Tom

Can someone confirm the 408b2 is required initially for plans providing TPA compensation and then only if there is a change in that compensation (not annually?)

We were asked to step into a plan where the 5500 was late and had an IRS notice "where is your 5500." We quickly filed under DFVCP, client paid the $750 and never hear anything further. It was very small, just a couple participants.

That is an issue for us specially with dental clients. They have former employees who cover for vacations and may go a year without working and so there is no termination date in the census and thus show up in testing.

For the very few we have remaining, we wrote into the document for the plans to be quarterly valued. So they get earnings through the end of last quarter AND Trustee/Administrator has the option to request a special valuation which which we charge of course. I don't think the regular employee would think this way - oh I can get my March 2022 value out since that was the last quarter so I will request distribution now and avoid loss allocation. If it's an immaterial balance prior quarter is fine. But a large balance then if Trustee doesn't elect special valuation we may reach out and advise that they do request one. Most of out plans are 3% nonelective safe harbor and so the final contribution for the year of termination plus potential gateway and PS, means another distribution process a year later!

This may be a good year to consider an in-plan Roth conversion within one's 401(k), provided the plan document allows. If someone converts now and the market drops a lot further, can they reverse their conversion before the end of the year? I recall this was possible a few years ago. If it is allowable, it may also depend on the record keeper. Thank you, Tom

6 doctors each had their own tax entity and shared employees who were all on the payroll of a separate tax entity. One of the doctors (Doctor A) maintained a 401(k) plan in 2021 and covered employees for the portion of pay allocated to her based on their time worked for her and all hours worked for all doctors were counted in meeting eligibility. I'm told none of the other doctors funded any type of plan, no Simple, nor SEP. They were convinced to form a group in which they are all equal shareholders and want to have one 401(k) plan covering all doctors and all eligible employees. It will provide only a safe harbor match. The plan has not yet started for 2022 and so there has been no plan funded by any of the doctors yet for 2022. The goal is to have it set up by July 1, 2022. The thought is the group would assume sponsorship of Dr. A's frozen plan. I wouldn't think there'd be any issue with safe harbor treatment for 2022 being adoption by a newly formed entity. I'm also wondering about the new plan tax credit available for each of 3 years. Seems that would require the start up of a new plan and closure of the old. Yet for one of the 6 doctors, the plan is not new under her tax entity. I may just not mention the tax credit if it is questionable and leave that to their tax advisor, if he even has that on his radar. Comments as to safe harbor treatment for 2022, the tax credit? Thank you for your comments.

Thankyou for the comments. Yes there is a corporation, which is wholely owned by the ESOP. I had asked their corp tax advisor as to officers and was provided Board of Trustee names. Likely they are one and the same. Someone is in charge of decision making for the corporation as you say. However, I also see none of these Directors(Officers) earn more than the key employee threshold amount. And so it appears there are no key employees for top heavy purposes. Seems illogical and against what the top heavy rule is trying to accomplish.

A plan sponsor was sold 100% to an ESOP for its employees. So the plan sponsor is now the ESOP. I'm told there are no corporate officers but I am checking with their CPA firm. The ESOP has a Board of Directors who are also plan participants. I'd think of them as officers. But if none of them have wages over the key employee limit, then it seems there are no key employees. I thought I read at one time there had to be a minimum number of officers, or at least one. All I can find now is there is a defined maximum number but I don't see anything about minimum number. Thank you in advance for comments.

I have a client who is hoping their audit requirement is eliminated for 2021. The active/eligible participants plus inactive with a plan balance as of 1/1/2021 are 98. A fixed match true-up was calculated and funded in 2021 for those eligible in 2020. Included in the true-up were 3 participants who terminated in 2020 and had no plan balance as of 1/1/2021. So their plan balance was zero on 1/1/2021, then the small match true-up was deposited in mid-2021 and then they had that paid out as well. So they had no plan balance as of 1/1/2021 unless you count their true-up A/R. If we count them as participants with a balance as of 1/1/2021, then the count is 101. The plan reports on the 5500 and audit on a cash basis. I suspect everyone will say get the audit to be sure and that is what I wil tell them. I did look at 1/1/2022 as well which is clearly 98 and so 2021 will be the last year (for now) which I guess is the silver lining. Just curious about comments at this point. I will tell the client to get the audit. Tom

Add on to my question - As for the notification requirement, can a separate notification be provided to each match allocation group? The client would not want to provide a notification to everyone indicating the match formula applied to each of the employee groups. And do you think it is possible to match individuals and not groups like a class-allocated PS provision - each person is an match allocation class? This assume they are NHCEs. This would be very limited such as one deserving person getting a higher match than everyone else, or does it have to meet a business classification such as job description, location, division, etc?

All our plans with discretionary match are "rigid". Now a client wants to apply different match formulas to different employee groups. HCEs will get the lowest or no match so testing is likely not a problem. So we will amend the plan to include a Flexible Discretionary Match. The BPD (FIS-PPD) essentially says for the Flexible Discretionary Match that the Employer retains discretion over the formula(s) including the rate, the limit on deferrals subject to match, the match limit, the categories of employees who will receive the match, and the matching time period....except as otherwise elected in the Adoption Agreement (sounds like including specific provisions is optional). I know about the notification requirement. This client employer will declare and fund the match after the end of the year. My question is - does the plan document require a description of the employee allocation groups, or are the groups totally flexible and discretionary from year to year. (I realize ACP, discrim and coverage testing must pass.) It seems the plan document does not have to say anything specific - no limit on deferrals matched, no match rate, no period and no mention of employee group descriptions. Is this right? Thank you! Tom

This plan is terminating and there are several DB participants who will not complete their distribution forms. It is a PBGC plan. Two participants are still employed and so I think they can be coerced. The other terminated a year ago. All have $5,000 to $7500 balances. I'm told by the actuary that no insurance company will quote on something that small and that completing the form is the only option. Well if they won't, then what? We are told their balances may not be transferred to IRA, the PBGC or state unclaimed funds. The plan sponsor was acquired and the acquiring company has a 401(k) plan, but certainly spousal consent would be needed to transfer the funds. About all I could tell the sponsor to do was "threaten" in a nice way the two still employed to fill out their forms and go to the home of the terminated participant and be a nuisance. Comments? Thank you, Tom

Thank you - good comment about vesting. Hadn't thought of that.

Thanks Lou. The amendment was done prospectively on time. But thank you for commenting that eligibility is not a protected benefit. That confirms my thinking.

Can a plan be amended say effective 1/1/2022 to exclude employees who previously met eligible and were covered under the plan? Specifically the employer wants to exclude a defined class of employees, some of which worked 1000 hours in a past year and became eligible in a prior year. Now the employer wants this group excluded even if they previously met plan entry. I'm thinking this is ok. Coverage testing of course would have to be passed. I believe anyone who EVER worked 1000 hours even if many years ago would be in the testing group. That is unfortunate because they have many employees who worked 1000 hours in one year many years ago but I believe that will cause them to be in the coverate testing group. Thank you in advance for your comments. Tom

A client opened a new 401(k) plan 1/1/2021. The plan has immediate eligibility for those employed as of 1/1/2021 but excludes part-time/seasonal/temporary (those scheduled to work <1000 hours). I am going to ask them to confirm who they determined met eligibility and provided enrollment material. As TPA we can't make that determination not knowing expected hours. Probably an easy question - what about someone who is not scheduled to work 1000 hours in 2021 but has worked 1000 hours in a prior year? I think they should have been enrolled as all service would have to be considered. Normally any new plan without the part-time exclusion would include prior year 1000 hour employees as eligible so I believe I have my answer. Thanks Tom

Question - a plan is class-allocated for 2020 and has allocation conditions (1000 hours and last day of the year employment) for profit sharing. That obviously means someone who did not meet the allocation conditions will not receive profit sharing contribution. But is the reverse true? Does someone who did meet the allocation conditions have to receive a profit sharing contribution? Seems the employer could choose not to contribute to that "class" (one employee in the class.) In other words, the class allocation funding decision comes first. The plan is not top-heavy and includes a safe harbor match. The reason I am asking - the profit sharing decision is being made now for 2020 and several employees who met allocation conditions for PS for 2020 terminated employment in 2021. Comments? And thank you! (We are removing allocation conditions and pretty much making all plans class-allocated with Cycle 3.) Tom

Thanks all - good points. And yes I will have the plan sponsor confirm and approve who the children are.

Participant dies and has no designation of beneficiary form. The participant's spouse died 15 years ago. The plan document provides for default beneficiaries as first spouse, if no spouse, then children equally. There are 2 children. I believe the 2 adult children are to both receive 50% of the participant's account. The plan sponsors asked if this should go through probate. It never entered my mind that this would go through probate since there are living children. I'm not a lawyer. I started to doubt myself. I did a little research and it does appear that this would not go through probate. It's not a large amount but still - need to be sure. The plan administrator (doctor) would make the decision on this - but of course looks to us as TPA to tell them what to do. Comments? Thank you in advance.

Like most TPAs we have a combination of record keeping platforms and brokerage account clients. Distributions for record keeping platform plans are certainly easier. brokerage accounts and DB plans not so much. Is anyone willing to share some processing tips? The force out process is VERY time intensive - identify, send communication with forms, returned to sender, use locator, send again, and then when no response, send funds to IRA or issue check to last known address, and then deal with uncashed checks. I'd like to get the distribution form and tax notice for all plans into the hands of the client (and online instructions when applicable) so plan sponsor can hand out at last day of employment. Therefore, the notification has gone out and they can be forced out say in 60 days to be safe. Still could be lots of follow up. We do almost all the work here but I'd like to shift as much work to the plan sponsors as possible. Reason - almost can't charge enough for handling distributions. We also issue distribution checks, deposit taxes and prepare 1099-Rs for those not on record keeping platforms. Tom

Employer has had 6-month wait to enter the plan, no hour requirement, just elapsed time. This pulled in several part-time employees who work <1000 hours. They have no balance in the plan. The participant count went over 120 as of 1/1/2020 and so will be audited for 2020. The plan was been amended to exclude part-time, seasonal, temporary defined as those scheduled to work <1000 hours effective 1/1/2021. The intent then is to exclude these employees prospectively from participation as of 1/1/2021 - no longer covered under the plan and thus not included in the participant count. Example: an employee who always worked <1000 hours was eligible in 2020 and has no plan balance. The 2021 amendment is intended to exclude this employee from participation in the plan effective 1/1/2021. I think this is ok. Comments? Thanks in advance.

Jack and Jill are a married couple who both own 50% of company A. Their adult son works for them and is considered a 100% shareholder through family attribution. Son owns Company B 100%. Company A and B have completely unrelated services and clients. Are Company A and Company B a controlled group? Or is this double attribution? Thank you, Tom

We are planning to restate for cycle 3 plans in the process of terminating. so there are 3 kinds of terminating plans. Curious as to thoughts about this. 1) Plan termination amendment prior to 8/1/2020 but funds still in the plan after that date. 2) Plan termination amendment after 8/1/2020 and funds paid out in fall of 2020. 3) Plan termination amendment after 8/1/2020 and funds not out of the plan until January 2021. Thank you for your comments.

For our plans that have the "maybe" safe harbor, we have always provided the client wanting safe harbor treatment the notice saying they will fund the 3%, the maybe notice for next year and the amendment 30-90 days prior to the end of the year. I assume that process does not change with all the new Safe harbor rules. I know there are new rules about declaring safe harbor treatment into the next year. I'm concerned about what needs to be done this year for these "maybe" safe harbor plans. Can it be simplified such as - ignore this year end and provide a notice next year up to Nov 30 for 2020?

Anyone have opinion about filing Schedule D for record keeper plans such as - Hancock, American Funds RKD and Plan Premier, Ascensus, Principal, Nationwide, Empower, Lincoln? We generally complete this but it seems like a waste of time as most information is on Schedule H.