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Everything posted by Belgarath

  1. I have seen this statement, or similar wording, in several places, and I think I must be misunderstanding something. If the pre-approved plan language for eligibility allows for, say, "3 consecutive months of service from the Eligible Employee's employment commencement date and during which at least 250 hours of service (not to exceed 1,000) Hours of Service are completed. If an Eligible Employee does not complete the stated Hours of Service during the specified time period, the Employee is subject to the 1 Year of Service requirement..." So, if an employee works less than 250 hours in that first three month period, they become subject to the 1 year of service requirement. Suppose they work 600 hours during the next 3 (or 2) consecutive plan years. Why would they not be considered LTPT? The LTPT rules will only affect 401(k) plans whose eligibility requirements require employees to complete at least 500 hours of service in a 12-month period to participate. 401(k) plans that require fewer hours - or none at all - will never produce a LTPT employee, making the new rules moot.
  2. It's hard to say without knowing what you are really asking. If you are referring to an "in service rollover" from a taxable account to a Roth account, yes, this is allowed, and is a common provision. Of course, your specific document must allow Roth deferrals, and must provide for such an in-service rollover/transfer, but that shouldn't be a problem. If you are referring to something else (can't quite imagine what it might be) you'll have to explain.
  3. This only tangentially related to cafeteria plans, but I don't know what other forum to use. We have a retirement plan customer who has asked us what the 2024 Federal Child and Dependent Care Tax Credit is, so she can determine whether to use this, or use the Dependent Care Assistance Account in her 125 plan. (Don't ask me why she doesn't get this info from her 125 plan administrator, except that perhaps she "handles" 125 admin on her own...). Anyway, trying to assist her, within limits. But the information I'm finding is WILDLY variable, and the IRS forms 2441, and Pub. 503 are from 2022! Some of the information I'm finding says that the Federal Child and Dependent Care tax credit has been greatly enhanced, and that it is available to be applied against qualifying expenses of up to $8,000 for one qualifying dependent, and up to $16,000 for two or more. And, the tax credit can be up to 50%, sliding down to 20% based on income, rather than the previous maximum of 35% sliding down to 20%. Does anyone know of an accurate source to determine the correct answer? Or does anyone know the answer already? Thanks!
  4. Thanks Appleby. Do you have a citation for the automatic excise tax waiver if the beneficiary(ies) don't take the RMD until sometime the next year? I can't remember where I saw that. If it is going to take you any time, please don't bother - I'll look it up myself. I'm just being lazy... I think I've got it (As Eliza Doolittle said) - 54.4974-1 (3) Automatic waiver for failure to take required minimum distribution for the year of death. Unless the Commissioner determines otherwise, the tax under paragraph (a) of this section is waived automatically if— (i) A distribution is required to be made to an individual under § 1.401(a)(9)-3 or § 1.401(a)(9)-5 in a calendar year; (ii) The individual who was required to take the distribution described in paragraph (g)(3)(i) of this section died in that calendar year without satisfying that distribution requirement; and (iii) The beneficiary of the individual described in paragraph (g)(3)(ii) of this section satisfies that distribution requirement no later than the tax filing deadline (including extensions thereof) for the taxable year of that beneficiary that begins with or within that calendar year.
  5. Starting to work my way through this. Welcome news that certain class exclusions can apply. But, they cannot be a proxy for for an age or service requirement. Consider the following: plan currently excludes interns. ALL interns work between 500 and 999 hours. My reading is that this exclusion would not be valid, and LTPT rights would need to be granted to interns that otherwise satisfy the LTPT age/service requirements. Agree/disagree? Now, if interns work various numbers of hours - some 500-999, some over 1,000, and interns are an excluded class, then it should be permissible to exclude them from LTPT requirements. Agree/disagree? Thanks.
  6. Looking waaaaay ahead (except that time flies when you are having fun) - any bets on whether you think the IRS may delay this somewhat to allow providers to draft documents that take advantage of relatively late IRS guidance on SECURE/SECURE 2.0 items? Or will we just get stuck restating a document that already has a TON of changes? I think I might just have to retire a little earlier than originally planned, to avoid that next restatement cycle... Pre-approved Plan Providers: Submission Period for 4th Cycle Defined Contribution (DC) Opinion Letters The IRS asks pre-approved plan providers and mass submitters to wait to apply for a 4th remedial amendment cycle (RAC) DC Opinion Letter until the IRS announces the opening of the one-year on-cycle submission window. The 3rd pre-approved DC RAC ended on January 31, 2023, which means that the 4th RAC began on February 1, 2023; however, the submission window has not yet opened. We expect to issue an announcement later this year that opens the on-cycle submission window from February 1, 2024, through January 31, 2025.
  7. You know the old saying, "Common sense is the least common of all senses."
  8. We use FT William for 5500 software. They are excellent on this type of thing, and I am hopefully anticipating that they will develop programming to appropriately populate the SAR based on the 5500 information/codes that we input. I'd hate to have to mess around with figuring it out for myself!
  9. Sounds like you are confusing withholding with taxation. There are several different distribution scenarios, but consider the following, which is the most common situation. Taxable distributions from a 401(k), if they are "eligible rollover distributions," have MANDATORY 20% federal income tax withholding. Withholding just means it is sent to the IRS, and when you file your income tax return, this withholding is applied to the income tax owed. This means that you will either owe the IRS less in a tax payment, or receive a larger refund. For sake of simplicity, assume you have taxable income, after all deductions, credits, etc., of 100,000, which INCLUDES your 401(k) withdrawal of 20,000. 20% mandatory withholding of 4,000 was sent to the IRS. Further assume that we ignore progressive income tax brackets, and your federal tax bracket for all income is 28%. Finally, assume you had 10,000 in federal income tax withholding on your other taxable income. So, total federal income tax owed is 28,000. You have had 14,000 already withheld, so you owe the IRS 14,000. If you had NOT had the 20% withholding on the 20,000 401(K) distribution, you would owe the IRS 18,000. Conversely, let's say you had 28,000 withheld from your taxable income not counting the 4,000 withholding on the 401(k) distribution, so you have had a total of 32,000 withheld in federal income tax. Since you have had a total of 32,000 withheld, you now get a tax refund of 4,000. This is a gross oversimplification to help illustrate the point. You are not having double taxation on the 401k) withdrawal.
  10. Well, I'll take the other side of the argument. I feel like it is my professional responsibility to refer them to their tax counsel - "Although I can't give you specific tax or legal advice, you might want to discuss this with your tax counsel, as I believe that Revenue Ruling 58-505 covers this issue, and I don't believe true "corporate director's fees" are eligible compensation for plan purposes" or something along those lines. They can take it from there. As you say, they can come back and tell me they misspoke - it is actually W-2, and the census is incorrect, we had "X" hours, or whatever - as long as they are certifying it, not my problem. As to the health insurance, I'm not the one blowing up their health insurance coverage - if their tax counsel tells them it's ok, then it is between them and their tax counsel. It isn't my responsibility to concern myself with other employee benefit issues/problems (about which I'm not qualified to advise them anyway) - I'm hired as a TPA for their qualified plan only, and advise them accordingly. Maybe I'm just being a jerk, I dunno...
  11. Nope. Increase only. If CPI went down, fee would just stay the same.
  12. Ah, the vampires. In a prior life, in a galaxy far far away, at a company using a service/fee model that would be completely impractical these days, we determined that by eliminating 5% of our plans and the associated revenue, we would free up an enormous amount of our time, which could be put to more profitable use. This was never implemented due to corporate politics. C'est la vie. I just saw in interesting approach. Base fees (not the additional/ancillary fees, which were voluminous) automatically increase each year by the increase in the CPI for the prior year. I will not comment on the fee levels to avoid any perception of being unprofessional or violating guidelines.
  13. Cuse - Jimmy Hoffa's body can undoubtedly be found in my wife's pocketbook, along with the lost city of Atlantis, several hundred pounds of loose change, pay stubs and sales slips dating back to 1981, rotten bananas, several dozen pens, and a Civil War cannon. And that's not even the main compartment!
  14. FWIW - I don't know that I'd get hung up on the ancillary benefit question in the DC context. Seems to me that if disability is a distribution trigger, it falls under the definition of an optional form of benefit under 1.411(d)-(3)(g)(6)(ii), and if the change in disability definition RESTRICTS the previous provisions for a disability distribution, then it is an impermissible cutback with respect to the currently accrued benefit. It could be so amended prospectively for future accrued benefits. If the change in definition makes it easier to qualify, then it should be ok.
  15. I have the following excerpt from an old write-up. Can't recall the name of the firm that posted it. Maybe "Plan Sponsor" ? Any opinions as to whether this is still accurate? The final 403(b) regulations do not state conditions under which an entire 403(b) plan would lose its tax-qualified status and thus fail to be a 403(b) plan. However, the final regulations do list three situations where all of the contracts in a 403(b) plan would not be section 403(b) contracts, as follows: a) If the employer fails to have a written plan which, in form, satisfies 403(b) (plan document requirement); b) If the employer is not an employer eligible to sponsor a 403(b) plan; and c) If a plan fails to satisfy the nondiscrimination rules (including the universal availability requirement for elective deferrals). Well, if they are not section 403(b) contracts, what are they? They become nonqualified annuity contracts under Section 403(c), where the contributions (but interestingly, not the earnings), would become taxable to employees. Note that, though it is not entirely clear, it is presumed that custodial accounts would be treated the same as annuity contracts for this purpose, since 403(b)(7)(A) of the Code treats contributions to a custodial account as amounts contributed to an annuity contract.
  16. Thanks Bird. The FIS "standard" notice does include this, but I agree with you that this crosses over the ridiculous line. We're updating our notices, but also not losing any sleep if we miss any.
  17. Hi Bird - thanks for the response. I had thought of that, but 1.401(k)-3(d)(2)(iii) doesn't list this as one of the items that can be cross-referenced in the SPD. We discussed this issue in staff yesterday afternoon, and sort of a "benign neglect" stance seemed reasonable. In many cases, we won't know in time to do the normal safe harbor notice anyway. I agree, the "risk" seems minimal, particularly since the employees will be notified via a SMM when an amendment is adopted, and will be notified semi-formally before that. A lot of angst over something which to my mind is relatively insignificant...
  18. Suppose you take the approach that the 5,000 cash out limit will increase to 7,000 for 2024, unless the employer informs you otherwise. Is there any dispensation on the timing of including this in the safe harbor notice? Or, realistically, issue an updated one once it is truly "known" as to whether or not, and exactly when, it is effective? I presume the latter...
  19. Well, based on this sketchy information, I'd say the employer is correct. If the leave was PAID by the employer, that would be different. But it sounds like it wasn't, and an employer is not required to count unpaid FMLA hours of service for benefit accrual purposes. And don't confuse VESTING service with benefit accrual hours. Your SPD should have detailed procedures for you to appeal the Plan Administrator's decision if you wish to pursue it. Follow the procedures to the letter if you choose to appeal. Free advice is what you pay for it, so don't rely on this. You could, of course, engage ERISA counsel, but I seriously doubt the benefit, even if you were to prevail, would be worth it.
  20. So, employer (A) is purchased in a stock sale by Employer (B), let's say on April 1 (yes, humor intended). Employer A has a 401(k) plan, Employer (B) has a 401(k) plan. Both are calendar year corporations. (A)and (B) become a controlled group as of the date of the purchase. Most of the employees of (A) transfer to (B) as of the date of purchase Employer A does a plan termination as of November 30 of that same year, and DISTRIBUTES all assets, except to the now employees of (B) who ELECTED to have their funds transferred to (B)'s plan. Others chose to receive a distribution. (I'm going on incomplete information here - all details not yet known). So when there is an impermissible distribution of deferrals under the Successor plan rule, what's the correction? Anyone gone through VCP and gotten an approval for a correction that doesn't require heroic and "unreasonable" results? P.S. - I know we've discussed this before - and in a VCP filing where participants rolled to the new plan, we'd probably ask to consider these as "transfers." Or something like that. It's more the participants who rolled it out to an IRA, or took in cash that I'm not sure of.
  21. We normally prepare and submit VCP filings. We did have one case where the attorney formally submitted it, but hired us to prepare everything. Normally there is no attorney involved. Luke's suggestions seem good to me, but typically our plans are small employers, and they don't want to pay attorney fees for what are normally fairly routine corrections.
  22. I agree with Lou, although it always does seem like the time involved is an absurd exercise. Was there any missed match associated with the $5.00? If so, the missed match, plus earnings, should be included in the correction. Maybe the correction will turn out to be a whopping $6.00 instead! 😁 It's been years since we had a client submit a 5310 upon plan termination, even though we always notify them of the option and make it their choice. No one here laments the loss of that process...
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