Tom

We were asked to prepare Form 5500 for a long-ago frozen 403(b) plan for a small group of nuns. We filed the 2022 5500 but the 8955 never crossed my mind like it does for all our 401(k) plans. The nuns ran an organic farm. It stopped operations long ago and they are all very elderly. So I supposed they terminated employment and probably would/should have been reported on 8955 some years back. Not knowing if they have been we could report them now for 2023. Thoughts? Thank you

We have a small plan whereby each participant has a separate broker account. We directed the financial advisor to deposit into each person's account their 2022 employer contribution in Sept 2023 and actually again in Feb 2024. It did not get done until May 2024. The contribution was made to the plan on time for tax purposes - deposited into a general fund plan .account. The financial advisor has agreed to deposit lost earnings. The FA is now getting into areas that in my opinion they should not -asking us if Form 5330 is needed and if the 2023 5500 needs to be amended to reflect the earnings receivable. I do not see anyway to report this on Form 5330. The employer did not benefit so it is not a prohibited transaction. As for the 5500, I lean toward just showing the earnings on the 2024 5500 since that is when they will be deposited. I suppose we could split our calculation between Oct 1 and Dec 31, 2023 and show that as a receivable and amend the 5500 but that seems unnecessary. It is filed on an accrual basis since we add in the employer 2023 contribution receivable even though not paid until 2024. Thoughts?

I've never had this come up. Two related employers both with their own 401(k) plans, tested together. Employee terminates with one and starts employment at the other. She is asking about moving her money from one plan to the other or possibly taking a distribution. I see no treason to move from one plan to the other because as soon as she does this, I can see her going back to work for the other company. This brings up another question - if she is considered terminated from one sponsor and has less than $7,000 in that sponsor's plan I suppose she would need to take a distribution or be forced out. Or does the $7,000 rule apply to both plans combined in a controlled group? Thank you.

I had a financial advisor ask me about this today. It's been awhile since I've had any contact with this topic. My recollection is that regular IRAs are exempt from bankruptcy up to $1,000,000 and rollover IRAs (from qualified plans) are unlimited. But is there a difference between federal and state bankruptcy. I think bankruptcy laws are a state thing not federal. The ob/gyn client with $5 mil just retired and wants to keep the K plan open indefinitely. I told him only for a year at most. I told the FA to have the client contact an ERISA attorney. Still - any comments are appreciated.

Employer contribution for 2022 of about $9,000 was paid in Sept 2023 in time for tax deduction purposes. The plan is a dreaded separate brokerage account for each person, granted a small plan. Despite us providing the participant allocation of the money to the broker (more than once - the brokerage firm had personnel changes) they did not implement the allocation so the funds sat in an unallocated account until just now. The broker is asking about makeup earnings. While that seems to be the right thing to do, I'm not certain it is required. It is likely a fiduciary issue. It's just another thing to do, explain to the client, he will ask who should pay (I'm guessing it could be $1,000), and it won't be us but we'll have to go round and round and take a lot of time and we will want to bill for the time. I'd like to ignore it. Thoughts?

Plan sponsor has had 401(k) plan in which a participant is 100% in profit sharing. He wants to adopt a DB plan for 2023 and the employee terminated in 2024. Can years of service be prior to DB adoption be excluded for DB vesting? The plan document says service for vesting must be recognized for a "predecessor" plan. Does predecessor include K plan or only a prior DB plan? Thank you

Looking for a interpretation of the below from the 1099-r instructions. If someone separated from service earlier in 2024 and takes a distribution now but are only age 54. Are they exempt from the 10% early distribution penalty because they will turn 55 later in 2024? Thank you, Tom

We sometimes have to spend significant time getting a Summary of Accounts produced in our admin software. We are able to download financial activity into the software on most plans by far. But there are several record keepers where this does not work well or we just haven't figured it out. My question is - how many of you do not use record keeping software to produce a summary of accounts? The only two benefits of the software record keeper link that I can see are top heavy determination and 5500 participant count. I'd say 90% plus of our plans are either top-heavy already, are safe harbor contribution only plans or are DB combos where the actuary confirms the top-heavy amount. The very few where we need to watch top heavy continue to be linked with the record keeper and just several without a link are done outside in Excel. I have a good Excel solution. It takes some time to get all the adjustments in but the benefit is that you really have to think about what is going into the test. We already have a few clients where their year-end reports are census, contribution summary, all the testing reports and we include the investment company record keeper summary of accounts. Spending time getting our record keeping to match theirs for some clients can be very tedious not to mention the time in setting up a new plan in the admin system. My staff will balk at what I'm suggesting here because when fully in the system, it works very well. But they don't necessarily think about time/billing. Admin software is invaluable in confirming eligibility, contribution calculations, and all the testing, etc. But I questions the value of the summary of accounts updating. We are not daily obviously and are small and work with about 15 record keepers. We have 3 or 4 record keepers with a large number of our plans but then there are the others with just 1-5 plans so we deal with all the different record keeper processes. I imagine most everyone in here does as well. Just thinking here and wondering what others are doing. Thanks

We have a client selling June 30. Employee payroll will stop at that point. The plan amendment may say the termination date is Dec 31, 2024. Owner wages after June 30 would be eligible for plan contributions and the 415 limit would not be prorated. However if they amend to freeze contributions June 30, I assume the 415 limit is cut in half even though the plan will have a full 12-month 5500 filing assuming the plan is not liquidated until December which is likely. Also this is a safe harbor nonelective plan. I believe a change in the business such as this allows safe harbor treatment for the final short year? Thank you for your comments.

Thank you - I couldn't think of the document term offhand.

We are now working with a similar situation. We are working with a platform and Schwab to get the broker account feature initiated under the platform record keeping umbrella. It hasn't been easy so far. Both parties seem to be pointing fingers at each other and we are in the middle. Fortunately, there are only about a dozen broker accounts and just 2 brokerage custodians - Schwab and one other. The other 300 participants are all on the platform. It's an audited plan so accounting reports have to pull it all together with detail. And the payroll upload file process is not fully automated. Even with just these few broker accounts, the plan has become very difficult, reconciling, periodic employer contributions, check writing to the accounts, etc. The client leadership is on board with getting it all under the record keeper and is willing to eliminate broker accounts if the transition becomes unduly difficult. About half of the account holders are 59 1/2 and can roll out. And we are considering liberalizing in-service to a much lower age for rollover or profit sharing and regular match. They (and we) are lucky the broker account option has not exploded in utilization.

A large investment company plan/record keeper initiated a forfeiture in Feb 2024 for a participant who terminated in 2018. This participant never took a distribution from her account and was 20% vested in her profit sharing source. The record keeper initiated an 80% forfeiture of her profit sharing. I know a plan can have a provision to forfeit a zero % vested terminated participant. This participant also has elective deferral and safe harbor match sources. I did limited research within the plan's basic document but didn't see anything right off. I assume there is some such provision to allow for this as I highly doubt this record keeper would not do this correctly. Thank you for any comments

We had one where we sent paper copy to plan sponsor to sign, file and send check. It was for $109. They would have over 10 e-filings with W-2s if you count every one. We might wait to see what FIS has in June/July and then e-file at that time even though it will have been paper-filed already. The amount is so small, we figured what is the worst thing that can happen? (Don't tell me it's some large daily accumulating penalty for not e-filing when the amount of the penalty is de minimis!)

Excellent - thank you.

Plan has 6-month waiting period for deferrals with entry on the first of the following month. I know I can exclude those with less than a 12-month wait but I am wondering about the entry date. The plan has monthly entry date for deferrals and match (no SH nor PS). I'd like to apply the semi-annual date which would remove lots of zero NHCEs. I know it would be more conservative to use semi-annual. Thoughts? Thank you

Thanks Lou - so the ADP corrective distribution is $644 without earnings (low because recharacterization as catchup solved most of the issue.) However the ACP refund is $4888. So you are saying they need to make a QNEC of those 2 together and allocate to all eligible, a group with $10,600,000 in wages. So about $13 for a person making $30,000. There are 245 NHCEs and probably 200 have no plan balance. This will throw them into an audit requirement. No other easy solution? I'm just going to hand the testing results back to the large payroll company and tell them to issue the refund and do the self-correction. Thanks

We've been asked to provide testing services for a payroll company bundled plan. The payroll company did not perform the ADP/ACP tests for 2022. I don't recall why it was not done or why they would not agree to do it now. So we agree do it for a healthy fee (they are a client for other purposes, just not TPA.) Testing fails and refunds are due for ADP and ACP, not 401(a) on the match.) Now that is April 2024 and this is a 2022 plan year. I believe the last I read was this can be corrected without risk of disqualification by end of second year. I will tell the payroll company to do the earnings calculation and hopefully their tax advisors will do the 5330. Am I missing anything. I'm not filing under a correction program. If someone says that is needed, I tell the plan sponsor to get someone else for that. Thanks.

A sole proprietor has a small loss on Sch C. The plan has no required contribution source. He made a deposit of $7,000 during 2023. I'm thinking with no compensation coudl he still make a catch-up deferral? Seems he could since that is allowable over plan limits such as compensation? Thank you.

I had a client a few years ago with 300 employees where the employer gave 1/3 of them a 1.5% match. I discovered in an annual client meeting that they were providing the wrong compensation for a >1% owner which then put his plan comp over $150,000. He was a long-time employee who had a large balance. I had a dreadful summer contacting different industry people, an ERISA attorney, etc. It was not our fault, but you always have to ask - how can they pin this on us, did we not ask enough questions, etc. It was a $150,000 issue. The company fortunately is very successful where owners make a couple million and so they took it rather matter-of-factly and actually thanked me for keeping the plan clean. But I was concerned about not just that plan year but the 2 following that had already passed! Then we are talking $500,000 with earnings. Fortunately, fixing the one year by adding $150,000 to the non-key group moved the plan into non-top heavy status for the following two. Lucked out. It all turned out fine but I can tell you, it affected my summer and not in a good way. I REALLY wish the top-heavy rule would be repealed. It is the worst thing about retirement plans in my opinion. I'm going to consider the "innoculation" above for several clients. Fortunately, the vast majority of our plans are small, professional and safe harbor nonelective.

A prospect is wanting to set up a solo K plan for 2023. My first reaction was the deferral for 2023 is not allowed since it was not elected by 12/31/2023 nor contributed on time. But wasn't there a exception for first year plan adoption for sole proprietors. I'm thinking I saw that somewhere. I will research further but I know this group will know this right off the bat. Thanks Tom

That makes sense and the admin system is working. I knew there was a reason. Thanks.

We have a business with only one eligible employee other than the owner. . For 2022 this employees was fully covered by the 3% nonelective safe harbor and profit sharing. For 2023, the person worked about 50 hours and earned $1,000 and terminated before the end of 2023. So the employee will get the safe harbor. What about the rule - if terminated and less than 501 hours can be excluded from coverage testing? The question is profit sharing. The owner is getting high PS%. I know PS for this employee is miniscule. Still for my own knowledge, what is the rule here? I know if I put this into our admin system it will say fail 401(a)(4). So the term with <501 hours apparently does not apply to 401(a)(4). That's fine. I just wanted to nail down this rule. It could be more meaningful rule in a larger plan to exempt this one person from 401(b) but still be able to pass 401(a)(4) due to all the other employees receiving PS. Thanks

The reason I asked is, we filed one in January without the IRS letter number and date and it sailed through to the DOL and no validation warning in the 5500 system. I reviewed this with my staff in January but when came time to review, it blew right past me. I asked the 5500 software provider and they were surprised the filing went through with no error. They gave me the DOL help line number to call which I wil do. Regardless we will amend. Not taking any chances on a 5500 filing. Tom

I had a CPA ask this question (which is really his responsibility to find the answer) about a predecessor employer: Dentist A sells practice to dentist B. Dentist B decides to assume sponsorship even though I recommended that not be the case because the financial advisor did not want to complete new plan setup forms, deal with rollovers, etc. The question: can dentist B take the new plan credits since this is a new plan adoption for his business EIN? Another situation like the above except the selling and purchasing dentist formed a partnership for one year. So the plan adoption went from Dentist A, to Dentists AB partnership, and then to dentists B for 2023. A CPA is asking about this one also. With the partnership in the middle, I told him the credit would not be available in my opinion even though the sponsorship for 2023 is under a new business EIN and this a "new" plan for that entity. But I told him I'd ask. I'd be surprised if the IRS would give any attention to this credit given the massive PPP and ERC funds given away. Thank you in advance. Tom

This is new for 2023 and it is covered in the 5500 instructions. In case I missed something, I thought I'd ask - it isn't optional right? Thanks Tom