C. B. Zeller

My best understanding at this point is that employees who worked 500 hours for 3 consecutive years from 2021 through 2023 will enter plans on 1/1/2024. Then, employees who work 500 hours for 2 consecutive years 2023-2024 will enter plans 1/1/2025, and any two consecutive years after that will enter the plan the following year.

My read of 414(v)(7)(B) is that if you have any participant who is at least age 50 with compensation above the limit, then you have to allow Roth if you want to allow catch-up contributions at all.

Form 5500-EZ is solely within the jurisdiction of the IRS, so the DOL will not come asking about it (and if they do, you can politely tell them to take a hike). However, this means that if the IRS assesses penalties on a late 5500-EZ then it is too late to apply for relief.

There is nothing in the law that requires plan administrators to permit self-certification, or for that matter to allow hardship distributions in the first place. Even if they do choose to permit self-certification, the plan administrator may not rely upon it if they have actual knowledge to the contrary.

I think we're going to see a few owners paying themselves $144,999.99 in salary this year.

The offset balance includes interest through the date of the offset. If the loan was suspended under the CARES Act, then repayments were probably supposed to have started in January 2021, which means it probably defaulted on the last day of the calendar quarter following January 2021, which would be June 30, 2021. You could issue a 2021 1099-R, which would include interest through June 30, 2021, but that would mean they would have to amend their 2021 tax return. Or, you could self-correct the loan under EPCRS, which allows you to report it in the year that it was corrected. If you're correcting it by defaulting the loan and reporting it in 2023, then it will include interest through 2023.

There isn't a controlled group, since that requires 80% common control and you only have 51% common control, even assuming that that the spousal non-involvement exception doesn't apply. This is assuming that the other 49% of A is owned by an unrelated person. ASG status is more fact-specific. Both corporations are in the field of consulting, which is one of the specified fields and automatically makes them service organizations. If we are considering an A-org group, then a corporation can only be the FSO if it is a professional service corporation. Are either of the corporations professional service corporations? Consultants are not on the list of professional services in the proposed regs, so they are probably not a professional service corporation. If not, then there can't be an A-org group since neither of them could be the FSO. In order to be a B-org group, a significant portion of one of the corporations' business must be in providing services to the other corporation. If neither of them provide services to the other then there isn't a B-org group either. It seems unlikely that there is an ASG, but as my signature line below says, this free advice is worth what you paid for it. If you want some advice you (or your client) can rely upon, get a lawyer.

I predict that this will be addressed when the IRS finalizes the RMD regulations that were proposed last year.

Are you talking about safe harbor contributions in a safe harbor 401(k) plan, or QNECs/QMACs that are made at the employer's discretion to help pass the ADP or ACP test?

IRC 414(v)(7)(A) (as added by SECURE 2.0) says that if a participant exceeds the comp limit, paragraph 414(v)(1) (which covers all types of catch-up contributions, including ADP catch-up) does not apply unless the contributions are designated Roth contributions "made pursuant to an employee election." The election to treat a deferral as a Roth contribution must be made at the time of the contribution, 1.401(k)-1(f)(1)(i). It's not unreasonable to read these together to say that if the deferrals were not contributed as Roth at the time they were made, then they could not be used for catch-up, including for ADP catch-up. If IRS wants to allow pre-tax deferrals to be retroactively recharacterized as Roth catch-up to avoid their having to be distributed from the plan on a failed ADP test, they will need to provide some guidance.

The rule of parity allows you to disregard eligibility service before 5 consecutive 1-year breaks in service for an unvested participant. If this person has a vested balance in the plan then they probably entered the plan immediately upon re-hire, regardless of how many 1-year breaks in service occurred.

416(i)(1)(B)(iii)(I) says that sec. 318(a)(2)(C) is applied by substituting "5%" for "50%." In other words, take anywhere that "50%" appears in 318(a)(2)(C) and mentally replace it with "5%" when you're thinking about who is a 5% owner for sec. 416 purposes. What 318(a)(2)(C) says, is that if you own at least 50% (but we're treating it as if it says 5%) of a corporation, then you are deemed to own a proportional share of any stock owned by that corporation. Based on the facts presented, I don't think this section applies to your situation. Ordinary spousal attribution under sec. 318 applies, and so each spouse would be considered to own 10% for 416, and consequently for 401(a)(9), purposes.

It seems to me that would be a violation of the exclusive benefit rule. Any use other than providing benefits to participants and their beneficiaries, or defraying reasonable costs of plan administration, is not allowed.

I agree with this wholeheartedly. I try to avoid using the term "top heavy test" for this very reason. I prefer "top heavy determination" or "satisfying the top heavy minimum" depending which piece is being discussed.

Austin, I agree with your analysis. Section 310 isn't effective until 2024, so that gives some time for IRS to elaborate on how they intend to interpret it, or for Congress to pass a technical correction.

It's the IRS interpretation. In RR 2004-13, they said If that interpretation still stands, then a plan which has different eligibility for deferrals and safe harbor match would not satisfy 416(g)(4)(H). There are 3 sections of SECURE 2.0 that affected sec. 416 and I don't think any of them would require the IRS to change this interpretation. SECURE 2.0 sec. 310 amends sec. 416(c)(2) to say that employees who have not satisfied the minimum age and service requirements of sec. 410(a) do not have to be considered when determining if the plan satisfies the top heavy minimum. That's great, but it does not help with respect to employees who have satisfied minimum age and service but who otherwise are not getting a top heavy minimum under the safe harbor match plan (maybe because they did not make any deferrals). SECURE 2.0 sec. 121 amends 416(g)(4)(H) to state that "starter" 401(k) plans are not considered top heavy. Not relevant here. SECURE 2.0 sec. 125 amends 416(g)(4)(H) to state that a plan shall not be considered a top heavy plan "solely because such plan does not provide nonelective or matching contributions to [long-term part-time employees]." Again, not relevant here since the concern is with employees who have satisfied the minimum age and service requirements. This does help in the case of a plan that normally applies age 21/1 year of service eligibility for deferrals and safe harbor match, but now has to allow LTPT employees to participate for deferrals. However, for a plan that allows immediate entry for deferrals but has a 1 year of service requirement for match, it would not fall under this exception since it does not "solely" not provide a match to the LTPT employees. Again, I hope I am wrong and the IRS comes down with a favorable interpretation.

I didn't mean to appear to be concluding anything - merely pointing out a possible interpretation. I agree that Congressional intent seems to have been as you describe. However I am not sure that the language in the Act accomplishes that intent, given the IRS's prior interpretation. We will have to wait and see.

The 4/1/2022 distribution is for the 2021 distribution calendar year. It uses the 12/31/2020 account balance.

Without digging into the rules on this, my gut feeling is that you are going to have to preserve the existing distribution options on the accrued benefit as of the date of the amendment. In other words, the life annuity (assuming the plan defines the normal form of benefit as a life annuity) amount at normal retirement age can't be less than $1,888. Likewise for any other optional forms of benefit. Chances are with one more year of accrual, the accrued benefit under the new definition of actuarial equivalence will be far more than $1,888 so you really won't have to worry about it ever.

No. Age 72 applies for individuals whose date of birth was on or after July 1, 1949 (i.e., attained age 70½ on or after January 1, 2020). Based on the date of birth of 11/11/1949, age 72 applies, so the first distribution calendar year was 2021 and RBD was 4/1/2022.

Well, maybe. The reason that safe harbor match plans which have earlier entry for deferrals than for the safe harbor match are not exempt from top heavy is not because of anything explicit in the law; it's because the IRS interprets the term "solely" as it appears in sec. 416(g)(4)(H) to not include a plan where only a portion of the employees eligible for deferrals are eligible for the safe harbor match - see rev. rul. 2004-13. SECURE 2.0 sec. 310 says that you do not have to look at employees who have not met the minimum age and service requirements of sec. 410(a) when determining if the plan satisfies the top heavy minimum; however it does not modify the definition of top heavy plan in 416(g)(4)(H). The new law is certainly an improvement with respect to employees who have not met the minimum age and service requirements, for other employees, celebration may be a bit premature. We should wait and see what the IRS says.

It's legit - it was announced a couple of weeks ago. https://www.asppa.org/news/dol-modernizing-efast-authentication The plan is apparently to stop allowing old EFAST login credentials by September 1, 2023 and only allow login.gov after that point. We'll see how that works out. As Lou pointed out, MyPAA (for PBGC filings) made the same change earlier this year, but they had the foresight to make it required and only stop supporting the old logins only after the normal due date for calendar-year filers.

I don't disagree with the points of view expressed so far. Beyond just the requirement for automatic enrollment, the requirement for automatic escalation is likely to be burdensome, as it requires the employer to separately track which employees have and have not made an affirmative election, potentially for as long as 12 years after they first became eligible! Small comfort though it may be, we do get a safe harbor correction method in SECURE 2.0 sec. 350 which should make it easier to stay in compliance for an employer whose implementation is less than perfect.

The deduction limit for employer contributions (not including deferrals) is 25% of compensation. I know you only have one participant here, but in general, the limit is measured by adding up the compensation of all participants who benefit under the plan, and multiplying that by 25%. An individual participant can get more than 25% of comp as an employer contribution, but the total contribution for all participants should not exceed 25% of total compensation for all participants.

If allowed by the plan document.