WCC

Regarding door number 1, are you suggesting/asking the following?: a highly paid employee is expected to receive $300,000 in eligible pay in 2026 and has a 20% percent pre-tax deferral election on file. The employer will change the deferral election to be 2.5% Roth ($7,500/$300,000) and 17.5% pre-tax as of January 1, 2026? If my above interpretation is accurate, then I would choose door number 2 because door number 1 is a bad idea (in my view). Problems I see with option 1 are: correctly determining expected pay, termination before year end, ensuring the Roth portion is still matched even if the plan does not match catch-up, and not correctly processing a deferral election of 20% and deeming it before any dollars are required to become Roth. Door number 2 is preferred. I have spoken with many large employers (+1000 ee's) and for those who currently have a single deferral election process (i.e., spillover), they are going with the second option. For employers that currently use a separate/dual election process, it is a different story (but still not option 1).

This is addressed in Rev Proc 2021-30 under the "missed deferral opportunity"/"failure to implement an employee election". The employer must fund the total match the employee would have received had the correct deferral election been applied timely. In other words, if the employee elected to defer 6%, the match is based on a 6% deferral election, not the QNEC amount for the missed deferral.

No, Dan is referring to the Cycle 3 restatement due July 31, 2022, this did not incorporate Secure 1.0 or 2.0

Did you complete a 401k deferral election form indicating your request to have the funds withheld from your pay and deposited into the 401k? This is usually a different process than the election to defer health insurance. Check your paystubs, is $4.50 being withheld from your pay? If so, then the employer must deposit your deferrals into your account generally as soon as possible, in many cases that means 2 - 7 days (I won't go into timing details here). If you made a deferral election and your funds are not being deposited, then I would suggest you go back to your employer, show your paystubs and ask where your money is.

Does SECURE 2.0 Mandatory Roth Catch-up Section 603 apply to the 403(b) special 15 year of service catch-up rules? I have not read anything that says it doesn't, but haven't specifically seen or heard anything that says it does. Any reason why the new rules would not apply to the special 15 year catch-up? edit: confirmed Section 603 only applies to age based catch-up. Thanks

that's for improperly excluded employees. OP states this is a failure to implement an employee elective deferral which is defined in .05(10)

Thanks Paul! Your comment made me think more about my response. I have always interpreted EPCRS (maybe incorrectly) that "elective deferrals" meant pre-tax and Roth. If this does not mean Roth, then I am curious how everyone else is correcting missed Roth deferrals? Are other practitioners following some other correction method? Thanks, curious what everyone else is doing. Page 93 Rev Proc 2021-30: (10) Employee Elective Deferral Failure. For purposes of sections .05(8) and .05(9), an “Employee Elective Deferral Failure” is a failure to implement elective deferrals [emphasis mine] correctly in a § 401(k) plan or § 403(b) Plan, including elective deferrals pursuant to an affirmative election or pursuant to an automatic contribution feature under a § 401(k) plan or § 403(b) Plan, and a failure to afford an employee the opportunity to make an affirmative election because the employee was improperly excluded from the plan. Automatic contribution features include automatic enrollment and automatic escalation features (including automatic escalation features that were affirmatively elected).

The 40% correction you reference is the correction for missed employee/after-tax contributions, not Roth. Missed Roth contributions will follow either the 0%, 25% or 50% QNEC correction method depending on amount of time of the failure and the timing of the correction (or you could go straight to 50% regardless of the lower priced options). The correction would not be funded to the Roth source, it would be a pre-tax QNEC. One idea for 2025, since you said the employer wants to do more, give the employee a bonus (not contingent on it being deferred) and let the employee make a choice if she wants to make a Roth deferral from the bonus, assuming the plan allows for deferral of bonus. I think it is too late to do anything about the 2024 W2. Be careful with being more creative than EPCRS allows, a more generous correction could be considered a contribution, not a correction.

Are the following three assumptions accurate (1) the plan document is written with a pay period match formula (no true up) (2) the document is written to not match catch up contributions (catch up being defined under 414(v)) (3) the document is not written to say something to the effect of... "deferral amounts attributable to the election entered under the "catch up election box" are not matched"? If so, my thoughts are as follows" How is the deferral form written? Does it say your deferral election under this election stops when the catch up limit is reached? besides that, I don't have a great answer If the assumptions above are correct, then I think you likely have a problem. Let's say your match formula is 100% on 6%. Your pay period match formula should be set up as follows: match = ((the lesser of ("regular deferral" % + "catch up" deferral %) or 6%)*capped eligible wages)) with match capped at $20,700 for 2024. The dollars contributed under the "catch up election" are not catch up dollars until they are and should be matched until they become catch up. Just because they are made under a "catch up" election doesn't make them catch up. If the match formula is set up to not include the catch up election, then you may get lucky on some participants who are still correct. For example, if the participant had a 6% "regular" election and a 4% "catch up" election, then the match will be calculated correctly for that pay period even though the formula is wrong. But if someone has a 4% "regular" election and a 2% "catch up" election, then the match is short (until the catch up actually becomes a catch up). Side note - I am not a fan of dual elections for these reasons. I think it is much easier to manage one election and monitor the limits via payroll. Especially with 1.1.2026 changes.

A 401k plan allows for voluntary employee contributions (i.e. after-tax) and the plan matches voluntary employee contributions. Are there any regulations that would stop an employee from making voluntary employee contributions, receiving the match, then taking a withdrawal of the voluntary employee contributions the next day? Essentially a strategy of obtaining the match then getting their contribution back immediately. I understand the document would have to allow it and ACP testing needs to be passed, but is there a regulation that say's this cannot be done? Thanks

The auditors we work with look at every period on a spreadsheet to determine the number of days it took for each withholding to be deposited. If they determine the company can reasonably make the deposit within say 3 days, then that is the standard for that company. No, nor should they.

Here is a recent chat that may help.

Just trying to learn here for my own knowledge, but is this above statement correct? IRS notice Q&A-8 of Notice 2013-74 talks about the 5-year clock, but does this mean it starts over with every conversion? I was under the impression there was only one 5 year clock per participant in the plan, but maybe I am wrong. I could not find anything directly on point in the EOB. If someone were converting after-tax to Roth immediately every period, or converting PS dollars every year to Roth, they would have a new 5-year clock with every conversion? Curious of your thoughts.

here is the regulation cite if helpful. Treas. Reg. §1.401(m)-3(j)(6)

No, they do not. HCEs don't receive any special treatment when it comes to deposit timing. Are you asking about self employed individuals? If so, then this thread may help.

Unless the plan documents says otherwise, this paragraph from the preamble to the 415 regs is what I have relied on when this question comes up. You are not required to count compensation on a FIFO type accounting basis. https://www.federalregister.gov/d/E7-5750/p-111 "As noted above, the final regulations provide that a plan cannot take into account compensation in excess of the section 401(a)(17) limit. In addition, the final regulations provide that elective deferrals can only be made from compensation as defined in section 415(c)(3). However, in applying these two rules, a plan is not required to determine a participant's compensation on the basis of the earliest payments of compensation during a year."

Can't you just force them out to an IRA due to plan termination under Treas. Reg. §1.411(e) regardless of the existing threshold?

Asking about employer contributions such as match, profit sharing, etc.

Is anyone aware of a tax change (effective 2024) requiring employers to pay FMLA and unemployment taxes on employer contributions for the year the contribution is made for residents of Massachusetts only? Google searching did not result in any answers to confirm if this inquiry is indeed accurate. Thank you

I will attempt to answer this. The participant loan is a plan asset and earns interest which just happens to be paid by the participant. The interest is a plan asset since it is earned on a plan asset. In this case, the loan is part of the participant directed account so the participant is choosing how the funds are "invested" and the participant is earning interest on their loan asset. When payments are made to the plan, the cash buys shares of the TDF. So in your example the $1800 of interest buys shares of the TDF in the participants account. it is similar to any other investment in the plan. If you own a mutual fund that pays dividends, those dividends are reinvested in your account and they buy more shares of the investment.

Traditional 401k plan has an ACA feature with auto escalation (not EACA nor QACA). Plan is a calendar year plan but auto escalation occurs on July 1 to coincide with pay raises. Plan provides annual ACA and escalation notice between 30 - 90 days before the beginning of the plan year. Question - since the escalation takes effective later than 90 days after the annual notice is given, is a second notice required to be given later in the year? I have searched the EOB and these boards, but can only find notice references when the escalation occurs on the first day of the plan year. I am thinking a second notice should be given, but am getting push back to prove it. Thanks

I am having trouble finding guidance on this and hoping someone can point me in the right direction. Participant took a $100,000 CARES Act distribution in 2020. Proceeds came from: Roth deferral = $50,000 Pretax deferral = $25,000 Match = $25,000 Participant makes a repayment of $100,000 in 2023. In to what sources are the funds deposited at the time of repayment? Roth = $50,000, Pretax = $25,000, Match = $25,000? Or Roth Rollover $50,000, Pretax Rollover $50,000? Some other method? Thank you

If the error had not occurred, would she have received match? If so, then she should receive 100% of the match that she would have received had the error not occurred. (Rev Proc 2021-30 Appendix A Section .05)

5 year clock starts the year the first Roth contribution and/or conversion is made in the 401k. Keep in mind if he satisfies the 5 year rule in the 401k, then rolls to a brand new/newly opened Roth IRA, the 5 year clock starts over.

Hello, As we know, SECURE 1.0 and SECURE 2.0 increased the RMD age. Let's say a DB plan kept their distribution age at 70.5 and continues to pay mandatory distributions at 70.5. Let's assume a participant turned age 70.5 in 2023 and the DB plan will pay the first "RMD" by April 1, 2024. Can a participant roll that payment to an IRA and avoid taxation since the plan is forcing the distribution sooner than they otherwise are required to? Does by virtue of the plan keeping the RMD age at 70.5 make this an RMD? Or does the participant have any individual choice to roll it since it is paid before 73? Thank you for your thoughts.