CuseFan

1. Very glad I don't do this type of admin work any more. 2. I think this is certainly a government objective, make tested plans ridiculously complex to administer and "incentivize" sponsors into SH designs. 3. All you need is a Fidelity or Vanguard or the like to tell IRS, DOL and/or Congress that they can't ready their systems in time and this will all get pushed back another year or two. Or, God forbid, maybe they will be the only ones ready in time and we'll all be retired or working for them. 4. Good luck

sorry, forgot the "if"

Yes, very odd. So a new plan document and everything? Mirror provisions? How did they handle participation and deferral elections? Any filings under the second plan? Agree with Bri - and this was done on advice from an advisor then that client should find a new advisor rather than adopt a(nother) new plan.

Or as Danny Glover lamented in Lethal Weapon, "I'm getting too old for this s _ _ _ !"

Isn't this something the accountant should be answering, as the tax professional, rather than asking benefit plan practitioners? Unless maybe there are more knowledgeable accountants on this forum who can chime in?

You need to use the control group's non-excludables in your denominator, so if you have husband HCE as only person covered in plan A, then that plan will fail coverage and need to be aggregated with wife's company plan B.

Also, if it's a defined benefit plan (DBP), where a valuation needs to be done to determine the contribution that will be deposited by that tax return due date, you'll want to get the document done and signed far enough in advance. I recommend anyone considering a DBP retroactive to 2022 to put their tax return on extension for the extra time but make the decision and get the document done in the first or second quarter of 2023.

General rule - if the employer and employee are not paying FICA/Medicare or SECA (self-employed FICA/Medicare) taxes on the income it is not earned income and not considered compensation for retirement plan purposes.

Always! I think the prior service counts but applies to the current vesting schedule.

Agreed, and someone coming in early is almost never is an HCE these days because of the lookback rule, and not too many come into an employer as an owner unless it's a spouse or other family member.

A qualified plan document is a qualified plan document whether for one employee/participant or 10,000. As many have echoed in this forum, a "solo 401(k)" or "solo-k" is just a marketing term for provider's product. If you have an owner-only participant, you'll likely want pre-tax deferrals, Roth deferrals, catch-up deferrals, discretionary profit sharing and employee voluntary after-tax contributions. If you are hoping to do for 2022 you need to hustle because document and salary deferral election will need to be signed by 12/31, and that only works if unincorporated sole proprietor, unless getting big bonus on 12/31 from which to defer.

Yes, that is likely the best path forward, and many payroll providers and recordkeepers have 360 degree integration, although I think some payroll providers stay 180 so their bundled product can maintain an administrative edge. Still, keeping all relevant information current and accurate in payroll records is a challenge for both larger employers with HR departments because of sheer volume and smaller employers without the dedicated resources to handle in real time. Thankfully (hopefully?) we now have a technological savvy generation that can tackle this, but it doesn't matter how great the technology is if the system inputs are incomplete or inaccurate - or as our generation says, garbage in garbage out. Another thought - will these changes accelerate consolidation of the provider market, driving out smaller recordkeepers and TPAs, while the 500 gorillas Fidelity and Vanguard et al get even fatter?

That is important as you don't want plan and IRA issuing 1099R for same taxable distribution. The Plan Administrator should write letter to IRA custodian explaining the error. The IRA custodian may not be able to distribute out to the individual w/o tax reporting, in which case the request should be to return to the plan which can then make the proper RMD distribution. Agree with bito too that this was indeed a plan/administrator/trustee/custodian mistake/problem/issue because the plan is required to split the distribution and properly satisfy its RMD requirements under the terms of the plan. Therefore, whichever entities/functions made this ill-advised lateral should fix it before the IRS recovers and runs back for a game winning TD against the Patriots, I mean the participant.

I agree - all those provisions that sound great for enhancing overall retirement plan coverage just make things more complicated and error-prone for the small and unsophisticated (from an HR perspective) employer that they serve as a detriment. Fewer employers will want to adopt these plans, fewer providers will want or be able to serve these plans, and administrative costs will increase, wiping out the short term tax credit savings. I've been in this business for nearly 40 years, have done both DC and DB in terms of administration, plan documents and compliance, and remember when DBPs were the complex animals no one wanted any more. Now, DBPs and CBPs look pretty simple compared to the modern and continually evolving 401(k) plan environment. Maybe all the heads of the states' with those new mandatory retirement plans met in a NYC pizza parlor and conspired with the Federal government to make 401(k) plans so damn complicated that no small employer would dare set one up and thereby drive all their employees into the mandatory state plans, just saying.

As the Patriots found out on Sunday!

For the DB R/O - absolutely if current plan allows distribution of rollover balances at any time. This amount had already experienced a distributable event and all the conditions to distribute were satisfied. However, since the participant is not 59 1/2 this would be subject to 10% premature distribution tax if not rolled over to an IRA. Rollover to a Roth IRA would be taxable, obviously, but not subject to the penalty tax. I think the SEP rollover is treated similarly.

I don't think rolling after-tax withdrawals directly to a Roth IRA is a conversion any more than rolling Roth 401(k) out to a Roth IRA.

Yes, absolutely do this if you want to be in the headlines for the next big cybersecurity breach lawsuit.

Agree with the above, but sometimes there are situations when you have to aggregate plans to satisfy coverage and nondiscrimination. For example, an anesthesiology practice with primarily owners, maybe some other HCEs and a few administrative NHCEs. The CBP may cover just the owners because they make up more than 40% of the headcount and exclude everyone else. Thus the CBP would fail coverage and have to be aggregated with PS and likely SH portion of the 401(k) plan to satisfy coverage.

So, unless it was a partner whose earned income was zero/negative, how can you say such a person was an employee and performed services for the employer during the year? You can't. That the employer may not have "terminated" the person the person in their payroll system is not consistent with the facts and circumstances of the situation. I would say they are terminated as of their last day worked or for which hours were credited. Also, for reasons noted above, like 415, you can't cover/benefit them so why should you need to include them in your testing denominator? Finally, on what basis could you include for coverage but exclude for ADP?

Distribution of VAT at any time is not the same as a Roth distribution, check your plan provisions carefully. We typically have person make the VAT, keep it temporarily invested in non-interest bearing cash, then take a withdrawal of their after-tax account and roll to a Roth IRA. If there is some income on the VAT then it must also be distributed and can be rolled to regular IRA, taken in taxable cash, or rolled to Roth IRA (and taxable).

Peter, those whose benefits are collectively bargained are mandatorily disaggregated, statutorily excluded from sections of the plan for non-bargaining employees and tested separately, so does it matter?

What may happen is that IRS and/or DOL, based the 5500, sends a letter to plan sponsor asking for information to justify a partial termination did not occur. Also, if these termed NHCEs were fully vested then no issue. On your other question, agree you need to test your SH+PS.

Not a bad idea, but haven't seen it in practice. Could make your baseline benefit equal to a 0.5% accrual and then layer on a cash balance credit as a percentage of compensation in excess of some strategic threshold. But can this fit into a pre-approved document without modification necessitating submission? I'd be interested to hear if anyone sees compliance issues or other drawbacks to this approach.

If they have already forfeited under the terms of the plan, whether by distribution of the vested balance or incurring five consecutive one-year breaks, then you do not restore/fully vest. If they have not yet forfeited under the terms of the plan, then they must be fully vested. The key here is "the terms of the plan" as that governs what needs to be done. If people have been gone for longer than five-years breaks but have not yet been forfeited, then you have an operational compliance issue to fix that is different/independent from your question, such as allocating amounts retroactively to applicable years based on entitlement in those years.