TPApril

I think this was a great question for discussion. I was asked about incorporating the Unenrolled Participant notice to reduce notices, and upon reading it through, it almost feels more burdensome and administrative to track different groups of employees and participants, especially when unenrolled participants are supposed to require at least one notice per year as it is.

Bill - thank you sir. I'm not a tax strategist, but they are focused on growing non-taxable earnings. Personally, I'm not clear why they want to increase their tax liability this year anyway, but that seems to be what they've been advised.

This is in regards to 2024 being the first year that RMD's are no longer required from Roth Accounts. As of 12/31/23, owner has no Roth balance in his account. On 4/1/24, he converts through an in-plan Roth Conversion, 1/2 of his account balance to Roth. 1099-R will be issued. The question is whether he is still required to take a full RMD based on his 12/31/23 balances/money sources, or if this Roth conversion can cover a portion, if not a half or even all of the actual RMD?

Thanks! That's what I needed! Their other circular question was - should they take an allowable in-service distribution to pay off the loan, rather than defaulting and thereby having an outstanding unpaid loan balance within the plan which would limit future loans.

one-person plan in which owner has a loan with quarterly payments. They want to push off loan payments by a quarter. Doesn't seem right, but in so doing, they never default. What could go wrong?

Thank you kind commenters! Re the QNEC/SHNEC ideas - company has no interest in making any kind of contribution for the recent plan year. Interestingly, it is a fiscal year, so they could theoretically contribute catch up amounts for two different calendar years within the same plan year.

So there were no 401(k) (or other) contributions during the plan year. ADP test is based on prior year NHCE ADP. Since 2 x 0% = 0, no 401(k) is allowed for HCE in the next year. I just haven't had that happen before, but I believe the options are as follows: HCE's over 50 are actually limited to the catchup amount, rather than 0's. Prior to end of the plan year switch to current year testing

Wrap will be adopted this year and effective 1/1 of current year. It is too late to make it effective 12/31 of prior year. Planning to make the wrap plan a brand new plan, rather than continuation of prior one.

Plan Sponsor currently files all H&W benefits in separate 5500's. Plan Sponsor is going to adopt a wrap plan document effective 1/1 of current plan year. Prior plan year 5500 has not been filed. I'm getting dizzy thinking about this - how to include Schedule A's and incorporate counts to make the change. I'm thinking: Prior Year - because wrap plan not yet effective, file as normal, with counts reflected at eoy Current Year - all individual plans will file as Final and show both beginning and end of year counts of 0 and no Sched A's. New Plan will have an opening participant count and all Sched A's in the new plan

I've quote below from the 401k plan fix it guide. Plan failed ADP test 2 years ago. Seems to still be in a self correction program window of 3 years after the first year of correction. Under SCP below, 1st option is to bring up the NHCE ADP. The 2nd method would be far cheaper to just determine the correction amount (w/earnings) and then contribute that equivalent amt to NHCE's. However....all HCE's that are due a return of contributions have already terminated and taken full distributions. I'm thinking they will need to be sent letters detailing the amount of their distributions/rollovers that were not considered eligible rollovers. Preference would be to find an allowable correction that does not require a qnec to NHCE's. --------------------------------- Self-Correction Program: The EPCRS revenue procedure defines this as an operational error. Employer G determined the plan had established practices and procedures designed to keep it compliant and that the mistake wasn't significant. Correction could involve one of two methods: G could make QNECs to the NHCEs to raise the ADP to a percentage that would enable the plan to pass the test. In this example, each NHCE would receive a QNEC equal to 1% of the employee’s compensation. G must make these contributions for each eligible NHCE (if the contribution doesn't cause the 415 limit to be exceeded). Under the second method, the plan could use the one-to-one correction method. Excess contribution amounts are determined. The amount is assigned to HCEs and adjusted for earnings and this total amount is distributed to the HCEs An amount equal to the distributed amount is contributed to the plan and allocated based on compensation among the eligible NHCEs.

Peter - thank you for your thoughts! What we haven't figured out how to deal with is that there was actually a TPA they signed on with, and they did nothing. They've since been bought out by one of the larger national firms who themselves hasn't figured out that nothing has been done. Yes we have been fixing a number of problems that have occurred. Only one potential relief for audit purposes is that there has only ever been 401(k), no ER contributions.

I'm curious of any thoughts about a VFCP filing of a late large plan 5500 that checks No to Fidelity Bond coverage? Plan sponsor's broker does not want to set up a retroactive bond. Note - there are no plan auditors yet - no one seems to have capacity for a new large plan, even with multiple years to make up.

Large plan started a few years ago, but no 5500 was ever filed. Currently working on past filings and ultimately DFVC. They also never had a fidelity bond, or they can't find record of it due to complete change in personnel. Question is - I know retroactive fidelity bonds can be purchased, and that this is not meant to be done illegally, but can the 5500 be marked Yes for coverage, when it is being filed late for the first time? if not, is there any reason to buy the fidelity bond retroactively? Alternatively, it would not be marked yes until the 2024 plan year during which it is finally purchased.

Paul - thought I'd respond to your questions with clarity on original question. The employee had not yet made eligibility at all for the plan but apparently made an election that was withheld in payroll. Incidentally the reason they thought the employee was eligible was merely because they were married to the owner and started to receive W-2. This was one of many problems with the plan uncovered after taking over from an unresponsive former TPA.

If I understand correctly, a one-person owner of a business with a DB plan can ultimately contribute more than their W-2 to a DB plan. Can a Sole Proprietor (with no W-2 income) do that as well? Seems the subtraction on Schedule C would make it impossible.

Employee incorrectly made 401k contributions during year and had a balance at eoy. This was found after year end and returned timely. For 5500 count purposes -they are not a participant but they have a balance. But count with balances can't exceed eoy participant count. So I'm guessing, treat them as a participant for 5500 count purposes.

taking the lead from this discussion re Unallocated Accounts and including them in Form 5500....specifically SF here. When the recordkeeper adds funds to the Unallocated Account. wouldn't that be treated as Other Income? Looking at a takeover plan where they seemed to completely ignore the Unallocated Account from the 5500 but I'm of the sort that thinks it should be included.

Thanks Lou! for taking time out of your busy day for a well thought out response!

Ok similar situation (ADP Test failure but participant already terminated and full account distributed), and thank you Lou for the cite in the formal directions. Additional questions: Is there a due date for the 1099-R's? No transaction left to make by 3/15 Instructions say, "and allocable earnings" - account was distributed during the plan year of failure so it seems to me there are no allocable earnings, or if they are, we would not have access to either a bank account, IRA or new plan where the money was put into.

Keeping in mind that safe harbor does not work for all plans, as we run projected ADP testing for 2024, is anyone else noticing significant changes because of the HCE Comp definition increase from 2022 of $135,000 to 2023 of $150,000?

ahhh...you know me too well....:)

I don't have that much information, but they are contemplating whether it will be more effective in the form of a limited partnership that the partner has a partial ownership in. If that was the case, this question wouldn't have been asked :).

Partner in a firm is asking to invest part of his retirement plan balance in real estate. I've never been a fan of this, nor have I seen it in a non-owner only plan. Participant is not eligible for an in-service distribution so is unable to move balance to an IRA to do this. They understand it cannot be their primary residence, nor used for the company and plan to use it for rental income. They understand it must be fairly valued every year. The real estate in question may or may not actually exist yet, as it may be at this time a down payment on a unit in a new development. Plan already allows for self directed/brokerage accounts for all participants. I feel like I'm just not thinking of relevant issues, I just have a queasy feeling about this.

Just wanna confirm - ineligible employee is receiving a refund of 401(k) for prior year. As it is prior to 4/15 of the next year, they should treat the basis as income for the prior year, even though they won't actually receive the 1099-R (Code E) till after the end of the year of distribution. The earnings on the ineligible contribution will receive a separate 1099-R and is taxable in year of distribution.

Having informed a small business owner who plans to retire in 2024 that they cannot start a pension plan for 2023, contribute for 2023 and 2024, then retire and terminate the plan, since there is no long term intent for the plan and it would create a significant audit risk of disqualification, she is asking if she can instead create a 401k/ps plan for 2023-2024. I feel like the answer is the same, but I'm really not sure if the risk exposure is as great as if it were a pension plan.