C. B. Zeller

While this seems like a reasonable conclusion, there is no guidance from IRS on this point yet.

Starting with the 2023 forms, only participants with an account balance are counted to determine a plan's filing status (large or small). So if they never defer, and never get any employer contributions, they won't count - but the same is true for all participants, not just LTPT.

Should be presented to employees as such? Yes, I think that makes a lot of sense from a practicality standpoint, plus it's good policy. If the employer were required to obtain new elections from all affected employees, it could be a significant administrative burden. Many employers allow employees to make changes to their 401(k) elections on a frequent basis, so if an employee who would have preferred to receive cash instead of a Roth deferral fails to realize the impact of their implied assent, they would not have to wait long to correct it for future periods.

The second of the practically-confirmed items - the ability to treat a non-Roth election as a Roth election as needed to satisfy 414(v)(7) - is interesting. The way it is worded, I think it solves the recharacterization problem. There are still taxation issues to be worked out (hopefully to be addressed in the forthcoming guidance) but it should allow plan administrators to treat a deferral as Roth once it is recharacterized as catch-up due to, for example, failing the ADP test.

Amend your plans by the end of 2025. https://benefitslink.com/src/irs/n-23-62.pdf

I suppose I agree that a plan could be operationally amended to allow Roth starting 1/1 even if the actual paper amendment is not signed until later in the year. However, as a practical matter, I would advise my clients to adopt the Roth amendment before 1/1, mostly to ensure that all of the other things downstream of the amendment are taken care of appropriately. For example, I know of at least one recordkeeper that asks for a copy of the plan amendment when you tell them to add a Roth source. I haven't tried telling them that there is no amendment yet and we intend to amend the plan by the end of the year - I don't know if they would accept that. I also don't know that Belgarath's "canned paragraph or three" would meet all the applicable disclosure rules. I'm thinking of the safe harbor notice, which has to include a description of the deferral elections available. If you're manually editing the safe harbor notices to include Roth language, then that's great - but if we want to be able to use what's coming out of the document system, then we would need the amendment ahead of time.

Effective for plan years beginning in 2023 and later, the audit requirement applies to plans with at least 100 participants with account balances on the first day of the year. The 80-120 rule still applies, so if the plan filed as a small plan in 2022, they would not have to have an audit until they have more than 120 participants with account balances on the first day of the year.

There isn't a 415(c) refund deadline discussed in the code or regs. The concept only appears in EPCRS. And under the newly-expanded EPCRS regime, an eligible inadvertent failure can be self-corrected within a reasonable period after it is identified. So go ahead and refund it now, with earnings. But the sponsor should have reasonable practices and procedures in place to prevent such failures from occurring again - for example, maybe not depositing contributions until after their compensation for the year is known.

Gilmore - my concern with a 12/31/2024 amendment would be the effective availability of Roth contributions, within the meaning of the 401(a)(4) regs. HCEs would have their catch-ups automatically reclassified as Roth in order to comply with the new rule. However most non-HCEs would not have any opportunity to make a Roth election if the amendment were adopted very late in the year. Putting the Roth option in the plan before the beginning of the year also allows the disclosures for the 2024 plan year to accurately reflect the options that will be available, instead of requiring later amendments. This also goes to Peter's question about the complexity of this amendment from a document provider's perspective. Besides merely checking a box, safe harbor notices and 401(k) election forms (maybe other notices as well) will need to be updated to reflect whichever options are chosen.

If you're referring to the requirement that most new 401(k) plans be EACAs starting in 2025, as added by SECURE 2.0 sec. 101, there is no exception for large plans. As I read it, for any plan year in 2025 or later, if any 401(k) or 403(b) plan does not contain EACA provisions, it fails to be a qualified CODA, unless it meets one of the exceptions in 414A(c). The only exceptions are for SIMPLEs, plans established before 12/29/2022, governmental and church plans, plans sponsored by businesses less than 3 years old, and plans sponsored by businesses which normally employ no more than 10 employees.

This seems like a lot more trouble than just having the plan issue the refund directly to the participant with the appropriate 1099-R.

Only if the plan covers anyone born in 1974 or earlier with sec. 3121(a) wages of more than $145,000 in 2023.

I believe the answer is yes. Distribution of excess deferrals under 401(a)(30) and 1.402(g)-1 is one of the listed acts in rev. proc. 2018-58.

Luke is asking the right questions here - specifically, I think, whether the closing agreement addressed minimum funding. If it said that the plan is not subject to the minimum funding standard, then that's all you need to tell the IRS to bug off. If it wasn't addressed, then I think you still have an argument, but you might have to convince them. IRC 6059(a) requires an actuarial report (i.e. schedule SB) for each plan to which section 412 applies. IRC 412(e)(1) says that section 412 applies to a plan which was qualified under section 401(a). If the closing agreement provided that the plan was not considered to be qualified under 401(a) for the year in question, then I think you can point to this to say that it was not subject to 412 and consequently not required to file a schedule SB. Hopefully you answered the question on the 5500 about whether the plan is subject to 412 (line 11 on the 5500-SF, or part II on the schedule R) as "no." If you indicated on the 5500 that the plan was subject to 412, that would explain why the IRS thinks you owe them a schedule SB. You might consider filing an amended 5500 in that case.

SECURE 2.0 just increased the dollar limit that appears in the code. How a plan sponsor chooses to amend the plan is up to them, or maybe up to their preapproved document vendor. I haven't seen any amendments yet, but I can imagine a vendor providing an amendment that says the involuntary distribution limit is increased to $7,000 effective 1/1/2024 only if the plan's involuntary distribution limit was $5,000 as of 12/31/2023. In that case, your plan sponsor could either amend to $5,000 as of 12/31/2023 to take advantage of the vendor's amendment, or just operationally amend on their own to $7,000 as of 1/1/2024. Either way would get them to the same place as of 1/1/2024. Since the actual amendment isn't due until 2025, I think they would have plenty of time to figure out the paperwork.

$12,500. It's a letter ruling request under the jurisdiction of Employee Plans - see rev. proc. 2023-04 sec. 24.01 and the fee schedule in appendix A of the same procedure.

You ARE allowed to tell employees that they have the option to reduce their salary by a certain amount and have it made as a plan contribution instead. This is called a "cash or deferred election" (CODA) and the rules governing it are found in section 401(k), including 402(g) limits, ADP testing, etc. etc. And 401(k) contributions are actually considered to be employer contributions; see 1.401(k)-1(a)(4)(ii) of the regs. What your sponsor would be doing would be considered a "deemed CODA." Essentially they would disqualify the plan unless they subjected the amounts to ADP testing and all the other rules that apply to 401(k) arrangements.

Your question is about adjusting 415 for multiple annuity starting dates, which is a complex topic. The IRS found it complex enough that they have never finalized their proposed regulations on the subject, replacing them with simply the word "Reserved" in the final regulations. It's not something that can be easily answered in a forum post. If you're looking for ideas on how to proceed, you can find some experts' thoughts here: https://www.google.com/search?q=415+masd+site%3Aasppa.org

What does the plan document say?

414(v)(4)(A) provides a special rule for a plan to satisfy the requirements of 401(a)(4) with respect to the availability of catch-up contributions. It states: This paragraph says "all eligible participants" - not just all eligible NHCEs - so I don't think you can eliminate the availability of catch-ups for just a portion of the employees, even just HCEs, without violating 401(a)(4).

It seems likely that the situation Paul points out was not intended by Congress. Nevertheless, the text of the law as it stands today is reasonably understood to say that individuals with earned income, and therefore no sec. 3121(a) wages (because they pay into Social Security and Medicare through self-employment taxes instead) would not be subject to the Roth catch-up rule.

This is literally the definition of a 401(k) arrangement. Can you elaborate on what you are concerned about? Maybe provide some specific examples with numbers? When you said "They also allocate the 3% to all participants" does this mean a safe harbor non-elective contribution? If so there is no ADP test, so there is nothing stopping HCEs from contributing up to the annual limit.

The sections Peter refers to were added by SECURE 2.0 section 301, titled "Recovery of Retirement Plan Overpayments." The gist of this section is that plans do not generally have to seek recoupment of inadvertent overpayments. One of the exceptions however is that this does not entitle a plan to violate IRC 415. If the participant died in 2022, then presumably they had no compensation for 2023 and consequently their annual additions limit for 2023 would be zero. Thus any amounts allocated to their account for 2023 would violate 415 for 2023, and would not be eligible for the treatment afforded under 414(aa).

If it wasn't withheld from payroll then it isn't a deferral. It should be returned to the owner, adjusted for earnings. The earnings would be taxable.

Are we certain it was a genuine Roth contribution, and not a voluntary after-tax contribution? Roth contributions are 401(k) contributions, so they have to be made by the employer with money withheld from the employee's paycheck. VAT, on the other hand, is money contributed by the employee and generally doesn't need to come directly out of the employee's paycheck. If this was truly a Roth contribution, then what happened to the money that was withheld from the employee's paycheck? Is it still sitting in the employer's bank account?