Belgarath

Yes, I'd allow.

I hope you all have a great Thanksgiving, unsullied by productive thought. (We are having our meal on Saturday, as many family members can't make it tomorrow, so I'll be working tomorrow - great time to catch up on stuff with no phone/e-mails!)

I'm frequently surprised at the litany of reasons why some people may not want to be found (or accept payment). Divorce, separation, child support, legal or illegal debt, avoiding a stalker, it goes on and on... we had one where the former employee was collecting disability, and getting a payment from the plan would have reduced or eliminated her disability payment. It'll probably get worse now with the ICE crackdowns.

Not a CG on the face of it. But there could be other factors, like options to purchase the stock, etc., so recommend that they check with their attorney.

It isn't really possible to adequately describe the profound impact (all good!) that you have had during my career in this business. Congratulations on the "slowdown" - and from a purely selfish standpoint, we are delighted to hear that the teaching and the ASK will still be on the table for now. Best wishes!

THANKS PETER! This is very informative - I do appreciate it. I'm sometimes disgusted at how much I don't know after all these years in the business. 

I agree. We've also had DOL audits (excuse me, "investigations" - we had a DOL "auditor" get snippy when we referred to her as an "auditor" rather than an "investigator") where the response was identical - "get a bond" - and no penalty was imposed.

Agree.

See Peter's point below. I assumed not 50 by EOY, and you know what assuming can do...

At this point, going on nearly NO details - just a quick second-hand question based on a phone call from a plaintiff's attorney. We will of course be telling the client to talk with his legal counsel. But as much as I understand the situation so far:

A participant terminated employment in 2023. He was an owner, and was bought out. Apparently, there is some sort of a lawsuit - the nature of which I have no idea, but the terminated participant is apparently getting some sort of settlement, and wants to know if he can contribute to the 401(k) for 2025 to save on taxes. The plaintiff's attorney wants to talk to us, apparently.

This is way above my pay grade/knowledge, but I'd like to have some idea for my own background. I "think" I generally have an idea that a "restorative payment" which is determined under the facts and circumstances (Revenue Ruling 20something-25 - can't remember specific number) is not considered a contribution subject to 404, 415, etc., etc.) But this dealt with fiduciary breach-type situations as I recall.

Assuming for the moment that this lawsuit is for other reasons, perhaps wage issues, unjust termination of employment, whatever, if the settlement is considered wages, then if he was still employed by the employer, he should be able to defer up to the normal limit. But, since he terminated in 2023 I don't believe he could defer into the plan. Could he?

Please don't waste a lot of time on this, because as I said, it'll be handled by the client's ERISA attorney, and/or the plaintiff's attorney and/or tax counsel. But for my own edification, if you might have any quick general info based on your experience, I'd be grateful for anything you might care to share. We've been fortunate to never have run into this situation.

Thanks!

P.S. - The Revenue Ruling I was thinking of is old - 2002-45. No wonder I couldn't remember...

1 hour ago, John Feldt ERPA CPC QPA said:

super de duper

Special deluxe a la Peter T. Hooper.

I agree with Cuse. We tell them to keep everything forever, and if they want to do otherwise, (with or without their lawyer's advice) it is up to them. 

Thanks for the info. (In this particular case, since they are all >5% owners, the top 20% election wouldn't help.)

I don't think you need to bother with IRS regulations. A plan must operate according to its terms, and this specific language does not appear to allow such an allocation, absent some additional "notes" in the AA or overriding language in the body of the document. Most of these HCE SH exclusions that I've seen have a short additional bit of language to the effect the discretionary contribution is for "any or all HCE's" or something like that. 

P.S. are you certain that you are looking at a Cycle 3 document? The slightly less flexible language in your excerpt, or similar language, was present in some Cycle 2 documents that I've seen. Then updated for Cycle 3.

Thanks Gentlemen. Very interesting.

We don't handle cafeteria plans, and I'm going to refer this client to a local outfit who does, but I'm curious. A PC with NO NHCE's wants to establish a 125 plan for the purpose of having HSA's. Since there are no NHCE's, and they are paid salaries as W-2 employees,  I don't see any problem with this. I don't see how any coverage/nondiscrimination could apply. Am I missing anything?

Thanks ESOP. 

Thanks Lois - I had looked at this before asking the question. Didn't seem to answer my specific question.

Interesting situation here. A new plan in 2025. Long story short, they withheld deferrals from many payrolls and did not submit. They have since submitted, using DOL calculator for interest, and will file with the DOL under VFC program. As part of the VFC filing, they will submit a copy of the 5330 proving payment of the interest.

So, must this 2025 5330 filing, for the 2025 year, be submitted electronically? In July of 2025, the IRS said this:

Treas. Reg. 54.6011-3(a) requires a taxpayer to file Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, electronically for taxable years ending on or after December 31, 2023, if the filer is required to file at least 10 returns of any type during the calendar year that the Form 5330 is due. Treas. Reg. 54.6011-3 (b) and Instructions for Form 5330 also provide, on an annual basis, exclusions from electronic filing requirements in cases of undue hardship.

Form 5330 can be filed electronically using the IRS Modernized e-File (MeF) System through an IRS authorized Form 5330 e-file provider. Currently, IRS has only one authorized e-filing provider for the Form 5330. As a result of the lack of authorized e-file providers for the Form 5330, the IRS has determined that a filer is permitted to file a paper Form 5330 for the 2024 taxable year. The filer should document that the reason for not filing electronically and filing a paper Form 5330 is the lack of authorized vendors.

Seems to me that since this 5330 is being filed under the same timeframe and basic circumstances, that this waiver should prove valid and allow paper filing. Thoughts? Thanks.

I'm an outsider looking in, as I'm not an EA, so I don't know what EA codes of conduct might dictate. Having said that, I don't like any of those options. I assume you have contacted the TPA and discussed the situation with no satisfaction? I'd consider getting a lawyer to write a letter, suggesting that they explore ways to resolve the situation without initiating litigation, etc. - quite often, such a letter produces results. While you are at it, perhaps the lawyer can suggest other non-litigation strategies that won't potentially get you into trouble.

Good luck! I suspect that others on this board can give you better suggestions.

Normally, for 2026, the plan would need to be amended to allow the increased limit by 12/31/2025? Has there been any guidance on allowing a later amendment date, due to the fact that the legislation only passed this Summer? I haven't seen anything. Doesn't really matter to me, as I don't do cafeteria plan amendments, but just curious.

All excellent points.

Mojo - I speculate that such a provision wasn't mandated in the 403(b) document(s) due to the fact that there are about a gazillion existing individual annuity contracts issued under state laws/regulations in these plans, with some wildly different provisions, and it would be pretty nearly impossible to make this workable. Just a random thought that crossed my mind.

14 hours ago, Peter Gulia said:

That a leave might delay repayments does not excuse the borrower from her obligation.

I agree. But depending upon how one interprets things, I don't see this situation as excusing the borrower from her obligation? I'm assuming the loan is secured by the account balance. There's a legally enforceable obligation to repay, and the level amortization requirement is overridden under Q&A-9. Peter, have you ever seen this come up, one way or the other? With what result/interpretation?

Your objectivity in analysis of statutes/regulations/etc. is always unparalleled, but to put you on the spot here, (if you are willing), if you were a Plan Administrator, would you allow such a loan? If you'd rather not answer that, I fully understand! This is a matter of personal curiosity only, as I've never seen this, nor do I expect to ever see such a request.

Thanks!! 

I'm guessing that perhaps it is in an administrative procedures addendum, if your document has one? If it truly isn't addressed anywhere, I would just make sure they opt out again. No harm, no foul - even if it is hidden in the document so well that it is impossible to find, can't hurt to have them opt out again, even if isn't strictly necessary.