Belgarath

This may be more of an annoyance than a real problem. Let's say a plan merges (into a PEP) on October 2, 2024. But the assets aren't liquidated until October 12, and not actually "transferred" until 3 days later - October 15.. Now, my understanding has always been that the technical "last day" of the plan year is the effective date of the merger agreement. That is (arguably, depending upon who you are dealing with) the day that the assets "belong" to the new plan, even though the technical transfer doesn't take place until somewhat later. But the auditor wants to see the date of the "final" as being the date of the physical transfer of the fund, therefore showing a balance of zero as of (in this example) October 15th. Is there really any problem with just showing the final date of the form as October 15th? Seems like it'll keep everyone happy and have no real effect on anything?

Thanks!!!

Hi Brian - thanks so much for the information. One more question, if I may - suppose an employer wants to implement a plan this year - say, with a March 1 effective date. The regulations permit a short plan year for a "valid business purpose." It would seem that having a short plan year for the first year, to enable subsequent years to be calendar years would qualify? And then the $5,000 limit would be easy to calculate each year without "overlap" problems, and it wouldn't have to be pro-rated for the short 2025 plan year? Thanks!!

Thanks Peter. And yes, anything from Brian is always superlative information!!

Let me explain what I mean by that, not being a Cafeteria plan guru. As I understand it, if testing is failed, then the NHC's have no consequences - their benefits are still excluded from income. The HCE's will have their benefits included in income. So isn't this just the same position they would be in anyway? They (the HCE's) are no WORSE off than they would be otherwise without the plan - what's the real downside? I feel like I'm maybe missing something - I'd be interested in any thoughts you may have. Thanks!

Most plans and/or recordkeepers are able to specify that distributions of less than (x) won't be charged a fee, etc., etc. - perhaps you could look into this for future distributions. But, I have a slightly different take on things. You are being paid a negotiated fee as a TPA to do a job - among your functions is to make sure the client complies with the plan provisions, IRA and ERISA, etc. The recordkeeper has to do just as much work to process a distribution of $50 as they do for $5,000 (well, maybe not quite - no mandatory withholding, for example). But, the service costs money, and it seems reasonable to me to charge for it. Honestly, some of the very small distributions to participants turn out t be a ton of work, because the checks sometimes go uncashed, whereas the larger check rarely go uncashed. Having said all that, I do understand your feelings on the issue. And I think many TPA's (us included) often undercharge for our services. Sometimes a tricky balancing act.

IRS Notice 2024-2 provides some guidance on this. Specifically, I want to see if you disagree with my reading of Q&A L-2: Q. L-2: If an employee designates a matching contribution or nonelective contribution as a Roth contribution, for which taxable year is that designated Roth matching contribution or designated Roth nonelective contribution includible in the individual’s gross income? A. L-2: A designated Roth matching contribution or designated Roth nonelective contribution is includible in an individual’s gross income for the taxable year in which the contribution is allocated to the individual’s account. The preceding sentence applies even if the designated Roth matching contribution or designated Roth nonelective contribution is deemed to have been made on the last day of the prior taxable year of the employer under section 404(a)(6) of the Code. It seems clear to me that the meaning of this is that "allocated" in this context means "contributed." So if in July of 2025, a profit sharing contribution is made on a Roth basis, even though it is "allocated" for 415 purposes to the 2024 plan year, it is nevertheless TAXABLE to the employee in 2025. Any agreement/disagreement/other thoughts? Thanks.

Amen to that! I am so sick of people who take no responsibility for their actions, and then try to blame someone else!!

While members on this board are generous with their time and expertise, it really is primarily a board for professional discourse. What you are asking for is what we charge for. I would reiterate that you need some professional assistance. Good luck.

This is a little difficult to answer without specific dates of hire, DOB, and plan provisions as to eligibility computation periods - stay with anniversary years from DOH, or flip back to plan year for second eligibility computation period? Also, if the person never worked 1,000 hours in a year, how the heck are they not considered part time? But in general, at a guess that there was 500-999 hours in each of 2021, 2022, and 2023, and that employee was at least 21 in or before 2023, then the employee should have already become eligible as a LTPT as of 1/1/2024. Also, all that is REQUIRED for a LTPT is eligibility for DEFERRALS. There are a lot of intricate details to the LTPT rules (far too many!) - you should get yourself a good TPA to assist you with your plan administration. Good luck.

https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2025-01 Now maybe it is just me, but how is this preferable to using, for example, Penchecks, or Millenium Trust, or whoever? Seems MORE difficult to me, but maybe I'm missing something.

Thanks Paul. Yeah, we dump this back on the client, to determine (hopefully) with their tax counsel. Then they tell us. This gets way into the realm of individual tax/legal advice, which my designations don't permit. I will say that generally, in my limited experience with this specific question, rightly or wrong the answer is "no, this isn't a fringe benefit." I have my doubts that the client has in fact asked tax counsel, but that's not my problem.

Hi Paul - it is interesting, but the current language of 200.431 doesn't include the word "vacation." I know this only because I just had to look it up as we just received a question on this. Here it is. Emphasis is mine. I note that (b) does leave room for interpretation... § 200.431 Compensation—fringe benefits. (a) General. Fringe benefits are allowances and services employers provide to their employees as compensation in addition to regular salaries and wages. Fringe benefits include, but are not limited to, the costs of leave, employee insurance, pensions, and unemployment benefits. Except as provided elsewhere in these principles, the costs of fringe benefits are allowable provided that the benefits are reasonable and are required by law, an organization-employee agreement, or an established policy of the recipient or subrecipient. (b) Leave. The cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, family-related leave, sick leave, holidays, court leave, military leave, administrative leave, and other similar benefits, are allowable if all of the following criteria are met: (1) They are provided under established written leave policies; (2) The costs are equitably allocated to all related activities, including Federal awards; and, (3) The accounting basis (cash or accrual) selected for costing each type of leave is consistently followed by the recipient or subrecipient or a specified grouping of employees. (i) When a recipient or subrecipient uses the cash basis of accounting, the cost of leave is recognized in the period that the leave is taken and paid for. Payments for unused leave when an employee retires or terminates employment are allowable in the year of payment and should be allocated as a general administrative expense to all activities or included in the fringe benefit rate. (ii) The accrual basis may be only used for those types of leave for which a liability as defined by GAAP exists when the leave is earned. When a recipient or subrecipient uses the accrual basis of accounting, allowable leave costs are the lesser of the amount accrued or funded.

And to Bill's points 4 and 5 above: whenever I start feeling like wallowing in self-pity, I look at the first line of IRC 401(a)(4), and then curse the IRS for the incredible volume of regulations issued for this requirement: (4) if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees (within the meaning of section 414(q)). Of course, the flip side of the coin is that without all the onerous regulations, I'd be standing in line for the soup kitchen...

I'll just add that especially in the small plan market, the SHNE is VERY commonly used instead of the match as it does count toward satisfying the "gateway" contribution, (if gateway is required) whereas the match does not.

If check written and sent in December, it is a 2024 1099.

They definitely are not deferrals. No deferral election was signed - this is just a payroll error. As you note, they are loan repayments, and are credited to the plan as such. The W-2, if it shows these loan repayments as deferrals is wrong, and should be corrected.

Agreed. There's no deferral election if employee just writes a check to the plan, which must happen under the 415 timing regulations that BTG referenced above if they want to count it for prior year.

And?

Boo! Hiss!! Tom, good to see your name on the board again!

This was precisely the issue that concerned me. Seems like an employer is between a rock and a hard place. Retire and let someone else worry about it?😁

Hi Ilene - I had a question on this. Section 332 of SECURE 2.0 waives the normal limitation on rollovers from a SIMPLE IRA within two years of initial participation by providing an exception to the 25% additional tax if an employer terminates the qualified salary reduction arrangement of a SIMPLE IRA plan and establishes a 401(k) plan. Such rolled over amounts are then subject to the distributable events set out in section 401(k)(2)(B) (restrictions on employee deferrals). However, as this provision is merely an exception to the tax for new participants, can the general distribution rules for rollover contributions (that is, it is allowable to request a distribution at any time for rollover contributions, if the plan permits it) continue to apply to SIMPLE rollovers by participants who are subsequently beyond that two-year participation window? See IRS Notice 2024-2(G-4). The IRS Notice doesn’t specifically state this – however, it seems like the only reasonable conclusion. It would be completely unreasonable to have the 401(k)(2)(B) restrictions continue to apply AFTER the applicable “2-year” period has passed. However, reasonableness (or at least my take on what is reasonable) doesn't mean the IRS would agree! Thanks.

Hi Peter - thank you for the information. No, I'm not helping anyone, nor have I had an inquiry on this question - just anticipating the possibility with 403(b) restatements starting next year. I could see this question possibly coming up. Happy Holidays to you!

Ignoring the fact that some of these ostensibly non-ERISA deferral only plans don't really qualify as non-ERISA... Let's assume they qualify. Mandatory auto-enrollment in 2025 shouldn't apply, correct?

Thanks Peter. In this case, there are matching contributions.