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The distributions can be subject to fees or charges, just not to the employee who is taking the distribution. You can certianly charge the employer.

When I owned my tpa business, out of 450 clients I had aproximately 70 balance forward plans. A handfull of annual and semi-annual, pooled profit sharing plans and quarterly 401k's. Some 401ks had participant direction and some in a pooled account. I also consider brokerage account plans as balance forward. I had around 15 plans where every participant had a brokerage account and I reconciled those plans annually. Most of the plans I had were small plans, under 100 lives. Many of the balance forward clients were banking relationships, assets managed in the trust department, I did the tpa work. I honestly believe there are a lot of balance forward plans getting done at small accounting frims, in excel, incorrectly.

This does not address Peter's questions, but an employer's possible mindset. When I started in this business, my area had a heavy concentration in the tool and die industry. Most tool and die business owners sponsored profit sharing plans with a paired money purchase plan and made healthy annual contributions. The owners started getting annoyed with their 20-year employees, who were generally only in their early 40's, quitting and taking their retirement plan account balance, and starting a competing tool and die business. They knew the customers, they knew the pricing, and they would buy one machine with their distribution and try to take business from the employer where they had just quit. The tool and die owners got together, and they all decided to amend their plans to only allow for all distributions at age 65.

Not referring to any regs here, but my understanding is that a single employer who joins a MEP mid-year, their plan follows them into the MEP. It is the same as if they switched recordkeepers, you need to gather asset data from the prior recordkeeper, but the plan and compliance is run on the 12-month period. I get confused when a single employer plan joins a PEP mid-year, say on 7/1. The single employer's plan files a final 5500 and joins the PEP, which files one 5500. If the new plan is selected for audit in the PEP, the auditor wants the census data from the date they joined the PEP through year end. However, the plan has to be compliance tested for the 12-month period. The prior tpa would file the final 5500, but when the employer wants to calculate their true-up their match or make a profit-sharing contribution, which may have a last day requirement, the PEP tpa will need annual census data for those calculations. If the plan is ADP / ACP tested that has to be completed for the 12-month period, even though there are "half" plan years as a single employer plan and then a PEP adopter. I am not aware of any specific guidance that deals with annual compliance testing when a plan joins a PEP mid-year.

I am having one of those end of the day moments: 401k plan may limit type of compensation from which participants may defer to a reasonable definition of compensation. Definition does not need to pass compensation ratio test. Matching is based on deferal amount, not compensation, so is there an issue if a safe harbor match plan fails the compensarion ratio test?

Semi-related to this thread. The plan document is silent on automatically voiding a spouse as beneficiary after a formal divorce. The plan participant died, without changing the ex-spouse on the beneficiary form. However, I seem to recall hearing in a seminar that, if the beneficiary form lists "spouse" under the relationship, and there is a divorce, this person is no longer the spouse. Hence, the beneficiary form is invalid so now the plan document provision, which outlines the hierarchy in the absence of a beneficiary form, supersedes the beneficiary form on file. Has anyone distributed death benefits based on this rationale?

One of the "ifs", as long as he is a NHCE.

You referenced EOB, I am posting an example taken from ERISApedia. If I am not allowed to post this material on the boards please let me know and I will take down. Example 9.9.3 Bob, age 48, has his own medical practice, which sponsors a 401(k) plan. He is also an adjunct professor at a local university and participates in the university 403(b) plan. In 2019, Bob deferred $12,000 to each plan. Bob’s excess deferrals are $5,000 ($24,000 minus the 2019 §402(g) limit of $19,000). Presumably, at least one plan will allow Bob to request distribution of the excess deferrals before April 15, 2020. But if he does not make the request, there is no EPCRS correction, because there is no Operational Failure. Neither plan has violated Code §401(a)(31). Bob is taxed on $5,000 in 2019, even without a distribution. He does not acquire basis and is taxed again when the plans ultimately distribute the deferrals. 402(g) limit violation that occurs in plans maintained by unrelated employers is not an operational error for the plans and cannot be corrected in EPCRS. In this case, the penalty for distributing after 4/15/2017 is double taxation of the excess by the participant. Plan A cannot refund the excess after 4/15/2017. The money must remain in the plan. This rule should be in the plan document. Don't take our word for it. IRS website states: To the extent that a corrective distribution is not made within the correction period, the excess deferrals may not be distributed until a distribution is otherwise permissible under the terms of the plan, or the distribution is necessary to avoid plan disqualification under IRC Section 401(a)(30). Reg. Section 1.402(g)-1(e)(8)(iii) provides that distributions of excess deferrals after the correction period may be distributed from a 401(k) plan only when permitted under IRC Section 401(k)(2)(B). See, IRS Website. EPCRS Appendix A, Section .04, while it doesn't address pre or post 4/15, suggests OK to refund. Do you agree? No. This is not an operational failure because the employers are not related. The participant may only get a refund if it is a distributable event. If the limit was exceeded in one plan, the correction would be accomplished in EPCRS Appendix A.04.

I have had the same situation and two recordkeepers refused to take the MP source. The advisor called looking for a solution. Look for another recordkeeper came to mind. The spin-out to a new MP plan and then terminating the plan, and rolling the distributions into the 401k plan, although I believe that it would be a related rollover counted in the top heavy calculation, is a good idea.

Answering my own question, the plan could end up having a matching rate for HCEs that is greater than the match for NHCEs, if a NHCE needed a true-up but terminated employment during the year. I believe I would need to test under BRF.

An employer funds their discretionary match per pay period. They also calculate a true-up at year end. In order to receive the true-up, if any, the employee must be employed on the last day of the plan year. Do I need to run Benefits Rights and Features on the true-up provision, or does the ACP testing suffice?

Could they freeze the current plan and start a new plan in the MEP? It would be expensive, complicated, and difficult to explain to employees so it is not a desired solution. A general question, can't an adopting employer in the MEP choose some of their own provisions, which differ from the MEP master plan provisions? For example, would there be a benefits rights and features issue if different adopting employers choose to offer different provisions - adopting employer 1 has no hardships, 2 loans, and installment payments and adopting employer 2 has hardships, 1 loan, and lump sum distirbutions only?

There are other services / industries where this happens. I have known local banks to offer a quarter percent reduction on a commercial line of credit interrest rate if you bring your retirement plan into the trust detartment. Bring your corporate banking relationship and we will knock off another quarter percent. It is hush hush behind the scenes, but it goes on.

I have an plan with a 10/1 plan year end date. When I file an extension for the 5500, is the extended filing due by 7/16, or can I count the entire month of October, through 10/31, and ask for an extension to 8/15? Thank you.

An issue that always comes up is what do you do with participant deferrals that are withheld during the transition? For example, the new recordkeeper is not set-up to accept contributions, the old recordkeeper will no longer accept contributions, where do you put the deferrals taken during this period? No one wants to set-up a one month account to accept contributions, outside of the employer's accounts, but do not know of another solution.

In a recent webcast on the "IRS grab bag" regarding automatic enrollment, it was noted that for plans joining a PEP or MEP - "remember - the determination is based on the participating employer and not the MEP/PEP original effective date". In this case, I believe that if a plan with an original effective date of 1/1/2020 joins a PEP on 1/1/2023, they are "grandfathered" and would not be subject to automatic enrollment. The webcast did not address when the PEP was established. However, in a recordkeeper's summary, it is noted "A pre-enactment single employer plan that merges into a MEP established on or after December 29, 2022 (a post-enactment MEP) will lose its pre-enactment / grandfathered status." These seem to be contradictions. When I look through Notice 2024-2, I do not find any references to PEPs or MEPs. Is anyone aware of a site that addresses the PEP / MEP establishment date trumps a plan's original effective date?

I'm not sure if any correction method, i.e. correcting compliance errors that occured in a now terminated stand-alone plan and being corrected in a PEP as a new adopting employer, are discussed anywhere in the regulations. I would love to have a new PEP / MEP message board, to have PEP / MEP issues all in one place.

Prior to selling my small TPA firm, around 450 plans, we compartmentalized plan documents / amendments and distributions / loans. Other than that, the administrators handled everything else, asset and census reconciliation, contribution calculations, 5500 filings and client calls. Much like Towanda's firm, I worked sales, takeovers, handled the problems and did much of the research. We did in-house daily valuations with FDP (yes back that far) and subsequently the ASC system. When ASC decided to get out of the daily valuation software business, so did I. It became too time consuming, a huge liability, cyber security, and having to have someone available daily to process transactions in a small shop became too demanding. I found it to be more profitable to utilize the recordkeepers, who have the resources to provide and maintain the recordkeeping system, internet, security, marketing materials and notices, that all run through their legal departments. I struggled to copy and paste forms together that were all client specific. I don't want to sound negative, that was just my experience, and after 20 years I became burnt-out running my own shop.

Yes, we are still having issues too.

Isn't anyone else interested to know why a 401(k) deferral was coming from a company bank account and not through payroll withholding?

I am also interested to see if large recordkeepers will update their hardship distribution forms with a self-certification box, with the caveat "if your plan allows" or if self-certification is selected at plan set-up, they would include that check box in their online form. Companies who provide 3(16) services to approve and sign all distributions, loans, and hardships probably would welcome the ease of processing the hardship distribution. Also, more than likely, a 3(16) provider will never have any knowledge to the contrary as far as knowing the participant's hardship situation, as an employer would. In addition, the same case may be made for the Pooled Plan Provider who runs a PEP. The PPP is a fiduciary, signing off on the online hardships without having to ask for documentation would greatly speed up the process and would take another burden off of the employer, which seems to be a selling point of joining the PEP, "you don't have to do anything" (this would be a topic for another thread). I am not saying that speeding up the hardship process, or telling the employer that it is now easier for their employees to get a hardship makes it better, but I see this trend happening. The articles are out there in non-retirement publications and the floodgates are opening. We have had a significant number of employers already asking about allowing self-certification, almost more than anything else other than the Roth catch-up.

Below is from a recent instructional email sent by a large recordkeeper. This is for plans that allow catch-up contributions but do not offer Roth. If a Plan Sponsor does not take any action, Roth Catch Up will automatically be added to the Plan effective 1/1/24 for Roth contributions only. We are requesting Plan Sponsors consider adding Roth Deferrals and Roth Rollovers at the same time for administrative efficiency since these changes require coordination with payroll vendors, plan document updates and communication to participants. Doesn't this read as if they would permit the option to allow Roth contributions for catch-up only?

How about determining the participant count for filing the initial 5500 for a new PEP? The PEP was established 1/1/2022. The first adopter joined the PEP on July 1, 2022. This adopter has 200 eligible employees. Technically, the 1/1/2022 PEP participant count is 0. Would this PEP require an audit for 2022?

It is not uncommon for employees to contribute up to their deferral and catch-up limit in January 2024. Some employers will pay earned bonuses from 2023 in January, 2024. I have had employees contribute 100% of their January bonus, which many times is the 401k plus the catch-up limit. I have heard a few recordkeepers say that their game plan will be to notify all employees, who have earned over $145,000 in November, 2023, with a publication that explains this new regulation. The publication will explain that if the employee does not reply with an election to not make their catch-up, by default their catch-up will be contributed as a Roth contribution. Some recordkeepers are trying to make this happen without having to reenroll participants. I'm not sure that this will work, but that is one of the current thought processes.

ASPPA has an ESOP publication in conjunction with their ESOP Certificate program. It is rather detailed, with check lists and annual dates for ESOP compliance. Side note, I recently asked Chatgpt for the 2022 deferral limits, just for something dumb to ask, and it said it was not updated for the current limits. 2020 were the latest retirement plan limits it could give me. So I'm not sure how it can be used in the retirement plan compliance world yet.