Catch22PGM

We have a new client that is a partnership. There is one partner who also has a corporation that is an affiliated service group member that has adopted the 401(k) plan of the partnership. Proceeds from the partnership flow through to his corporation and he receives a W-2 from that corporation along with a K-1 from the partnership. This partner's K-1 has $500,000 in box 1, but $0 in box 14. The CPA for the partnership is insisting that box 1 from the K-1 should be used as his earned income for plan purposes - not box 14. This partner has a small W-2 and no 401(k) withholdings listed in box 12 - both of which would be problems unless K-1 box 1 is used as his plan compensation. I was always taught to use box 14 from the K-1 as the earned income figure (which is then reduced for 50% FICA...) to determine plan compensation. Is this correct or should box 1 of the K-1 be used as the CPA suggests? I couldn't find anything to support the CPA so I'm hoping someone here can provide clarity.

I'm open to suggestions because I've found absolutely no guidance, but we have entered "Closed MEP for related employers". All of our closed MEP's are 401(k) plans. Since we are completing Part II, line 2d, which is only applicable to DC plans, I didn't see the need to state anything more on line 1d.

The General Instructions for Schedule MEP states "All MEPs must complete Parts I and II to indicate the specific type of plan or arrangement..." Under Who Must File it states "Schedule MEP (Form 5500) must be attached to a Form 5500 or Form 5500-SF filed for a pension plan that checks the “multiple-employer plan” box on Part I of Form 5500 or Form 5500-SF..." My MEP experience is limited to closed MEP's so I'm looking for some clarity. Are participating employers in an open MEP required to file Schedule MEP with their 2023 Form 5500-SF's? The MEP administrator is saying no, because they have never checked the multiple-employer plan box on Part I of the Form 5500-SF.

Unfortunately I don't see that this answers the original question. I obviously agree that the loan balances are no longer shown as plan assets in the financial portion of the 5500-SF, Schedule I, or Schedule H. I am specifically referring to the compliance question 10g of the 5500-SF. The Schedule H has no such line because the participant loans are broken-out in the assets on line 1c(8). The Schedule I instructions specifically state that loans that are deemed distributed should not be included on line 3e in the Specific Asset section. I guess we can infer that since loans deemed in a prior year aren't shown on the Schedule I or Schedule H we shouldn't include them in the compliance section of the 5500-SF, but I can't find anything that supports that opinion.

I can't find guidance in the 5500 instructions or the 5500 Preparer's Manual, so I'm looking for opinions - or maybe something I've missed. Two questions: 1. If the only loans in a self-directed 401(k) plan have been deemed distributed in a prior plan year (not offset), is 10g answered yes or no? For example, the only loan in the 401(k) plan was deemed distributed in 2022 - should 10g be yes on the 2023 Form 5500-SF? 2. Do outstanding balances for loans that have been deemed distributed (not offset) continue to be included in the amount on line 10g? I'm leaning towards yes, and yes, but I have nothing to back me up. Even though they are deemed, they are still participant loans, but since they are no longer reported as assets on the 5500... I'm torn.

I wish we could just go back to the ERISA counsel that made the ASG determination. Unfortunately they were hired by the large organization and nobody wants to divulge the information to the friendly neighborhood TPA.

An interesting situation has arisen and I'm looking for any and all opinions. Company A is a physician's office and the Company A 401(k) Plan has been around for 20 years - one owner/doctor with a dozen employees. The owner reached an agreement to "partner" with a large organization which created an Affiliated Service Group (ERISA counsel confirmed) back in 2021. In the pile of paperwork the owner/doctor signed was a "participation agreement" with the large organization's 401(k) plan that was to be effective 1/1/2023. That agreement is a boilerplate 1-page joinder agreement. The Company A 401(k) Plan is never frozen, terminated, or merged, and the participants continue to participate in this plan to this day (Feb 2024). The owner/doctor and his employees never intended to participate in the large organization's 401(k) plan - in essence, he was slipped a piece of paper and signed it without knowing what it was about (not an excuse, but not unusual in my experience with physicians). The large organization is now demanding Company A cease operating the Company A 401(k) Plan, return all 2024 contributions to the Company A 401(k) Plan as a "mistake-of-fact", and start participating in the large organization's 401(k) plan by the end of February 2024. The employees have never been provided enrollment materials, the SPD, or any other documentation for the large organization's 401(k) plan. They have deferral agreements in place with Company A and the Company A 401(k) Plan so I don't see how a mistake of fact would apply. Also, since the "participation agreement" has an effective date of 1/1/2023, I don't see how trying to back-out 2024 contributions from the Company A 401(k) Plan fixes anything. The owner/doctor doesn't want to change the plan he has in place and wants to disregard the "participation agreement" that he never would have signed had he known what it represented. 1. Has anyone come across a similar situation and if so, what was the outcome? 2. Is the "mistake-of-fact" correction being thrown out there by the large organization appropriate? 3. If the doctor just ignores the large organization's "participation agreement", and continues to keep the Company A 401(k) plan active, are there any issues he should be warned about (other than coverage testing)? 4. Any other comments/suggestions are very welcome.

Hopefully this is a quick question for the experts out here. The disproportionate QNEC rules under 1.401(k)-2(a)(6)(iv)(D) limit the amount of prevailing wage contributions that can be included in ADP testing to 10%. We have a NHCE who received 14% in prevailing contributions in 2023. Is the entire 14% excluded from ADP testing or can we use 10% and back-out the other 4%? Our testing software is backing out the entire 14%. This is the first time I've had someone over 10% and just want to be sure the software is treating it properly - or maybe I don't have it coded properly in the system.

No fail-safe - it's an option in the adoption agreement that hasn't been elected so we can use 11g. Good point though - always check the document language first.

That was my initial thought as well. It didn't seem plausible that we could bring in a group to pass coverage even though none of them receive a benefit. I guess the fact that they could have contributed elective deferrals, but chose not to, gave me pause.

A non-governmental 403(b) plan has no class exclusions for elective deferrals so everyone is eligible to participate. The plan has several class exclusions for match - of course they are all NHCE and the plan fails the ratio percentage test - the average benefits test is even worse. We can get the ratio percentage test to pass with an 11g amendment to bring-in one of the excluded classes. My question - if none of these employees being brought-in by the 11g amendment elected to defer, is the plan sponsor required to give them a contribution? If so, how is it calculated?

Company A acquired Company B through a stock acquisition 12/1/2021. Company B has a 401(k) plan with a 3% safe harbor non-elective and immediate eligibility - Company A does not have a 401(k) plan. Company B continued to operate as a wholly owned subsidiary, but it will formally merge into Company A on July 3, 2023. 410(b)(6)(C) for 2021 and 2022 is good - nothing has occurred that would eliminate the transition period relief. It is now June 30, 2023, and your friendly local TPA was just hired to takeover from a bundled provider who has done nothing to address the acquisition. The plan documents were never amended to have Company A adopt the plan as a participating control group member. The Company A employees, who were never employed by Company B, have not been given the opportunity to participate. If they tried to exclude these Company A employees, the plan would fail coverage in spectacular fashion. Assuming we restate the plan documents effective 7/3/2023 to list Company A as the plan sponsor (since Company B will no longer exist), and all employees are given the opportunity to participate 7/3/2023: 1. Is there a missed deferral opportunity for those Company A employees who were never employed by Company B dating back to January 1, 2023, when the transition relief ended? 2. For Company A employees who never worked for Company B and terminated prior to 7/3/2023, will they need to be included in the 3% safe harbor non-elective in 2023? 3. I know this is open-ended, but are there any other issues that I should be considering?

Thank you Dare but that isn't really the issue. If I stick with the premise that there were 0 participants on the first day of the plan year, the audit isn't being deferred - it isn't required. A long Form 5500 wouldn't be needed because there weren't 100 (or 120) participants on the 1st day of the plan year. My conundrum - is it proper to have a 0 participant count on the first day of the plan year simply because the plan document has a plan effective date that is earlier than anyone was eligible?

We (TPA) created a new calendar year-end plan with a 9/1/2022 effective date so there is a short initial plan year. There was no predecessor plan because it is a new company formed in early 2022 and we were using the dates requested by the plan sponsor. Upon receipt of the year-end census data we found that nobody was eligible until 11/1/2022 due to the service requirement in the plan, and that there are approximately 350 eligible participants on 11/1/2022. The plan sponsor operated the plan properly and those employees were enrolled on 11/1/2022. I know an audit is not required due to the plan year being less than 7 months, but I am also considering whether we should file a Form 5500-SF since there were technically 0 participants on the first day of the plan year, or if a long Form 5500 should be filed. It feels "off" to file a 5500-SF simply because the plan sponsor asked for a plan effective date that was earlier than anyone would be eligible for the plan, but I've never had this happen before so I'm hoping someone may have an opinion and would be willing to weigh-in.

Maybe someone else has a different view, but I don't see why this revision has any impact on recharacterization. I still have plenty of reading to do, but I would expect that we could still recharacterize deferrals as catch-up to satisfy ADP testing but there would be a taxable event for the HCE to convert it to Roth. Very curious to hear other opinions or if there is something in SECURE 2.0 specifically addressing this that I have yet to read.