justanotheradmin

From the instructions: "Line 18. Contributions Made to the Plan. Show all employer and employee contributions either designated for this plan year or those allocated to unpaid minimum required contributions for a prior plan year. Do not adjust contributions to reflect interest. Show only employer contributions actually made to the plan within 8½ months after the end of the plan year for which this Schedule SB is filed (or actually made before the Schedule SB is signed, if earlier)." What are folks doing when the amounts actually deposited during the year are way more than needed? Assume they will file Form 5330 and pay excise tax. On the Form 5500-SF (I work only with small DB plans) do you put the full amount of the deposits? And just the amounts actually allocated for the year on the Sch SB? The Sch SB amounts will be lower than the contributions on the 5500-SF. Is it okay that they are different? Assume the plan cannot be amended to increase benefits (which is now an option for 2024 per SECURE 2.0).

I need clarification on something for the Employer Contribution Credit. The instructions seem to conflict (or perhaps just don't address) with my reading of the actual tax code. I would like to know what others think. Does the 3 year lookback apply for all years? or just the first year? - please read my entire question before commenting. I.R.C. § 45E(f)(4) Determination Of Eligible Employer; Number Of Employees — For purposes of this subsection, whether an employer is an eligible employer and the number of employees of an employer shall be determined under the rules of subsection (c), except that paragraph (2) thereof shall only apply to the taxable year during which the eligible employer plan to which this section applies is established with respect to the eligible employer. I.R.C. § 45E(c)(2) Requirement For New Qualified Employer Plans — Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a qualified employer plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan. Based on 45E(f)(4) and 45E(c)(2) my understanding is that the other than year 1, an eligible employer doesn't have to look at the 3 year look-back. So if an eligible small employer sponsored a SIMPLE or 401(k) or such last year, and it terminated and closed. And next year wanted to start a new plan, they could. The first year of the new plan the employer contribution credit would not be available, but for years 2 -5 (before the phase out wipes it out completely) it would be available. The instructions to the Form 8881 don't align with my understanding - specifically under the Employer Contribution Credit section it says this: https://www.irs.gov/instructions/i8881 "Eligible employer. To be an eligible employer you must have had no more than 100 employees who received at least $5,000 of compensation from you during the tax year preceding the tax year during which the eligible employer plan becomes effective. However, you are not an eligible employer if during the 3 tax years preceding the tax year during which the plan becomes effective, you established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the new eligible employer plan. See section 45E(c) for rules for controlled groups and predecessor employers." The Form 8881 instructions do not mention that the 3 year lookback only applies for the first year. I know the conservative approach would say to follow the form instructions and the credit would not be allowed. But that's not how I read the actual text of the law. Why bother having "except that paragraph (2) thereof shall only apply to the taxable year during which the eligible employer plan to which this section applies is established with respect to the eligible employer." if they wanted the lookback to apply to all of the years? And yes, before anyone points this out, yes I understand that the lookback period is the 3 years before the plan starts. It's not a rolling 3 years. The three years is fixed. That's not my question. With the SECURE 2.0 rules for converting SIMPLEs to 401(k)s - we have plenty of employers wondering if they would be eligible for the contribution credit in the later years of the 401(k) plan. Thank you for reading!

Do you happen to know if it would it affect IRS audits? VCP submissions? If not, then no, it probably wouldn't affect my work. But if so, then yes. I suppose I should keep an eye on it. Thanks for the heads up.

Did anyone else see this?! Maybe I'm late to the party! https://www.irs.gov/instructions/i8881 The way the $1,000 cap and yearly phase out is being applied is different than I understood. In a good way! For a small employer(less than 50), if its year 5, and they have given everyone (let's say there are 50) who would be credit eligible individual employer contributions of $4,000, say $200,000 total, then the credit would be $50,000, with the remainder as a deduction for $150,000. That's awesome! My prior (incorrect) understanding was that the $1,000 cap was applied first, before any phase downs / phase outs. Sounds like that is not the case! I would have though for my example only $12,500 would be the credit. The way I am reading the instructions it would be the $50,000. Anyone else agree? disagree?

Does the plan use a pre-approved document? If so most have a section on which sources are available for hardship. Do the regs allow it? yes. But the plan document has to also allow it, as it is not a required provision. The plan can restrict hardship, including sources, which is common for sources that are not 100% vested even if hardship is otherwise allowed. Most also have a section that specifically addresses distributions from Rollover sources. A decent number of plans allow distributions from Rollover money at any time, no hardship required. So if a participant has rollover money, they can just take a regular withdrawal and it doesn't matter if it is for hardship or not. The tax impact (though not the withholding) is the same. If they don't want withholding they could always roll it over to an IRA and then take the distribution from there.

Agree with Bri - unless you have a time machine, the distribution due to termination is taxable for the year in which the distribution ( not the termination or accrual) occurs. Cash basis reporting. Also - why is a paper Form 945 being used at all? why not use eftps.gov to remit the 945 withholding?

I would think optional since plans don't have to allow for catch-up in the first place? But who knows.

What does the plan document say? I find the most aren't specific about testing compensation - which is different from compensation for deferral or accrual purposes (such as compensation from entry). Separate plans does not necessarily mean separate testing. Sounds like it is a single employer with two plans. Likely everyone has to be included in both sets of tests, unless you can show with some non-benefiting testing that the coverage tests passes for each group. That testing option might not be available until next year, the year after the spin-off. Typically the rules require (and the document language mirrors) that regular compensation ( not self-employment earnings) across a single employer has to be considered for the plan testing. So if a W-2 employee has compensation from two divisions, but the same employer, it doesn't usually matter which division it was from. If this is two large plans there might be special rules. Read the document's section on plan compensation to start. it should shed some light. Not just the adoption agreement, the basic plan document if there is one.

Is there a reason why it wouldn't satisfy the ACP safe harbor? I agree that if it is a discretionary match on top of the fixed safe harbor match it wouldn't work. But as a fixed safe harbor match I'm not seeing it exceeding any limitations. From §1.401(m)-3(d)(3) "(3) Limit on matching contributions. A plan that provides for matching contributions satisfies the requirements of this section only if— (i) Matching contributions are not made with respect to elective deferrals or employee contributions that exceed 6% of the employee's safe harbor compensation (within the meaning of § 1.401(k)–3(b)(2)); and (ii) Matching contributions that are discretionary do not exceed 4% of the employee's safe harbor compensation." https://www.law.cornell.edu/cfr/text/26/1.401(m)-3

Are you opposed to the formula if a vesting schedule applies - or are you opposed to the formula because it would consider compensation up to 6%? Those are two different things. I agree an ACP Safe Harbor Match ( not a QACA) cannot impose vesting. I disagree that it can't consider deferrals up to 6% of compensation. Plans have safe harbor match formulas that are more generous than the default (basic match) all the time. $1:$1 up to 6% is popular. in this case Nicis proposing $2Match:$1deferral up to deferrals of 6% of compensation.

If it is a plan required to have an ERISA bond, I would see if they have priced that coverage. It depends on how the real estate investment is structured, but it can be expensive. I once had a small plan sell their real estate when they realized they were paying several thousand a year for their bond to cover it properly. I would also see if there is a benefits, rights, and features issue. Will other participants, particularly NHCE, have the ability to invest their plan assets in this (or a comparable) investment? Have they been informed so in writing, including who to contact at the plan to do so? Will the partner also be investing non-plan assets in this development? Such as personal money? Is there a conflict or prohibited transaction there to consider? If using it for rental income, is there UBTI to consider and report?

In my experience - what a provider will accommodate - and what is allowed under the regulations - are two different things. Particularly when using a more streamlined vanilla efficiency service model provider like ADP (which has its place) there are limitations. If a plan wants a more custom design, they need to find a provider willing to do it, and it may be more expensive.

what is the notice number? was a penalty amount listed? is this you? your client? who is responsible for filing? are you asking about the sponsor's exposure or your exposure as a service provider?

I have not yet noticed an increase. But if others are seeing it, I wonder if it is because employees feel more comfortable knowing that their personal situation isn't going to have to be disclosed to their employer. I'm sure there will be some who request them just because they know they can get away with it. I'd be curious to see the various reasons for an increase.

I wasn't aware of this case until just this week. Have other folks been following it? What do people think? Its so rare that I hear about a participant getting in trouble for a bad self-certification, so I find this one interesting! I know that likely if lots of other circumstances weren't also at issue the perjury one case likely wouldn't have been brought, but maybe I'm wrong. I know many of you have interesting insight and opinions so was just curious. https://www.justice.gov/usao-md/pr/former-baltimore-city-states-attorney-marilyn-mosby-convicted-two-counts-perjury

What is "comp-to-comp" ? A pro-rata allocation? If the existing one is pro-rata with a last day provision, I would say yes, they need a new plan if they want everyone in their own group and no allocation conditions.

Also - for the PS with the last day rule - Are you looking at retroactively starting the CB for 2023? If so, I'd want to see an actual testing proposal to see if it works with the last day provision in there. Sometimes you never know. If looking at adding the CB for 2024 - well, the last day rule can be amended out, so you'd get maximum flexibility there. And I'd want them to consider swapping out the match for a SH NEC or something else that is better for testing anyhow, but if the existing match is SH, that change can't be until 2025 anyhow, assuming its a calendar based plan year.

EACA is for the deferral portion. It makes the plan default for deferrals be an opt out rather than an opt in to start deferrals for each participant. If you are comfortable with other combo arrangements and testing that have CODA /401(k) in them this would be no different. I has more to do with HOW the participants start deferrals than anything else. If you are used to only doing combo with PS only + DB , and no deferrals, then you'll want to figure out deferrals in the testing first.

VAT - only the basis stays after-tax, the earnings are taxable. If they want it to grow and include the earnings as post-tax, it has to be converted to Roth. And yes, it also starts the Roth clocks.

I would suggest he get a formal legal opinion, especially if he is considering any kind of defined benefit plan like a cash balance. Spending the $$ on the legal analysis up front is worth it to protect the huge deductions to a defined benefit plan. I have seen service provides decline to take on clients, or even fire clients when a related employer group (control, affiliated, management etc) comes to light too late, and the sponsor chooses to ignore it. And then I see them spend WAY more $$$$$ to hire an ERISA attorney to clean it all up. Doing the analysis up front would have been MUCH more cost effective. Not to speak of what the expense would be if discovered under audit. Rarely do I see owners take the time and expense to have it done. But sometimes they do and those are the ones I WANT to work with because then I know they value the information they are given. But that's just my opinion, which is probably worth what you paid for it.

Thanks everyone! Follow-up question. I can't find §408(p)(11). I can see §408(p)(10) and §408(p)(12). Am I just overlooking it? Or did something happen to it?

Does anyone have a good website for the actual text of internal revenue code, specifically that incorporates the changes from SECURE 2.0? The ones I usually use, such as the Cornell Legal Institute don't have those sections updated yet, and I don't know when they will be. So when I want to see how the updated language works with the prior language, I have to have both the text of SECURE 2.0 open as well as the code as it was pre-SECURE 2.0. Its getting a little old. When I want to really understand something, I do try to read the source material, not just other's articles and interpretations, so having an updated integrated source of the IRC would be so helpful.

I recall that as well, though if I recall think Derrin was on the fence, or was wanting more guidance before he decided one way or the other. I'd be curious to know if his thoughts change and he falls into one camp or another.

I wasn't suggesting the deferrals and safe harbor begin on 1/1/2024. The plan itself for employer contribution purposes only, would have a retroactive start dated of 1/1/2024, and the deferral and safe harbor portion has a special effective date of 10/1/2024. Do you think for some reason that isn't allowed? or wouldn't be a qualified replacement plan if structured that way? If it is allowed, what, if any, is the impact on the 415 limit for the plan for 2024?

Why does it matter if it is for 2023 or 2024? Usually unless there is a compensation issue that would impact 415, I don't see how it would matter. I suppose if they are wanting to do it again in 2024... The tax impact of a Roth conversion of Voluntary After-tax should be negligible. Usually I see it where the person deposits their VAT and immediately does the conversion, hopefully turning in the Roth conversion form the same day. So no earnings or very little that would be taxable. No withholding, if there are earnings which are taxable, the participant is responsible for the tax impact outside of the plan. Assuming all of it is staying within the retirement plan. Do they have pre-tax amounts in the plan they can convert? Those would be taxable and are not subject to 415. So if they wanted to convert a million dollars they could, assuming the plan allows, and they are prepared to pay the tax outside the plan.