G8Rs

There is no answer. One concern is whether the auto enrollment feature is too much employer involvement. You could argue there isn't employer involvement because it's required by law. It would have been nice if the law (unlike prior bills) didn't leave any discretion in designing the auto enrollment feature. But there is some discretion in setting the default % and escalation. Is that too much involvement? A bigger concern is that the plan must have a QDIA. If the plan isn't subject to ERISA, then there is no fiduciary standard in selecting the investment. The DOL is aware of the issue. No telling if we'll get guidance. Unless they provide some sort of QDIA safe harbor (possible but unlikely), I suspect they will say the plan is subject to ERISA. They prefer that participants be protected by ERISA.

It's still going into a Roth IRA for the individual so a rollover into a 401(k) isn't allowed.

That is correct - but the IRS announced that the W-2 wasn't going to change for 2025. They will probably add it in 2026.

If using a prototype formatted document, look at the basic plan document. Maybe in the deferral section rather than the definition of comp. Some plans allow the exclusion of non-cash compensation for deferral purposes.

That is correct. But see the following from the preamble to the Prop. Regs. There could be a discrimination issue if you have some NHCEs precluded from making a catch-up because they are subject to the Roth requirement. "Because the Roth catch-up wage threshold is slightly lower than the wage threshold used in the definition of highly compensated employee (HCE) under section 414(q)(1)(B), some nonHCEs may be subject to the Roth catchup requirement. Thus, if a plan that does not include a qualified Roth contribution program prohibits catch-up eligible participants who are subject to the Roth catch-up requirement from making catch-up contributions, while permitting other catch-up eligible participants to make catch-up contributions, then the outcome of the nondiscrimination test with respect to the availability of catch-up contributions performed under § 1.401(a)(4)–4 may be affected. Accordingly, proposed § 1.414(v)– 2(b)(2) would permit such a plan to also preclude one or more catch-up eligible participants who are HCEs and who are not subject to the Roth catch-up requirement (for example, because they did not receive FICA wages for the preceding year) from making catch-up contributions if doing so facilitates satisfaction of § 1.401(a)(4)–4 with respect to the availability of catch-up contributions." https://www.govinfo.gov/content/pkg/FR-2025-01-13/pdf/2025-00350.pdf

I should have stated it differently. I think distributions must be made in accordance with the terms of the plan document. It would be unusual for a plan to have language permitting the delay of a distribution prior to the receipt of a DRO. State law would be applicable to protect the other spouse once a plan distribution is made.

Another factor to support fmsinc's position - once a divorce is filed, there would likely be a Family Law Order prohibiting the parties from dissipating assets without the other spouse's consent or court approval. It's not the plan's responsibility, and arguably right, to delay a distribution to inquire whether the funds are being withdrawn for a nefarious purpose in violation of a possible court order. The plan doesn't want to know all the details and only follows the rules applicable when a DRO is actually received.

Going back to the original question, the daughter could be a designated beneficiary if she is the beneficiary due to a default in the plan document. If the default is the estate then she is not a designated beneficiary, even if she is the sole heir. If the default is to the kids and then she is a designated beneficiary. And so would any of her siblings. The regulations only require that the beneficiary be identifiable by the plan - and be an individual or determinable through a look-through trust. There is no look-through rule for an estate.

I wouldn’t allow them to roll it back in. As you pointed out, it will just be cashed out again when the plan is amended.

Here's another approach. If the plan allows distributions upon termination of employment, then don't you have a failure to obtain consent rather than an overpayment? Rev. Proc. 2021-30 only addresses consent failures in a J&S plan. But if you're comfortable in crafting self-correction where nothing is prescribed, this would seem to help. Try to get consent to the distribution, and if they don't, then oh well. .07 Failure to obtain participant or spousal consent for a distribution subject to the participant and spousal consent rules under §§ 401(a)(11), 411(a)(11), and 417. (1) The permitted correction method is to give each affected participant a choice between providing informed consent for the distribution actually made or receiving a qualified joint and survivor annuity. In the event that participant or spousal consent is required Page 94 of 140 but cannot be obtained, the participant must receive a qualified joint and survivor annuity based on the monthly amount that would have been provided under the plan at his or her retirement date. This annuity may be actuarially reduced to take into account distributions already received by the participant. However, the portion of the qualified joint and survivor annuity payable to the spouse upon the death of the participant may not be actuarially reduced to take into account prior distributions to the participant. Thus, for example, if, in accordance with the automatic qualified joint and survivor annuity option under a plan, a married participant who retired would have received a qualified joint and survivor annuity of $600 per month payable for life with $300 per month payable to the spouse for the spouse’s life beginning upon the participant’s death, but instead received a single-sum distribution equal to the actuarial present value of the participant’s accrued benefit under the plan, then the $600 monthly annuity payable during the participant’s lifetime may be actuarially reduced to take the singlesum distribution into account. However, the spouse must be entitled to receive an annuity of $300 per month payable for life beginning at the participant’s death.

Generally, that will be the case. Under IRC 413(c), all service with all adopting employers in a MEP must be recognized. So, you must apply the eligibility provisions of Company B's plan. If the plan requires a YOS to enter and the person had a YOS while working for Company A, then the person enters on date of hire with Company B (assuming no class exclusion applies). The same approach would be used when applying the LTPT employee rules (assuming it's a 401(k) plan).

That relief only applies to governmental 457(b) plans. There haven't been any extensions for non-governmental 457(b) plans.

I agree that you end up with facts and circumstances, but not because of the SH rules. The law only addresses advance notice if you want to use the SH provisions. The 210 days after the amendment is adopted to provide a notice (SMM) is a DOL rule. The IRS hasn't issued general notice rules for non-SH plans and it's likely there would be a facts and circumstances test under effective availability. The match is being changed so is there sufficient notice so that participants are able to change elections based on the new match. The fact that it had been a SH plan isn't relevant. What advance notice rules do you apply to your non-safe harbor 401(k) plans that have been amended?

The plan is subject to the automatic enrollment requirement. Selecting the auto deferral %s and selecting a QDIA could cause the plan to be subject to ERISA. It's possible the DOL could issue guidance (which is unlikely to be before 2025) that the employer isn't subject to ERISA if certain conditions are met. That would then be a problem for employers in states that don't allow auto enrollment. There are two safe options. Stop deferrals before 2025 or implement automatic enrollment and assume the plan is subject to ERISA. We don't have guidance on who must be covered by the feature, so if an employer wants to suspend deferrals, it might be able to wait until the first new participant enters the plan after 2024. I'm curious if anyone else has other reasonably safe options.

I don’t see any problem limiting the number of certification hardships or putting a limit on the number of hardships allowed per year. I can understand an employer wanting to do this because of leakage. This is becoming a problem for many plans that are using certification.

As to your auto-enrollment question the, one item not addressed in the notice is whether a pre-enactment single employer plan that adopts a post-enactment MEP is subject to auto-enrollment. It is likely that based on an interpretation of the statute, the plan would be subject to auto-enrollment. So, even though it may be a merger into the MEP, if it's a post-enactment MEP, then auto enrollment likely applies (unless the employer falls under the new business or small employer exceptions). Agree with you that there is no way around the LTPE rules, unless it's a non-ERISA 403(b) plan.

Yes. I would plan on auto enrollment on 1/1/26 even if the business was started sometime in 1/1/2023. The reason is because we don’t have a transition rule in the stature similar to what is there for the less than 10 employee exception. That exception gives you until the year following the year you exceed the threshold. The new business exception doesn’t have a similar rule so it would be safest to apply auto enrollment as of the first day of the year in which the employer is expected to be in business 3 years. Maybe by 2026 the IRS will provide a transition period.

I agree. The only distributions that can be eliminated are PLESAs. Hopefully Treasury will amend the regulations to allow the other distributions to be eliminated, just as they did for hardship distributions.

The 10% default withholding rule applies. That's because the law provides that these are not eligible rollover distributions (if they were, then the 20% withholding rules would apply). (i) EXEMPTION OF DISTRIBUTIONS 20 FROM TRUSTEE TO TRUSTEE TRANSFER AND WITHHOLDING RULES.—For purposes of sections 401(a)(31), 402(f), and 3405, qualified disaster recovery distributions shall not be treated as eligible rollover distributions.

The proposed 401(a)(9) regulations address the issue (as pointed out in prior responses, the answer is no). https://public-inspection.federalregister.gov/2024-14543.pdf. From the preamble (underline added by me): Under proposed §1.401(a)(9)-5(g)(2)(iii), a distribution from a designated Roth account made in a calendar year for which the employee is required to take a minimum distribution under the plan would not count towards satisfying that requirement. Consistent with this rule, the proposed regulations would provide that such a distribution is not treated as a required minimum distribution for purposes of §1.402(c)-2(f). Thus, the distribution could be rolled over to a Roth IRA if it otherwise meets the requirements to be an eligible rollover distribution.

Your understanding is correct. The problem is that there is no formal guidance on the issue. With pre-approved plans, the IRS requires the spin-off/termination. The reasoning is that distributions may be on ‘plan’ termination. So there must be a plan that is terminating, not just an employer ceasing to participate. The 2-step process seems like a waste, but it’s certainly the safest way to go.

Part of the confusion might be that there are two different 5 year rules. The one used to determine if there is qualified Roth distribution is one clock per Roth account, even if the Roth account has separate sub-accounting (which is one of your Qs: it’s just an accounting). The clock starts with the first deferrals, in-plan Roth rollover or designated Roth employer contribution. Whichever is first starts the clock for determining if the earnings can be distributed tax-free. Separate accounting is used to determine when an amount can be distributed. For example, Roth deferrals generally can’t be distributed prior to 59 1/2 but an in-plan rollover might be distributable sooner, depending on the plan and the source of the rollover. The second 5 year rule is an anti-abuse rule relating to the 10% early tax. It’s referred to as a recapture rule. The rule only applies to in-plan Roth rollovers. Normally the 10% tax is based on the amount includible in income. Roth is after-tax so the 10% tax would only apply to earnings, if it’s not a qualified distribution. But suppose I have a pre-tax account, I want an early distribution and don’t want to owe the penalty tax. I do a Roth rollover and pay normal taxes. At a later date, I then take a distribution from that account. I don’t owe the 10% penalty on the basis. Or maybe I do. Congress plugged the possible abuse by imposing the 10% penalty on the basis if the rollover was done within a 5 year period prior to the distribution. For that rule, each in-plan Roth rollover has its own 5 year period. 2010-84 Q&A 12. I don’t see anything in SECURE 2.0 indicating that the recapture rule applies to Roth employer contributions.

There is no exception to the anti-cut back rules for QDRDs. There is an exception for hardships (and loans aren't protected so no need for an exception). We hope the Treasury will expand the regulations to cover QRDS and the other new distributable events in 2.0. But unless, or until, that happens, once you add it you can't eliminate the distribution component of the provision with respect to money in the plan at the time of the elimination. No one wants to have to track old money vs. new money or retain the provision for old participants vs. new participants (which then can result in some nondiscrimination issues down the road). I agree with Lois on limiting the provision to a specific disaster. That way you're not stuck with it for any other disasters. Pre-approved plans will hopefully allow this, but we won't know that for many years.

I realize taxation is a separate issue. So is is cash vs non-cash per the parentheticals in the regulation. But I would still limit this exclusion to one of the fringe benefits listed in 15-B. Of course we have no guidance from the IRS on the issue. (3) Safe harbor alternative definition.Under the safe harbor alternative definition in this paragraph (c)(3), compensation is compensation as defined in paragraph (c)(2) of this section, reduced by all of the following items (even if includible in gross income): reimbursements or other expense allowances, fringe benefits(cash and noncash), moving expenses, deferred compensation, and welfare benefits.

I'd limit it to the categories listed in Publication 15-B. I think the explanation in de minimis benefits is helpful. This is also referenced in Notice 2024-2 (financial incentives for participation. Imagine the taxes that could be avoided if paid vacation were a non-taxable fringe benefit or if all pay for an employee could be made in the form of gift cards. De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Cash and cash equivalent fringe benefits (for example, gift certificates, gift cards, and the use of a charge card or credit card), no matter how little, are never excludable as a de minimis benefit. However, meal money and local transportation fare, if provided on an occasional basis and because of overtime work, may be excluded, as discussed later.