C. B. Zeller

Generally, you can only withdraw money from a 401(k) plan upon attainment of age 59½, termination of employment, financial hardship, or termination of the plan (there are a few other special distributable events like QBADs and QDDs as well). IRC 72(t) imposes a 10% penalty on any distribution from a plan, with exceptions for distributions made after age 59½, or after the death or disability of the employee, or if termination of employment occurred after age 55, or various other reasons. So it's not that the plan allows a penalty-free distribution at age 55 - it's that the plan would generally allow distributions after termination of employment (at any age), but if termination of employment occurred after age 55, then the 72(t) excise tax does not apply. The plan doesn't need to specifically allow this or really address it in any way; it's simply a consequence of the way the tax code is set up. However, a 401(k) plan may not permit distributions at age 55 in the absence of another distributable event. To get back to the original question, I personally see little to no point to defining an early retirement age in a typical 401(k) plan.

To comply with ERISA 404(c), participants must have an opportunity to exercise control over the investment of their accounts. Failure to offer that opportunity does not result in disqualification since it is not part of the tax code, but it could result in loss of relief of co-fiduciary liability for the plan's other fiduciaries. If the plan document says that participants will be given the right to direct the investments in their account, then failure to follow the plan document is an operational failure that is potentially disqualifying. The right to direct investments is considered a benefit, right or feature that must be available to participants on a nondiscriminatory basis. If HCEs have the right to direct their investments but NHCEs don't, you could have a 401(a)(4) violation, which is disqualifying. That aside, what is a "catch up profit sharing contribution?" And when you say "It was requested for these funds to be deposited into specific accounts" - requested by whom, and what accounts? The plan doesn't have to let participants invest in anything under the sun; in fact, it would probably not be prudent to do so. The plan can restrict the participants' options to a menu of investment alternatives.

With the very big caveat that IRS has not issued any guidance on how elapsed time or eligibility computation periods will apply with respect to LTPTs, here is my analysis of the situation: For purposes of determining eligibility under the LTPT rules using the counting-hours method, the first eligibility computation period is 2/7/23 - 2/6/24, and the employee worked 500 hours during that period. The second eligibility computation period is 2/7/24 - 2/6/25, and the employee also worked 500 hours during that period. So, as of 2/6/2025, they have completed two consecutive eligibility computation periods with 500 hours of service, and they would enter the plan on 7/1/2025. Under elapsed time rules, you are correct that there was a greater-than-12-month period of severance, so you don't count the time during the period of severance. However, unless the rule of parity applies, you still count months (or days) before the period of severance in determining when a 12-month period of service is completed. Before termination, the employee completed 5 months and 25 days of service. After re-hire, they had 5 more days (making a 6th month) on 8/14/24, then will have completed an additional 6 months for a total of one year period of service on 2/14/25. So they still enter the plan on 7/1/2025. Now it's possible that the IRS will require plans which shift the eligibility computation period to the plan year for normal eligibility purposes to also apply the shift for LTPT eligibility purposes. If that's true, the 2nd eligibility computation period would have been the 2024 calendar year, in which case the employee would have entered the plan on 1/1/2025. All that said, it wouldn't take too much to stretch your example a little further and come up with a situation where the employee could actually complete 2 consecutive eligibility computation periods with 500 hours of service under the counting-hours method without completing a 12 month period of service under the elapsed time method. So I should refine my earlier statement and say that it would be "mostly" impossible, and "almost" no one would enter.

Form 2848 is used to give an individual authority to represent a taxpayer before the IRS. It is not used to designate someone as the ERISA 3(16) plan administrator, which is who signs the 5500. It is possible to have a 3rd-party 3(16) plan administrator, and there are service providers out there who will do that. As a side note, if you are doing freelance work (you said this is for your former employer), make sure you have adequate E&O insurance for yourself. Your former employer's policy probably won't help you.

In addition to everything CuseFan said - which I wholeheartedly agree with - my opinion is that the mere fact that they adopted a plan together shows some coordination between their businesses and likely invalidates the spousal attribution exemption. So you probably have a controlled group on that alone. I don't know if this is a "red flag" per se, but it would look suspicious to me to see a plan filing its first 5500-EZ and showing an opening balance greater than $250,000. I would try to get the delinquent filing submitted before the 2022 5500-EZ is filed.

As you mentioned, this is ok under the 2-year eligibility rule, because someone who was hired on 1/3/2023 would complete 1 year on 1/3/2024 and then enter the plan on 1/1/2025. This requires that the match and PS both have 100% immediate vesting. For deferrals, the plan could have a single entry date, as long as the application of that entry date with the associated service requirement does not result in any participant entering the plan later than either the first day of the plan year or 6 months following the date they complete a year of service. For example, the plan could impose a 6-month service requirement with entry on the first day of the plan year only. The participant hired on 1/3/2023 would enter on 1/1/2024 (six months earlier than they would with semi-annual entry dates), but a participant hired on 12/29/2023 would enter on 1/1/2025, the same as if the plan had semi-annual entry dates.

It's not that they wouldn't be subject to the LTPT rules, but rather that it would be impossible for someone to have 2 consecutive 12-month periods of 500 hours of service without satisfying 1 year of elapsed time along the way. No one would ever enter as LTPT because they would have already satisfied the plan's normal eligibility requirements.

Reasonable assumptions about things like salary increases are fine, but I don't think you can make assumptions about plan provisions that will be adopted or amended in the future. 1.430(d)-1(d) lays out rules for what plan provisions may be taken into account when determining the funding target and target normal cost. With limited exceptions, only plan provisions actually adopted by the valuation date may be taken into account, unless the sponsor makes a 412(d)(2) election.

Corp B adopted the plan as a sponsoring employer on the date of the sale? Did Corp A revoke its adoption of the plan, or does A continue to sponsor the plan? If A still sponsors the plan, then John is still a 5% owner and continues to be a Key employee. If A no longer sponsors the plan, then, although it's less than crystal-clear under the regulations, I would agree with your analysis and treat John as a former Key employee for plan years after 2022.

A forfeiture allocation is an annual addition. So you can't allocate it to participants whose annual additions limit is zero (because their comp is zero) in the current year. In what year did the forfeitures arise?

That is a question for the insurer. Read the actual contract - it will define what is and isn't a covered loss.

ASG determination is highly fact-dependent and needs to consider things that don't fit nicely into a spreadsheet. I find the flow charts on pages 45-46 of this document to be very helpful in analyzing potential ASG scenarios. https://www.irs.gov/pub/irs-tege/epchd704.pdf

There is no one right answer that is going to apply to all employers. It depends on this particular employer's appetite for risk, their assessment of the likelihood of experiencing a covered loss, and their ability to cover losses without regard to the insurance. Cyber security insurance is strongly recommended, however there is no need that the insurance be obtained from the same vendor that provides their ERISA fidelity bond. The employer might want to see if they already have insurance that would cover cyber-related losses to the plan, or consider shopping around before making a decision.

IRC 414(b) says: So you determine the deduction limit as if all members of the controlled group were a single company, and then allocate the deduction using some reasonable method. Note that the "regulations prescribed by the Secretary" referred to in the statute do not exist. It is probably reasonable for each entity to take a deduction equal to the amount of the contribution allocated to its employees in the DC plan. In the DB plan, the contribution might be allocated in proportion to the benefits accrued in the current year by the employees of each entity. There are likely other reasonable ways to allocate the contribution as well. I'll also point out that the deduction limit is usually higher than 25% in a DB+DC combo situation. Since it appears the DB plan has more than 25 active participants, it should be covered by PBGC. Therefore, the deduction limit is probably 25% on the DC plan, plus the amount determined under 404(o) on the DB plan. If the DB plan is not covered by PBGC, then the combined deduction limit is usually 31% of compensation, or if the contribution on the DC plan is not more than 6% of compensation, then it would be the 404(o) amount plus the DC contribution.

With alternative tools that others might prefer: HP 12c: 3.222023 [ENTER] 181 [g][DATE] Result is 9.192023, interpreted as September 19, 2023 Excel: =DATE(2023, 3, 2022) + 181 Result is 9/19/2023 That said, if you are working with a system that works in days instead of months, a half year would be more correctly 365 (or 366) divided by 2, which would be 182.5 (or 183). So I would go with Belgarath's suggestion of 183 days instead of 181 if you are doing it this way.

I'm with you. I think the author is mistaken.

We will need guidance from the IRS to say for sure, but my take on this is that adding Roth for purposes of complying with S2 sec. 603 isn't a remedial amendment issue, and so wouldn't qualify for the extended deadline. All the law says is that employees whose FICA wages in the prior year were more than a certain dollar amount may not make a catch-up contribution in the current year unless that contribution is Roth. A plan could just as well comply with this requirement by not allowing those employees to make catch-up contributions at all. Of course, due to the universal availability requirement that applies to catch-ups, the employer would have a qualification issue unless they eliminated catch-ups for all participants. But still, adding Roth is not a requirement to comply with the law.

Keep in mind that this will cause the plan to lose its top heavy exemption, if that's a concern for this client.

While the fee quoted by your consultants may seem steep in relation to the actual excise tax due, consider it relative to the cost of responding to an IRS inquiry if the form is not completed correctly. The fee may be worth your peace of mind.

You could exclude all hourly-paid employees, but you can not have a service-based condition with more than 1,000 hours.

Maybe this is a silly question - this is outside my area of expertise. From reading the instructions to 1099-C, it appears that it should only be filed if the creditor is a certain financial entity. If the employer is not one of these entities, do they still file 1099-C?

ERISA § 101(i)(7)(A) defines blackout period: The ability of participants to direct or diversify assets is not being affected, since those rights don't exist with respect to the sub-accounts being transferred. If the ability of participants or beneficiaries to obtain loans or distributions may be suspended, limited, or restricted for more than 3 consecutive business days, then you have a blackout period under this definition. How long is this transfer expected to take? And how long does that compare with your normal timeline for processing distributions and loans from the pooled account? For example, if the transfer is expected to take 4 business days, and the plan only promises to participants that loans and distributions will be processed within 10 business days of receipt, might it be possible that the transfer will not actually affect any participant's ability to receive a loan or distribution on a timely basis? But a better question is, why wouldn't you want to provide the notice? It's better to play it safe, given the applicable penalties. Plus, I imagine the sponsor would want the participants to know where their money is going.

The term "individual account plan" as defined in ERISA § 3(34) means any defined contribution plan.

Hopefully you've advised the client about the annual additions limit...

Rev. Proc. 2021-30 appendix B 2.02(1)(B) You reduce the QNEC such that the QNEC plus any deferrals actually made do not exceed the 402(g) limit. In essence, the employee would be giving up some "free money" by maxing out.