Luke Bailey

So I finally got up to this section of the bill. First, it's relatively speaking a small amount of money. Fidelity has a piece already on its website that says contributions are limited to $2,500 annually, but the way I read it that's not right, i.e. the account cannot exceed $2,500 at any point in time, I think. Second, it will be part of an ERISA pension plan, but it doesn't fit the definition of a pension benefit, so I think if they wanted, Peter, the DOL could probably regulate that the ESA is not a "benefit" for purposes of Section 206(d). But I don't see the problem either way, really, since again it's a small amount of money. True, there is a lot of complexity, but I think it's like the provision for matching student loan payments, i.e., it's an attempt to allow folks who aren't in a great position to save for retirement to be allowed to save in a way they otherwise would and still get the employer match on their money. That's the difference from a payroll deduction program. There is an assumption, I guess, that folks making, say, $40,000, will understand this and use it. Maybe. (I use $40,000 even though the provision is available to anyone who is not an HCE because in the space between $40k and the HCE cutoff most folks are able to make retirement savings contributions.) As far as administrability and employer take-up, my guess is that the folks who lobbied for this are providers that combine 401(k) with payroll services. This and other provisions of the bill really are only going to work for larger employers with tight integration between HRIS, payroll, and 401(k). While on the topic of the systems integration that will be needed by some of the SECURE 2.0 provisions, separate subject, but I mean, now the government is going to be contributing the saver's credit to the individual's 401(k) account or IRA. Sort of like a retirement stimmy.) One glitch that I see is that the provision itself does not seem to provide for treating the deferral into the ESA as an elective deferral for purposes of 401(k) testing. I think they do treat the employer's match on the amount as a matching contribution for 401(m), and I think the intent is that if the employee wants, the first 3% of their elective deferral or autodeferral will go into the ESA, so I think the intent is to count it for 401(k) nondiscrimination. Note that while I've finished reading thIS entire, very long section, once, I may have missed this. Also, I'm not through reading the rest of the bill, so the way ESA is treated for nondiscrimination testing may come up later in a seemingly unrelated provision. As a general note, on any of the above, or any other aspect of SECURE 2.0, I could be wrong. This is a really complex bill and not written with economy of expression in mind. Definitely a big move away from tax simplification. I remember a decade or so ago when one of the retirement initiatives in Congress was to simplify all types of DC's (401(k), 403(b), 457(b)) into a single type of tax-qualified savings plan and simplify other rules, e.g. distributions. This is definitely not that.

Agree with Lou S. To put another way, I think you want to end up where there the 1099-R from both the traditional and Roth custodian show Code 8 for distribution of excess contribution. Someone will have to convince the custodians.

Peter, the problem with going down the substantial authority path is that it's not just the employer's tax return. It's the plan's qualification, which means the plan's tax exemption, the employees' 1040's, and the employees' rollovers. If all we had to worry about was substantial authority and the employer's return, the world would be very different.

I vote no on that, Peter. I also vote thumbs down on the possibility of a technical correction in the upcoming Congress. Even the most well-connected lobbyists are going to come a cropper on the incoming crew. Maybe in 2025, retroactive to 2024. But it's really not even a technical correction. They have fixed the 416(c) problem that, generally, letting in folks early increases your top-heavy contribution. Fine. Fixing the problem that 416(g)(4)(H) can be interpreted as not applying where early includeds are tested separately in a safe harbor k-plan such that, arguably, the "plan" no longer consists solely of safe harbor contributions would require a change to the 401(k) safe harbor provisions of the Code, or to 416(g)(4).

I had not really followed this provision, but having reviewed the above and reviewed the statutory language, I agree with C.B. Zeller, except I don't think there's as much wiggle room as he holds out hope for. Rev. Rul. 2004-13 says that if you let folks in early in your safe harbor plan, but don't give them the safe harbor contribution, that may be OK for 401(k) and (m) (because you can disaggregate under 1.401(k)-3(h)(3) and ADP/ACP test the early includeds), but goes on to say that this means your real plan (i.e., the single plan you have before you notionally disaggregate for testing) is not really exclusively safe harbor, so if your plan is, but for 416(g)(4)(H), top-heavy, and you let in some folks early and take advantage of 1.401(k)-3(h)(3) to not give those folks the safe harbor contribution you're making for the rest of the participants, then it's still top-heavy. 416(c)(2) as amended by Secure 2.0 Section 310 is telling you that if you are top-heavy for any reason (just garden variety top-heavy or top-heavy because you are a partly safe harbor 401(k) that falls out of 416(g)(4)(H) on account of Situation 4 of Rev. Rul. 2004-13, i.e., you're disaggregating under 1.401(k)-3(h)(3)), you don't have to give the early includeds the safe harbor minimum. I don't think it says anything about not losing 416(g)(4)(H) protection if you include some folks early. I think the Groom summary, which at least for Section 310 just follows the Senate Finance Committee summary nearly verbatim, mischaracterizes the effect of the statutory language. Moreover, if what Congress intended is what the Senate Finance Committee implies is the effect of the provision, I think the statutory language is too great a miss for IRS to get there through an interpretation. Would need a technical correction.

In theory, yes. Yeah, that's a problem. Try hard to find them. If enough money is involved, consider filing under VCP to get some sort of blessing for what you do, although, again in theory that does not bind the participants under ERISA.

JHalligan, was the plan communicated to the employees? Did anyone ask to defer during the year?

MEP, Sounds like a new employer has the contract but will be adopting the plan so the employees will continue to be covered. I agree with Peter.

MEP, I think you need to define how it is changing. Has another company bought the employer's stock? Bought its assets? Changing in some other way?

If possible, the should put "severance pay" in the memo line for the check, certainly not "bonus" or "special pay."

Why didn't they? If the plan was properly communicated and the administrative apparatus in place 1/1/2022 to accept deferrals, and safe harbor notice provided before or around 1/1 when the plan was adopted, but no one chose to defer until 10/1, OK. But if the deferral feature was not effectively implemented until 10/1/2022, so that NHCEs really had no practical way to defer before that date, I think IRS might argue plan was really not effective until 10/1. The rule that a plan can generally be adopted with a retroactive effective date, would seem to conflict with the "plan year requirement" of Treas. reg. sec. 1.401(k)-3(e) in this case.

Yeah.

That's what they were saying about self-driving cars a decade ago, Brian. And that is a much lighter lift. I'd be willing to bet on that, Brian. Will double the work. As I told my son, who has done AI research for one of the major software companies and is currently finishing up law school, and who tested ChatGPT for legal research and thought it would be helpful to folks fresh out of law school as long as they checked each answer and only used ChatGPT as a start (which I agree with), if someone had told me that 20 years ago there would be something out there like ChatGPT (or Google or Microsoft or Apple translate) that could so flawlessly mimic the workings of a mediocre human mind, I would not have believed it. I would have thought that language was too complicated. On the other hand, I fully expected 20 years ago that by now we would have AI that could diagnose illnesses like House . To my chagrin, both of those predictions were wrong.

Just for posterity's sake, 401king, "12/31/2023" should be "12/31/2028," right? You might want to edit your original post.

I agree with msmith and PamR regarding inability to treat true severance pay as 415(c) comp, but for anyone who comes across this post and has the opposite purpose (i.e., they want to contribute based on the special payment), I would point out that as long as the payment is not made to fulfil a state or local (or union) severance benefit requirement, you could just say it's a bonus for having been great employees.

AFRB86, I don't know if this helps, but I have never thought of this as an issue. The multiemployer plans I have worked on have all received contributions that were required under collective bargaining agreements between the local and the employer that specified the plan and the contribution rate. I have always assumed that met the 3(37) definition, in plain English. Congress was more sensitive regarding MEWAs in 3(40) because of the potential for abuse with respect to inadequately funded health plans.

RandallM, I'm puzzled by at least one thing, here. You indicate that the plan is a calendar year plan. The year for a calendar year plan is pre-printed at the top of the form. You don't have to fill in anything unless you are on a non-calendar year plan year.

One implication of the above, BG5150, is that while the deferrals are taxed twice, the employee who exceeded the limit (assuming the excess is attributable to the employee's having contributed to multiple plans and no corrective distribution is required under EPCRS) does get deferral on the earnings on the excess deferral. In the example on the IRS website the distribution is in the year immediately following the excess deferral, so it is minimal and easy to overlook, but it could be 10 or 20 years. And the excess does qualify for rollover (again, assuming the multiple plan scenario). I'm assuming these are pre-tax. Roth excess deferrals are more complicated.

Centerstage, for the 409A corrections that I have done (and they were not exactly for the error you describe, of course, but clearly errors described in and correctable under Notice 2010-06) we have certainly followed the requirements of Notice 2010-06 and provided statements to the employees that they (not us) could file with their 1040's. I am unaware of any subsequent guidance modifying this requirement. The relief provided in Notice 2010-06 is just that, relief, from the consequences (immediate inclusion of the amount in income) of the error, and the relief is conditioned on meeting all of the requirements of the Notice.

jireh87, that's a really good question. I am unaware of any exception to the ESRP for bankruptcy. Just to be clear, you are talking about a multiemployer plan one or more of the contributing sponsors to which is/are in bankruptcy, right? You're not saying the plan itself is in bankruptcy? (I assume the former, but your question is not entirely clear on this, because I tend to think of plans as being "multiemployer," not employers as being "multiemployer.") And is the plan a MEWA?

Cassopy, my guess is folks wrap them into the overall welfare benefit for filing. If you're filing a single 5500 for medical, LTD, and life insurance, why wouldn't you throw in this welfare benefit. I don't have any clients with such a plan so may be overlooking something obvious, but how do they avoid having to fund this?

Brian, I'm impressed and not impressed. Basically, all I've seen so far from ChatGPT is intelligent cutting and pasting of what is out on the internet. Granted, it's a real achievement for it to figure out what information is relevant to the question and to scrape it from the internet and cut and paste it into an intelligible answer, but this is newsletter type stuff, not an actual solution to a hard problem. I read the NY Times article on ChatGpt a week ago and the example that really struck me was the algebra question. The NY Times article linked to a post on Twitter: "A line parallel to y = 4x + 6 passes through (5, 10). What is the y-coordinate of the point where this line crosses the y-axis?" Chat GPT begins by explaining the problem and that we need to find a parallel line and do some algebra, about as well as a middle school math teacher at the chalkboard, but then boldly spits out a humorously wrong answer. ChatGPT is just regurgitating, cleverly to be sure, the stuff it scrapes off the internet. Try asking it one of the more difficult questions that you have received on BenefitsLink over the last year and see what you get.

401 Chaos, I don't know. Suspect you are right. The PLRs I got were over 20 years ago, and at that time the user fee was nominal, which is of course no longer the case.

OK. Sorry, ratherbereading. I misread 2003 as 2023, which prompted the question. My bad.

ratherbereading, presumably this was a 5% owner?