Belgarath

Or, the agent doesn't understand the technical details. Possible that the policy had the cash value "stripped out" by the Trustee via a maximum loan, and deposited this into the annuity, leaving only the value of the Taxable Term Cost in the life policy, which was then distributed to the participant. No taxable distribution if the only value in the policy represents previously taxed TTC. Not saying this is what happened - only that it could have happened this way. Caveat - I have blessedly had nothing to do with life insurance in plans for well over a decade, so either things could have changed or my memory could be faulty. P.S. - I'm also making an assumption this participant is not self employed or an unincorporated partner...

Thanks Peter. In this case, the document is clear enough - if the gross up isn't considered part of the taxable fringe benefit, then it is "normal" w-2 comp, and it is NOT excluded. We're deferring to the CPA on this question anyway, but I've never had to consider this specific issue. The plan sponsor doesn't have any particular desire to exclude this payment - just wants to determine what approach is correct. So it sounds like you lean toward it NOT "attaching" to the actual fringe benefit? Thanks again.

Suppose employer provides a fringe benefit which is taxable. Further suppose that the employer provides a "gross up" on the taxable fringe benefit. Finally, let's suppose that this particular fringe benefit IS excluded for plan purposes, and that fringe benefit taxable amount is $1,000, and the "gross up" is an additional $250. Is the "gross up" considered part of the taxable fringe benefit, and thus excluded for plan purposes? Or, is it considered separate, and therefore normal plan wages since not excluded?

Just some general thoughts: It seems a little early to be making decisions on these items, without truly knowing what is involved in processing such transactions, for both the recordkeepers and the TPA's. And how is a fiduciary supposed to make an informed decision on such matters until these things are known, and communicated to the fiduciary? That said, I generally am squeamish about the idea of a plan sponsor/fiduciary disfavoring such distributions by charging a higher fee. However, that's just my general bias, not backed up by any specific information. I also generally favor keeping distribution fees the same for different types of distributions if possible, for administrative ease and clarity as much as anything else. Again, I just feel like it is too early to have a reasonably informed opinion - the recordkeepers/TPA's are going to have to charge as much as they need to, and this could be structured in many different ways, to THEN be analyzed by the fiduciary as to whether the fees are reasonable and appropriate. I dunno - I'm just blathering here... P.S. - I do seem to recall that when Roth first came out, some recordkeepers/TPA's charged more for a Roth distribution than for a taxable distribution. Seems like that is pretty much gone now.

I'm going from MEMORY, such as it is, but I seem to recall that pre-2023 service is disregarded for eligibility under the SECURE 2.0 LTPT 2-year rule. But I'd have to re-read it - I don't have much confidence in my memory on this, as I wasn't looking at this specific scenario.

Peter - I thank you for the compliment. Very classy and kind, even though demonstrably untrue... I did initially ask for the name/number of the program, but as yet have not received a reply. In this case, it turns out that it is unlikely to matter much anyway. It is good to know, however, that if it ever comes up on a case that matters, we can refer the client to you. Sadly, most of them are too cheap to engage counsel in about 98% of the situations where we recommend that they do. Pennywise and pound foolish. Or, as we salt mine slaves at a prior large employer used to say of the management bean counters, "They'll step over a $20 to pick up a $1."

Aaargh! And here I was hoping we didn't have to worry about LTPT until 2025. And FWIW, I just had your interpretations confirmed by a "big name" in this business. I hadn't read the actual Section until you brought it up, and sadly, I had to agree. I liked the summary I had read earlier, (which just pushed it off until 2025), a whole lot better...

Good point. Does anyone doing a lot of NY business happen to know the answer to this? (This really comes up in the context of a plan using brokerage accounts - the recordkeeping platforms do their thing anyway so it isn't an issue on those, but the brokerage firms don't do a darned thing, so this becomes an issue.)

First, thanks for the comments. Peter, they will live and work in the USA. RBG, they work over 1,000 hours. 'Cuse - I get your point, but since this is an area about which I know essentially nothing, it requires legal counsel to be safe - I certainly wouldn't take this approach without blessing of counsel. I probably would never have even thought about this issue except that a couple of years back, a somewhat related question came up specifically regarding H-2A employees, and client's legal counsel opined that they could not be excluded by class. Anyway, it turns out that this is a tempest in a teapot. Employer has 1 YOS eligibility, and a 1,000 hour/last day allocation requirement, 6-year graded vesting, and almost all of these people leave before the end of the second year, so even if they fail coverage and have to make contributions for half a dozen of them, they will either be zero or 20% vested. Employer is not a "generous" type, so that's how this came up.

We don't get this issue much here in the Northeast. An employer (not agricultural) is apparently hiring some foreign workers under some program (name/number of program as yet unknown, other than it is not H-2A). Wants to exclude them as a class, subject to coverage testing. Although this is a labor lawyer question, any thoughts as to whether it is generally allowable to exclude, as a class, foreign workers under various work/Visa programs, again, subject to coverage testing? P.S. - it appears that all of these workers will be from Mexico. It seems to me that an exclusion that has the effect of excluding only employees of one nationality would be a violation of some discrimination regulations.

One of the chinks in the armor of SCP is that employers are supposed to document how they will prevent this error from happening again. We, of course, explain this to them, but I don't believe they all do it. Or, if they do, they then don't follow the procedure...

Hi BG - I THINK that the date in Peter's PDF that you are referring to is for SECURE 310. The hardship certification issue at hand is SECURE 312, which I read as being effective for plan years after the date of enactment - so for calendar year plans, effective 1/1/2023.

Of course, when 2033 rolls around, I'll be retired, so whether they fix it or not won't really matter to me... a pleasant thought! As to the SPD issue - Peter, your diligence does you great credit, and I admire that! But I'm lazier, and unless something changes my mind, I won't be worrying about a current SPD/SMM attempting to address this issue yet. When it comes to restating Cycle 4 documents (and probably Cycle 2 403(b)), or SECURE Amendments, if the IRS hasn't provided guidance, I (or my replacement here) will worry about it then. We use pre-approved documents anyway, so the document providers may or may not address this issue. Perhaps I'm taking too relaxed a position on this...

It ain't going to be fun. The solution? Buy lottery tickets!! Odds of winning are about 1 in 320 million or so, and the jackpot is 600 million or so. So if you buy 320 million tickets, you are guaranteed of winning and making a huge profit so you can retire!! (I'm using government accounting mathematics.)

Might push more plans toward Safe Harbor design.

Employer has a 401(k) Plan - Plan A. Employer, for reasons as yet unknown, (although I suspect sales commissions MAY have been a factor, but maybe not) established another 401(k) Plan as well - Plan B. Employer transferred most of the funds from Plan A to Plan B, but there was no plan merger agreement, no plan termination of Plan A, etc. The rest of the funds will apparently be transferred once there is no surrender charge. Can the employer just randomly transfer funds from plan A to Plan B? No option given to participants, it was just done - and no distributable event such as a plan termination. I'm thinking this has VCP written all over it, although I'm not sure what the "fix" would be. Am I missing something absurdly basic? Never have I seen anything like this...

Thanks Peter.

FWIW...As currently written, I'd go with the age 73 (being of an essentially conservative mindset on such issues). Why? 'Cause given two possible interpretations, I'd choose what is, to my way of thinking, the "safer" approach - don't miss an RMD! I have no idea how the summary would look - I'm nowhere near the point of that level of detail. And I frankly expect the IRS will either (a) even if unoficially, opine as to how this should be interpreted, or (b) have to live with either interpretation.

I think I know the answer, but thought I'd solicit opinions. Suppose you have a state where state withholding is NOT mandatory - let's use NY as an example. Can a plan refuse to do state withholding on a taxable distribution, since it isn't required, even if the participant WANTS to have state tax withheld? I know that many platforms will accommodate the request, but I believe it is not required. Thoughts? Thanks, and Happy New Year!

We already had a CPA telling our client that he'd have to have automatic enrollment/escalation in 2025. Completely ignoring the grandfathering... One of the aspects of this business that I hate - you have to spend a lot of time responding to foolishness. Oh well, I suppose that some of my questions to our health insurer are stupid questions, so perhaps I'm just as bad. But in the fantasyland that I've constructed for myself, I never ask stupid questions. And all my answers are brilliant. (Took me a long time to construct this magical place.)

Unbelievable. Some of these "advisors" need a swift kick. And the boots of the kicker should have crampons.

I agree it is a stupid provision. I can't imagine why any small employer would want to mess with this, and we would certainly discourage them from doing so. I'd ALMOST be willing to bet that we won't have anyone who decides to implement this.

Yup.

Perhaps it invites additional cyber-crime?

So funny, but I was in the middle of typing my response that it might slow down MY creation of new plans... Honestly, I haven't bothered to keep up on SECURE 2.0, as my mentality has been that I'd deal with it when it passed. Now I'll apparently have to deal with it. Retirement looks more attractive than it did a couple of weeks ago, but I can't QUITE do it yet.