Belgarath

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.

Since most DC plans, at least, these days use pre-approved plans, and most that I've noticed incorporate 401(a)(9) by reference, (although they then add in a lot of specifics) I'd assume that they would follow SECURE and SECURE 2.0 ages UNLESS they chose or instructed otherwise.

Doesn't change - it's a no-no. Take a look at IRS QAB FY-2006-3, and Treasury Regulation 1.410(a)(3)(e).

We just had a very obnoxious lawyer *(and no, I'm not lumping all lawyers together!) insist that the client had to immediately amend the plan for SECURE 2.0 RMD provisions. We politely told him to go pound sand.

Well, again, it depends. As Bri said, can't match on deferrals in excess of 6%, and the maximum discretionary match is 4% of compensation, so unless what they want fits into this, it might not suit what they want. Of course, if you want go beyond this and want to ACP test, then that's perhaps a different story.

Depends upon what they are really trying to do, and how they want to structure it, coupled with how much they want to spend. They could, for example, have an enhanced safe harbor match of, say, 200%, or even more, of the first 6%. Something like that would, to me, seem like a pretty powerful incentive. But it might not suit the employer's needs/budget. A cross tested PS formula, depending upon census, can work wonders, although in this case, a nonelective safe harbor (regular or enhanced) might be a better option, as the safe harbor nonelective can be used toward satisfying Gateway, whereas the SH match cannot.

Thank you both for your thoughts on this subject.