Belgarath

Ditto! Although at this point, we have no actual situations for plans under contract where this would apply... Y'know, I'm still not quite certain I fully understand the example. I'm probably reading things incorrectly, but 317 of SECURE 2.0 seems to me to require the deferrals themselves to be made no later than the tax return date NOT including extensions. The IRS seems to be saying (and it's fine with me) that as long as the deferrals themselves were made in February (i.e. prior to the unextended due date for tax filing) that the CODA can be adopted retroactively by the due date INCLUDING extensions. Is that how you read this? Example 5 Eagle is a self-employed individual's sole proprietorship trade name. Eagle reports its income on Schedule C of the individual's Form 1040. Eagle decides it wants to add a 401(k) feature to its pre-existing profit-sharing plan on February 21, 2023, by executing a new adoption agreement with a CODA election box checked. Eagle's owner can designate a portion of her 2022 self-employed income as an elective deferral into the plan because, under amendments to IRC section 401(b)(2) made by the SECURE 2.0 Act, the CODA can be adopted retroactively as long as it is executed before the due date of the employer's tax return, including extensions.

Interesting. My understanding was that this would only be allowed for a plan adopted in 2024, retroactive to 2023, and do a retroactive deferral election for 2023. I didn't think you could adopt the retroactive deferral election retroactive to 2022. I think it may be wrong, but I hesitate to say that with any certainty without some research.

Hi Peter - off the top of my head (with no other active thought about the subject) I'd say that the thrust of this provision was mostly to keep employers from being forced into the state-run systems which are being implemented by an increasing number of states. I have a hard time seeing other useful purposes, although there likely are some that I haven't considered. Like you, I'll be interested to see what people come up with for situations where it might be the preferred option.

The terms of the plan govern what is possible! Plus generally things that are operationally allowable under legislation/regulation where you are in a remedial amendment period, and the plan hasn't yet been amended. For example, beginning in 2024 you could have domestic abuse withdrawals, if the plan sponsor allows, even though the document hasn't been formally amended yet.

With the new 2023 forms, this number will be required. The IRS has informally indicated that this will be available as part of the 5500 data sets. So, anyone can look up the opinion letter serial number for a given TPA, and essentially obtain your client list for 5500 filings under each pre-approved plan you sponsor. Is the ARA raising any hell on this? Seems pretty serious to me!

1.416-1, M-7.

Thanks CB. A no longer sponsors the plan - B is the sponsor of the plan, adopted on the date of the sale. I very much appreciate your response!

Suffering from Friday brain cramp. John Doe owns 100% of corporation A, Sponsors Plan (X) - calendar year plan. During 2021 calendar year, John sells ASSETS of corporation A to Edward Doe. Edward has corporation B - keeps the same corporate name, but now under new employer id# (he's 100% owner) and assumes the assets and liabilities of plan X and sponsors the plan. The former owner John Doe continues as a non-owner employee in corporation B. For 2022, John would appear to be a Key employee, since for part of the PLAN year containing the determination date (2021), he owned 100% of the corporation sponsoring the plan, which was subsequently taken over by corporation B. Have I got that right? Then in 2023, he's a former key, and his balance is excluded from the top heavy test. Have I got that right? Thjis is probably one of those things where I'll come in on Monday, look at it and say, "Duh, the answer is simple" but I'm chasing my tail at the moment. Thanks!

Wow, what a bizarre set of circumstances. Based on the info re provisions that you have provided, it seems to me that it would technically be a prohibited cutback if you don't make the "required" contribution to these key employees. The IRS fix-it program explanation, while very helpful in general, clearly does not contemplate this highly unusual situation. So, IMHO, you would have an operational violation of the plan terms if this contribution is not made, and I don't believe compounding it with a prohibited cutback is a wise course of action. Bit the bullet and make the contribution. You could file under VCP, and perhaps the IRS would approve it, but the time and expense may not be worth it, particularly if it is rejected by the IRS. If it is a cash flow issue, perhaps they could take a loan to make the contribution, and then as Bri suggests, cut back their deferrals to repay the loan. If the loan is repaid fairly quickly, the interest cost will be small.

Some pre-approved plans have the 414(v) limit hard coded to be incorporated by reference, and no option in the adoption agreement to provide a lower limit. So, I think in this situation, the higher limit is mandatory.

Without knowing all the intricate details of plan language, investments, procedures, etc., etc... In general terms, based on what you've said, I would allow the distributions. VCP approval could take a long time, and it isn't fair to these participants to suffer for an employer error. If you assume the IRS approves, and again, based on what you've said, I assume they will, then you are good anyway. If they don't approve, either you will have overpaid them what I assume will be an insignificant amount, or if the IRS says you have to deposit more for some reason, then you make an additional payment.

I look at a calendar, and go out 183 days...

Without considering what additional correction methods might possibly be available under SECURE 2.0, take a look at Revenue Procedure 2021-30, Section 6 (.07)(3)(d). Edited for typo - too many thumbs!

I once (MANY years ago, back in the days when I was young, and still sometimes tried to make sense of things, rather than just accepting them) looked into this a little bit - not in-depth, but the original CG rules pre-date even ERISA - it was an income tax thing to prevent manipulation of corporate income taxes. Then ERISA pulled it into coverage/nondiscrimination, and as MOJO says, clever people found other ways to try to manipulate the rules, and we eventually got to where we are today.

One of today's items in the Benefits Link newsletter had a write-up on hardship distribution self-certification. The following is an excerpt. I don't read Section 312 of SECURE 2.0 as containing any such restriction. What am I missing, if anything? Employers may now rely on an employee self-certification that they have experienced a hardship and that the employee has no other funds available to satisfy the hardship. Self-certification is only available for the first hardship request during a plan year. If the participant requests more than two hardship distributions in one year then the employer is required to have physical proof of the hardship.

No, VCP is not required. But Gary's advice is good!

Thanks Lois.

In the absence of specific language to the contrary, based on the information given, I'd say it should be allowed.

Anyone have a "contact" at the IRS to know, first, IF they are planning to release any additional guidance on this subject, and if so, WHEN might it be expected?

Also kills the automatic top heavy exemption, which is not a big deal for lots of plans, as they either aren't top heavy, or are making other contributions so that the automatic exemption isn't applicable anyway. But sometimes is an issue.

I know this is over 2 years later, but I happened to be looking at the 8950 instructions earlier today, and they have been updated to address these questions for current Anonymous VCP submissions.

Question - asking from sheer ignorance on the details of this issue. If the plan fiduciary allows investment in brokerage accounts/investments where the fiduciary is not allowed access to the information necessary to properly carry out fiduciary responsibilities, might this be considered a breach of fiduciary duty?

You are probably right - I think I botched my initial thoughts. After my last post, I started thinking along these lines myself.

Let's agree to disagree, of course assuming the fees are "reasonable." I would classify this (not the interest itself) under routine administration, rather than a Settlor expense. AO 2001-01A doesn't seem to prohibit this. Perhaps I'm a lone voice crying in the wilderness.

IMHO? Yes - that's a normal plan administration function.