Tom

What would happen to someone's funds who passes away, has no spouse nor children and no other designated beneficiary? We assume the plan (not our plan) and state laws of Indiana would say the account goes into the estate. It is $1.5 mil. She does have 2 brothers (one is our 1040 client.) We believe a court will decide the brothers will get the money. And if so, the question then becomes, can they roll to an IRA? Doubtful. If they can when would it have to be distributed? The decedent was not RMD age. We don't know the terms of the decendent's plan. She worked for the VA and so it is a govt plan. Any comments are appreciated. We are not offering our 1040 client any specific advise. This is mostly just for our general education. Of course the main lesson is - have a designated beneficiary and a will.

Just another I believe you are right about that. you jogged my memory.

I know much has likely been said about this already. We have a new client plan that uses the part-time exclusion (those scheduled to work <1000 hours). But are those who worked 500+ for 2 consecutive years still eligible to defer? Or does the PT exclusion trump the LTPT rules? Thank you, Tom

A physician group merged some years ago and because they worked with different investment advisors, the plan investment options provided for individual brokerage accounts (since accounts from other plans merged in) along with a major 401(k) record keeping product. As years passed, and the group became very large the decision was made to require all accounts to be under one record keeping umbrella. This was to facilitate one payroll file feed to the record keeper, elimination of lots of separate payments to brokage accounts, reconciling all these accounts vs. consolidated reporting, etc. This record keeper provides for a Schwab brokerage account option so almost all brokerage accounts (all existing Schwab) were able to transfer in kind very smoothly. However, there is one brokerage account with a brokerage firm that cannot transfer in-kind to a Schwab account as this brokerage firm be a paid advisor on an account that is not custodied with them. Instead the account would need to be liquidated and wired to Schwab. The physician involved is balking perhaps with the backing of the advisor. The comment was made regarding potential losses on some interest bearing securities that come due in the next year or two. We are wondering what options the Trustees of the plan (a group of the owners) have. I believe investment options/features are not a protected benefit under 411(d). I suppose they could accommodate this one remaining account in some way - move all funds but those interest bearing securities until they mature. Or as Trustees, they could force the account to be liquidated and transferred. They would not want to run afoul of any potential fiduciary issues. Primarily I want to confirm that investment options under a plan such as wide-open-use-any-custodian-you-want brokerage account option is not a protected benefit. Thank you Tom

Client already has automatic contribution arrangement ACA - not any safe harbor version. The plan has no employer contribution (and is not top-heavy.) The plan has many high paid employees and failed ADP testing. They want to consider increasing the ACA from 3% to 6%. I assume they can do thi at any point in the year? I believe this can/should only apply to newly eligible employees as current eligible employees either were set at 3% ACA or elected something different. EVen if they are able to increase the 3% defaulted employees to 6% I don't think they'd want to do that. Thank you, Tom

Client has basic safe harbor match. They want to provide more match. I will recommend the discretionary match that doe snot match deferrals over 6% nor exceeds 4%. they can choose the parameters. The plan is top heavy. We don't run into this situation often but I believe the above still satisfies the top-heavy exemption since it all stays within the parameters of the safe harbor rules. Thank you, Tom

So even the ACP must be done by March 15 - that's is what I always believed but if it isn't funded - well not much can be done. We tell non-safe harbor clients to get their data in fast. And if they don't then that's that.

Thanks

We have a client who failed ACP test. The one HCE is entitled to the match but then must receive the correction. Issue is the match has not yet been funded and the correction is to be made by March 15. This is his first year int he plan so he has no other match source funds. I should know this but I'm thinking the ADP correction is due March 15 but an ACP correction is not dye until the end of the following plan year. We know about the vesting rule - refund the vested portion only and forfeit the unvested amount. Thank you

Thanks all. We can reduce the PS for 2023 and apply to 2024 since it was paid in 2024 and will amend the 5500 for 2023. The large remaining "overpayment" of their PS (what they got v. what mgt now thinks they should have gotten) will be "paid back" by reduced PS for 2025 and their DB will be frozen for 2025 which was suggested by the actuary. There's a chance the shareholder physicians might let the past be the past and move on. These non-shareholders doctors are created wealth for the others and I think that should be recognized and give them good PS. But we'll see if that flies. You all slammed the door on the claw back which I appreciate. I didn't feel comfortable about that for various reasons and that would have been an HR nightmare to take money away from doctors! Thank you

We have a client who over-funded profit sharing for 2022 and 2023. The "over-funding" is not relating to testing or 415 limits. The TPA calculations provided a uniform profit sharing rate for all HCEs. The plan was funded accordingly. In providing the funding summary for 2024, the new CFO reviewed and indicated certain HCEs (non-owners) were not to receive PS at the same rate as owners and raised the question of prior years. The 2024 year can be fixed of course since not yet funded but 2022 and 2023 are an issue. One alternative is to short them going forward to make up for this but it is a large amount and will take several years. Another alternative would be to remove the excess from their accounts. Reduction of PS for 2022 and 2023 would not be an issue since they are HCEs and they are getting the top heavy. The 5500s would have to be amended as well as the corporate tax return. Comments about prior year "claw-back"? Thankyou

A client funds the basic safe harbor match. The plan is top heavy. If they want to provide PS to select employees who are not key and not HCEs, would that trigger the top heavy 3% for those non-key who are not receiving the safe harbor match? Seems it would. But seems an unintended top heavy consequence. Thank you, Tom

I saw a communication from a record keeper which provided a discretionary match participant notice template. It seems to imply that a notice is required when any discretionary match has been funded. My understanding has been that this notice, due 60 days following the final funding of the match for a plan year, is only needed if the match was a "flexible" discretionary match and that this notice is not needed for a "rigid" discretionary match. Did I miss a change in the notification requirement? Thank you, Tom

Bri yes I would think so. They are nowhere near 415 limits for anyone - deferral and small match plan only.

We have a not-for profit client who did not direct that a match be calculated and funded for 2023 due to key personnel changes. Now they realize this and they want to fund a 2023 match. The match is fully discretionary. We are advising against this since it will go to some former employees who left in 2024. If they insist, we can calculate on 2023 census and file an amendment 5500 for 2023. WE are instead encouraging them to fund a more generous match for 2024. I guess my questions is - how far in the future can you fund a prior year when you aren't concerned about the tax deduction deadline? Thank you, Tom

We learned that a CPA was deducting a sole proprietor's deferrals on his 1040 for some years when we were record keeping it as Roth as the client intended. We will see if the client wants to amend 3 years but obviously the plan recordkeeping must be fixed since this information has come to light. It goes back a number of years further than the 3-year amendment period. It is a brokerage account not a recordkeeping platform so we reclassify in our admin system. The client seems to be blaming us and is saying how he lost all this Roth opportunity. Our questions - did you look at the reports we provide you each year? Did you ever mention Roth to your CPA? The CPA just stuck the 415 max on his 1040. I will recommend Roth conversion for a couple years which will reinstate him back to where he wants to be for the most part. And I will recommend adding a DB plan to offset the income. He's a perfect candidate. He mid 50's, makes $900,000+ and just has 4 younger eligible employees. He's complaining about lost opportunity because he's says he's in 41% tax bracket now and when retired will be 20%. He's got this backward! I estimate that in 15 years his RMD might be $100,000 so if he pays 20% in retirement but saves 41% now - what is the problem. My approach will be - the tax deduction for years has saved you tremendous amount of taxes. And when distributed you will pay tax at a much lower rate than what you saved up front. I know some will say - what about tax-free earnings on Roth. I did an analysis years ago which showed that if the tax rate is the same front end and back end and if tax savings are invested and earn the same rate as the plan, there is no difference between Roth and Regular in total payouts over retirement years. I know it will be tough to get the client to understand this. There was a good article by Larry Starr in the early Roth years. I will try to find that. He made good points as to why Roth isn't all its cracked up to be. Does anyone know of any good published piece questioning the value of Roth for some. I realize for some it is a good option - low income, those starting out in careers. And I realize funding as Roth most often results in better retirement readiness because most don't save and invest the tax savings when funding as regular. Thank you for any comments. Tom

A client mentioned they were considering including the new 60-63 catch-up provision. I was under the assumption that if a plan included the regular catch-up provision the new higher amount was automatically available. Is it even possible to have a plan that allows for regular catch-up deferrals but not the new 60-53 catch-up amount? Will this be in an amendment or is it just effective via IRS regulation automatically? Thank you, Tom

Thank you Bruce. Yes it this were an IRA, the IRS Trustee would handle not us. This is a medical group plan where the deceased participant has a directed-brokerage account at a bank who simply manages the account portfolio. The bank will take no role in the RMD which I understand. We will tell the 3 adult children they will get a life-expectancy RMD in January based on their father's life unless they elect otherwise (and they won't.) After that, the IRA custodian can take care of RMDs. Tom

A participant who was already receiving RMDs died in 2024. He has 3 children as equal beneficiaries (no spouse). We are getting ready to roll their 1/3 interests (about $1.8 million each) to their IRAs. As they are Non-Eligible Designated Beneficiaries, I am reading that they are subject to the 10-year rule AND still must take an annual RMD distribution based their (or the decedent's) life expectancy. They will want to take the minimum RMD and so I assume they would choose their life expectancy, each one being different based on their DOB. Does this sound right? We would then direct the balance to be rolled to their IRAs. Not that it matters to us as they are out of the plan at that point but would the 10-year rule continue with the IRA, meaning 9-years are remaining under the 10-year rule? I will research further but thank you for comments. Tom

Thank you both - definitely some good ideas to consider such as making sure our service agreement simply says we confirm the distribution request is allowable under the terms of the plan but that we are not responsible for confirming the identity of the distributee. We are a non-fiduciary per our service agreement and operationally. Record keepers have controls of their own of course. Still anyone connected with the plan can be vulnerable. And yes I will check our liability carrier. For DB plans, we receive funds and quickly push out in accordance with distribution elections. We obtain drivers license and get the Trustee to approve of course. Still that is an area of vulnerability. I know many use services like PenChecks. In talking with a TPA about that it seems a complicated process. Can anyone recommend a DB product that would include distribution processing that an independent actuary and financial advisor can work with? Thank you

Record keeping platform sends approval notification to the TPA for review an approval. Does anyone attempt to confirm that it is truly the participant who is initiating the distribution request? If so, what do you do? A TPA review/confirmation certainly opens the TPA to some liability. I'd like to get some specific control ideas from the group. We've never had a fraud incident in 30 years but just a few days ago, someone tried. Thank you!

I assume the contribution limit for 2025 is $81,250 for those who are age 60, 61, 62 or 63 as of 12/31/2025? Example: employer contribution of $46,500, deferral of $23,500, regular catch up of $7500 and super catch up of $3750. Is that correct? Tom

Ok I see someone clarified this in an earlier post from me. No super catch-up if turn 64 by end of 2025.

I've not seen definitely how the age limitation works. It is clear that someone who is age 59 on 1/1/2025 and turns 60 in 2025 are are eligible for the additional catch-up. What about the person who is 63 as of 1/1/2025 and turns 64 before the end of 2025? Things I read seem to say they must be 60-63 by the end of the year and might not be eligible for the catch-up if they turn 64 by end of year. So early in 2025, at age 63 they should not defer the extra catch-up since they will turn 64 before end of year. Payroll systems will handle this correctly in any event. Thank you, Tom

So anyone who is 61, 61, 62 or 63 as of 12/31/2025 can do the super catchup for a total deferral of $34,750. Is it that simple? Anyone know why SECURE limited it to that odd age group? Thank you