Lou S.

It sounds like you did everything correct. If the distribution is bieng processed in 2025 and the loan is being off set in 2025, it will be taxable income in 2025. You will presumably send her two 2025 1099-R one for the distribution of cash and one for the offset of the loan since they have separate 1099-R codes.

So I'm curious, is it not treated as a failure if you self correct but the excise tax is due? And if you go through VCP it is clearly not treated as failure and the excise tax is likely waived in full in most cases. The reason I ask is because the decision to do a VCP submission could hinge on the size of the excise tax. If the excise tax is smaller than the cost of a VCP submission, the sponsor might just want self Correct and pay the participant's excise tax rather than go through a VCP filing.

Keep good records on timing of deposits and which calendar year limit is applied to which deposit so you know what actually goes in your tests. I'm going to assume from your post this is the first you had recharacterization due to failed test and that he had no calendar year catch-up in prior years. For calendar year 2024 the limit is $30,500. To make it somewhat easy I'm going to say the participant defers $15,250 in the first 6 months and $15,250 in the second 6 months of calendar year 2024. You do your 6/30/2024 test and find he needs a "refund" of $2,500 to pass the test. Since he has only deferred $15,250 as of 6/30/2024 you have no refund but have now used $2,500 of the 2024 limit as of your 6/30/2024 test date. So when he defers the remaining $15,250 in the second half of 2024 $5,000 is recharecterized as 2024 catch-up (because $2,500 was already rechareterized on 6/30/24) and does not go into your testing for the plan year ending 6/30/2025. The remaining $11,250 along with any deferrals up to the 2025 402(g) limit in the first half of 2025 go into your 6/30/2025 testing. Hope that's clear and helps.

Did missed RMDs get added to self correction? I know for a long while they required VCP. If this got expanded, and it might have in the "somewhat" recent expansion of self correction it would be welcome news.

I don't think one year is a hard fast rule. More like facts and circumstances but if you are inside the 1 year window the IRS is fine with it. But if you are concerned, it couldn't hurt to have a new resolution re-terminating the plan or affirming the plan termination. You might also want to check if the delay requires them to adopt any additional conforming amendments. As long as your "freeze" amendment isn't rescinded because you are deeming the termination no longer in effect it shouldn't have any material impact that I can think of but you may now need a Valuation and Schedule SB for 2024 that you weren't planning on which if the plan is underfunded could give rise to a required contribution.

SH Match can't have an allocation condition. Are you saying there is both SH match and discretionary match? I'm confused by your fact pattern.

I thought DB plans had to start payments by RBD regardless of employment status. Did that change or am I misremembering? I would think you would have to start payment in the normal form of benefit. I'm not sure what the procedures are for a participant who has an unknown marital status, you an check the plan document or talk to your document provider to see if it is addressed. I image a reasonable good faith assumption could be made but if your assumptions result in underpayments, you will likely have to made back payments plus interest if/when you get corrected data. Has the client checked old beneficiary designation forms or reviewed it's medical from when they were active, marital status might be there?

If she legally adopted you then I think she is. If she's "just married to your dad" then no double attribution.

If the plan does not address it, give the participant the choice, but make a deadline that is imposed so you can meet the 3/15 deadline if the participant does not respond. Then have the Plan Administrator make an administrative election as to how refunds will be handled absent an employee election: pre-tax first, roth first, or proration. Document election and follow that going forward.

If the plan document allows, you can always favor one HCE over another. Plans that cover only HCEs automatically pass testing. As Truphao points out though you will still make TH minimums if the plan is top-heavy. So in your example, of the owner getting max everyone else getting 0 is fine until your plan becomes top-heavy which could be immediately if its a first year plan with no other money in it, could be never if there is a 401(k) component and you have enough non-key HCEs contributing enough to the plan to keep it below 60%. And while you say this is a PS, you still need to look out for 401(a)(26) if it's a DB plan or DB/DC combo plan.

I don't think DFVCP is available for 1 person. The IRS has their own program that mirrors it pretty closely though that you already linked. However if he's already gotten a penalty letter, talking to an ERISA Attorney ASAP about the best way to request abatement is probably the way to go.

There are documents that allow for their exclusion, yours may or may not be one of those documents. You can have them eligible but getting zero benefit if the plan allows for different benefit structures. I believe that also makes them participants for 5500 purposes (and SARs, SPDs etc.) and for PBGC coverage and premium purposes too. That can be a plus or a minus depending on what you are trying to accomplish.

You both may be correct and I may be confusing it with the mid-year guidance in Notice 2016-16. It's possible that I am incorrectly extending the 30 period in accordance with that notice where it may not apply.

Were you or they in the disaster zone? What was the reason the form didn't "make it through your software to the DOL"? Could that be a reasonable cause letter if there was some kind of issue that caused it not to go through?

Well you are not a SH anymore because of the October amendment so you don't have a SH notice requirement right? I think it does matter whether you were a SH-match or SH-NEC. If you were a SH-match I believe the regs (or an IRS notice) require you continue the SH match for at least 30 days after you issue a notice to participants that it is being discontinued so you would need to continue the SH match through 30 days after 12/20 when the SMM was distributed. OTHO I think your amendment and SMM timing are find if you were eliminating the 3% SHNE which I don't think follows quite the same rules, and your are clearly good for 2025 if you were a "maybe"notice plan.

Have there been any benefit increased to HCEs in the last 2 years?

Generally speaking that seems correct. What are they questioning?

I don't recall that reaching NRA after separation of service triggers full vesting. I'm almost certain that you have to reach NRA while employed to get 100% vesting. Unless some thing else unusual would trigger full vesting like partial or full plan termination. The Master Tex I use specifically states - that benefits shall be come nonforfeitable (if the Participant is employed on or after attainment of NRA). So you might want to check the document, it may be address in there.

Does seem like this particular lame duck session of congress has much desire to do anything, pensions or otherwise and seems content to punt any issues it may have to next year's incoming congress and administration.

It sounds like you will need to contact an attorney to help with your situation.

Isn't compliance with 72(p) what makes it a loan and not a distribution? Why do you not have a problem deeming a loan if it's non-compliant with one of the other conditions (amount, length of loan, amortization periods) but not for unreasonable interest rate?

Participant dies, and has both ROTH and Pre-Tax funds. Elects to rollover ROTH fund to her ROTH IRA Elects to rollover Pre-Tax funds to her traditional IRA. Custodian issues 3 checks. First check is to the beneficiary's Traditional IRA for the Pre-Tax funds. Second check is payable to the beneficiary's ROTH IRA for amount of cumulative earnings in the ROTH 401(k) source. Third check is payable directly to the participant in the amount of the cumulative ROTH basis. I have a call into to custodian about why they did this but I'm wondering is the path of least resistance is to - 1 deposit the pre-tax funds to the IRA. 2 deposit the ROTH earnings to the ROTH IRA as a death benefit rollover 3 deposit the ROTH basis to the participant to the ROTH IRA as a 60 day rollover. Note participant was not yet RMD age but beneficiary is over by a couple years, that would not impact direct rollover but would it impact her ability to do 60 day rollover? I mean I think the correct way to do this would be stop payment on the basis check and reissue to he ROTH IRA with correct 1099-R code. But since there will be no tax consequence either way, I'm trying to see if the work around is just simpler than dealing with custodian.

If you're interest rate is commercial unreasonable than I don't think the initial loan satisfies the conditions set forth in §72(p) and you would have a deemed distribution on issue of the loan, and possibly a prohibited transaction. If you look at §1.72(p)-1 Loans treated as distribution - then just before the Q&A the example assumes that everything was OK with the initial loan, including a commercially available reasonable rate of interest. Whether or not the interest rate is reasonable or not I leave for others to decide. But if a determination has been made that it is too low, I think you have a problem even if the loan itself meets all the other requirements of 72(p).

As CuseFan points out if the Plan allows for ROTh and in-Plan conversions of ROTH, then sure he could do that. If by recharaterize he means go back and change each year from pre-tax to ROTH retroactively, no.

Is your concern that he wording on timing is within 90 days after becoming a participant and you don't think you can give it to before they are a participant? Maybe an ERSIA lawyer could weigh in, but since the purpose of the SDP is to be a easily understood reading of the plan terms for the participant, I don't think either the IRS or DOL would have any problem giving the SPD at the same time you are giving the rest of the enrollment materials so the participant can make informed choices.