justanotheradmin

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.

Perhaps an example with numbers might pique folks' interest, if only to tell me how I'm wrong. 😄 SIMPLE IRA program with a 4% employer contribution is terminated as of 9/30/2024, new 401(k) plan effective 1/1/2024 for employer discretionary contributions, with the deferral and safe harbor pieces effective 10/1/2024. Assume all the requirements for a replacement plan under SECURE2.0 are met. Setting aside deferrals for a moment, assume an employee(under age 50) has full year compensation of $345,000. 4% of $258,750 (9months of comp), contribution to SIMPLE is $10,350. Since the 401(k) plan is effective 1/1/2024 the 415 limit is not prorated and the total employer contribution to the 401(k) plan could be $69,000. Total employer contributions for that single participant for 2024 $10,350 + $69,000 = $79,350 If that participant also did $16,000 employee contributions to the SIMPLE IRA then total contributions between the SIMPLE IRA and the 401(k) plan comes to $95,350. That doesn't seem quite right.... But I can't see anything that doesn't permit it... Thoughts?

I understand how the deferral limits are combined/prorated under the new SECURE 2.0 rules. This is not about that. this is about the employer contributions. Admittedly I haven't thought this all through, so there may be obvious considerations I have overlooked, so please feel free to point those out as well. Scenario A SIMPLE IRA program is terminated as of 6/30/2024, new 401(k) plan effective 7/1/2024, calendar year plan. Assume all the requirements for a replacement plan under SECURE2.0 are met. The sponsor could do an employer contribution to the new plan, subject to the pro-rated 415 limits, correct? None of those contributions are combined for any limits with any employer contributions to the SIMPLE that I can tell. Is that correct? Scenario B Same fact pattern, but the new plan is effective 1/1/2024 for employer discretionary contributions, with the deferral and safe harbor pieces effective 7/1/2024. In this scenario I think the 415 limit wouldn't be prorated for the new plan, and any employer contributions to the SIMPLE would also be ignored. Additional question: Since 415 limits are per participant, and also include deferrals, would the employee contributions to the SIMPLE IRA in scenario B have to be considered when checking the 415 for the new plan? I think the answer is NO, even though it would mean in theory a participant could end up with total contribution to the 401(k) plan that is the full 415 amount AND an employer contribution, and they have their employee contribution to the SIMPLE for the first part of the year. So their total contributions in a single calendar year are higher than they would have been able to do if there had been only the SIMPLE or only the 401(k) plan for the year. What say all you lovely people?

Since you say there there are no exceptions to spousal attribution and it applies , conceptually, pretend that H/W are one person, ignore attribution, and do the test again. Let's call the new person Plato Company A Plato owns 80% Unrelated Person1 owns 10% Unrelated Person2 owns 10% Company B Plato owns 40% Unrelated Person1 owns 20% Unrelated Person2 owns 20% Unrelated Person3 owns 20% Based on that, I think you have 60% identical ownership, and 80% common ownership. Though someone can correct me if my math is off.

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.