Tom

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

I'm sure this has been asked a lot in the past and so thank you for your patience. And I realize SECURE 2.0 may have changed this possibly. Have a client who hasn't deposited for 4 months in 2022. Dentist bought a practice and didn't know they or their new payroll company needed to initiate payment. The amount for the 4 months is probably less than $5,000. It's being deposited now and I know to report on the 5500 and file Form 5330. My question is the earnings calculation. This will be self-corrected. Can I use the DOL earnings calculator? It is easy to use and takes out any ambiguity. I read different things about whether can be used or not. I'm pretty sure the DOL earnings will be higher than the plan actual earnings for this period (which could even be a loss.) Thank you.

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?

When payments are made through EFTPS you must indicate the form (945) and the tax year (you would indicate 2021) even though paid in 2022.) The IRS matches the 945 with payments in their EFTPS system. The IRS would apply the early 2022 deposit to the 2021 945 assuming the electronic payment was marked 2021 in EFTPS. Yes there is a penalty for late deposit. But deposit deadline varies - most of our plans are the 15th of the following month but some have a semi-weekly (not bi-weekly) deadline.

That happens. When paid in EFTPS, the payment is to be marked for tax year 2021, even though paid in 2022. That's fine as long as it meets that particular entity's deposit deadline.

Client had a DB plan and terminated it and rolled his balance to his 401(k) plan. This was not a merger and transfer. It was a termination and he electively rolled to his 401(k) plan, waived annuity, spouse waived annuity. We are showing it in the 401(k) records as an unrelated rollover. Now he wants to do a big in-service distribution to a Roth IRA. He is 57. the plan document allows for in-service distribution of rollover source funds at any time. I asked the former actuary who says the DB rollover lost its nature as pension when electively rolled into the K plan and so in-service is allowable. Part of the rollover source is SEP as well. And so the same question applies to in-service from a rollover source that resulted from a former SEP. Summary - can a 57 year-old can he take as in-service part of his 401(k) rollover account which resulted from a terminated DB plan? Thank you! Tom

Thanks Lou. I questioned because the effect is generally to favor HCEs - they can easily defer $20,500 in last qtr of the year and get 4% match on pay for the full year. A NHCE could defer 20% in last qtr (5% avg for the year) and get 4% match on pay for the full year. That would be unusual for an NHCE to defer a high% in last quarter but it is possible.

We have a client who opened a new plan in August 2022. The plan effective date is 1/1/2022. Deferrals did not begin until Oct 1, 2022. It is a basic safe harbor match plan allocated on a plan year basis. The match will be calculated after the end of the year. My question is must the match be based on compensation only from Oct 1 through Dec 31 or the entire year? Example: Employee has $10,000 in wages each of 4 quarters. Oct - Dec defers $2,000. Would this person get a $400 Match (4% just on 4th qtr wages), or a $1600 match (4% on full year wages)? Nothing in the plan limits the compensation or match period. Appreciate your comments.

Brokers will code the account - qualified plan so no tax reporting. But issue could arise if someone takes a distribution and has withholding. I realize employer can report under employer EIN and mark for 945 but the employer likely has a fast deposit requirement. I've seen by the time the broker sends the withholding, it gets deposited and someone does EFAST, time goes by. And a late deposit of withholding gets costly fast. We apply online to get a plan EIN and use it for tax withholding reporting purposes.

95% of our our plan clients use record keeping platforms fortunately. But there are those with brokerage accounts. We normally charge $125 for a distribution (we provide election form and tax notice, letter to plan sponsor to request the funds from the custodian, we write the distribution checks or issue ACH, withhold taxes and pay through EFTPS and do the 1099-R. We charge more for EFTPS, each 1099-R and 945 if needed. Very time intensive obviously. We are struggling with residual balances that come in once someone's account has been closed. We provide the fee disclosure each year as participants pay the $125. We had a policy of reducing our fee so as to be no more than 10% of the distribution - didn't want any DOL attention. So I'm ready to write off balances less than our fee. I guess those funds would go into an unallocated suspense account. Curious what others do.

I advised in this situation to charge less - the actual hourly time and create goodwill with their new client. Still made money and have a good relationship to start off with. Some things such as few more dollars and possible related aggravation just aren't worth it.

Ok - sounds like no. and yes I'm signed up for 2 hours on Dec 8.

Fee Example: a TPA quotes $15k to $20K for TPA work for a plan year for a new client, not knowing what the records will look like. The plan sponsor signs an engagement letter agreeing to the fee range. Time tracked to complete the year ends up being $12,000. Is it ethical for the TPA to bill $15,000? Can a client demand to see time entries? I think we all know recording exact time doesn't happen. Many small things go un-logged into time/billing. This would be a case where the TPA fee is paid by the plan sponsor not from plan assets.

I just heard from the partners of a plan sponsor that they could barely fund the 3% for 2022 and want to eliminate the 3% safe harbor for 2022. It is not a "maybe" safe harbor. Most of our SH plans have the 3% hard-coded in because it is easier to deal with as opposed to an amendment each year. they are probably stuck for 2022 which is fine. they then will ask me if they have to fund for themselves - 2 partners in a partnership. My answer has always been for this situation yes so as to follow the plan document but if they want to take that chance and simply have insufficient funds, they must at least fund for the non-HCEs. Any way to get out of the safe harbor for 2022 at this late date? Tom

Plan sponsor has an employee who wants to be excluded from the plan due to religious reasons. Eligible employees receive the 3% SH and a small PS. It is not workable to exclude him by job definition or class, location, etc. Very strange and I will tell the sponsor he must participate. Maybe use the beneficiary designation to assuage his objection to the plan whatever that might be.

We are taking over a plan that has an insurance company document. The document indicates spousal consent is not required for distributions (unless the plan includes a source that requires such - and there is no such source in the plan.) The plan offers 5 annuity options as alternative forms of benefit. We never have those in plans and I'd like to eliminate these with our restatement effective 1/1/2023. It's been awhile since I looked at this. Upon some quick research it appears that yes these can be eliminated prospectively with a 90-day advance notice and provided the plan has the lump sum option. I like to get the opinion of this group which is very trustworthy - more so than my own "research." Thank you, Tom