G8Rs

Stated differently, the definition of compensation used for deferrals only has to be reasonable unless it's applying the default % under a QACA. As CuseFan pointed out, this may be an operational issue depending on how the plan defines compensation for deferral purposes. If the plan excludes bonuses for deferral purposes, then there is no operational error, even if the definition of comp for that purpose doesn't satisfy 414(s). Of course you must use a definition of compensation that satisfies 414(s) for ADP testing purposes, but that's a separate issue.

The amendment you have now will be different by the time the deadline hits (2026 or later for governmental or multiemployer plans). But, there's no harm adopting it as long as everyone is aware you'll be re-adopting another amendment. When you do amend in 2026 (generally wait as long as possible to capture the latest updates), you have to retroactively reflect how the plan was operated. Keeping track of that may be tough, especially when there is a change in service providers. So, adopting the amendment might serve as a way to memorialize what was done. But if you go that route, presumably you'd also want to do that for the other changes (CARES and SECURE 2.0). A checklist also works. I wouldn't rely solely on employee communications because those reflect only the material changes to the plan.

I agree with ratherbereading.

From the ERISA Outline Book: 5.b. Related employers treated as same employer to determine whether plan is a successor plan. Employers that are related under the controlled group of business definition in IRC §414(b) and (c), or under the affiliated service group definition in IRC §414(m), are treated as the same employer for purposes of determining whether another plan is a successor plan. See Treas. Reg. §1.401(k)-1(d)(4)(i) and the definition of employer in Treas. Reg. §1.401(k)-6 (December 29, 2004) (replacing regulations that stated the same rule). Also see Chapter 1B for details on these related employer definitions. 5.c. Change in related group after the termination date of the 401(k) plan. Sometimes the makeup of the related group changes after the date the 401(k) plan is terminated. The change might be the result of the sale of assets of a business to another company, or the sale of stock in a corporation to another corporation, so that the buyer becomes the new parent company of the sold corporation. The employer (or related employer) is identified at the termination date of the 401(k) plan, to determine whether the employer that maintains the successor plan is the same employer. See Treas. Reg. §1.401(k)-1(d)(4) (December 29, 2004) (replacing regulations that provided the same rule). Rev. Rul. 89-87, 1989-2 C.B. 81, will generally recognize a plan’s stated termination date as valid, so long as final distribution of assets is completed within a reasonable period of time (usually no more than 12 months) after the termination date. Therefore, if the liquidation of the plan is completed in a timely fashion, the stated termination date should control to determine whether the company that sponsors the plan in which the employees are now participating is treated as the same employer who maintained the terminated 401(k) plan. See 5.d. and 5.e. below for a comparison of how this issue is analyzed in asset and stock acquisitions.

That article isn't entirely accurate. It's correct that under ERISA, service prior to 1/1/2023 is not considered (it was added to apply the LTPT rules to ERISA 403(b) plans). But SECURE 2.0 didn't add a similar exclusion to the IRC. So, the original SECURE provision continues to apply to 401(k) plans (only service prior to 1/1/2021 is disregarded).

I'll add 2 or 3 cents here. : ) First, you ask if the plan can be amended, but you don't specify who is adopting the amendment - the employer or your firm on the employer's behalf (which sponsors of a pre-approved plan have the authority to do). Your firm can't adopt the amendment on the employer's behalf because they aren't on your plan. That may be an issue when it's time for the next interim amendments and may be reason enough to restatement onto your pre-approved plan prior to the next restatement cycle. My guess is that in this case it's the employer that will be adopting the amendment. There's nothing that can stop the employer from doing so. That then raises the question as to whether the plan is still a pre-approved plan. If the amendment isn't deviating from the pre-approved language, then I'd say they have reliance. The IRS doesn't care who does the amendment - it's only a matter of whether you have deviated from the pre-approved language. If they are doing something that's allowed in pre-approved plans but not offered in this specific pre-approved plan then you're covered because at the next restatement you can get retroactive reliance (it may require submitting for a DL if it's still not offered in the pre-approved plan you use). If it's a provision that can't be in a pre-approved plan, then you'd treat the plan as individually designed and you can submit if the plan never received a prior DL.

The short answer to the question is yes. A plan can force distributions after the later if NRA or age 62. As pointed out, the distribution is ‘probably’ not an RMD for those who aren’t at the RBD under the law. So using 4/1 isn’t really relevant and you could use any date, such as last day of PY in year after stating age 72. Not a major hurdle - it’s an eligible rollover distribution subject to 20% withholding if not rolled over. I say probably because even though the (a)(9) regs allow a plan to disregard the non-5% owner exception and just use an age, I don’t expect them to expand that to using an earlier age. Another issue is what the terms of the plan provide. If the plan uses age 70 1/2 and doesn’t use the non-5% retirement exception, then no issue. But if the current plan incorporates by reference (a)(9) or uses the retirement exception, then you may have an anti-cutback issue - at least in one jurisdiction. The right to defer payments until the RBD under the plan terms may be a protected benefit. This article does a good job explaining the case and why many think it’s an erroneous decision. https://www.groom.com/resources/court-extends-anticutback-protection-to-post-normal-retirement-age-pension-distributions/

In my opinion (which is worthless) you can wait until the deadline for SECURE 2.0 amendments to increase from $1K to $5K. I don't think you need to amend now to $5K in order to be entitled to the extended 2.0 amendment deadline. I see no difference amending from $5K to $7K vs. amending from $1K to $7K. Also, my answer assumes the IRS will allow "integrally" related amendments to be made by the extended 2.0 amendment deadline (they have always done this and I expect that to be the case here). Otherwise, all amendments for discretionary changes (which this is), would need to be amended under the discretionary amendment timing rules rather than the extended 2.0 deadline.

I agree with ESOP Guy. She completed a YOS (1,000 hours were completed between 8/2020 and 8/2021). You can't require employment at the beginning or end of a computation period, although employment is needed to start the first computation period. But after the initial computation period, employment at the beginning of the period isn't required. She wasn't employed on the plan's entry date so she didn't enter. Prior service counts (no 1 year hold-out rule and the rule of parity wouldn't apply even if the plan included it). She is rehired in 8/2022, which is after the entry date that would have otherwise applied. Therefore, she enters on the rehire date.

While we have to see what the IRS says, but I agree with acm_acm as far as consistency. Either all LTPT and full-time EEs must be covered regardless of the non-service based class exclusion or the non-service based exclusion applies regardless of how much service an employee has (and I think this latter one is the correct interpretation). I base this on looking at the law in context. The following is 401(k) as modified by SECURE 1.0. What was added was (ii). If you can exclude full time EEs who are in an excluded non-service based class under (i) (which we all agree is allowed), then how you do interpret (ii) to end up with a different rule for LTPT EEs? It does say subject to paragraph (15), but I don't see anything in (15) that alters the structure of (i) and (ii) below. (D)which does not require, as a condition of participation in the arrangement, that an employee complete a period of service with the employer (or employers) maintaining the plan extending beyond the close of the earlier of— (i) the period permitted under section 410(a)(1) (determined without regard to subparagraph (B)(i) thereof), or (ii) subject to the provisions of paragraph (15), the first period of 3 consecutive 12-month periods during each of which the employee has at least 500 hours of service.

That's correct as far as what it had been in the past and what's intended in the future. SECURE 2.0 inadvertently changed this, but it's one of the technical errors that Congress stated that it intends to fix. ____ Section 601 permitted SIMPLE IRA and SEP plans to include a Roth IRA. It might be read as requiring SEP and SIMPLE contributions to be included in determining whether or not an individual has exceeded the contribution limit to a Roth IRA. “However, Congress intended to retain the result under the law as it existed before SECURE 2.0 was enacted regarding SIMPLE IRA and SEP contributions. Thus, Congress intended that no contributions to a SIMPLE IRA or SEP plan (including Roth contributions) be taken into account for purposes of the otherwise applicable Roth IRA contribution limit,” the letter says.

Paul I and msmith point out the reasons why adding Roth to an IDP formatted VS plan via a short amendment is difficult. While not impossible, I'd say that it would be less expensive to restate the plan than to create an amendment that modifies a large number of sections of the document. As far as the impact on reliance, I wouldn't worry because it would just need to be a good-faith amendment. When the plan is restated for the next cycle you get retroactive protection. But again, much less expense to restate the plan. As to whether an amendment to add Roth is needed now, that is definitely the safe way to go. In the past, the IRS has provided that even discretionary provisions of a law are integrally related to a change in the qualification requirements. I would expect the IRS to do that here - lots of new discretionary options. No telling if that would be broad enough to cover the addition of the underlying Roth provision. But as Paul pointed out on the sequencing, etc., restating the plan to address those issues now might be worthwhile, even if the IRS does provide for broad retroactive amendment relief.

It's also mentioned in the 2023 version of the ERISA Outline Book. 2.f. Higher catch-up limit for ages 60 - 63. Section 109 of the SECURE 2.0 Act of 2022 increases the catch-up limit for individuals who are age 60, 61, 62, and 63, effective for taxable years beginning after December 31, 2024. The limit is only increased for these specific ages. The increased limit for plans other than SIMPLE IRAs and SIMPLE-401(k) plans is the greater of $10,000 or 150% of the regular 2024 catch-up limit. Because both of these amounts are indexed for COLAs, the $10,000 threshold will not be applicable because the indexing of 150% of the 2024 catch-up limit will always exceed $10,000.

A few points on this topic. The following is from IRS Publication 15-B. It clarifies that cash or cash equivalents are never de minimis. This is for income taxes so we'll need a different definition of de minimis for purposes of the new SECURE 2.0 provision. But, whatever that definition is, it won't change the tax treatment (i.e., giving a gift card won't disqualify a plan but it would result in taxable income). Virtually all pre-approved plans have (or should have) the ability to exclude fringe benefits, etc. from the definition of compensation for purposes of deferrals and matching contributions. And most employers should have this elected because permitting deferrals out of comp that includes a taxable fringe benefit is problem waiting to happen. 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. Examples of de minimis benefits include the following. • Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. See Employer-Provided Cell Phones, later in this section, for details. • Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes. • Holiday or birthday gifts, other than cash, with a low fair market value. Also, flowers or fruit or similar items provided to employees under special circumstances (for example, on account of illness, a family crisis, or outstanding performance). • Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount isn't more than $2,000. • Certain meals. See Meals, later in this section, for details. • Occasional parties or picnics for employees and their guests. • Occasional tickets for theater or sporting events. • Certain transportation fare. See Transportation (Commuting) Benefits, later in this section, for details. Some examples of benefits that aren’t excludable as de minimis fringe benefits are season tickets to sporting or theatrical events; the commuting use of an employer-provided automobile or other vehicle more than 1 day a month; membership in a private country club or athletic facility, regardless of the frequency with which the employee uses the facility; and use of employer-owned or leased facilities (such as an apartment, hunting lodge, boat, etc.) for a weekend. If a benefit provided to an employee doesn't qualify as de minimis (for example, the frequency exceeds a limit described earlier), then generally the entire benefit must be included in income. Employee. For this exclusion, treat any recipient of a de minimis benefit as an employee.

The Senate Finance Committee’s EARN Act would have prohibited recharacterization. That prohibition was not in the final law. With the ability to have in-plan Roth rollovers, seems like a pre-tax excess contribution could be converted to a Roth catch-up. Then the question is which year is it taxable. I’d say the year of the conversion just as though there had been a distribution of the excess. Of course this is just an interpretation and we’ll hopefully have IRS guidance before this goes into effect.

I predict, and expect, a technical correction to the law well before it becomes effective.

While the start-up credit isn’t available, the automatic enrollment credit is in IRC 45T and it does not include the requirement that the plan cover at least one NHCE.

You don’t need both. And I’d require a notary because the key is protecting the plan, especially for spousal consent. The last thing you want is someone challenging a beneficiary designation claiming coercion, etc. Not this eliminates that situation, but the notary is bound by state law so a plan would have more reliance on the notarized document than one that is just signed by the PA. Is there more risk if someone at the employer notarizes it? Maybe. But state notarization laws could still provide protection for an innocent plan. And most, if not all, notaries are required to be bonded.

No, I don't think a typical pre-approved plan addresses this. But I think it can be handled procedurally similar to what is done for amounts under $1K.

The confusion has to do with 2 different provisions in the law. First, you have 401(a)(31)(B) which requires that "mandatory distributions" be rolled over to an IRA if the participant makes no election and the amount exceeds $1,000. IRS Notice 2005-5 provides that for this purpose, a "mandatory distribution" is one that is forced out under the cash-out rules and made prior to the later of age 62 or NRA (Q&A 2 is below). This is what's reflected in the 402(f) notice. You then have Regulation 1.411(a)-11 which provides that participant consent is required where a distribution is "immediately distributable," which is prior to later of NRA or age 62. Relevant portion of the regulation is below. The $5K cash-out provision is an exception to this rule. So, mesh those together and what you end up with is that after NRA/age 62, you can force out a distribution regardless of the amount. But there is no requirement to rollover the amount to an IRA if a participant makes no election. That means it's up to the plan terms (or arguably plan procedures) on what happens if no election is made - this is no different than with respect to amounts below $1K where the auto rollover isn't mandatory, but many plans do the rollover because it avoids uncashed checks. So, you first see if the plan forces cash-outs at NRA/age 62, and if so, and no participant election is made, does the plan or plan procedures provide for automatic rollover into an IRA or does the plan cut a check and hope it gets cashed. From Notice 2005-05. Q-2. What is a mandatory distribution? A-2. A mandatory distribution is a distribution that is made without the participant’s consent and that is made to a participant before the participant attains the later of age 62 or normal retirement age. A distribution to a surviving spouse or alternate payee is not a mandatory distribution for purposes of the automatic rollover requirements of § 401(a)(31)(B). Although § 411(a)(11) generally prohibits mandatory distributions of accrued benefits attributable to employer contributions with a present value exceeding $5,000, the automatic rollover provisions of § 401(a)(31)(B) apply without regard to the amount of the distribution as long as the amount exceeds $1,000. From 1.411(a)-11: (4) Immediately distributable. Participant consent is required for any distribution while it is immediately distributable, i.e., prior to the later of the time a participant has attained normal retirement age (as defined in section 411(a)(8)) or age 62. Once a distribution is no longer immediately distributable, a plan may distribute the benefit in the form of a QJSA in the case of a benefit subject to section 417 or in the normal form in other cases without consent.

Calling the matter "a cautionary tale for ERISA administrators," the 9th Circuit commented that “plan administrators disserve both plan participants and beneficiaries when they accept a beneficiary designation that does not unambiguously identify the beneficiaries." Metro. Life Ins. Co. v. Parker, 2006 U.S. App. LEXIS 2561 (9th Cir.2006) That warning can be expanded to include improperly completed designations and using forms that aren't consistent with the plan terms. This is one area of plan operations where there appears to be a gap - particularly with small employers where the plan administrator is the employer. Many service providers don't want to accept and review designations. Instead they leave it up to the plan administrator/sponsor to hold, and review, designations. It works fine in most cases. But no so well in others. I suppose the union plans, such as the one involved in this case, aren't in any better shape.

The conclusion from the May 23, 2022 EP newsletter (below) answers your question. Regardless of why you don't restate onto the new documents, it's not a per se qualification failure. You just have no reliance on the good-faith interim amendments so there's a risk (albeit very small) if those amendments have any defects. Conclusion The failure to qualify as a pre-approved plan is not a qualification issue. Being a pre-approved plan is one method of meeting the requirement to have an updated written plan document. If the employer who sponsors a plan does not timely adopt a current pre-approved plan, it can still meet the written document requirements as an individually designed plan. Individually designed plans that don't meet those requirements can be self-corrected under the circumstances detailed in Rev. Proc. 2021-30, Part IV. https://www.irs.gov/retirement-plans/employee-plans-news

The answer is yes - the clock is still ticking. Look at the plan document - it probably uses the IRS LRM language - which is at 14A of the DC LRMs. I deleted the transition language - and what you have is what's below. It's based on the anniversary of participation and isn't based on a YOS, suspension rules, etc. LRMs ( ) the later of: (i) age _____ (not less than 55, nor in excess 65), or (ii) the _____ (not to exceed 5th) anniversary of the participation commencement date. The participation commencement date is the first day of the first plan year in which the participant commenced participation in the plan

If death is before the RBD, then the 5 year rule applies. The 10 year rule only applies to non-eligible ‘designated beneficiaries.’ Here you have no designated beneficiaries because a trust isn’t an individual and the deadline was missed for applying the trust look-thru rules.

One other approach is to focus on is how an affiliate adopts the plan. Usually you think of a participation agreement or resolution, but other evidence of adoption may be enough to convince an agent that the plan was adopted by the affiliate.