mming

My apologies for the ambiguity - I am referring to the IRS' discontinuance position, as bp parv suggests. The questions he/she raises would've been my follow-ups, so it would be interesting to hear people's experiences concerning this topic. BTW, the sponsor has high turnover, but some employees stick around over a year & become eligible, so there's always a few new particpiants every year. I suppose the safest route would be to give future participants full & immediate vesting, and if a contribution actually happens, reinstitute the 2/20 schedule at that point for the new & future participants. Going forward, assume discountinuance again w/100% vesting after some years of no deposits? As for the timing of the discountinuance, perhaps the IRS' permanence stance can be considered, where a plan is expected to, I believe, have contributions made at least 2 out of every 5 years. This would default the vesting to 100% after 3 years of no contributions (this plan went past 3 years, though). I'm guessing most would agree with terminating the plan, as was mentioned, and maybe using the 3 year timeframe as a policy in the future, though I could also see dissenters thinking that may be too harsh.

Though the participant wants to pay off the loan, no mention was made whether the loan paperwork allows for pre-payment - hopefully it does, at least in the event of a plan term.

The vesting for all existing participants in a profit sharing plan was increased to 100% because it has been many years since the last contribution was made. The plan hasn't been terminated because the trustee is always optimistic that one day he'll be able to contribute. My question is, must all new participants also be shown as being 100% vested, or should this happen only after they've been in the plan a few years if no contributions are made (the plan has a 2/20 vesting schedule)? The document is silent on this. Thanks in advance for any help.

I should know this, but not today for some reason. If I recall, an amount distributed from an In-Plan Roth account (that was converted within the plan from a pre-tax deferral account) can be withdrawn on a tax-free basis if the Roth account was established at least 5 years ago, regardless of whether or not some of the distributed money sat in the account that long (and, of course, if the participant is at least 59.5 years old). Also, if the participant dies before a distribution can be made, their beneficiary can be paid the Roth amount on a tax-free basis, with the same choices in payout methods as a pre-tax deferral account, unless the doc specifies different methods by source. Do I have both statements right? All help is appreciated.

From what I've seen, most TPAs use the UP-84 table at 8.5%, which would make one think that combo generally gives the best new comparability results when the owners are among the oldest participants and the NRA is 65. Has anyone found any patterns where other combos work better for certain ages, demographics, etc. that the IRS probably wouldn't object to? Also curious as to whether anyone uses more recent mortality tables than UP-84 for this purpose.

We lean more towards option 1. Can't see how option 3 is even a possibility w/o any census info.

It's my understanding that all contributions for a certain plan year are considered to be credited to the plan as of the last day of the year, even if they are deposited in the following year, so they would be included.

We had an inquiry today about a "cash distribution profit sharing plan that is in compliance with 29 CFR Part 549". Researching this, we found a lot of info that implied that it's a normal PSP, but even the TPAs we work with didn't know exactly what this was. Does anybody know what this and how it may differ from a traditional qualified 401(a) PSP? All assistance is appreciated.

If the beneficiary designation cannot be considered valid due to it's failure to clearly indicate who is entitled to the participant's benefit, I would imagine the beneficiary order of precedence spelled out in the document would govern. Even if the designation says 'brother' or 'brothers' without any other info, would that be considered valid? A wily attorney may think not. I try to picture how the interpleader route would go - seems like there's a high probability each brother would say 'of course he wanted me to have the entire benefit - I was his favorite brother!' Even if the designation says 'brothers', will the court guess that it was meant to be a 50/50 split? If that happens and one of the brothers feels cheated, look out for that wily attorney again. How can anything be proven now that the participant is gone - does the court hope that written evidence of the participant's intentions will miraculously be found elsewhere, or that someone will testify that they overheard the participant say who they're designating? Seems unlikely. Also, what if a deal is cut between the PA and the two brothers, and the participant has a spouse/children/estate administrator? Should any of these individuals somehow find out about the plan's order of precedence, well, you know who's gonna come a-knockin'.

A company that only employs the owner sponsors a DB plan and wants to terminate it and start up a new 401k plan because the DB is getting very close to becoming overfunded. Perhaps I'm confusing two different topics, but I seem to recall that there's a rule where you have to wait at least one year in some instances before you can start up another plan. I believe the purpose of the rule was to prevent an owner from effectively taking an inservice distribution prior to age 62 (i.e., the distribution resulting from the DB terminating) while continuing to accrue additional benefits via a new 401k plan. I've found references to sponsors terminating DB plans and immediately starting up 401ks without such an issue mentioned, so my question is under what circumstances do you have to wait a year before starting up a new plan? TIA

Thank you BG5150. If I could also ask - the sponsor would rather not have to redo the 2025 W-2s and is asking whether the particpant could just list the refund as income elsewhere on their personal tax return. Do you know if it can be done that way?

An employee was permitted to defer in 2024 prior to her actual date of participation. The trustee did not want to retroactively amend the plan to allow her to be a valid participant when her early deferrals were made, instead the early deferrals were refunded to her in 2026. The document does not address the remedy for this situation. I'm guessing the refunded deferrals would be included in her 2026 W-2 - would a 2026 1099-R need to issued to her for this refund? All help is appreciated.

My first concern would be whether this is even allowed on a retro basis at all since it's a matching contribution, the reasoning being that maybe more participants would've deferred, or perhaps the ones that did would've deferred more had they known of the higher match.

I've been finding contradictory info about whether or not such a notice is needed in my situation. An employee's date of entry was 1/1/26, but he was not informed that he could start deferring at that time. The employee has yet to complain to the employer about this - it was the employer who caught this error. The employee will be permitted to begin deferring with the first payroll period ending after 4/1/26. This should suffice for reducing the QNEC for the MDO to 0%. The plan does not have any autoenrollment features. Some sources say an MDO notice is still needed, some say it is not. I'm leaning more to the 'not needed' side, especially since the employee has not brought up the discrepancy - is this the way to go? Any help is appreciated.

A plan has a 100% match on the first 6% of comp. If I recall correctly, a formula can be considered safe harbor if you contribute a match only based on the first 6% of comp, but only if that amount is less than 100% of the first 4% of comp. That would make this match on the first 4% of comp safe harbor, and the match on the next 2% a fixed non-SH match. Since there's a portion that's non-SH, the plan would be subject to ADP and ACP testing - do I have all of this correct? Would the ACP testing be done using the entire match or only the non-SH portion, i.e., the amount based on the 4% - 6% of comp? Thanks in advance for any assistance.

IMO it would not qualify as a casualty loss.

Yes, I would imagine the participant would get an SH match. However, would the match be based on the amount that would have been deferred had deferrals occurred when they were supposed to, or would it be based on the the QNEC amount? If matches are made every payroll, for example, it would make sense to base the match on the QNEC amount to account for lost ROI, but if the employer normally contributes the whole match for the plan after the close of the year, then it may suffice to base it on what the participant's originally intended deferral would have been. Just thinking out loud and would be curious what the prevailing opinion (or regulation) would be.

Yup, I got it confused with the autoenrollment rules - thank you both.

A PSP that was set up many years ago is now being amended into a 401(k) plan. Once this occurs, does it have to include LTPT employees or is it excluded from this requirement by virtue of the fact that the plan has existed for a long time?

A plan sponsor wants to change their traditional 401k plan to a safe harbor plan but are concerned about their contribution obligations should they suffer a down year or two in the future, so they are leaning towards a matching SH design. I've heard that a safe harbor 'maybe' notice can only be used when the 3% SH nonelective contribution is being provided, whether the plan is a QACA or not. One of their advisors, however, is insisting that you can use a 'maybe' notice for a SH QACA that provides matching contributions only, but this didn't sound right. As I'm thinking it would be hard for participants to decide how much (or if) to defer if the employer can just rescind their offer for a match at any time during the year, I have to ask - am I correct to believe that the only type of SH plan (QACA or not) that can issue a 'maybe' notice is one that provides the 3% SHNEC? Thanks in advance for any assistance.

Belgarath I have the same experience as you - even when we were required to just send them out once every three years, we did it annually. It was done a little out of habit and a little out of realizing how if we were participating we would like to receive at least an annual update of our benefits. And it probably prevented quite a few participants from asking "Why haven't I gotten a statement in years? What? Once every 3 years? That doesn't sound right - show me where it says that."

Does the QRP still have a suspense account balance? If it does I believe you would have to reallocate it at least ratably over a total of 7 yrs, which would count towards the annual addition limit.

Two cannibals are eating a clown. One says to the other: "Does this taste funny to you?"

I would much rather prefer the doc define NRA as at least age 62, even if the current NRAs for the partners is at least 62 using the definition the doc has at this time.

Form was filed a few months late but no correspondence has been received yet from the IRS. Although it's my understanding that penalty relief can be applied for even after the IRS has sent a letter assessing penalties, there always exists the possibility that the DOL may instead send such correspondence, at which time the option to obtain penalty relief disappears. As such, it would appear that the best approach would be to file an amended return at this time (i.e., before the feds contact the client) via the IRS penalty relief program for EZ forms - agreed? Thanks in advance for all assistance.