cheersmate

Thank you, Paul. I agree with the above. My concern is whether there is a conflicting Plan Provision that absent its removal or modification (like Lou S suggested) effectively prohibits it being a loan offset (though the employee is terminated) consequently causing it to be a loan default (and an eventual loan offset, not QLO, when his account is eventually withdrawn next year) - OR - because of the Loan Offset regs it is a Loan Offset (QLO if within 12 mos) irrespective of any plan termination distribution provisions to the contrary (e.g. delay of distributions until after plan year closes) regarding otherwise vested account sources.

Are you confirming there can not be a "Plan Loan Offset" distribution in 2025 (based on the fact pattern) even though the Participant is terminated (Treas. Reg. Section 1.72(p)-1, Q&A-13(a)(2)) because the plan does not otherwise provide a distribution at this time? i.e. a plan loan offset is not an exception for terminated participants.

Participant terminates in 2025. Plan provides termination distributions following the close of plan year in which termination occurs (and no partial withdrawals for termination distributions). Therefore termination distribution can occur in 2026. Participant has a Participant Loan balance at termination. Loan Programs states it is due and payable upon termination of service. Q: Since the Participant is not yet eligible for a termination distribution, and further the plan does not permit partial withdrawals for Termination, is the loan balance a 2025 "deemed distribution" due to default (end of calendar quarter following quarter first payment is missed), which must be carried on the plan's books with (phantom) accrued interest until such time the Participant requests a termination distribution presumably in 2026? Or is it a 2025 "plan loan offset" since the Participant is terminated even though the Plan does not permit a termination withdrawal at this time, or partial withdrawals for terminated participants? Concern with the latter: Treas. Reg. Section 1.72(p)-1, Q&A-13(b) provides that, in the event of a "plan loan offset", the amount of the account balance that is offset against the loan is an actual distribution for purposes of the Internal Revenue Code (IRC), not a deemed distribution under IRC Section 72(p). The concern being an actual distribution is not yet payable by the plan - it is not clear to me if this would (inadvertently) be an operational failure. Thank you.

Thank you everyone! The Plan does permit permit in-service, in-kind for loan balances, and partial distributions at age 59.5. To sum it up: Participant is going to request an In-Service Withdrawal equal to the Loan Balance, using the proceeds to payoff (offset) the loan in its entirety. There will be no remaining funds for tax withholding purposes. Form 1099-R will be Code 7 (but no M). Agreed?

401K Plan permits In-Service withdrawals beginning age 59-1/2; partials of at least $1000. Participant is past Normal Retirement Age, actively employed, and has a Participant Loan with a substantial balance; let's say it is $40,000. Business has been flat this year and making the loan payments is increasingly more difficult. Last payment was end of November 2024. Next due is end of December (monthly payroll). There is a strong chance no wages will be paid for December. Participant would like the Loan Balance "distributed" this year, as the tax implications would be minimal due to extremely low income, per the CPA. There is hope that things will improve next year but not certain how quickly it may turn around or to what extent if any it will turn around. If the December 2024 loan payment is not satisfied, a default would occur and the correction period would run to 3/31/2025 per Loan Program. Can the Participant request in essence a (permitted) partial withdrawal equal to the Loan Balance, or in other words request a Loan Offset and no additional cash distribution at this time (i.e. in service)? And if yes, then Form 1099-R would be Code 7 but not Code M (since not termination of service or plan, not QPLO), zero taxes withheld? Thank you.

Thank you, John. That is what I had thought, however, reading another post about adding 401k SH mid-year mentioned the 30-day notice... made me question my thinking and concerned me. There are no deferral provisions currently. Thank you again!

Can an existing Profit Sharing Plan with a 1/31/2025 plan year end be amended before 11/1/2024 to add Safe Harbor 401k provisions with the Safe Harbor contribution being the traditional Safe Harbor Match? My concern is with the 30-day Notice for Participants in advance of this new feature. The first pay date in November is mid-month.

Thank you so much for taking the time to reply.

Safe Harbor 401k Plan with Cross Tested Profit Sharing There are 2 Participants at 1/1/2023: 1 HCE and 1 NHCE The NHCE terminates in 2023 with 1000+ hours credited (i.e. no "Break-in-service"), is 40% Vested, however, has $0.00 account balances (and therefore $0.00 vested account balances) in all sources (never contributed 401k therefore never received SHMatch, and no PS allocated in years participated). Q: Is the NHCE counted on Form 5500SF as of 12/31/2023? It is a Relius document and Forfeitures definition includes the "deemed" to have been paid... However, if a Profit Sharing or Forfeitures had been allocated in 2023, the NHCE would have shared in them. Forfeiture definition goes on to say irrespective of the above, Forfeiture will not occur until the end of the first Plan Year for which the Participant is not eligible to share in the allocation of Forfeitures. Q: does this force counting the NHCE as of 12/31/2023? Q: Is the NHCE counted simply because no Break-in-service as of 12/31/2023? Thank you!

If you wouldn't mind, I have a question with respect to your final sentence as it relates to the client's existing 401k plan and eligible Compensation to be used: If the client kept their existing 401k Plan (even if only for the month of December), would the wages paid by the PEO under the PEO's tax ID for the month of December be included when computing the client's existing it is con401k Plan's 2023 contributions - i.e. how are PEO paid wages considered "Compensation" for purposes of the client's existing plan? And assuming PEO paid wages are considered "Compensation" for the existing 401k plan, wouldn't the employees' December deferrals then be deposited into the client's existing 401k Plan, too? Thank you.

Thank you Bill, I agree. Also, no -11g amendment needed. FWIW, the terminated participant is 100% vested and the employer really cares for the participant - wants to boost the contribution anyhow! Happy Holidays!

Profit Sharing is discretionary and allocated on a "grouping method" whereby each participant is a separate classification. There are no conditions to share in the allocation (no minimum service or last day requirement).

We have a small cross-tested 401k Profit Sharing Plan that provides 3% SHNEC to all plus a discretionary Profit Sharing (PS), all in their own PS allocation rate group. 3 HCEs 2 NHCEs 1 is newly eligible, older and 0% vested; 1 is a younger, long service employee who has terminated this year with less than 501 hours and is 100% vested (wage is about 1/3 of the older NHCE). Q: (1) Is it permissible to increase the terminated NHCEs PS allocation rate in order to pass (a)(4) testing? (2) Could it be argued effectively that increasing the terminated NHCE is more reasonable than the active NHCE because the terminated NHCE is 100% vested whereas the active NHCE is 0% vested? (3) If this could be considered abusive on review, would it be acceptable if both NHCEs received the increased PS allocation rate, noting that in doing so the terminated NHCE would still be the only one contributing to a passing test result? Thank you

The basis for my asking this is to do with SECURE changes, allowing a "regular" 401k to adopt "SH" provisions as late as 11/30 of the same year to be applicable via plan amendment if the SH is a 3% SHNEC... ASPPA had touched on this and commented they were awaiting comments from IRS as this was not clear one way or the other. (SECURE goes further to permit such an Amendment to SH post-PYE if you increase the SHNEC to 4% in lieu of 3%.) I haven't seen anything since and was hoping someone may have. With this in mind, could an employer adopt a new "regular" 401k Profit Sharing Plan theoretically at any time prior to 11/30/2023, and then Amend the Plan by 11/30/2023 to a "Safe Harbor" 401k (3% SHNEC)?

If for some reason the employer failed to adopt the Plan by 9/30, rather it is signed 10/5, making the plan be considered a "normal" 401k Plan for 2023. Then, adopt an Amendment by 11/30/2023 to make it a Safe Harbor Plan, providing a 3% SH non-elective contribution?

401k Safe Harbor Profit Sharing Plan with 1 Year of Service (12 mos 1000 hrs) wait, dual entry. Owner's wife started assisting owner Jan 2020 with business. When Covid hit in March 2020 her services increased significantly and remain so to current (1000+ in each year). Spouse was not paid in 2020 or 2021 but was paid W2 wages in December 2022 and permitted to contribute 401k as an eligible Participant in the Plan. It is not clear to me if there were financial reasons the business did not pay the spouse in 2020 and 2021, and not sure if that necessarily matters. Question: Though her prior services went unpaid, is the Plan permitted to count her prior years' hours of service for eligibility purposes? I have read through many articles that debate the fine nuances of this and a reference from an ASPPA conference Q&A from more than 10 years ago. I am hoping someone may know of something more recent. (if so, she would have been eligible 7/1/2021 with $0 415 compensation, no contribution due) The Plan defines Hour of Service as: "Hour of Service" means (a) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties during the applicable computation period (these hours will be credited to the Employee for the computation period in which the duties are performed); (b) each hour for which an Employee is directly or indirectly compensated or entitled to Compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, incapacity (including disability), jury duty, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation §2530.200b-2 which is incorporated herein by reference); (c) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages (these hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made). The same Hours of Service shall not be credited both under (a) or (b), as the case may be, and under (c). To note, the State exempts the spouse from minimum wage requirements. Thank you.

Thank you so much Bird! Understood and thank you so much, Bird.

A Balance Forward Profit Sharing Plan had an age 72+ non-owner Participant retire in late November 2022. The Participant Elected a Rollover to an IRA for the rollover eligible portion, and waived all tax withholding from the Minimum Required Distribution portion. Total Vested Account approximately $25,000, Minimum Required Distribution portion is approx $1,200, leaving approx $23,800 rollover eligible. The Employer requested a single check from the Plan Account made payable to the IRA FBO the Participant for the entire Vested Account Balance. This check was issued in December 2022 and mailed to the IRA custodian. The 2022 Form 1099-R is not yet issued. Question 1 A and B: Since the tax filing deadline has not come to pass and the 1099-Rs have not yet been issued, A. can the Plan issue two (2) 1099-Rs, one reporting a taxable distribution in the amount of $1,200 with zero taxes withheld (because they were waived by election) and distribution code 7, and, a second reporting the Rollover Eligible portion (approx $23,800) as a non-taxable amount, with rollover code G, while the Participant requests the $1,200 be removed from the IRA account? B. If completed before the tax filing deadline it may be removed with out penalty - correct? To note, the Plan is a balance forward plan with a 1/31 plan year end. From the plan's perspective there is no interest adjustment necessary since all was paid prior to the last day of the Plan Year 1/31. Question 2: Is a VCP filing required? If yes, is there a defense not to do so given the amount involved that would stand up to review, e.g. the User Fee exceeds the amount involved? Question 3: if by chance the IRA custodian has yet to settle the check, could the Plan put a "stop payment" on it and have the checks reissued as elected by the Participant? Thank you.

Thank you, David. The Plan is able to provide that page from audited financial statement. I just wanted to be sure there was nothing additional necessary. And, yes, we always confirm PDF transmittal is acceptable prior to sending. Thank you, Peter. I tend to agree with David since the Participant only requested "Assets held for investment." Happy New Year!

A Participant in a Self-Directed plan, that is audited each year (100+ ppts), has requested the "Assets held for investment" since receiving the 2021 Summary Annual Report. Is it sufficient to provide a copy of the single page from within the audited financial statement that lists the assets held? All assets are held in Pooled Separate Accounts. This page reflects the 2021 Plan Year (the year requested) as well as the prior year. If so, should a copy of the Form 5500 Schedule D be included, listing all of the PSAs held? Should the plan provide a copy of the Schedule H Line 4i "schedule of assets (held at end of year)" Attachment, as well or in lieu of the above? Thank you

Does anyone want to share any insight as to the spectrum of acceptable "post-secondary education" for Hardship purposes and ramifications to the Plan, if any, if the Participant fails to spend the money as per the Participant's representations made?

Plan permits Hardship Distributions as per safe harbor rules. Limited to 401k and Rollover sources. Terminated Participants are permitted to request (plan delays termination distribution to close of plan year in which termination occurs). No limit to Hardship requests per year. Self Certification regarding other financial sources is accepted; documentation requested to substantiate need. "Participant must provide supporting documentation or information, which may include bills, contracts, estimates, and other information that will support the request for a hardship distribution." Former Terminated Participant has submitted a Hardship Request indicating it is "to pay tuition, related educational fees, and room and board expenses for the next twelve (12) months of post-secondary education for me, my spouse." The substantiation provided shows two multi-day programs offered by two prestigious universities (UPenn and Harvard) and a flight/hotel accommodations quote but none are actual bills or registrations with balances due. One program is live online for 5 days (4.5 hrs per day) in December 2022 and the other is 4 days on-site June 2023. Neither reflect whether a certificate or continuing ed of some kind is provided at the conclusion of attending. Do the above multi-day presentations qualify for "post-secondary education" hardship purposes? And, must the substantiation reflect more than just what appears to be promotional materials for upcoming programs hosted by Universities? If there is no Participant specific registration how can the Plan be certain the request is for expenses that will be paid on behalf of the Participant as documented? Finally, does it matter that one of the events is next year, albeit within "the next twelve (12)months..."? Thank you.

Thank you so much

A defined contribution plan has an age 72+ Active Participant who is not a 5% owner, who would like to receive an in-service distribution which the plan permits. Required Minimum Distributions are generally required for non-5% owners in this plan upon the later of the year that he or she reaches 72 (70 ½ if you reach 70 ½ before January 1, 2020), or, the year in which he or she retires. Q: The question is whether or not a Required Minimum Distribution is necessary since the Active Participant is beyond Age 70.5/72 but has not retired and does not intend to retire this year?

Thank you for your thoughts on this. This is what I was thinking, too. The amount involved is less than $20,000. If amending returns for 2021 to capture the deduction, it would involve amending 4 returns (s-corp) and so the next thought was to just deduct it in 2022 (year deposited) even though a 2021 annual addition to the Plan. I read through a number of articles and even guidance but none that I read seemed to address this specifically (timely deposited just not deducted). Those who benefited from the contribution are employed in 2022 so there is no expectation of 404 or 415 issues.