Dougsbpc

We administer a 70 participant 401(k) plan that does allow for participant loans. The plan loan policy restricts loans to a few categories of need. To pay past due taxes, To use to purchase a principal residence, for moving expenses etc. They had a participant who they later found that lied on his plan loan application and the loan proceeds were not used for the purpose he stated. The loan has been in place for about 6 months and he is current on all loan repayments. Because he lied on his application, the plan sponsor wants to demand full repayment of the loan by year end and if that does not happen, they want the balance of his loan to be offset and become a taxable distribution to him. The plan document allows for an offset that becomes a taxable distribution to the participant in cases of non-repayment or delinquent repayments of the loan. However, the document does not seem to allow for a loan offset / taxable distribution just because he was not truthful on what the loan was going to be used for. We think that they cannot just offset the loan so it becomes a taxable distribution even if the participant lied about what he was going to use the proceeds for. Does anyone agree? Disagree? Thanks.

We have pre-approved non-standardized documents. All defined benefit plans had to be restated for Cycle 3 by March 31, 2025. Even though about 90 plan sponsors did adopt the restated documents by March 31, 2025, we had 4 clients who did not. Our understanding is that the restatements can be done through self-correction as long as they are adopted within two years of March 31, 2025. In addition, we believe the plans would need to adopt all amendments between the last restatement (PPA) and now (Cycle 3) to properly do this through self-correction. This as if the plan were an individual design. Question: Is there a list somewhere of all the required amendments between the PPA restatement and the current Cycle 3 restatement? If so, could you let us know? Thank you.

We are the plan administrator for a client that sponsors a 401(k) plan with about 30 participants. We do not administer cafeteria plans or anything outside of qualified plans. I know it is popular for an employer to have a high deductible insurance plan for employees and then also offer HSA to all employees. Is it possible for just one employee to establish and maintain their own HSA? The employer will not be providing HSAs to employees. Question: Is this possible? If so, I would think the employee would need to meet the requirements (be covered by an insurance plan that qualifies as a high deductible policy).

We have a law firm client with 5 equity partners, 5 non-equity attorneys and about 50 employees. They sponsor a 401(k) Plan. One of the 5 non-equity attorneys who was not even an HCE has now become an equity partner owning 20% of the firm. He incorporated so now his corporation is the 20% equity partner in the law firm. Apparently at about the same time his corporation adopted a SEP. We believe there is an affiliated service group between his corporation in which he is the 100% shareholder and the Law Firm of which he has a 20% equity interest in. We believe his SEP will need to consider all employees of the law firm to meet coverage under 410(b). This would mean his SEP would need to cover about 20 employees of the law firm. Anyone agree or disagree with this? Thanks.

We administer a 20 participant 401(k) plan that restricts salary deferrals to no more than 25% of W-2 Salary. The plan made a mistake and allowed a participant to have salary deferrals of more than 25% of W-2 salary. I would think that this needs to be corrected by refunding the amount over 25% back to the participant as it is a violation of the terms of the document. In other words, the amount over 25% of W-2 salary should not have been contributed to or been in the plan in the first place. Would this extra amount of salary deferrals be counted in the 401(a)4 test? I would think not since it does not belong in the plan per the terms of the document. Anyone agree or disagree? Thank you.

Suppose you have a small 401(k) plan that has been in place for 10 years. There is an employee who has worked about 700 hours per year for 4 years now and has never been eligible because of the one year / 1,000 hour requirement. My understanding is that the plan does not need to provide employer contributions but does need to offer the employee the ability to fund salary deferral contributions. Question: Can the employer fund 3% of salary contributions to LTPT employees if it wants to? If so, would those employer contributions be subject to the gateway and rate group tests of 401(a)4? Employer contribution test of 410b? I would think not because those contributions are not mandatory to begin with. Does anyone agree / disagree? Thanks!

Suppose you have a one participant DB where the participant is 77 and has been taking RMDs all along. His first RMD was taken on March 15 a number of years ago and since his RMD is calculated as an annual annuity payment, every March 15 he has taken his RMD. As of December 31 2024 the plan terminated. The plan has obtained his benefit elections and he wants all assets distributed by January 31, 2025. Actually, not a problem as we have everything ready to go. Question: is it acceptable that his RMD (usually taken on March 15, which would be March 15, 2025) will now be taken on January 31, 2025? Thanks!

We read where the penalty on a missed RMD is 10% rather than 25% as long as the missed RMD is paid from the plan within two years. Is this a Self Correction or (if the plan were audited) would the IRS automatically just assess the 10% if they saw it was corrected within two years. Thanks.

Good point on the conforming amendments. We will make sure to have those in the new amendment terminating the plan. Even if the prior termination amendment is re-done now, I would would think that the freeze part of the initial amendment would still be effective for the 2024 plan year. No problem completing another valuation. Probably no contribution as this particular plan is over-funded.

A defined benefit plan existed for over 10 years. The only participants were the two shareholders. Each owned 50%. An amendment was executed that froze all benefit accruals and terminated the plan effective December 31, 2023. It is now past December 31, 2024. I know that unless there were reasons for the delay, all assets needed to be distributed by December 31, 2024. In this case, there were no reasons and it is now after December 31, 2024. Question: I would think that as of now (January 15, 2025) we would have an active plan with benefits frozen as of December 31, 2023. Does anyone disagree? agree? Thanks.

What happens with the accounts in a SIMPLE IRA when it ends? Does each participant then just have their own IRA that they maintain indefinitely? I believe they can roll over that IRA to a qualified plan but not until 2 years after the SIMPLE IRA ended. Also, is there a standard form that needs to be presented to participants of a SEP IRA before the SEP IRA ends? Is there anything else the plan sponsor needs to execute. For example, when we terminate a qualified plan, an amendment needs to be executed before hand and if it is a pension plan then participants need to receive 204(h) notices before hand. Thanks.

We administer a small traditional defined benefit plan that covers the company owner and his spouse. He is now of the age that he needs to take an RMD. I know there are many different ways to make the RMD as low as possible but in this case he is not looking for that. Suppose he wants to take the RMD calculated as an annual annuity and take his first RMD on 11/15/2024 (He could wait until 4/1/2025 but does not want to). Suppose the pre and post interest rate in the document is 5%. Furthermore, his monthly accrued benefit is $15,000. 1. Is it acceptable to calculate the annual RMD as follows? $15,000 X 12.05 = $180,750? 2. Suppose he takes his first RMD on 11/15/2024. Suppose they terminate the plan 3/1/2025 and all assets are distributed 5/15/2025. Since one year from 11/15/2024 would be 11/15/2025, must he take an RMD when all assets are paid from the plan on 5/15/2025? Thanks!

Ok so the plan document indicates that when the AFTAP is done for the subsequent year and it is certified with a high enough percentage, just the prior year benefit accrual is restored. The document is a volume submitter. Is it legally possible to have a provision that indicates when the AFTAP is done for the subsequent year and it is high enough, ALL PRIOR YEAR's BENEFIT ACCRUALS ARE RESTORED? If this is possible, we would have them adopt an individual design plan if necessary. Our concern would be the potential lack of getting a 415 limit increase for those frozen years, even though the current document seems to indicate that a participant will have a 415 limit increase even if the plan is frozen as long as he/she otherwise meets the requirements to accrue a benefit (worked 1,000 hours etc.).

A small non-pbgc defined benefit plan with 12/31 year end terminates 11/30/2023. All assets are distributed by 5/31/2024. 1. Since this plan has a 12/31 plan year end, is the 2023 5500 filing date 7/31/2024 as usual? Or is it 6/30/2024 (7 months after the termination date)? 2. Or do you file 2023 by 7/31/2024 and then for the 2024 year by 12/31/2024 (7 months after all assets were distributed)? 3. Or are there some other filing due dates? Thank you!

Administer a 1 participant DB plan. Sent to us by an insurance agent. When the plan was established 10 years ago, the life insurance was exactly 100 times the projected benefit. The client still wants to keep the plan but does not want to fund as much. Dropping the benefit formula will make the insurance more than 100 times the projected benefit. What happens if the plan were audited and it was determined that the life insurance upon purchase and for 10 following years met the 100 X rule but now does not? Thanks.

I have read threads about this and it still seems unclear. We are looking at a plan that is a 1 participant DB that has existed 9 years but has never had an AFTAP. Benefit accruals are not frozen through year 5. Benefit accruals are frozen years 6,7,8 and 9. Clearly the participant does not get benefit increases for years 6-9. If she worked more than 1,000 hours each year in years 6-9 does she at least get a 415 limit increase for years of participation? I would think not. This appears to be a plan that has always been well funded. If an AFTAP is done this year (above 110%) is there any way to restore accruals (and 415 limit increases) for years 6,7,8 and 9? Thanks!

We administer a 2 participant traditional defined benefit plan. A 100% shareholder and an employee. The plan has been in place for 10 years and has a calendar year end. 3 months ago the one employee / participant quit to move across the county. She was paid her 100% vested benefit. Today the 100% shareholder called and mentioned that she wants to retire next month and terminate the plan. Question: If the plan is terminated this month and distributed to the 100% shareholder by October there may be a small amount of excess assets that can be absorbed by the 100% shareholder. Must the terminated employee who was distributed fully three months ago be entitled to any of the excess assets? Thanks!

A client has a profit sharing plan with pooled investments. Just one brokerage account and all participants share in earnings / losses of the pool on the plan anniversary date. We believe 404(a)(5) disclosures do not need to be provided to participants because they cannot direct investments. We believe it would be the same with 408(b)(2). Participants can pay administration fees from plan assets for participant loans. For example, participants who want loans need to pay us $75 for loan processing. However, we have never gotten close to collecting $1,000 annually from loan fees. However, this last year they paid our annual administration fee from the plan and it was more than $1,000. Would this mean we now need to provide 408(b)(2) disclosures to the plan sponsor this year because of the administration fees paid from the plan? Again, it is not a directed account plan. Thanks.

Thanks Peter!

A writer has a small corporation where she is the 100% shareholder. She is also a member of the writers guild. If a defined benefit plan were to be adopted by her corporation, are there adjustments that need to be made to the benefits under the defined benefit plan because she is a member of the guild and they have a defined contribution plan? Thanks.

I know a profit-sharing contribution is discretionary and is not required to be funded. Have a client with a 401(k) Profit Sharing Plan where they forgot to fund the profit-sharing contribution for the plan year ended 12/31/2022. They have funded a 10% of salary profit sharing contribution for the past 20 years every year and would like to make up the missed contribution now. Is there anything under voluntary correction or self-correction that would allow the contribution to be funded now but allocated based on 2022 data? The problem with just funding double the normal contribution now is that there were about 10 participants who terminated employment in 2022 and were entitled to a profit-sharing contribution then. They would not receive any contribution now if it had to be based on 2023-year salary. Thanks.

Understood. It would be a 2023 contribution. Again this plan sponsor badly wants to make up for missing the deposit of the profit sharing contribution for the 2022 year. In this plan a participant is entitled to a profit sharing contribution in the year they terminate employment. Suppose a participant terminated employment on December 31, 2022 and should have received a 10% of salary contribution for 2022 (the contribution the employer wants to make up to the participant). This participant would have no plan compensation in 2023 so no make up contribution could be allocated to him. Correct? Thanks.

Administer a 401(k) plan that utilizes salary deferral, SH Nonelective and Profit Sharing. Salary deferrals are self-directed and everything else is pooled. Sponsor is a corporation. Calendar Year 2022: All salary deferrals were funded by 12/31/2022. They funded employer contributions of $110,000 in 2022 and forgot to fund all remaining contributions. There were Safe Harbor allocations of $110,000 for 2022. So the $110,000 deposit in 2022 covers that. They intended to fund a profit sharing contribution of $200,000 for the 2022 year but mistakenly never funded it. They filed by March 15, 2023 and took a deduction for employer contributions of $310,000 ($110,000 SH + $200,000 PS). However, they forgot to fund the final $200,000 deposit. They will need to amend their 2022 corporation tax return and show $200,000 of additional taxable income. They want to make this up to their participants and deposit the additional $200,000 now. All 2023 year contributions have been funded properly. I believe they could fund the additional $200,000 now and have it along with the 2023 year employer contributions as deductible for 2023 (still under the 25% deductible limit). If this is the case, should the $200,000 profit sharing be allocated as of 12/31/2022 (on the 2022 report) or should it be allocated as of 12/31/2022 and combined with the 2023 profit sharing allocation (on the 2023 report)? Thanks!

It is good to know that it may be doable with an amendment. Our document seems to indicate that once a current AFTAP is signed, the prior year freeze is the only year that will be automatically lifted.

Suppose you have a 1 participant DB that started 1/1/2016. This is a plan that actually has always been more than 100% funded. There are no freeze consequences for the first 5 years of this plan if an AFTAP was not signed. So that would leave plan years ending 12/31/2016, 17, 18, 19, 20 with no freeze consequences correct? But if an AFTAP was not signed before 10/1/2020, benefit accruals would be frozen starting for plan year 1/1/2021. This particular plan will have had no signed AFTAP until 9/30/2024 and the plan will be certified at about 115%. My understanding is that when this AFTAP is certified on 9/30/2024, benefit accruals for 2024 and 2023 will be restored. Is there any way benefit accruals can be restored for the 2022 and 2021 years as well? Is voluntary correction available or does the participant just lose the 2021 and 2022 year accruals with no possible way to get it back? Thanks.