Tom

We've continued to provide the 3% notice even though the requirement has changed. A typical plan for us is 3% FIXED in the document nonelective safe harbor and profit sharing. My understanding has been if there is no discretionary match then the notice is not required. I went to ChatGPT which said it could be required if the safe harbor "interacts" with profit sharing. The explanation was lacking. I don't know what it means by that, This is a plan with 350 participants and i didn't want to burden the sponsor with the distribution as it is not distributed by the record keeper. Thank you

Record Keeping platforms - these are most of our distributions by far. TPAs generally get notification, log in, check vesting and approve. Is anyone doing anything extra to be protected? I'm thinking of requiring the plan sponsor to contact the participant (who likely is terminated) to confirm their request if the distribution is over say $10,000. A 3rd party could have hijacked their login credentials. If a problem, I'd expect the plan sponsor would point fingers at the TPA - "you approved it." I'm not sure all platforms require both TPA and plan sponsor. We do our part but we don't know if the sponsor always has to approve as well. We will need to confirm. Broker accounts and DB plans - for these, we provide distribution packets, plan sponsor requests funds be sent to us, we issue checks, deposit tax into EFTPS as needed and do tax reporting. We do not get funds for larger amounts - brokers get letter signed by Trustee to distribute as the participant has elected. For all check distributions we request driver's license unless small (under $1,000) to be provided to us at the same time they send their election form - not separately. Still there is risk the election form could have been completed by a 3rd party who also had access to the driver's license. All ideas welcome! Thank you, Tom

Is it possible for a terminated plan to file Form 8955 with an end date different than the 5500. Example: plan final 5500 2/28/2025; 8955 3/31/2025. Comments? Tom

We will push back on the TPA to make a decision about this. I believe cash basis makes sense. The participant sees no account balance as of 1/1/2024. To add to this - I just learned that 8 participants were 100% distributed but then residual earnings remained anywhere from $.02 to $.35. I see record keepers writing these off at times. It will be up to the TPA but it seems reasonable to count these individuals as zero balance as of 1/1/2024. This will eliminate the audit. Tom

A business is 100% owned by an ESOP. The question came up about RMD. The employee involved was a >5% owner 10 years before the business sold to an ESOP and he was well below the RBD age. I think we are ok with no RMD to this person. Thanks in advance for comments. Tom

This plan is our CPA client not our TPA client. The TPA is now indicating the plan needs an audit for 2024 which of course will not be done by Oct 15. The 2023 5500 shows 125 participants with an account balance as of 12/31/2023. So presumably there would be 125 as of 1/1/2024 which would mean an audit. The plan never crossed the 120 threshhold under the old or new counting rules until now. Why this is coming up now I don't know. But it got us thinking - does account balance mean actual money deposited into ones account or does an accrued contribution count. This employer likely funds the 3% nonelective and profit sharing contributions for 2023 sometime in 2024. So some employees have an accrued plan balance as of 12/31/2023 but not an actual plan balance. I believe admin systems count the accrual when determining the count for 5500 purposes. Also, I know this has been commented on but I don't remember what the consequences are of filing a 5500 without the audit report, and adding it later as an amended 5500. Thoughts? Thank you, Tom

I don't like dealing with this issue but we are being referred a chicken/egg farm. There are maybe 5 US citizen FT employees and maybe 20 foreigners on a work visa. The sponsor does not want to cover them. I'm reading that if they have US based wages they are not a non-resident alien. Well they always have wages in the US. They come and go frequently. The plan will exclude those under the "part-time" rule and I realize the implications if they do go over 1000 hours and the LTPT issue. I will also include exclude by job classification in the document. What is helpful is that there are no owners or other HCEs to be covered by the plan. Given no HCEs, I think I'm good on the coverage test by including the 5 US citizen FT employees but excluded the 20+ foreign workers. Agree? I think I'm solid but don't want any surprises! Thanks

An audited plan just told me today that there are 13 employees that did not have the correct amount of Roth withheld based on their elections. The amount withheld was based on the after-tax net pay, not gross pay. From what I'm reading since it is just past 9-15 the missed Roth needs to be contributed AND QNEC equal to 50% of the missed Roth plus earnings. Any ideas as to best way to credit lost earnings - so it is probably 26 pays, 13 employees. SO I will find a way to estimate plan earnings - perhaps look at the entire plan earnings for the year reduce 50% since missed evenly through the year. Thank you for any assitance. Tom

We have a tax client (not a TPA client) who is a participant in her medical K plan and a hospital 403(b) plan. Turns out her deferrals for 2024 between the plans are $10,000 over the 402(g) limit. My understanding has always been (and confirmed by ChatGPT) since not corrected by April 15, the amount is taxable for 2024 and in the year distributed. But also that it must be distributed and I assume as reasonably soon as discovered. Someone else here asked CoPilot and it says it does not have to be distributed but is taxable whenever it is. Comments? We all know we need to check AI for correctness. I have more confidence in this group than AI at this point. Thank you, Tom

I need to have the plan sponsor clarify if they are being acquired through stock purchase or asset purchase. I believe if asset purchase, employees of the acquired company are considered terminated and the plan can terminate and distribute. But if corporate merger through stock purchase, my understanding is employees are not considered terminated and that the acquired company plan can either be merged or terminated but 401(k) elective deferrals may not be distributed since there is a successor plan. I'm questioning if even safe harbor and profit sharing can be distributed since employment has not terminated and thus no distributable event and so perhaps the entire plan must merge into the acquiring company plan. Your comments are appreciated! Tom

We have a plan that is to merge into a large corporation plan (not our client.) I see our perhaps only responsibility is to file the final 5500 showing the assets transferred to the acquiring plan. Other than that, I am going to ask that the acquiring company to produce any corporate resolutions, notices, merger documents, etc. I believe that would happen without my prompting. I don't think the plan being merged would need to be updated for SECURE acts since it is technically not terminating. I'm going to indicate that the acquiring company handle all required communications to facilitate the merger. We don't deal with these types of issues since our clients are primarily small businesses and professional. Your comments are appreciated. Tom

An employer has the standard eligibility requirement of 1 Year of Service (12-month wait with 1000 hours) and age 21. And there are semi-annual entry dates. An employee is hired July 20, 2024 and completes a Year of Service on July 20, 2025 but they do not turn 21 until Sept 15, 2025. Does this person entry the plan on January 1, 2026 or September 15, 2025. SPD language is below. It seems to imply January 1, 2026 but we want to be conservative if there is any ambiguity. Thank you! Tom

Client has immediate eligibility for deferrals and safe harbor nonelective. The client allocates profit sharing for those wo meet the 12-month 1000 hour Year of Service requirement as per the plan document. I believe we can exclude from the gateway minimum those who did not meet the Year of Service but are receiving the 3% safe harbor by using the statutory exclusion. And of course they are excluded from 401(a)(4) testing on profit sharing. I know quick entry group must pass top heavy minumum which is not a problem since the safe harbor 3% is funded from date of hire. Thank you.

I believe this is an easy question but I want to be 100%. Plan sponsor has 2-1% owners who are employed by the business. The other 98% is owned by the mother of one of the 1% owners and she does not work for the plan sponsor. Clearly seems the 1% owner would have her ownership attributed to him then as a 99% owner. I know some nuances changed in the last several years. Comments? Thank you, Tom

Husband has owner-only K and DB plans. Spouse has her own owner-only K plan with a bundled provider for a couple years. Total assets exceed $250,000 so all plans are to file 5500s. We are investigating if 5500 has been filed for her k plan. I doubt that the bundled provider inquired as to whether she was part of a controlled group. I don't know how far back her plan goes. She was added for coverage under his DB plan for a nominal benefit which I was told was required due to being a controlled group - maybe 401(a)(26). That may have been the first year of her K plan. I realize the max penalty is $1500 but hopefully someone doesn't have to go back a bunch of years to file. I have a feeling we'd be asked to do that even though we have no role with the plan. You know how things go - the record keeper will say they are investment platform only. Thank you for any comments. Tom

We have a participant who died, his wife beneficiary was injured in the car accident as well and has medical bills so she is in a big hurry to get his account which is $100,000+. (So the plan sponsor puts the medical bill guilt on us.) We asked for the death certificate but was told it would not be available for 12 weeks. The record keeping platform does not require a copy. I see 2 options: - Ask the plan sponsor owner to confirm that the participant died and then we rely on his direction (such as did you go to the wake and see the deceased?) - or wait it out and require the death certificate. I'm strongly inclined to require this. I don't want to take any chances. Comments? Thank you, Tom

Employer is approaching 100 employees. Only 4 participate in the current SIMPLE plan. They are eligible but don't participate and most don't speak English. It is an egg farm. You do wonder if they know they are eligible. Most employees hold a permanent resident card but that expires in the next couple years. I see the IRS 100 employee prior year rule with wages of at least $5,000. I don't think any type employee can be excluded from this count. It's simply $5,000 or more. I don't know that a 401(k) would be worth the trouble with auto-enrollment, etc. The new plan would like to be referred to us which I'm not sure I would even want! Comments? I doubt classes of employees can be excluded from a Simple IRA count. Tom

Oh the 5-year clock - Thank you for that!

A client defers $23,500 as Roth in 2025 and will have an employer contribution of $46,500 ($10,500 SH nonelective and $36,000 PS.) Can he elect Roth on a portion of his employer contribution or does it have to be the entire money source for that year? Example - he might want to have $20,000 of his employer made as Roth. Seems that should be possible with an election form. I realize the Roth conversion option may be a better and simpler option. Thank you, Tom

I want to be 100% for this particular client who loves Roth. I realize the plan could allow for Roth conversion as an option. But he may prefer to fund his employer contribution as Roth. I know it accomplishes the same thing but that might feel better to him. He is a sole proprietor and maximizes deferral and employer at 415. So I assume he could elect Roth for his safe harbor nonelective and profit sharing. I know it will be troublesome to have to allow this option for his few employees also. The plan is not on a record keeping platform so we don't have to worry about any limitation there. The plan already provides for employee Roth but not the employer Roth of course since that is SECURE 2.0. Sound ok? Thanks Tom

I see this code applies to 414(m) which relates to affiliated service groups. So 3H must be used for an ASG. It's just odd that the instructions description mention "controlled group" but not ASG by name. So 3H applies for an ASG. No need to comment unless someone thinks I'm wrong. Thanks

What is everyone doing for SECURE 2.0? I realize the amendment is not yet due and we are tracking the very few optional provisions elected by clients. I don't believe I've seen an interim amendment from FIS other than for a terminating plan. We've notified clients of the LTPT rule for 2024 and then again for the 2025 change. I'd like to get a SMM out with that, along with the higher cash-out limit. Thank you Tom

Thanks Paul. You confirmed an enhanced safe harbor match cannot be based on deferrals over 6% (so as to satisfy ACP safe harbor) and the matching rate can be over 100% but not increase on higher deferral tiers. This will give them something to think about. Not sure how practical a higher match rate is but they may cosnider since they want to encourage employee participation and aren't keen on across-the-board profit sharing.

fmsinc - David thank you it was a TSP. Tom

We've never had a client enhance the basic safe harbor match beyond 100% of deferrals up to 4%. We now have a client who prefers to enhance the safe harbor match beyond that instead of adding a discretionary match. It seems that the rules say deferrals over 6% cannot be matched under any safe harbor match option (and get a pass on ACP). Is that right? I think they will want something like 100% up to 3% plus 50% on the next 3%. The maximum match likely could be 100% up to 6% as an option I believe. I understand the rules for enhanced are that it must be at least as generous as the basic safe harbor match and the rate cannot increase with an increase in deferrals if it's a tiered match. Thank you, Tom