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TPA Advisor, There are regulations at Section 1.414(l)-1 that describe situations when the IRS considers that there is one plan or more than one plan for purposes of the requirements for mergers, consolidations or spinoffs of plans that also generally apply for purposes of Form 5500 filing and certain other purposes. Under the facts that you describe, It seems that there is one pool of plan assets under the XYZ plan for XYZ and A, B and C. Therefore, there is only officially a single plan, even if there are separate plan documents. If all the relevant provisions of the separate plan documents are identical or nearly so in terms of eligibility, vesting, types of contributions, etc., there should be a single plan for purposes of coverage and nondiscrimination testing as well as all other qualification requirements. I know that the DOL recently revised their regulations for purposes of the audit requirement on who is counted for purposes of the 100-participant minimum requirement for an audit to accompany the Form 5500. You should consult those rules to determine whether the DOL would consider the XYZ plan for all entities would constitute a single plan for purposes of the audit requirement. If you do not do so, you may be getting a letter from DOL suggesting that the plan is a single plan for this purpose and that you need to file a full-scale 5500 and include an auditor's report. If there is no issue of whether there is a single plan or four plans (meaning that you can treat the plans as separate for plan qualification and DOL purposes), then coverage and nondiscrimination testing would be conducted using the employees who are eligible under the plan being tested in the numerator and the total number of eligible employees in the controlled group in the denominator for ratio percentage testing under coverage. If the material provisions of the plan are identical or nearly so, then there should still be no issue with passing coverage testing (in fact, you can permissively aggregate the plans, if need be, to meet coverage). Things could get more dicey is one or more of the plans are safe harbor and one or more of the remaining plans require ADP/ACP testing, for nondiscrimination testing purposes. However, the bottom line is that you should focus on retaining competent counsel to determine whether there is a single plan or four plans based on the IRS regulations and the DOL's audit requirement regulations. It may be necessary to make corrective Form 5500 filings to correct any error or to consider a voluntary compliance filing under EPCRS to merge plans if you should have maintained a single plan based on these facts -- alternatively, you could propose to amend the plans retroactively to separate the assets of each "plan" based on the their actual operation. While you can sometimes do that on a self-correction basis, you should consult the IRS Notice that was released earlier this year to determine whether the IRS will allow you to self-correct for this or whether a voluntary compliance filing would be required.

One thing that people seem to be forgetting is that if this is a hardship withdrawal, then the 20% mandatory federal tax withholding does not apply since a hardship withdrawal is not an eligible rollover distribution. In that case, optional 10% withholding would apply.

kimso, you did not indicate in your question what type of qualified plan was involved. If a defined benefit plan, then the Private Letter Ruling cited by EBECatty would be applicable, (disregarding for this purpose, that private letter rulings only bind the IRS And the requesting party and cannot be cited as precedent) even after its amendment by SECURE 1.0 (which allows for in-service withdrawals after age 59 1/2 and as amended by SECURE 2.0 (which allows certain distributions after attaining age 55 (if a service requirement is also satisfied)). If this is a 401(k) plan, Code Section 401(k)(2)(B)(i)(I) prohibits distributions of the participant's account balance prior to the occurrence of certain events, including severance from employment. Under the facts you have outlined, whether a severance from employment has occurred is a question of fact, and, in all likelihood, the answer would be No. By making a distribution to the participant at the time it did, the plan has an operational compliance issue and risks disqualification. Had the distribution occurred prior to the time of his rehire, then it would have been permissible and there would have been no compliance issue, even if he resumed employment. One other issue is whether the participant has resumed participation in the plan following his reemployment.

UA only applies to elective deferrals under a 403(b) plan. IF the plan also provides for employer matching contributions, then there is ACP testing for the match (unless the plan meets a safe harbor design) and coverage testing, limited to the employer matching contributions. If the plan provides for nonelective employer contributions, then there is nondiscrimination and coverage testing, albeit limited to the employer nonelective contributions. As applied to the employer contributions, if the plan provides for more generous eligibility requirements than the <20 hours per week exclusion, those employees who do not meet the more generous requirements are automatically excluded from nondiscrimination and coverage testing requirements. In addition, those employees who meet the plan's eligibility requirements but do not satisfy the 20 hour per week minimum may be excluded from coverage and nondiscrimination testing as otherwise excludable employees.

I have a couple of points that were not raised by the other commenters. (1) Regarding the cash-out threshold, there is a regulatory exception to that requirement in the case of the participant's death. See Reg. Section 1.411(a)-11(c)(5). One option is to have the plan force out the balance and do an automatic rollover to an IRA. (2) The SECURE 2.0 Act provides for a retirement savings lost and found. Although it is too early to tell, given the lack of regulatory guidance, it is hoped that plans will be able to pay over those amounts to help beneficiaries receive the remaining account balances. (3) There is an argument, at least on the retirement plan side, that state unclaimed property laws are preempted by ERISA. However, nothing precludes the plan from voluntarily sending money to a state unclaimed property administrator. As far as the "warehouse scenario," many states participate in websites such as unclaimed money.com, which includes bank account balances paid over pursuant to state unclaimed property laws.

I fully agree with what Paul I. said, with the following amplifications: (1) likelihood of discovery should never inform the course on which way to act; and (2) in addition to what Paul I mentioned, since the 5500 is signed under penalty of perjury, there is also the likelihood of criminal liability on the part of the client and its principals.

I agree with all of the previous replies, but I wanted to point out that another thing that might be worth considering are the terms of the promissory note evidencing the loan. It could theoretically be considered by the IRS to be a part of the "terms of the plan" which might actually conflict with the plan document or other items. Therefore, when deciding on amendments including as applied to plan loans, it is also advisable to take the time to consider the wisdom of also taking a look at the terms of the promissory note and revising them for prospective loans to make them consistent with the terms of the plan and the plan loan policy document.

You need to separate the purpose of the LPTP rules (to allow the employee to simply make elective deferrals) from the regular rules governing eligibility to become vested in and receive an allocation of employer contributions. All elective deferrals are required to be 100% vested at all times. As far as vesting in other employer contributions, subject to the provisions of the plan and plan qualification rules based on the particular plan design, such persons can be required to complete 1 year of eligibility service (1,000 hour) to become eligible for the employer contribution portion of the plan, to receive vesting credit with respect to such portion and to be eligible to share in the allocation of employer contributions under the plan.

The IRS position, as amended by SECURE 1.0, is that if the plan is not established by the due date of the tax return for the year in question, there is no trust and therefore, there is no plan. I agree with Bri, that the return would be amended to undo the deduction and start again with adopting a new plan document, hopefully on or before the due date of 2023 tax return.

If you file the 5500 without the audited financials, there is a chance that EBSA may bounce your filing. Since your client has not filed Forms 5500 for multiple years, let it get its ducks in a row and file all of the under DFVC for all of the years. The reason is that the penalty for filing late is capped and filing the multiple years simultaneously will likely result in your client hitting the cap under the program. Then there will be no more never filed or late Forms 5500. Now, that would be very nice, don't you agree?

I would agree with CuseFan to the extent of the current state of the rules for EPCRS. However, I disagree with CuseFan to the extent he posits the option of amending the plan prospectively and hopes that the sponsor does not get caught since the client would be at risk for the period between the date of the plan's restatement and the later of the adoption or effective date of the prospective amendment. The issue is what did the original plan document provide: a 3% SHNEC or matching contributions? If the original provided for the 3% SHNEC, in addition to the question of why the plan even bothers to be treated as safe harbor, since more than 3 years have elapsed since the restatement took effect, you would need to do a VCP to ask for the plan to be retroactively amended for how it has actually been operated. If the plan original plan docuent provided for matching contributions, you would do the VCP filing and ask for the plan to be retroactively back to the original effective date to conform to its actual operation. Interestingly, one of the SECURE 2.0 Act provisions greatly expands the availability of self-correction. While you could decide to wait until the IRS issues a new EPCRS Rev Proc, you are playing a dangerous game of hoping that the IRS does not knock on your client's door in the interim. Bottom line: do the VCP filing and get it over and done with.

I agree with Bri and CuseFan. Even though the bonus was attributable to the employee's performance for a period predating his/her entry into the plan, for the most part, in the absence of a contrary plan provision, what is considered eligible compensation is determined on the cash receipts and disbursements method (i.e., salary and bonus amounts are considered to be compensation when they are paid even if earned prior to that time. Most payroll systems tend to follow that method.

I think Lou S is definitely on the right track. While 415 excess amounts in a suspense account could theoretically revert (but should be either allocated among all other participants or applied to reimburse administrative expenses, the guidance is that this suspense account is not supposed to linger around accumulating assets. Considering the 415 suspense account with the IRS proposed regs on forfeitures, there is very little wiggle room to go back and apply such amounts to administrative expenses incurred more than one year in the past. Is the client going for a determination letter on plan termination? If so, and there is a sizable amount of assets, you are likely to encounter serious push-back from the IRS.

WCC, you haven't said which type of DC plan this is. If the participant is only entitled to a distribution upon termination of employment and has not in fact terminated, then there is an operational violation of the qualification rules because the plan is making a distribution that is not specifically authorized by the terms of the plan document. Since the IRS has not yet issued any clear guidance on this, I would be loathe to technically treat this as an overpayment just yet. In a sense, it could, perhaps, be considered an overpayment. Under current IRS EPCRS guidance, there are certain things you can do if such a distribution is made, such as demand it back, issue a notice that the distribution cannot be rolled over, etc. Since there is no fraud, if the distribution is not a lot of money, you could, perhaps, not do anything based on the SECURE 2.0 clarification that the fiduciary does not need to pursue the overpayment. You might want to try to send the participant a letter saying, "Oops, you know that check you received? You should not have received it. Please pay us the amount back as soon as possible or contact us to make arrangements to pay it back." The participant just might do so without batting an eyelash. If, however, the amount is more substantial, then you might want to consider other options.

Peter, I generally agree with what Paul I suggested. I do see your point about a shutdown of sufficient duration causing the IRS to be required to push back regulatory enforcement of a statutory deadline though. Since the late 1980s, there have been numerous instances of brinkspersonship in which the government shut down -- usually for short periods of time. In light of this experience and the duration of past shutdowns, I tend to think that being overly concerned about the prospect of a prolonged shutdown is the functional equivalent of Chicken Little yelling, "The sky is falling! The sky is falling!"

I agree with Ebplans and Dara. A PA is a form of professional corporation established by state law. I know that New Jersey, for example, only allowed for Professional Associations but not Professional Corporations (even though Professional Corporations could be established in NY or PA). I know that NJ later changed its law to allow professionals to form professional corporations or professional associations. Perhaps their initial reluctance to allow for professional corporations was a fear that the professional would use the limited liability of a corporation to avoid potential malpractice liability -- even though the statutes establishing such entities clearly state that nothing in the law is to be interpreted as limiting the liability of any individual who happens to be a shareholder or employee of that entity.

I wanted to make the following points: First, building on what Peter and Paul I were discussing where a PEP is involved and taking it one step further, if a PEO sponsors a PEP, it would have the advantage of offering a one-source payroll and benefits operation at a distinct reduction in overhead to adopting employers. Secondly, I wanted to point out that the starter 401(k) approach seems to be a variation of the SIMPLE 401(k) plan theme but with no employer contribution requirement. Finally, Responding to Paul I's comments about the use of a starter 401(k) as an alternative to participating in a state-run IRA, I think it is a very valid point -- the states that have adopted such laws have been confined to utilizing an IRA-based platform to avoid ERISA preemption issues. Perhaps a SECURE 3.0 might include a provision that a state's mere adoption of a saver's choice type program mandate will not be considered preempted by ERISA if it includes a starter 401(k)-like arrangement.

However, building on MoJo's points, if the plans merged, there is no more Company B 401(k) Plan which could terminate post-merger and there is no violation of the successor plan rule. Therefore, there would be no need to do a VCP filing. So the crux of our points is: what merged and when, the companies, the plans, etc?

It should definitely not be an issue for coverage testing purposes since employees who have not yet been credited with one year of service are tested separately for coverage purposes. Moreover, since those folks are NHCEs for the first year (with the exception suggested by Austin 3515), it should be a no brainer. Most importantly, however, deferrals are tested separately for coverage purposes than are employer contributions.

Bird, I took a look at the statutory citation you referenced and it deals with what is included in gross income for NJ state income tax purposes. Basically, the section states that 401(k) contributions are excluded from an employee's gross income. I think the agent is mixing up the employee-level income exclusion with the employer-level income tax deduction. The elective deferrals for each employee, up to the 402(g) limit and as permitted by the results under the average deferral percentage test, to the extent applicable, would be deductible at the employer level and reported on Form NJ-BUS-1. In addition, any employer contributions, including matching and profit-sharing (non-elective) contributions, would be deductible at the employer level, subject to the 25% of compensation limit, as adjusted with respect to self-employed individuals. I hope this clarifies this for you and helps get the agent off your client's back.

The IRS website at www.irs.gov/ep has some pretty excellent resources as well. You might want to go to a link on amending or updating a plan where you will find a link to an ESOP Listing of Required Modifications (LRMs), which can serve as an excellent start, if you need to draft a plan document. There are also IRS checksheets used by IRS agents in reviewing plan documents submitted for determination letters which can also be somewhat helpful. There are a couple of caveats you need to bear in mind when examining these documents: (1) the LRMs are a bit rusty and would need to be updated to account for more recent law changes, to the extent that they are mandatory as well as optional changes the client might want to implement, particularly if the IRS has issued any guidance on the issue of some of the optional changes. (2) the LRMs and checksheets do not necessarily consider ERISA and other practical legal language that you might want your client to avail itself of to obtain an advantage and possibly forestall litigation, such as a limitations period and a venue provision for bringing lawsuits following claims denials.

As an attorney, the iron-clad "attorney-client privilege" is full of holes as applied to employee benefits law. The reason is that the courts consider the attorney's client to be the participants and beneficiaries of the plan and not the employers retaining those attorneys. There are exceptions, of course, that I do not want to drag out and confound this forum with. That being said, the attorney's notes and communications to HR officers and top executives of the employer are generally not protected by privilege. Consequently, both the real client and the attorney are better served by not creating excessive notes that can be discovered by a disgruntled participant with an axe to grind. This fact argues strongly in favor of a document retention policy and strict adherence to it. That being said, however, plan documents, restatements, amendments, SPDs, participant communications and the like should most probably be retained forever (or pretty close to it).

Since those benes are both minors, the bank should ask for something from the person purporting to be their guardian proving that they have been appointed as the child's guardian -- it could be something from the probate court -- much will depend upon the language of the state law authorizing persons to receive assets on behalf of a minor child. I have seen provisions that are more liberal than the one describe, in which case, you may simply be able to pay out that person and not be concerned with how they apply. The bank should not apply for a court order -- let the person claiming the money on the minors' behalf do the heavy lifting of proving that they are duly qualified under applicable state law -- if that is done, then the trustee may pay that person directly on behalf of the minors.

For a profit-sharing plan, there is no notice that is required to be issued to participants in advance. If, however, the employer is applying to the IRS for a determination letter that the termination of the plan does not adversely affect its qualified status, there is an advance notice requirement that is applicable in that instance, much of which appears to be driven by when the employer files its Form 5310 with the IRS. Notice of intent to terminate is a term used in the context of PBGC-covered defined benefit plans and has to be provided to participants in advance of the anticipated termination date. In addition, if the employer is amending the plan to significantly reduce benefit accruals under a defined benefit plan or money purchase plan, there is also an advance notice requirement that generally varies from 15 to 45 days, depending upon the type of plan and the number of participants covered under the plan. See ERISA Section 204(h) and Code Section 4980F. However, neither of these provisions apply to a terminating profit sharing plan.

I looked into support for the notion that the renewal commmission arrangement you described is both NQDC and an ERISA pension plan. Here is a link to an IRS memo issued in 2007 holding that the arrangement was deferred compensation for FICA purposes. https://www.irs.gov/pub/irs-wd/0813042.pdf Please note that the memo does not address the application of Code Section 409A, even though final regulations were issued in 2007. This is because the memo was prompted by the employer's application for a refund of the FICA taxes paid on such amounts, which the IRS denied. Regarding the issue whether the arrangement is an ERISA pension plan, the case law seems to go in different directions. Please note that the outcome of this issue may well turn upon the actual language of the renewal commission arrangement in question as well as the agent's work or residence location. Also, since I do not have the benefit of an online citation service, it is possible that some of these cases may have been reversed or overruled by decisions in higher courts or subsequently issued case law. Finally, do not overlook the fact that the DOL issues Advisory Opinions from time to time which may have dealt with this particular issue. That being said, for the proposition that the arrangement is an ERISA pension benefit plan, see Petr v. Nationwide Mutual Insurance Company, 712 F. Supp. 504 (D. Md. 1989) For cases holding that the arrangement does not constitute an ERISA pension plan, see Fraver v. North Carolina Farm Bureau Mutual Ins. Co., 801 F. 2d 675 (4th Cir. 1986), cert. denied, 480 U.S. 919 (1987); Wolcott v. Nationwide Mutual Ins. Co., 664 F. Supp. 1533 (S.D. Ohio 1987). In light of my statements in the foregoing paragraph, please consult with counsel on whether and how the renewal commission arrangement in question is considered an ERISA pension plan.