Tom

We have a 401(k) that includes no pension source funds nor does it have any annuity distribution options. The plan document in the past required spousal consent to take a loan or distribution. I inquired about this when restating the document and was told the plan sponsor just liked the idea that the spouse would want to know when money was coming out. This was pre-daily platform. Now they are on a daily platform and they want things more automated and no longer want to require spousal consent. I believe since this was something they administratively opted to include in the plan but was not required, it would be fine to remove this requirement. I assume it is not be a protected benefit since it is not a required. Would you agree? Tom

I shouldn't have to ask this question for as long as I've been doing this but here goes. We have a plan sponsor - an S Corp with 2 owners covered by a new plan. There are no other covered participants. I assume they are exempt from the ERISA bond coverage? Most things I read indicate plans covering only a single-owner (and potentially a spouse) or a plan covering only partners of a partnership (and spouses) are exempt. The longer I do this, the more I question myself. 🤔 Thank you, Tom

Thank you - Good advice Lou and Belgarath we'd all like to say that now and then!

A takeover record keeper is asking for the Secure 1.0 amendment. It is not due until 12/31/2025 correct? I tend to doubt myself when institutions ask for things like this and imply that there should be one. We've been providing the Secure and Secure 2.0 good faith amendments for terminating plans only. Thank you Tom

Thanks all and Ed - she maximized 415 so recharacterizing is not an option. I wil tell the CPA they may want to amend the W-2 to get a tax deduction.

A physician (of course) has owned a part of a business in his 401(k) account (yes we've been filing 990-Ts.) Now the partnership has been sold and he is receiving amounts in 3 installments 2023 (already received), 2024, and 2025. He says the plan is now closed since all cash has been paid out but there is an A/R for the other 2 payments. He says the other payments will be made to his Rollover IRA per his broker. I mentioned 5500s for two more years and likely required plan amendments. He sold his practice and so he wants the plan to go away naturally. The other option could be to file a 1099-R for the entire amount including the 2 receivable payments and so to treat the remaining two payments as receivable to the IRA. can an IRA hold an A/R or note? If not would the IRS match the plan 1099-R to the IRA rollover 5498? The other 2 payments might total $80 to $100K. And so our 1099-R woudl be very different than the 5498 filed by the recipient IRA. I know I can advise and he as Trustee and Plan Administrator can provide direction. Comments? Thanks Tom

We have a sole prop client who contributed $20,500 into the plan throughout 2022. At the end of 2022, she was advised to elect S Corp status for 2022. I was told by her CPA firm that she will have no Sch C as the entire 2022 year is being reported under a tax filing for the S corp. (The conversion to S was solely to reduce her Sch C Medicare comp from $1,000,000+ to $200,000 in wages.) There was no 401(k) deferral deduction on her W-2. It seems to me we have no choice but to count her deferral in testing for 2022 - the money is in the plan. But since she has no Sch C I'm not sure she can take a tax deduction on her 1040. But that is not my problem I suppose. I wonder it the IRS would take the position the deferrals are all excess because she did not have deferrals on her W-2 and had no sole prop compensation to support the deferrals. Comments? Thanks. Tom

Thank you all - yes the plan document provides that HCEs do not receive the safe harbor non-elective contribution. And only safe harbor non-elective is funded - no profit sharing. I question because it seems to skirt the intention of the top heavy rule when an HCE is non-key and thus gets nothing from the employer. I questioned this in reviewing a 2022 calculation and went back and looked at 2021 and saw that a couple HCE non-keys did not get top heavy for that year. I must've researched this for 2021 and came to the same conclusion. Tom

We have a plan that excludes HCEs from the 3% non-elective safe harbor. Several HCEs are non-key employees. There is no employer contribution other than the 3% safe harbor. The question is - do the non-key HCEs have to receive a 3% profit sharing contribution since the plan is top heavy? The plan passes coverage on the safe harbor since the only ones excluded are a couple HCEs. Thank you, Tom

We filed an EZ form as final as of Nov 2022 on a 2021 form. We received a Filing Received acknowledgement but with a warning message because of the short year and on a 2021 form I suppose. Is there a way I can confirm the 5500 was filed with the DOL? It isn't searchable on the regular search site of course. But I wonder if there is a help line or other practitioner site. Seems I knew of one at one time. Tom

Thank you. I will tell them in absence of other information or legal opinion, we will include all 14 as Key Employees to be conservative. Fortunately they are far below 60% as some ESOP board members have no 401(k) plan balance. Still, I am going to ask them to take this issue to an ERISA attorney. We have no access to the ESOP agreements or bylaws (nor do we want to.)

I've had related questions in the recent past and so thank you for past comments. But I'd like to make sure I put the whole picture out here. Corporation is 100% owned by an ESOP. Corporation sponsors a 401(k) plan. There are 5 corporate officers. These 5 plus an additional 10 constitute the ESOP Board of Directors. All 15 Board members are 401(k) plan participants, not all have balances. The 401(k) plan is a deferral-only plan with about 250 participants. So the question is who is a key employee? Only 2 of the corporate officers have wages of $200,000. None of the other Board members has wages of $200,000. No one is a >1% or >5% owner of the corporation since it is 100% owned by the ESOP participants. I see past comments that plan balances in an ESOP are not treated as owned by the individual but by the trust. Even if I treat all ESOP Board members as key employees, the plan is far below 60% but obviously I have to get this right. And as for the ADP, we are just looking at compensation for 2021 in the 2022 HCE determination process. There have not been individual owners for about 5 years. Thank you for comments - they are greatly appreciated as top heavy is critical and can be very ugly - 3% for all non-key. Tom

I've been provided names of corporate officers and those who are on the ESOP Board of Directors. The 5 corporate officers are also on the ESOP board of directors plus the ESOP board has another 9 individuals - so potentially 14 "officers." I realize to be a key employee they must have wages of $200,000 for 2022. That will eliminate most of them. I assume both corporate officers and ESOP directors are considered "officers" for top heavy purposes? Top heavy testing for large clients like this (350 employees) who make no employer contribution is always very concerning. They've been a long way from being top heavy but we certainly want to build in the correct data in this determination. I'd normally want to push this client off to another TPA but they came from one of our best referral sources. Thank you for your comments.

These clients are all in Ohio. We've had 6 notices - not matching EFTPS payments with 945 even though same plan EIN on both. IRS is looking for filings and payments under the plan sponsor EIN. Letters have been written to the IRS which include a copy of the IRS assigned EIN confirmation for the plan! No new notices in last 2 weeks so hoping that's it.

Probably a simple question - I don't see where there is family attribution required for officers, only for >5% owners. I need to be 100% sure since top heavy status can be a VERY ugly surprise to a plan sponsor with many employees. Thank you

Ah ok. Almost all our plans are class allocated with no conditions. So that little detail fell off my radar (probably not the only one.). Thanks

Simple real example: Dentist and wife are eligible as are three employees. It is safe harbor match plan. One employee terminated with <501 hours. We are allocating PS only to the doctor and the two ongoing employees to meet 410(b) and in a uniform integrated amount to pass 401(a)(4). The dentist prefers to cover the terminated employee which he can as a class-allocated plan with no allocation conditions and this employee only had $2,000 in wages. This would mean full PS to 2 NHCS and top heavy to the 3rd employee who is still working. The result is significantly less cost. My real question is with the testing software - I thought those who terminated with <501 hours were excluded from testing. That would mean only 2 eligible NHCEs in the testing and only one would have to be covered to pass ratio %, but the testing reports say fail if we only cover one. The employee is coded correctly in the software application with just a few hours and a termination date. Comments? Thanks

An employee had withholdings done as pre-tax instead of Roth and didn't notice until they saw their W-2. I'm sure Ascensus will just say have the plan sponsor give us instructions and we will move the contributions and earnings (loss actually) from pretax to Roth. Is there a prescribed fix for this? Seems fixing payroll is the only reasonable correction. Not sure what else would be equitable. Thank you.

Two of our notices - the IRS notices reference the sponsor EIN saying this is the correct EIN and since there are no tax payments under this EIN taxes are owed plus interest and penalty. Of course there weren't because the payments were made under the plan EIN for which we have the IRS EIN assignment confirmation notice, filed the taxes on 945 using this plan EIN and paid under EFTPS using the plan EIN. Frustrating

We just recevied 3 notices and the tax was paid in full on all 3. Each of the 3 plan sponsors' IRS Notice is assessing a 10% penalty for "failure to make a proper federal tax deposit.." They were all paid through the EFTPS system on time. Any updates on this? I suppose I will have to waste time calling the IRS.

I asked this same question a year or two ago. The plan sponsor is 100% owned by an ESOP. I received the same answer as above - good to see! It was mentioned as well - while there is no ESOP ownership attributable to anyone at the employer/sponsor, the employer/sponsor of the plan still may have officers who qualify as a key employees for top heavy testing and HCEs base on prior year compensation triggering the various nondiscrimination testing. This plan sponsor has 300 participants and they only fund deferrals and so this was a topic that gave me some significant concern. Family attribution would not apply here since there are no HCEs or Keys due to ownership. There is no family attribution to HCE/Key based solely on being an officer or HCE due to prior year comp - right? :🤔

Plan sponsor opened a 401(k) plan effective March 1, 2022 but has been in operation for some years. It is top heavy as of 12/31/2022 and so the first/short 2022 plan year is top heavy. I assume the 3% top heavy minimum is required only on pay from March 1 through December 31?

Deduction or tax credit not both. That certainly takes the bloom off the rose. Most of our clients are professional service companies - doctors/dentists, etc. The deduction is likely more important than the credit. Id' have to take that to their tax advisor. And yes with the qualified business income deduction, change in carryback and carryforward rules. It isn't as easy as it once was.

Prior to SECURE 2.0 there was the 3-year credit of 50% of plan admin costs up to $5,000 for small employers. I understand now that credit rate is 100%. PLUS there is now a new credit of 100% or an employer contribution up to $1000 per employee (phased down after year 2.) So a small employer starting a new plan gets both credits? That seems to be what I am reading. Is it really that good?

100% owner of plan sponsor owns a second company 100% which is not a participating employer to the plan. He says there are no employees who would meet the plan's eligibility. The ADP test fails for 2022 (which includes data only for the covered company.). He wants to add his compensation from the non-sponsoring company which would help the test. I believe the answer clearly is no. (And yes we will get the census for non-sponsoring company to check this out.) Tom