pmacduff

I agree with comments above. I doubt there is any kind of deliberate plan to hold retirement assets on the part of custodians. Since Fidelity was mentioned, I will comment that if a scenario fits into their cookie cutter model, it will go quickly and smoothly, otherwise they are as hard or harder to deal with as anyone. No props to them from me.
I'll also add that in our little corner of the plan world, our clients' plans often say that participants can't get their money until after the end of the year, AND after all contributions have been deposited. That is often misunderstood as some kind of arbitrary case-by-case decision.

The section by section legislative summary of SECURE 2.0 says "Section 125 also provides that pre-2021 service is disregarded for vesting purposes..."
 
https://www.finance.senate.gov/imo/media/doc/Secure 2.0_Section by Section Summary 12-19-22 FINAL.pdf
 

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/efast2-credentials#q17
 

Ok - I'll take a crack at it.  I don't think you have to apply both limits.   Here is the verbiage from 72(p):
(A) General ruleParagraph (1) shall not apply to any loan to the extent that such loan (when added to the outstanding balance of all other loans from such plan whether made on, before, or after August 13, 1982), does not exceed the lesser of— (i) or (ii)
(i) $50,000, reduced by the excess (if any) of—
       (I)the highest outstanding balance of loans from the plan during the 1-year period ending on the day before the date on which such loan was made, over
       (II)the outstanding balance of loans from the plan on the date on which such loan was made, or   (ii)the greater of (I) one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan, or (II) $10,000. For purposes of clause (ii), the present value of the nonforfeitable accrued benefit shall be determined without regard to any accumulated deductible employee contributions (as defined in subsection (o)(5)(B)).   Since the starting balance is less than $100,000, then (ii) is "the lesser of".  In my opinion, the $22,500 is the amount that the participant had available, not the $15,000.  This would account for the additional $7,500 that was available on that second day ($15,000 plus $7,500).   I was taught that you only need to examine the $50,000 limit when the participant's vested balance is over $100,000.   Hope this helps!       

Here's the thing i suggest we all think about before using employment hours (ever, not just in the LTPT situation).  If you have any significant number of participants (and I leave it to you to identify what is "significant" in your circumstances), you end up with needing hours for these employees all on different years.  Not so hard to get in the first year, but if you had 20 employees and you had to follow their hours for two or three years of employment based on anniversary dates, it might be challenging to do.  I imagine this is sensitive to the vagaries of a company's payroll system, but it's something to consider.  And, then, you need compare the hassle of watching hours this way for a longer time to the hassle of enrolling a LTPT in the plan.  What a Hobson's Choice!

I "third" that motion...transfer to forfeiture account!

I suggest providing these details to the recordkeeper.  They should be able to zero out the participant's account and move the money (including any earnings) to a company account or forfeiture account within the plan.  You can then deal with how best to apply the dollars in the plan that are due to the payroll error.  Any recordkeeper that has been in the business for even a short while has had to deal with payroll errors where too much money is in the plan that doesn't rightfully belong to any participant.

On another note Peter - (not that a TPA wouldn't anyway) - but we found that most of the big 401(k) vendors (i.e. American Funds, VOYA, Empower, John Hancock, etc.) required us as TPA to have E&O insurance or we couldn't service plans on their platform.   That's been the case for quite some time.  We are a small non-selling TPA.
 

Thanks all for your comments and insights.  It seems as though adding the 5558 electronic filing option would be such an easy thing to do (heavy sigh)  - I suppose that's why it's not in place yet !

Thanks Paul.  I did refer the auditors back to the vendor for explanation.  Apparently it was explained to the auditors' satisfaction because we just got the final copy of the financials for last year and can have the client file !
I consider myself pretty good with math, so another part of this was my wanting to understand how the vendor arrived at the payout & forfeiture amounts.  I could not make heads or tails of the amounts, even accounting for the coronavirus distributions.
 

https://www.irs.gov/retirement-plans/how-to-obtain-or-re-establish-an-ein-for-a-retirement-plan-or-an-ira-trust

Agreed, thanks Bird.  I think I just needed to vent about it in my frustration 😁

Agreed, thanks Bird.  I think I just needed to vent about it in my frustration 😁

Yes - that's the form.  ( I was looking, too for it but C.B. beat me to it!)  When my husband was first disabled a few years back we received a 1099-R from an IRA withdrawal that was coded with "1" because he was only 57.  I prepared and sent the 5329 form with our return to show that the 10% did not apply.
 

We too (as TPA) have (and have had) clients on the Vanguard platform with Ascensus.  I hope this isn't anything new!

We too (as TPA) have (and have had) clients on the Vanguard platform with Ascensus.  I hope this isn't anything new!

unrelated question...why is she not eligible in her own plan?  We're in the small plan market where the plan is normally set up specifically to try and maximize/benefit the owners, so I'm curious as to the reasoning.

here is the John Hancock info I received:
Changes to IRS forms and income-tax withholding

Effective January 1, 2023, the IRS is mandating changes to the way John Hancock (payer) collects federal tax withholding information from plan participants (payees). The changes vary based on your plan type and the distribution type requested by the plan participant.

Defined contribution plans
For nonperiodic payments that aren’t eligible for rollover (e.g., hardship distributions and required minimum distributions), participants may elect a federal tax withholding other than the default 10% (which remains the default if the form isn’t returned), including 0% withholding, by completing Form W-4R.

For eligible rollover distributions, participants may elect a federal tax withholding greater than the default 20% (which remains the default if the form isn’t returned) by completing Form W-4R.

Defined contribution form availability
Our automated forms will be updated and available for use on January 3, 2023, the first business day in the new year. Visit the plan sponsor website to download the forms as needed. The prior versions of the forms will be accepted through March 31, 2023. Starting April 1, 2023, the old forms will no longer be valid and accepted.

Defined benefit plans
Starting January 1, 2023, all tax withholding information for defined benefit plans will be collected using IRS Form W-4P and Form W-4R.

The new Form W-4P is completely revised and requires participants to input specific information to determine their federal tax withholding for periodic pension and annuity payments. Participants can still elect to have no federal tax withheld from these payments.

Form W-4R will be used for nonperiodic payments and eligible rollover distributions in the same way as defined contribution plans (outlined above).

Defined benefit form availability
Our automated forms will be updated and available for use on January 3, 2023, the first business day in the new year. Visit the plan sponsor website to download the forms as needed. For periodic pension and annuity payments for participants whose paperwork was generated prior to January 3, 2023, John Hancock will accept the prior version of the form until January 31, 2023.

If you have any questions or want additional information, please contact your John Hancock representative.

unrelated question...why is she not eligible in her own plan?  We're in the small plan market where the plan is normally set up specifically to try and maximize/benefit the owners, so I'm curious as to the reasoning.

My two cents and to quote some famous people on the boards..."what does the plan say"?  I would think if the DB and or SEP balances are effectively "rollover" balances in the 401(k), then unless the Plan Doc states something different for the origin of the rollover source funds, the rollover assets can be rolled out according to the plan in-service provisions for that money type.   

There is an old thread from February 26th, 2003.  I don't know how to insert the connection to the thread but if you search in the following board you'll find it.  Originally referring to the ADP/ACP tests but I think may be relevant to the discussion:
Retirement Plans 401(k) Plans ADP test and HCE w/ $0 comp I'm in the small plan/client market and have some industries where this happens all the time, mostly because the employee doesn't get terminated timely for a variety of reasons.  FWIW - I've been doing this for 32 years and was originally "taught to" and have always excluded them from everything (whether NHCE or HCE), and never had issues on audit.
 

My two cents and to quote some famous people on the boards..."what does the plan say"?  I would think if the DB and or SEP balances are effectively "rollover" balances in the 401(k), then unless the Plan Doc states something different for the origin of the rollover source funds, the rollover assets can be rolled out according to the plan in-service provisions for that money type.   

My two cents - I found this on the IRS website. 
Example:
Employer X maintains a 401(k) plan that has 21 participants and plan assets of $715,000. For calendar year 2020, Ann deferred $20,000 to the plan. None of the elective deferrals were designated as Roth contributions. Ann is under age 50 and isn't eligible to make catch-up contributions. Ann has excess deferrals of $500 because $19,500 is the 402(g) maximum amount permitted for 2020. Employer X didn't discover this mistake until after April 15, 2021. On November 1, 2021, X distributed the excess deferral (plus earnings of $10, totaling $510) to Ann.
For 2020 (year of deferral), Ann must include $500 in gross income. For 2021 (year of distribution), Ann must include $510 in gross income. Employer X would report this amount on Form 1099-R. In addition, Ann must pay the additional 10% early distribution tax under IRC Section 72(t).
 
Therefore in your example I think the $1000 from 2021 is reported on a 2022 1099-R with a code "P" (taxable in previous year).  The $1020 is also reported on a 2022 1099-R with a Code "8" (taxable in current year).  Two 1099-R forms and then it's up to the participant to revise their 2021 taxes as applicable -
 

Not sure of VOYA's reasoning on that...
For a work around what if the spouse requested rollover of the death benefit, payable to VOYA and then rolled it back into the plan into her account as a rollover using the VOYA rollover form?   
 

Found this in the IRS website:
Exceptions to the 10% Additional Tax
Distributions that aren't taxable, such as distributions that you roll over to another qualified retirement plan, aren't subject to this 10% additional tax. For more information on rollovers, refer to Topic No. 413 and visit Do I Need to Report the Transfer or Rollover of an IRA or Retirement Plan on My Tax Return?
There are certain exceptions to this 10% additional tax. The exceptions below apply to distributions from a qualified plan other than an IRA. For a complete list, look at the Appendix for Notice 2020-62PDF.
Distributions made to your beneficiary or estate on or after your death. Distributions made because you're totally and permanently disabled. Distributions made as part of a series of substantially equal periodic payments over your life expectancy or the life expectancies of you and your designated beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply. Distributions to the extent you have deductible medical expenses that exceed 7.5% of your adjusted gross income whether or not you itemize your deductions for the year. For more information on medical expenses, refer to Topic No. 502. Distributions made due to an IRS levy of the plan under section 6331. Distributions that are qualified reservist distributions. Generally, these are distributions made to individuals called to active duty for at least 180 days after September 11, 2001. Distributions that are excepted from the additional income tax by federal legislation relating to certain emergencies and disasters. Distributions up to $5,000 made to you from a defined contribution plan or an IRA if the distribution is a qualified birth or adoption distribution. Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55, or distributions made from a qualified governmental benefit plan, as defined in section 414(d) if you were a qualified public safety employee (federal state or local government) who separated from service in or after the year you reached age 50. Distributions made to an alternate payee under a qualified domestic relations order. Distributions of dividends from employee stock ownership plans. Refer to Topic No. 557 for information on the tax on early distributions from IRAs. For more information, refer to Publication 575, Pension and Annuity Income and Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).