CuseFan

I've been told we interpret in that fashion after a review of the regulations, but on a large plan adhering to the 4th month timing.

That is correct - any tax withholding election or lack thereof matters not, the permissible gross up is for (anticipated) taxes NOT tax withholding.

I don't know but I would be very careful. March could very well be deemed the 1st month of the plan year, making December the 10th month and 12/1 your deadline. I think that is just as supportable, if not more so, than using April as month 1. Look at it this way - if the plan year began 3/1 instead of 3/28, is there any question that March is the first month of the plan year? The regulations do not say full months or use days, and your issue is not a non-calendar year plan issue, rather it's a non-conventional non end of month plan year end issue. That said, we have a client with a floating fiscal and PYE (last Sunday in April?) and I'm checking with one of our actuaries on it to see how they have interpreted. I'll follow up if/when I hear more/differently.

We had client with multiple DBPs (3) that used a master trust and the MTIA 5500 was filed under the sponsor's EIN and plan number 005 (DBPs were #1-3 and there was a DCP for #4). This goes back 10 years as they had terminated the plans but I don't think those rules have changed.

If the person makes $500, a 3% TH costs the ER $15. If the person is deferring (s)he is still a participant so no added cost for the additional body attributable to TH. If you treat as terminated/re-hired each year, that might trigger annual cash-out processing, which could then be costing the ER or the (now ticked off EE) those distribution fees. Given the circumstances, is the person really an employee any more or an independent contractor?

Thanks Lou.

Is there a profit sharing provision that has just not been utilized or does the document specifically limit contributions to deferrals and safe harbor? I seem to recall past discussions that a PS provision could make plan subject to top heavy, but I'm not sure and don't deal with these (deferral and SH-only) plans.

So funny - yesterday I saw HCE post basically the same question but in a slightly different context, did a quick Google and found and posted this exact item in response to that question. Great minds, right?

Agree - and the plan document should be clear on all that.

Agreed. They are only excluded if they are (1) non-resident (live outside US), (2) an alien (non-US citizen, not Martian), (3) not on a US-based payroll AND (4) the plan document/AA excludes such employees.

No, they are not benefitting under the 401(a) section of the plan. BUT, if the plan is top heavy then they must get 3% TH - but still otherwise excluded so no gateway.

From the Pension Distribution Answer Book. QJSA can be waived w/o spousal consent provided there is a court order documenting the separation and there is no QDRO. From your description it appears that each of those conditions have been satisfied. Q 11:29,Are there circumstances when spousal consent to a participant's election to waive the QJSA or the QPSA is not required? Last Updated: 10/2022 Yes. If it is established to the satisfaction of a plan representative that there is no spouse, or that the participant's spouse cannot be located, spousal consent to waive the QJSA or the QPSA is not required. If the spouse is legally incompetent to give consent, the spouse's legal guardian, even if the guardian is the participant, may give consent. Also, if the participant is legally separated or the participant has been abandoned (within the meaning of local law) and the participant has a court order to that effect, spousal consent is not required, unless a QDRO provides otherwise. Similar rules apply to a defined contribution plan not subject to the minimum funding standards of Code Section 412, which pays the participant's vested accrued benefit to the surviving spouse upon the participant's death. [ Treas. Reg. §1.401(a)-20, Q&A-27] A participant may elect out of the QJSA in favor of an actuarially equivalent alternative joint and survivor annuity that satisfies the conditions to be a QJSA, without spousal consent. [ Treas. Reg. §1.401(a)-20, Q&A-16; Notice 2007-7, 2007-5 I.R.B. 395, Q&A-11] (See Q 11:17.) Because a QOSA (see Qs 11:38 – 11:46), by definition, satisfies the conditions to be a QJSA, no spousal consent is required if a plan participant elects a QOSA that is actuarially equivalent to the plans QJSA. If the QOSA is not actuarially equivalent to the QJSA, spousal consent is required for the participant to waive the QJSA and elect the QOSA. [ Notice 2007-7, 2007-5 I.R.B. 395, Q&A-11]

https://www.irs.gov/pub/irs-wd/0813042.pdf I was interested by your question and found this. It does seem that these are somewhat common and IRS views them as NQDC plans not ERISA pension plans. This IRS memorandum was contesting a FICA and Medicare tax refund, but supports the finding of NQDC (compensation and FICA). I know you have concern about broad-based versus top-hat, but are these people actually "employees"? If I remember, insurance agents are "statutory employees" and so they are treated as employees for some purposes (FICA) and contractors for other purposes (retirement plans?). Contractors can participate in NQDC w/o a top-hat issue is my understanding.

Your background info is not clear - who is the employer, what is this fund from where these two people get distributions from and how is this income reported to these individuals? To contribute to an employer's plan in any fashion one needs to be an employee of that employer (or employee of sponsoring union or participating employer) and have compensation or earned income from the sponsor. If they are not employees they cannot be in the plan. If they are self-employed contractors they can establish their own plans on their earned income.

What everyone else said, or maybe the employer whose employees participate is owned by the trust.

Other than Bri's haha, no one else commented on your "laser" wit? Not even Austin? Must be they all had their mojo stolen! Is it (mini) me or are people's senses of humor just suffering a busy season hangover?

That was my thought Bill. If it was a straight refinance, it certainly would not qualify, but if the ownership of the property is changing from A & B to just A, then I think this is open to interpretation. Also, I would make sure any hardship distribution did not exceed half the value of the property. However, I think it is the Plan Administrator's decision on whether or not to interpret in that manner.

No issue. The gateway for a combo could range from 5% to 7.5% depending on the highest HCE rate, and that gateway minimum is simply the cost required to enable cross-testing of the DC component.

Plans can (and many do) allow for administrative procedures to rollover cash outs under $1,000, so I would definitely go that route where possible. That does not help for distributions already paid, reported as taxable but checks not cashed. Transferring to an after-tax bank account might work, but I would make sure that plan language supports. Also, distinguishing between missing and unresponsive is important and plan language should give you direction (at least for missing). Maybe also sending letter saying the distribution has been reported to IRS as taxable and it doesn't matter whether or not check has been cashed might be the trick to change someone from unresponsive to responsive. Best practice to send such letter with the check?

We have an auto rollover IRA product as well. My understanding is that plans/sponsors with default IRA rollover provisions must have an agreement with an IRA provider, so there should be some agreement with some provider already in place. If not, that is the first step.

Good to know - didn't think PBGC cared as much about the reversion, thanks for setting me straight. And yeah, it's a pain, but they want to see that everyone got paid and all payments cleared.

How could it not? From various organizations letters to Labor and Treasury, there are many requests for technical corrections and guidance on SECURE 2.0. If those go unanswered for an extended period, practitioners end up functioning in the dark, making educated guesses, or simply not acting at all. Also, what about determination letter and plan termination filings (IRS and PBGC) that could get substantially delayed? This doesn't even consider the implications from the general economic meltdown that could happen. Any government shutdown and default would be bad for everyone, except maybe the handful of politicians whose election platforms were to blow up the economy.

PBGC requirements and filings generally deal with satisfaction of benefit liabilities so I don't see that as an issue. I agree with opinions that IRS would take issue with keeping the trust open for an extended period to pay potential or anticipated expenses and defer the payment of taxes. PBGC audits are automatic for plans with 1050+ participants, a threshold that was dramatically increased a few years ago. Smaller plans could be audited but keeping a trust open for that possibility is unreasonable in my opinion. The timing of the termination, whether a determination letter is applied for, and when distributions ultimately occur could certainly push this out to 2025 and result in more eligible expenses, but if this is a small plan without a 5500 audit then those probably do not amount to much. Has the plan paid administrative expenses in the past or did the employer pay? If the employer paid these, maybe explore (with legal counsel consultation) the possibility of having the plan reimburse the employer for eligible expenses.

Qualified distributions of Roth accounts (principal and earnings) are tax-free. Qualified distributions are after age 59 1/2 AND if 5+ years from first Roth contribution. The 5 year rule does not apply to each contribution. However, if there were any in-plan Roth conversions, if I remember correctly the 5 year clock applies separately to each conversion. Death benefit distribution of Roth would also be tax free, but do not know if 5 year requirement applies to death benefits.

I do not remember exact details but do recall that it created a lesser early retirement reduction for HCEs as alluded to by truphao.