justanotheradmin

Also - its not as simple as the spouse cashing the check or sending it to their IRA. the estate got a 1099-R showing the gross taxable amount. it needs to be amended. and the check voided, and then a new check issued for the spouse's distribution. It's as if a W-2 was issued to the wrong person. just sending money to the right person and giving the right person a W-2 doesn't fix the tax situation for the wrong person. The IRS is still going to think the estate has those $$ as income and is going to want to see the taxes on it. The Form 945 is only one part of it. and yes, the IRS can send the $80,000 back, but it will go back to the PLAN, not the spouse. That's part of unwinding the incorrect distribution. Also- the plan has a responsibility to make sure the distribution occurred correctly. the estate signing over the (likely stale) check to the spouse or their IRA does not accomplish that at all. Given that the amount involved sounds substantial, the correction should really be handled carefully.

What is your relationship to the plan? Are you the financial advisor? TPA? When a distribution is processed from a retirement plan, the plan files and reports a Form 1099-R. If there are distributions that had withholding the plan also files a Form 945 with the IRS. In this case a Form 1099-R would have been filed with the IRS showing the gross amount as taxable income for the estate. The distribution should be undone - which means the money should be returned, and amended 2023 1099-R and 2023 Form 945 need to be filed. The estate's tax identification number would be on the 1099-R as well. Why did the sponsor decide to pay the estate? Do they have someone who usually helps guide them through distributions? Typically the estate would have needed to request the distribution by completing a distribution form. Someone who is the legal representative of the estate signs that form. Then the plan goes through it's distribution process/checklist. Once the incorrect distribution has been undone - including filing amended tax forms - then the correct distribution can be done. and please get an experienced administration firm or professional to help because there are standard things that are done when distributions are requested. Like having the participant (or in this case default beneficiary) fill out a formal request, disclosures, possible death certificate, etc.

Who decided to pay out to the estate? who signed on behalf of the estate? If the plan administrator doesn't have a beneficiary form, usually one of the first questions for a death distribution is - Is there a surviving spouse? Did someone answer no to that question? The check should be voided(it might be stale anyhow since its more than 4 months old), the plan should get the tax withholding back from the IRS, the form 945 and 1099-R need to be amended for 2023. then the spouse needs to elect a distribution, and the plan needs to do a new check to the spouse's IRA if that's what they are choosing. Step 1. Unwind the incorrect distribution Step 2. Do the correct distribution Step 3. Figure out what went wrong and change processes and procedures so it doesn't happen again Step 4. Document EVERYTHING Review with ERISA counsel every step of the way if there is any uncertainty. EPCRS has standard correction methods for incorrect distributions.

Is the estate going to return the money to the plan? If the plan withheld too much , then an amended Form 945 can be filed and the IRS will issue a refund to overpayment on the tax. then the plan would have the $$ (back from the estate, and the IRS) to do the rollover distribution to the spouse. The plan might have an obligation to the spouse regardless, even if the plan doesn't recover the money from the estate /IRS. What kind of plan was it? Did a death certificate mention a spouse? Why was the estate paid? Usually an estate is only paid (if a qualified retirement plan) as a last resort, or there is an actual beneficiary designation on file that the spouse consented to the estate being the beneficiary.

are you talking about a formula? for example if the CBA says a fixed 10% contribution? Having that written into the plan document seems standard? If that is what the CBA calls for? then all the plan information - such as summary plan description - includes it correctly. Or are you talking about more general CBA language in something like the adoption agreement / basic plan document? If more general language - well then that's a function of the pre-approved plan document provider's choices. There are lots of different ones out there, and each organization that is submitting one can tailor the language in the document to be as simple or encompassing as they like, as long as the IRS accepts it. For example, pre-approved documents designed for use by one person plans are usually much much simpler and shorter than ones drafted to accommodate maximum flexibility in design and larger employers.

sure. be careful if the auto enroll is structured as a QACA as it will impact other areas, but removing auto enroll is allowed. and if the plan is grandfathered under the pre-SECURE 2.0 rules, then having auto enroll is not required period. and the plan will have to let people know, for example if they are deferring due to auto enroll, is the plan going to put them at zero, or leave them at their %. But for 11 people, why not just get everyone to sign a form electing zero if they don't want deferrals taken out? Or are they wanting to remove it because the 3 year tax credit for it is up? and don't want it cluttering up their plan?

I would think they should, but what does the plan document say? If using a pre-approved document usually this type of thing is addressed in the underlying basic plan document, not the adoption agreement.

its already subject to coverage (typically done via 410(b), though I suppose could be 401(4)) so if that passes BRF will pass. I've never seen separate BRF done just for the right to match.

Is there information out there about how the long term part time rules inter play with leased employees? a plan sponsor uses a temp staffing agency for their workers and while most never work 1,000 hours in a year to ever meet regular eligibility, there are probably a number that would be classified as LTPT under the SECURE 2.0 rules. Does the sponsor need to offer the plan to the LTPT workers? What if the doc excludes leased employees? What if the doc doesn't exclude lease employees? Is the answer different? Assume the staffing organization does not offer a retirement program. I don't think SECURE altered §414(n)(2) but I've been wrong before, so I figured it was worth it to ask since maybe someone else already figured all this out. If this has already been discussed, my apologies, please point to the thread and I'm happy to read it. If there are articles, presentations floating around out there that cover this particular point, please let me know as well. EDIT to add: what about common law employees? possible similar issues?

Yes. Class specific match groups are written into plans all the time. Usually done only for regular match (not safe harbor or its variants). As long as testing (coverage, ACP etc) passes its fine.

There was another thread about this. Right now there is only one approved e-filer. So I think the hope is the efiling requirement is delayed, or figured out before 7/31/2024. https://www.irs.gov/charities-non-profits/tax-year-2022-other-tax-exempt-entities-modernized-e-file-mef-providers-form-5330

The post was made the Plan Terminations board. Is this related to a plan that is terminating? I'm not very familiar with the office of foreign asset control, but I don't know why it would impact an employee's ability to contribute a deferral to a 401(k) plan, as along as they otherwise are eligible. I know its not the same thing, but even employee's whose pay is garnished because of court orders (such as child support, tax liens etc) generally are able to still contribute deferrals to the plan if they have pay left over. Or are you asking about a participant's ability to invest in something subject to sanction? With their 401(k) money? Or are you saying the participant's account is subject to OFAC sanctions? If its the latter, you really should ask an ERISA attorney.

What does OFAC stand for? Is this related to a retirement plan that is terminating? Are you asking about continuing deferrals? or an employer contribution? What kind of plan are you asking about? Defined Benefit, 401(k), 403(b) etc.

are you asking about potential audit for 2024? "For example, for a Code section 401(k) plan, the number entered on line 6g(2) should be the number of participants counted on line 6f who have made a contribution, or for whom a contribution has been made, to the plan for this plan year or any prior plan year. Defined benefit plans do not complete line 6g." So if completing the 2024 Form 5500, I interpret that to mean the 2024 BOY part w/ balances count should include those 20. So the BOY would be 130, and yes and audit would be required for the 2024 plan year.

I agree that TH status is definitely determinable at the beginning of the year. Is Key status though? Officers with compensation, people who become owners mid-year etc, at the beginning of the year they are part of an eligible class, and part way through the year they are not. I suppose its no different from any other participant who moves from an included class to an excluded class during a year, so hopefully the plan document addresses it.

I just wanted to share a WTF moment that I think many of you can understand. Mostly rhetorical - but feel free to chime in, especially if you think my indignation is unfounded. This week in reviewing an existing 401(k) plan document there was a written in class exclusion for Non-Highly Compensated Employees. In the Other line option in the adoption agreement. I could not believe a service provider, and and large national one at that, would let a sponsor include it. But it is a lower cost one, so I really shouldn't be surprised. It is a small plan, likely owner only, but still. A few weeks earlier I saw a similar exclusion in a defined benefit plan for a small employer. Though that class exclusion did not use the term Non-Highly Compensated Employee. It was something like 'everyone except two of the owners, Jack Smith and Jill Smith are excluded' that employer definitely had plenty of employees that are NHCE that have plenty of service and cause the testing to fail. And no, there did not seem to be any other plan with this one combined for testing and benefits. Setting up a plan that on its face fails non-discrimination before any benefit accruals or contributions are even considered is terrible! Even if those exclusions are ultimately considered void, there were document providers, service providers, financial advisors, and probably a TPA or recordkeeper involved in setting those plans up! They never should be there in the first place! Two in such a short time, from two different places, I just felt like was worth sharing. Maybe these exclusions are written in more than I realize and I've just been fortunate enough to not see them up until now.

I've had several as well already and there is lots more interest so I know quite a few more will come this year.

If possible - the request should be in writing, even if just a quick fax to the agent asking for more time. I think there are a few different things that might be going on - is the audit notice just a request for information? Or does it have an appointment date (for either in-person or over the phone)? If it includes an appointment date, its possible the date is far enough in the future that the auditor isn't able to justify an extension? If just an audit notice / information request with no appointment date, then how far out is the date that the information is due? standard extension for the due date for an information request is only 10 days. More than that and a manager definitely has to be involved. At least that's been my experience the last few years. The last few years it seems auditors have come from all around the country to audit plans and they make several appointments for a single trip, so those ones have been less flexible when a change of date has been requested by the sponsor. Agents from the local office, if they are doing the audit, are able to be more flexible for accommodating requests to change the appointment dates. Just my experience.

I had similar questions There seemed to be disagreement among the commentators about if the replacement plan could start 1/1, but several saying no, but myself and possible Derrin any others saying yes.

With that fact pattern, does everyone need to be included in the ACP test if no one made a voluntary after-tax contribution for that specific year?

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues If you share what kind of plan it is, pension, 401(k) etc, and if there are other employees, etc, and what kind of contribution they are wanting ( employer, deferral, etc.) I think folks can provide better insight.

Thank you Peter! I'll pass the information along to the plan sponsor.

Small profit sharing only plan with incorrect contribution allocation issues(due to inaccurrate compensation figures) needs an ERISA attorney to handle communications/negotiations with the IRS due to plan audit. The TPA can do any calculations, testing, 401(a)(4), etc as needed but isn't a law firm, and the sponsor is at the point of needing to hire formal help. They would really like to find one local to them in the New York City / New Jersey metro area. Do any of you have specific suggestions for attorneys or firms in that area? Self referrals are welcome. Thank you!

yes. The feedback I've gotten from small plan sponsors has been just this kind of scenario. A relative of the owners hasn't been able to be part of the plan, but will be able to due to the LTPT rules and they are excited for the opportunity to defer. Why the 50% of pay restriction? Is that part of the LTPT rules? I haven't seen that, but could be I missed it. Or does the specific plan have a restriction? Most all the plans I work with allow up to the 402(g) limit.