C. B. Zeller

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 😄

https://www.irs.gov/forms-pubs/additional-guidance-for-substitute-and-telephonic-submissions-of-forms-w-4p-and-w-4r Whoever told you that "the IRS didn't rule on implementing" might have meant that the IRS hasn't provided any rules for implementing a simplified substitute form, like we were used to with the old W-4P. The rules for using a substitute form now are so onerous that it is basically impossible. The new forms W-4R and W-4P (or suitable substitutes) must be used starting in 2023, unless the IRS comes out with some guidance before then.

There are differing opinions on this, but my opinion is yes. Under IRC 404(a)(6), the contribution deemed to have been made on the last day of the prior taxable year if it is made "on account of such taxable year." Clearly it was made on account of the prior plan year, but what does it mean to be made on account of the prior taxable year? The IRS doesn't elaborate, but the only thing that makes sense to me is that the employer deducts it on that year's tax return. Since they didn't do that, I would argue that it defaults to being deductible in the year contributed (assuming it meets all the other requirements to be deductible, of course).

I'll address your second question first. With respect to coverage testing, Treas. Reg. 1.410(b)-8(a) provides that plans may satisfy the coverage test using a daily testing option, a quarterly testing option, or an annual testing option. In practice, most plans will satisfy coverage using the annual testing option, but the other options may provide better results in certain circumstances. For nondiscrimination, Treas. Reg. 1.401(a)(4)-1(c)(3) provides that the nondiscrimination requirements will generally be met on the basis of the plan year. For the definition of compensation used to apply the various tests, you have to look at the test in question. For the ADP test, for example, compensation is defined in Treas. Reg. 1.401(k)-6, to mean compensation as defined in 414(s) and 1.414(s)-1, measured over either the plan year or calendar year, or the portion of the year in which the employee was eligible. For the top heavy minimum, however, the definition of compensation - as per Treas. Reg. 1.416-1 M-7 and T-21 - is the definition in 1.415(c)-2 and you do not get the option to measure it over just the period of the year in which the employee was an eligible participant. For HCE determination, Treas. Reg. 1.414(q)-1T Q&A-13 references IRC 415(c)(3). In general, the term "compensation" doesn't mean the employee's stated rate of pay, but rather the amount actually paid by the employer to the employee. A popular definition of compensation is the amount shown in box 1 of the employee's W-2, plus deferrals. However, compensation is a complex topic and this is only scratching the surface of it.

If it's not eligible to file 5500-EZ then they are probably looking at one or more years of delinquent returns.

It would - at worst you could do the amendment to suspend the match on one day and then adopt the 4% non-elective the next day - but can you really do that? Notice 2020-86 Q&A-8 says you can suspend a plan's safe harbor nonelective contributions during the year, later readopt the 4% nonelective, and still retain the safe harbor. It doesn't say anything about suspending a match and being eligible for this treatment. Given that the IRS chose to specify nonelective in this Q&A - combined with the section of 2016-16 that Belgarath referenced - it seems that you can not get this treatment with a safe harbor match.

https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/efast2-form-5500-processing.pdf

was due a reasonable amount of time (usually 30 days) before the 2022 plan year, e.g. November 30, 2021.

What is the correction they're looking to make? Do they want to not have to make an allocation to the former employee? The 3% safe harbor is probably required no matter what, but they might be able to get away without the 2% profit sharing if the allocation formula in the plan document says that each participant is in their own group, and if all the testing passes without it. If they do want to still give the former employee the 2% profit sharing for 2021, then go ahead and do it now. The last date to make a contribution that can be counted as an annual addition for 2021 is 30 days after the employer's tax filing deadline for 2021, including extensions. As you noted it would be deductible for 2022.