE system goes down for December? What are we supposed to be doing for 8955-SSAs due by 12/15? Just file them ASAP when it comes back up on 1/6/23 and wait to see what happens? I don't recall ever running into this personally before, which is hard to believe (maybe I've just gotten my 2/28 plans done earlier in the year before?)...

Always.

That's kind of where I was leaning - there is nothing to 'cause' a catchup (maybe there's an argument for lowering the $21,600 down to $20,500... or $19,500) to use that unused catchup from 2021. He has been making his deferrals steadily all along (with a larger drop right before 6/30/22). I found the language in our letter last year saying that this guy had better keep his deferral rate at about 7% if they wanted to pass (and sent early in the plan year); I suspect it wasn't communicated to the HCE. So if this is what it is, so be it.

Someone suggested this might be a way to help a failing plan fail less badly, and it's something I never would have thought of... is that because it's too out there, or because I'm too conservative? 6/30 plan year 401k plan, non-safe harbor is failing ADP test. It failed 6/30/21, too, but by recharacterizing $1,200 of the sole HCE's deferrals, a refund was avoided. For 6/30/22, the same sole HCE doubled his deferrals so is failing much worse. He deferred $28,100 for the plan year (not exceeding any calendar year limits), so even when subtracting the catchup, he still needs a refund of $6,700. The thought was that there's $6,500 - $1,200 = $5,300 of catchup that was unused from the previous calendar year - can that be used in this plan year somehow as well? Either to reduce the starting deferrals that are used to calculate the ADP test ($28,100 - $6,500 = $21,600 currently), or to partially offset the amount that is slated to be refunded ($6,700 currently)? Thanks.

You might get pushback on the asset payout, depending on how the account was set up. Some individual brokerage accounts that were set up with no beneficiaries will make everyone jump through a bunch of hoops to get things done.

Getting word that a plan I've been chasing is going to come with us. Sounds like they haven't yet gotten their safe harbor or EACA or QDIA notices from their current TPA or RK yet for 1/1/23. It's a SHNEC, so we can pass on that if we have to, fine. I'm getting information rapidly, but what if we just can't get enough to produce the EACA or QDIA notices by 12/1/22? I don't see any kind of remedy, like "hand it out as soon as possible" anywhere. What kind of pickle are they in? Thanks.

Is there a maximum percent of eligible pay that the NFP has to stay below? In the for-profit world, they have to stay below 25% to keep the contribution deductible... but there's no deduction issue for a non-profit. Whether or not a NFP should be spending 30% of payroll on a plan contribution is another question altogether, but if they had the cash, is there anything stopping it? I'm sure there is, but I haven't found it yet. Thanks.

I asked for an escalation to the platform's compliance dept. Good news - they agreed that no RMD is necessary. Hysterical news - the platform asked why we initiated the request for the RMD in the first place! LOL Thankfully, as the spouse is requesting a rollover of the full balance, I won't have to worry about any RMDs for 2023.

A 63-year-old active participant died in 2022. Her 75-year-old spouse is trying to roll the balance to an IRA. The product platform is saying that an RMD must be taken first. Looking at 1.401(a)(9)-5 Q&A 5, it seems that there is a catch. The way I'm reading it, it talks about the calculation for the year after the year of the participant's death... but nothing for the year OF the participant's death. Does that mean that there's a "free year"? I can kind of justify that, since as of 12/31/21, there was no RMD to be calculated for 2022. Or am I just reading into it what I want to see? Of course, if the product says "we're making the beneficiary do an RMD because that's how we do it, period", then that's the way it goes, but since we do non-product plans, I figured I'd see if I was at least taking a reasonable position (in case this comes up again, which I hope it never does). Thanks.

Yes, it is an NHCE, so if all else fails calling it a QNEC will work (we use Datair's doc). Appreciate all the input.

The plan sponsor calculates and deposits the employer contribution per pay period. For this particular participant, they calculated it incorrectly and deposited $30 too much for the 2021 calendar plan year. Unfortunately, the plan has immediate distributions; by the time we got to do the reconciliation, the participant had terminated and taken a distribution. Sure, the plan could try and get the money back because it was an excess distribution... but that would be returning money to the plan that didn't belong there in the first place. Similarly, if the participant balks at returning it, we'd normally instruct the plan sponsor to deposit $30+earnings to the forf account... but, again, that's $30 that shouldn't have been there at all. Is there any justification for letting this go? I need a justification because it's an audited plan, so I have to be able to back this up to the audit team. Thanks.

@Dave Baker, "xt" is short hand for "cross-tested". @CuseFan, no allocation conditions on the PS, so that's not an issue. All NHCEs will get 3%SH + 2%PS, so gateway should be satisfied unless PS gets too much... and since the goal is to limit the additional ctb to staff (if not hold it to zero), the gateway will dictate my upper bound. OK, thanks for wiping away this delusion.

There are any number of rules and regs that I go along with because "that's the rule", not because I believe they make sense. This was one of them. Yes, it's all based on the same "allocation date", so I agree that as long as the HCEs aren't getting their money BEFORE the NHCEs, then you can't call them out on anything there.

How fanatical are y'all about this? I've sometimes mentioned it when talking to clients, but I've never really been too big on it. My current situation: plan of an s-corp does monthly deposits of 3% safe harbor and 2% profit sharing for everyone including HCEs. They are considering doing additional profit sharing for the owners after the end of the year; as much as they can do that still passes cross-testing without giving the staff more allocation. Obviously, this allocation would be all HCE and no HCE. If this deposit was tested as a discrete event, total fail. But it would pass for the year in total. Given the recent comments by the IRS that they want to increase their audit revenue, is this something that I should be discouraging? Wait wait wait... in my head, I was POSITIVE that testing each deposit was a thing. Now, I can't find any reference to it anywhere. Sure, I'd be thrilled if it were gone, but... am I through the looking glass or what?

We used to get them for our non-product plans, but very often many years would go by without a distribution, and when one would finally happen, the TIN would be 'stale' and we'd get a notice that said TIN was not associated with the trust any longer - the IRS would assume it was no longer in use and re-assign it. Also, and I don't remember the details on this, but since withholding rules have changed, it is not as likely that there would be any crossover confusion between the plan and the employer (I really don't remember exactly what that was all about - I remember a CPA told me), so there's another reason not to get it. And we make any cash distributions get paid out through a distribution service (Penchecks) so they do withholding... between all those, I don't see the point any more.

That's what I was thinking, but I just got inside my own head, I guess. Thanks!

Oh - I wasn't clear. I'm talking about for a pooled plan where they are being distributed annually. And, yes, I know there's a whole debate as to when the first ones need to be given out. This is a theoretical discussion here, so I'm not looking at that. Let's pretend this is next year, and we're not having any "within a year" issues.

Maybe I'm just realizing this later than everyone else, but since the rates are changing monthly, are we in for a bunch of timing headaches? Specifically... 1. My efficient assistant prepared the report and statements in April... and I'm just now getting to reviewing them. It used to not be a big deal because no numbers changed. But now I have to re-run the lifetime income disclosures because the interest rates aren't the same now as they were three months ago (or they might be, maybe... better not take the chance!). 2. Let's say I actually did send the statements with disclosures back in April. Plan sponsors being plan sponsors, the package sat on their desk until I reminded them that they actually need to open it and do something, so they don't hand the statements and disclosures out until July. Are the disclosures that we prepared back in April no good? Would the participants ever know or care? 3. The interest rates update near the end of the month (according to the updates I get from my recordkeeping software provider). Does that mean I'm on hold with sending out reports near the end of the month so I don't accidentally force a client to hand out a disclosure notice that is 'behind' by the time they hand it out? These sound ridiculous... but that doesn't mean they're not how the rule was written. Of course, then there's "written" vs. "interpreted"... anyway, am I working myself up over nothing? Thanks.