C. B. Zeller

Just to be clear, we are talking about a child of one of the owners, correct? Not just some random child off the street? Ownership is attributed from parents to children for HCE determination purposes. If the parent is HCE because they are a 5% owner, then the child is also a 5% owner and an HCE. The definition of one-participant plan, from the 5500-EZ instructions, treats a 2% shareholder in an S-corp as defined in §1372(b) as a partner, and §1372(b) includes attribution of ownership under §318. If it's an S-corp and the only participants are owners and their children, then the children are treated as owners for purposes of determining whether the plan is required to file 5500-EZ. Note that this does not make it exempt from the other requirements of Title I, so things like SPDs and SARs are still required even though they usually wouldn't be with an EZ filer.

Actually you can submit comments anonymously.

If I understand you correctly, the only participants will be two owners and one owner's child? If it is a partnership, they would file 5500-SF. If it is an S-corp, they would file 5500-EZ. If my previous understanding about the participants is correct, then there would be no testing even if it were not a SIMPLE or safe harbor plan. There are no eligible non-highly compensated employees, so coverage and nondiscrimination tests are deemed to pass. A SIMPLE in this case would serve no purpose except to limit their contribution flexibility.

The comment period is open until January 20, 2023, and this is the kind of feedback that makes for a relevant comment. You can submit a comment letter at http://www.regulations.gov/ referencing RIN 1210-AB64.

Then you inform the client that they need to get you whatever information is required for you to accurately calculate their benefit before the RBD if they want to avoid a disqualifying failure, and fines.

If you search these boards for the term "recalcitrant" you will find other discussions which may prove helpful.

Assuming this is a 5% owner, since there is no mention of retirement date. If they attained age 72 in 2022 then required beginning date is 4/1/2023. If you commence benefits on 4/1/2023 then the amount distributed is the participant's benefit as of 4/1/2023. To adjust the benefit calculated as of the 12/31/2022 (I assume you meant 2022) valuation to 4/1/2023, refer to the plan's definition of actuarial equivalence. If allowed by the plan. If he takes a distribution of his entire benefit as a lump sum in 2022 then he can use the DC method to calculate the portion of the distribution that is an RMD and roll over the rest. Be mindful of the rule that requires the plan to be 110% funded for an HCE to take a lump sum.

Yes

Are we talking about someone whose RBD occurs in 2022 or who commenced distributions prior to 2022 and has an additional accrual for 2022? In the case of the distribution that commences on RBD, you have to pay whatever the participant's accrued benefit is on the benefit commencement date, including any current year accrual, adjusted to their selected form. For the participant who commenced distributions prior to 2022, and has an additional accrual in 2022, I think the regs are pretty black-and-white that the additional amount does not have to be distributed before the first payment interval occurring in 2023. The plan could specify a sooner date, I suppose.

Was the hurricane on the list of FEMA declared disasters? https://www.fema.gov/disaster/declarations Was the person's principal residence or principal place of employment located in an area declared for individual (as opposed to public) assistance during the disaster? If so then the participant has a deemed immediate and heavy financial need and may qualify for a hardship distribution.

I'm a little confused here, the thread title says "DB Plan" but the post says "vested balance" which would mean a DC plan - which is it? Assuming it's a DB plan, and the post actually meant to say "vested accrued benefit," then.... The portion of the benefit that becomes vested in 2022 is treated as accruing in 2022. Additional benefits that accrue in 2022 must commence distribution in 2023. See 1.401(a)(9)-6 Q&A-5 and -6 of the current regs, or 1.401(a)(9)-6(e) and (f) of the 2022 proposed regs. Assuming that the termination completes and the final distribution is made in 2023, then you can use the DC method to calculate the 2023 RMD, treating the total amount distributed as the account balance.

5500-EZ filers are not eligible for DFVCP. DFVCP is a DOL program and non-Title I plans, i.e. 5500-EZ filers, are not under the DOL's jurisdiction. Instead the IRS offers a penalty relief program for plans that failed to file 5500-EZ. You can read more about it here: https://www.irs.gov/retirement-plans/penalty-relief-program-for-form-5500-ez-late-filers I suspect you were already aware of this since you referenced the $500 fee for this program instead of the $750 fee for DFVCP. Regardless, this program is the relief offered by the IRS for plans that forgot to file their 5500-EZ. Without it, the penalty is $250/day with a cap of $150,000. If the 5500-EZ was originally due July 31, 2022 then we are already at $27,000. Compared to that, I would say that a $500 fee is very reasonable.

Visual aid

IRC 401(a)(13) contains the "anti-assignment rule" which says that no part of the benefit in a qualified plan can be reassigned to a 3rd party. QDROs are one of the exceptions to this rule. That's why you have to have the QDRO if you want part of the participant's benefit to be assigned to the ex-spouse. If there is independently a distributable event, for example if the participant is over 59½, or if it's non-deferral source and has been in the plan for a few years, then they could just withdraw whatever amount they choose and pay it over to the ex-spouse. Plan provisions permitting, of course. Could you find a blank QDRO template somewhere? Probably. Could you get a judge to sign off on it? Maybe. Just be careful, especially if your local jurisdiction has rules relating to the unauthorized practice of law. It's probably going to be easier and/or safer to try to find a local lawyer who can do one for you, even if you do have to pay them a few bucks for their time.

ARA actually asked for clarification on this question (re-hire prior to RBD) in their comment letter on the recently-proposed RMD regulations. It remains to be seen if it will be addressed in the final regulations. The safest thing to do would be to make the distribution anyway, since the penalty is so steep.

I don't believe this would be a prohibited transaction (requiring deposit of lost earnings and payment of excise tax under sec. 4975) since the employer is not getting any use of the plan assets, like they would if they had held on to the actual contributions. Instead it sounds like the participants' investment selections are not being honored. What happens in that case is I think you have an ERISA 404(c) failure, the consequence of which is that the fiduciary is no longer insulated from the participants' investment choices. Potentially the participants could sue the trustee if they had a loss caused by failing to follow their investment instructions.

It seems to me that this is asking for trouble. The employer above apparently wants to do something akin to payroll withholding for the contractors. For example, if contractor M elects a 5% contribution, and for a given week the employer pays them $1,000 in non-employee compensation, the employer wants to instead pay them $950 and contribute $50 to the plan, plus maybe another $40 as a match - seems simple, right? Even if M did join the employer's MEP as a participating employer, this would still not be correct, since $1,000 is not M's plan compensation - if M is unincorporated, then it is just the starting point for calculating M's net earned income; if M is incorporated then their comp is their W-2 which may have no relation to the $1,000 at all. It gets even messier when you consider that the contractors probably have other work besides this particular employer. Assuming the contractor is operating as a sole prop, is all of their income from all of their other work now subject to the contribution election and match? I would think it would have to be, unless you could write up a very specific definition of comp to somehow exclude it. Who is going to make sure it is calculated correctly? Do the contractors know they will have to submit their schedules C? And what if they end up having a net loss (and consequently $0 comp and $0 415 limit) after the employer made contributions on their behalf? The administration on this would be cumbersome to put it mildly. And what if the contractor hires employees? I applaud the employer's desire to offer retirement savings via payroll deduction to his people - studies have shown this is one of the most effective ways for workers to save for retirement. It really does say a lot about this employer that he wants to provide this benefit. Unfortunately the current tax law is not set up to help him do it easily.

What notice are you referring to in particular? Retirement plan participants are required to receive a number of notices at various times and each of those notices has slightly different timing requirements. While most notices have a latest date on which they may be provided, not all have an earliest date—meaning that you can sometimes just provide the notice when the employee is hired and call it good. The service requirement is 175 hours over what period of time? A month? 3 months? A year? And what is the entry date once they satisfy the service requirement? You said the plan is using the counting-hours method, does it have an hours equivalency provision? What happens if the participant does not meet the hours requirement during their initial eligibility computation period?

In order to be a qualified plan, the plan must be maintained for the exclusive benefit of the employees of the employer and their beneficiaries. A contractor, by definition, is not an employee, and they can not participate in a plan maintained by the employer.

Catch-up contributions are not included in the ADP test, in other words, the participant's ADR is determined without regard to their catch-up contributions. Deferrals which are reclassified as catch-up due to exceeding the 402(g) limit (or another limit such as a plan-imposed limit) are not taken into account when determining the amount of a participant's excess contributions and would not be refunded. If a participant is eligible for catch-up and has not otherwise exhausted their catch-up limit, their excess contributions may be reclassified as catch-up, up to the available limit, rather than being distributed.

Be careful, especially if they are asking for a rollover. I know you said they do not intend to retire this year, but if it turns out that they do terminate before the end of the year, then 2022 becomes their first distribution calendar year and now some of that money that was rolled over suddenly becomes an RMD that was not eligible for rollover. You might want to encourage them to take at least part of their distribution in cash.

1.413-1 is collectively bargained plans. 1.413-2 is MEPs. For this specific question, 1.413-2(c) refers to 1.413-1(d).

I think the regs do address it. 1.413-2(c) says that the exclusive benefit rule will apply to a MEP "in the same manner as under section 413(b)(3) and §1.413-1(d)" (e.g., collectively bargained plans). 1.413-1(d) says (emphasis added): I read this to say that forfeitures arising from contributions by one employer can be freely allocated towards participants of another participating employer. So there is no need, under the regs, to track each participating employer's forfeitures separately. That said, there is nothing that says you can't track forfeitures separately, and the participating employers may prefer to do it that way for their own purposes. Whichever way they want to do it, it might be wise to be explicit about it in the plan document.

I think you answered your own question. How many ways are they supposed to give you to fix your own mistakes?

Bill, when I saw you had replied to this question, I was expecting an announcement that bow ties are now mandatory for all attendees 😄