WCC

Maybe someone here will correct me, but I was always taught that as far as the plan is concerned (no comment to any other tax/accounting rules), there is no such thing as a "W-2 contractor". The employer first needs to determine if these individuals are employees or contractors and treat them correct for tax reporting purposes. If they are indeed employees, then follow IRS Notice 2016-16. If the determination is made that the individual in question is an employee (not a contractor), then reducing the group of covered employees is prohibited mid-year. D. Prohibited Mid-Year Changes The mid-year changes described in this section III.D are prohibited mid-year changes (for purposes of the provisions in the first paragraph of section III.B of this notice). However, a mid-year change described in section III.D.1-4 is not a prohibited mid-year change under this section III.D if it is required by applicable law to be made mid-year, such as a change mandated by a statutory law change or court decision. 2. A mid-year change to reduce the number or otherwise narrow the group of employees eligible to receive safe harbor contributions. This prohibition does not apply to an otherwise permissible change under eligibility service crediting rules or entry date rules made with respect to employees who are not already eligible (as of the date the change is either made effective or is adopted) to receive safe harbor contributions under the plan.

Thank you for the newsletters!!! I have relied on them for many, many years and they have always been a very valuable resource for me. Just came here to say thank you! Wishing you all the best.

Not a rehire transaction since the participant is not a rehire. The plan administrator should be able to call the recordkeeper and explain the situation. Depending on the recordkeeper they will ask for either an email with instructions or ask that a service request be submitted through the recordkeeper website by an authorized plan contact. If the employer is managing the change from part-time to full-time with a term date and a rehire date - that is a problem. Depends on the size of the company. In a "small" company sometimes the same person runs payroll, HRIS and benefits. In a "big" company, there is usually separation of these functions and this change would generally lie with HRIS or benefits. I have seen this type of error corrected both ways, but generally more often in an ad hoc correction. The plan administrator would have to implement the controls, the recordkeeper is not going to do that. Employers can obtain demographic reports from the recordkeeper and compare those to their payroll / HRIS records. Consider changing the process at the recordkeeper so the recordkeeper escalates issues to someone at the company who can answer questions. Consider taking the managers out of the middle if they have no authority to make changes or provide answers. If the managers are the first line of escalation, the employer should provide direction to the managers of how to handle escalated issues. Lastly, you may want to consider (1) the missed deferral opportunity rules if the employee has been excluded for the last two years and unable to enroll (2) any non-discrimination testing / reporting impacts due to an incorrect status code.

Does the plan intend to keep safe harbor status after the mid year amendment? I am of the opinion the plan cannot be amended mid year to exclude bonuses as this will reduce the match formula which the participants have already accrued the right to receive. The exceptions to this are found in 401(k)-3(g) and 1.401(m)-3(h). My opinion is based on IRS Notice 2016-16 Section III B(iii). There are a handful of prior discussions on this topic in these message boards with other commentary.

number of days from 7/1/2024 to 7/1/2025 (including both the beginning date and ending date) = 366 days number of days from 7/1/204 to 6/30/2025 = 365 (excluding leap years) By counting 7/1/2025, the service condition would become one year and one day, they already worked 7/1/2024, they don't have to work one more July 1 date to complete one year of service.

7/1/2025. Participant completes one YOS on 6/30/2025, next entry date is 7/1.

FWIW I agree with the TPA. When the one year holdout rule was removed on 1/1/2025, what provision in the restated documents keeps this person out of the plans? Did the amendment say "...any rehire before 1/1/2025 must still satisfy the one year holdout rule and any rehire on or after 1/1/2025 automatically re-enters"?

See RBG's comment in the below thread. I wasn't paying attention to that until RBG pointed it out.

The earnings should be paid to the ineligible participant. The sponsor can't benefit from making a mistake, investing the participant's money and keeping the earnings. I didn't look up a cite for that, so consider it just my opinion. edit: I also made an assumption that the $500 is an employee deferral. If that is not correct, and this is employer nonelective money, then my answer changes.

I agree with you. The separate election is just a cosmetic box used for "convenience". I am not a fan, but I know some sponsors have their reason why they think it is advantageous. I have seen this many times and those dollars should be matched. I have seen one or two documents written in a way that says "...we don't match contributions made under the separate catch-up election box". If your plan just says "we don't match catch-up", then those dollars should be matched.

possibly a second "pooled" account invested the same was as the pre-tax pool?

You have probably already thought about this, but I will ask... Is the participant catch-up eligible? Could that be the reason the payroll system allowed this individual to exceed the document limit of 10%?

It is not exempt since the CODA was effective after 12/31/2022. Must be an EACA. https://www.irs.gov/pub/irs-drop/n-24-02.pdf Q. A-1: When is a qualified CODA established for purposes of determining whether the qualified CODA is excepted under section 414A(c)(2)(A)(i) of the Code from the requirements related to automatic enrollment (that is, whether the qualified CODA is a pre-enactment qualified CODA)? A. A-1: For purposes of section 414A(c)(2)(A)(i), a qualified CODA is established on the date plan terms providing for the CODA are adopted initially. This is the case even if the plan terms providing for the CODA are effective after the adoption date. For example, if an employer adopted a plan that included a qualified CODA on October 3, 2022, with an effective date of January 1, 2023, then the qualified CODA would have been established on October 3, 2022 (that is, before December 29, 2022), even though the qualified CODA was not effective until after December 29, 2022.

I listened to a webinar today presented by a well-known industry expert. He made a comment about SECURE 2.0 Section 603 that surprised me. He made the comment that to simplify the administration of Roth catch-ups, a plan sponsor could amend the plan to only allow catch-ups in the form of Roth for everyone. I thought I must have misunderstood him because to me the proposed regs and final regs seem very clear that this is not allowed. However, when questioned, he commented that he believes the IRS will allow this and the third party document providers are preparing for this. Does he know something that no one else knows? Has anyone else heard rumors of the IRS taking this stance? Thanks

CuseFan - excellent memory!