justanotheradmin

I would suggest finding a TPA or service provider that has a document service only (no recordkeeping or administration or reporting) tier. I think ones that cater to the smaller market are more likely to offer this. Will the new recordkeeper also be doing all the annual work? The form 5500? compliance testing? If not, a traditional TPA that does that work in addition to the document is needed. Sounds like they went from a bundled service provider - to an unbundled. If the new recordkeeper really is doing everything except the document, my document services only suggestion is the best I can think of. Then they would not need to hire an attorney, at least not if they can be accommodated on a volume submitter document at a more affordable cost.

this is the classic example of what IS allowed for a mid-year change to safe harbor. so much so that the IRS has included it as an example of something that is allowed as a change to SH Match if certain parameters are met, namely: change is adopted at least 3 months before the end of the plan year, change is made retroactive for the entire plan year, and the plan sponsor gives an updated safe harbor notice and election opportunities at least 3 months prior to the end of the plan year. https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-401k-plans-and-notices https://www.irs.gov/pub/irs-drop/n-16-16.pdf

Does anyone know of any providers that have an election form for participants who want to their employer contributions done as Roth? I know plan documents don't have language for amendments, and software needs to be updated to catch-up, and lots of things are still in flux, so personally I think plans should try to wait, and just live with the existing options for in-plan Roth conversion. But I have a few that are insisting on offering the SECURE2.0 ER contributions as Roth to their participants NOW. It would be helpful to know if anyone has seen any forms yet for this option. Either so I know plans with those providers will have an easier time doing it, or custom forms can be created by looking at some examples. And bonus imaginary internet points if you can actually share the form here. 🙂 Thank you all for the help!

Is the recordkeeper also the plan document provider? Just because it can be changed 'at any time' does not be it can be retroactive. I agree with them, barring some unusual additional information, I would view going from a full year match computation period to a per payroll computation period as a cut-back, especially for a plan year that has already ended. Have you calculated the true-up? Is it a lot of money (I know that's relative)? Especially if it isn't a lot, or most of the true-up is going to the HCE or owners, perhaps the sponsor should focus on the positive aspects of a true-up and not the negative.

Nope.

Thank you everyone for the comments. The software company has decided to update their reports! They do understand the rule, turns out that was not the issue. Turns out the EFAST system/filing software will give a STOP error if the beginning of year total participant count is above 120, but is being filed on an SF, or if using a Form 6600 but there is no Sch H + audit report. Even though under the new rules and instructions there shouldn't be an error for that. So the filing system hasn't caught up with the updated rules. So if you have plans that under the old rule would have been required to have an audit, but under the new rule are not required to have one, just be aware you may not be able to file the Form 5500 as you'd like until the filing system is updated. The vast majority of plans will not fall into this category, they will either be squarely audit or non-audit, so I do think its better to have the reports correct, and then the small minority of plans that end up with a filing issue can decide on an individual basis how they want to file as they approach the filing deadline. By then hopefully the filing system has been updated to align with the new rule. It is errors P-230 and P-230SF if anyone is that technical and wants to look them up. If others have already encountered either of those specific errors and want to share how they are handling them, I'd be curious. I know we are early in the tax season so I know not many 2023 Form 5500 for regular year ends have been filed yet.

nor have i, because its brand new, and the document providers are trying to figure out what to draft based on the limited guidance. Prior to the enactment of SECURE 2.0 in December 2022, the only option was that Safe Harbor Match was pre-tax. If the plan allowed, after the match is deposited the participant could convert to Roth Safe Harbor, via a roth conversion or a roth rollover. Otherwise, when the participant gets a distribution of the Safe harbor match amounts paid to themselves, its taxable as income, the same as any other pre-ta Now, with SECURE 2.0, if the plan document allows, and the participant chooses, when the Safe Harbor Match is deposited, it goes in directly to a Roth Safe Harbor source. The participant receives a 1099-R showing it as taxable based on the year it was deposited. See https://www.irs.gov/pub/irs-drop/n-24-02.pdf its taxable if the participant elects the contribution be made as roth. The income is reported on Form 1099-R. If the match is for 2023, and deposited in 2024, for the employee it is taxable as 2024 income. for the participant's tax impact, it doesn't matter what year the benefit accrued, only when it was deposited. the notice from the IRS goes into this, and is definitely worth a read, even though it's 80 pages.

I would rather not since I am still hopeful they will come around to my understanding of the counts for 5500 purposes. Before I continued to push back I wanted to make sure I wasn't completely misunderstanding something. With the responses here I've pushed back again and am awaiting a response. I am hopeful, and otherwise have had a good experience with this software.

Yes, ESOP guy you are correct, that was the change. There were lines added to the Form 5500 series to address the additional information needed. There are now lines for Begin and End participant counts, as well as Begin and End of year participants with balances count. The software provider's reports and programming are ignoring any participants (active, eligible) if they don't have an account balance. And I agree that is correct for the "With Balances" line, I disagree with that for the more general Participant Count lines. They disagree with me. For now we are going to be doing our own extract and counts for those lines, but it is still frustrating because their pre-programmed extracts / reports are correct for 2022 and earlier years. They have changed it because of the update to the audit size rule. I wonder if any of their other clients have started noticing this.

Only if the plan allow and the participant elects it that way. Employer contributions, including safe harbor match, are contributed on a pre-tax basis. They only go in as Roth, in this case Roth Safe Harbor, unless the plan allows for employer contributions as Roth (new with SECURE 2.0) and the participant has chosen for them to be done that way.

Paul I and CuseFan, I agree with both of you and have tried to make those points, but so far they are sticking to their position that the correct counts are Participants = Participants with Balances. Paul I, thank you for mentioning the EFAST2 warning. I don't think that's a new one though? and it seems to be comparing Participant to Participants, not Participants to Part w/ balances. So I wonder what the software provider is thinking.

Question is specific to defined contribution retirement plans only: Assume a plan has eligible, active participants with no balance. Perhaps a deferral and match plan and they have never deferred. Please let me know your thoughts: A large, well respected software provider is telling me that due to the update in how audit status/large filer status has changed to be based on number of participants with account balances, that the definition of who counts as a Participant for reporting on the Form 5500 /Form 5500-SF has changed. and that their reports will reflect the following: Participants as of begin of year = Participants w/ balances as of begin of year Participants as of end of year = Participants w/ balances as of end of year Where the forms ask for "Total number of participants at the beginning of the plan year" and "Total number of participants at the end of the plan year" the provider is saying that only participants with balances are to be reported, and that the numbers on those line will be the same as the number on the other lines that ask "Number of participant with account balances as of the beginning of the plan year' and "Number of participants with account balances as of the end of the plan year" I disagree with them. I have read the instructions to the updated forms and nowhere do I see that the general participant count as of the begin or end of year should only include people with balances. I really can't believe the software provider is taking that stance, but I thought I would ask the collective mind here for input. I've been doing this a long time and still learn new things, especially when the rules change, so perhaps I missed something. What say all of you? Do you think the numbers should be the same? or like me, think they should be different ? Is this a gray area?

Paul I, I understand what you are saying, and agree, that is my understanding as well. For others: I was trying to point out to others that just because someone is key, or isn't key as of the determination date, doesn't impact their key status for the year that the top heavy minimum is due. I got the impression ( maybe I misunderstood some of the comments) that some were thinking that just because a person isn't key in 2022 means that they would need to get the TH min for 2023, even though their current status in 2023 is a Key employee. I disagree - someone's status as Key, non-Key, or Former Key for purposes of the TH determination don't impact their status as Key or Non-Key for purposes of giving the Top Heavy minimum the year after the determination. I think that saying someone's Key status for the determination somehow carries forward to the actual Top Heavy year, is incorrect.

Is there a conflation of who is Key for the determination date? and who is Key during the year that the minimum is required? If I am Key in the plan year ending 12/31/2022, but not in 2023, wouldn't I be due a top heavy minimum for 2023? Or are the regulations about who is key for determination date purposes say those same people are key for giving the minimum the following year?

Hi Folks! The IRS has updated Form 8881, but I don't see updated instructions. Has anyone seen some? Or know when they might come out? Another question - what is the point of Part II, Line 10? how is it different from Line 9? And the two lines are supposed to be added together for Line 11? That section appears to be unchanged from earlier years, so I'm hoping someone else can explain it to me. Thanks!

Is she an HCE? is she eligible for a distribution right away up separation or does the High 25 rule apply that would delay her payout until a future year? when an HCE takes a distribution from a small Cash Balance plan the plan needs to be pretty well funded / over funded so that the benefits for the NHCE aren't jeopardized by the distribution.

This sentence is incorrect. The plan doesn't know what tax rate you fall into, or any of the participants fall into. As others mention, the withheld amount toward federal taxes is defaulted as 20%. If your personal taxes end working out more than that, you will owe. If your personal tax situation ends up being less than that, you will be given a refund after you file your personal return.

see the IRS's page on what happens when a plan has no contributions. https://www.irs.gov/retirement-plans/no-contributions-to-your-profit-sharing-401-k-plan-for-a-while-complete-discontinuance-of-contributions-and-what-you-need-to-know I think if a plan was set-up knowing there would never be contributions - there would be an argument that it was never a qualified plan to begin with, which would put the assets tax deferred status at risk.

1. what is the point of a 401(k) plan with no contributions? at some point it would be deemed terminated and pointless 2. The employees would likely need to be covered by the 401(k) - if they have enough service they would be in the testing and testing would fail if they aren't offered the plan 3. A solo k is a regular 401(k). Solo k is a marketing term and personally I find it irritating. So all the regular compliance applies even if marketed as a "solok) 4. What investments aren't available in a regular IRA? I'm guessing this person wants a loan, or to purchase company stock. Those are the only two I regularly see available in a 401(k) but not easily in an IRA. Neither of which are great ideas either. If the investments are available in a different IRA format, they should stick to that, and not start a 401(k).

If the participant had incorrect deferral amounts withheld, I would suggest the employer make the participant whole on their next paycheck. Paying them the amount that should not have been withheld. And also leave the excess in the participant's account. At that point the excess is an employer contribution (not a deferral), which hopefully would be allowed. If it isn't (because it exceeds something like the 415 limit, or doesn't comply with the plan's contribution formula), well then I would look to EPCRS to see what is allowed, such as the de minimis rule you mention.

What say all you interesting people - in light of the new SECURE 2.0 rules for mid-year replacement of a SIMPLE IRA program with an appropriate 401(k) w/ safe harbor - is 60 days notice to participants required? Typically employers would have to notify folks by Nov 1 that the SIMPLE would not be continuing for the upcoming year. Since we are past Nov 1, do folks think notice now is sufficient? Assuming that effective Jan 1 there is an allowed replacement (401(k) SH as provided in SECURE 2.0), is notice now enough? 30 days? Something else? Seems like there is interest in having no SIMPLE in 2024, for a cleaner break, if that is possible. If there is another thread already discussing this, please point me in that direction. Thanks!

Don't forget they are subject to testing, the same as any other employer contributions. Sometimes folks think that there is a pass on the testing because they are classified as Davis Bacon / Prevailing Wage. Most of the plans I see that allow those types of contributions specifically exclude HCE from that type of contribution.

While it may not feel right to give the participant nothing for the ADP test, consider the participant will get the QNEC for the missed opportunity to defer, and likely a top heavy minimum if employed at year end. If there was any sort of match or other employer contribution that would be in the mix for correction as well. Maybe that's not enough for some, but still can be a decent percentage of compensation, and almost certainly more than what a safe harbor contribution to that NHCE would have been.

For a plan year that has already ended, and the error is discovered and correct now, I see no issue in using a testing method specifically allowed by EPCRS. They should also correct the ongoing MOD if there is one, which yes, offering the plan now, and means that the testing for the current year will include the NHCE. At which point that's on them if they choose not to tell their employees about the plan. But typically we strongly suggest they add a safe harbor provision so that the ADP testing is moot, and often the Top Heavy minimum becomes irrelevant as well. I have refused to work on corrections for prior years where I know the sponsor is having the error continue. Part of the principles of EPCRS involve fully correcting and changing processes and procedures to reduce future issues. Why would I want to work with a plan sponsor that has no intention of doing it right moving forward? (this is rhetorical - I don't need anyone to answer).

I think you are mis-understanding. The ADP test would not include the NCHE at all. If the only two people who were given the opportunity to defer are the H/W owners, then the ADP test will pass. You will have 2 in the HCE group, and 0 in the NHCE group. No ADP test failure at all. Then you would move on to the MOD failure.