TPABob

@WCC, I agree, that doesn't seem right. The explanation is long, but this is what the final Regulation says in Section I under the Summary of Comments and Explanation of Revisions section, which seems to clearly indicate that a plan can not require all catch-up contributions to be Roth for everyone: "While proposed §1.401(k)-1(f)(5)(iii) would permit a deemed Roth election with respect to a participant who is subject to the Roth catch-up requirement, the proposed regulations did not include a rule permitting a plan to require that all participants’ catch-up contributions be designated Roth contributions. Footnote 16 of the preamble to the proposed regulations explained that, for a participant who is not subject to the Roth catch-up requirement, allowing a plan design that requires all participants’ catch-up contributions to be designated Roth contributions would be inconsistent with the language of section 402A(b)(1), which provides that a designated Roth contribution must be elected by an employee “in lieu of all or a portion of elective deferrals the employee is otherwise eligible to make.”8 Notwithstanding the explanation in footnote 16 of the preamble to the proposed regulations, commenters requested that the final regulations permit a plan to require that all participants’ catch-up contributions be made as designated Roth contributions, regardless of a participant’s FICA wages for the preceding calendar year. Commenters argued that permitting this plan design would simplify implementation of the Roth catch-up requirement, would reduce section 414(v)(7) failures, and, in some cases, could avoid a perception of unfairness (for example, in the case of a participant who is not subject to the Roth catch-up requirement under section 414(v)(7)(A) because the participant did not have FICA wages in the prior year, but had wages from self-employment for the preceding calendar year that exceeded the Roth catch-up wage threshold). With respect to section 402A(b)(1), commenters argued that provision merely defines the term “qualified Roth contribution program,” does not explicitly prohibit a plan from requiring that all catch-up contributions be made as designated Roth contributions, and permits an employee to have designated Roth contributions “made on the employee's behalf” under the plan. The Treasury Department and the IRS do not agree with the commenters’ characterization of the language in section 402A(b)(1) as merely a definition. In addition, the language of section 402A(b)(1) permitting an employee to have designated Roth contributions “made on the employee’s behalf” under a plan was added to section 402A(b)(1) by section 604(b) of the SECURE 2.0 Act. Section 604 of the SECURE 2.0 Act permits certain nonelective contributions and matching contributions that are made after December 29, 2022, to be designated Roth contributions. Thus, this language reflects the distinction between designated Roth contributions that are made in lieu of pre-tax elective deferrals and those that are made in lieu of nonelective or matching contributions. Further, section 414(v)(7)(A) refers to designated Roth contributions as defined under section 402A(c)(1), and, under section 402A(c)(1), the term “designated Roth contribution” includes “any elective deferral…which is excludable from gross income of an employee without regard to [section 402A], and the employee designates (at such time and in such manner as the Secretary may prescribe) as not being so excludable.” Thus, under section 402A(c)(1), an employee must be permitted to make a pre-tax elective deferral in order for the employee to designate such a pre-tax elective deferral as a designated Roth contribution. Although the requirement under section 402A(b)(1) and (c)(1) that an employee be eligible to make pre-tax elective deferrals in order to elect to make designated Roth contributions in lieu of all or a portion of those pre-tax elective deferrals is not consistent with the Roth catch-up requirement under section 414(v)(7)(A) in the case of a participant who is subject to the Roth catch-up requirement, final regulation §1.414(v)-2(b)(6) resolves this inconsistency by providing that the Roth catch-up requirement applies notwithstanding section 402A(b)(1) and (c)(1). However, there is no inconsistency in the case of a participant who is not subject to the Roth catch-up requirement. Accordingly, the final regulations do not include a rule permitting a plan to require that all participants’ catch-up contributions be designated Roth contributions. 8 Section 402A(b)(1) provides that “[t]he term ‘qualified Roth contribution program’ means a program under which an employee may elect to make, or to have made on the employee's behalf, designated Roth contributions in lieu of all or a portion of elective deferrals the employee is otherwise eligible to make, or of matching contributions or nonelective contributions"

@Michele F I assume this person is "super catch-up" eligible (i.e., age 60 to age 63 as of 12/31/2025) and chose to make their "regular" contributions on a pre-tax basis and their catch-up contributions on a Roth basis, for total deferrals of $34,750, right? If so, your calculation in concept is correct although my math shows you're off by $10 somewhere - Box 1: $155,860.89 + $23,500.00 = $179,360.89 (the S Corp health insurance amount is included in Box 1, and since the Roth portion of the deferral is taxable it is included in Box 1 as well, so you just need to add back the pre-tax deferral amount), and Box 3/5: $159,011.47 + $20,359.42 = $179,370.89 (the deferral amount is already included, you just need to add back the S Corp health insurance amount since it isn't included). Check your numbers to identify which one is off by $10 to determine whether $179,360.89 or $179,370.89 is the correct one.

If it were me, I would just check "Design-based safe harbor method". I know the after-tax contributions are subject to ACP testing, and you're leveraging the safe harbor match in combination with the after-tax contributions to run the ACP (which is allowed), but the instructions ask how you're satisfying the employer matching contributions and you're doing that through the safe harbor match.

Box 1, taxable wages, includes the 2% S-corp shareholder employee health insurance premium of $16,293.32 since it is taxable to the employee, but does not include the pre-tax deferral amount of $20,150 since it is not taxable. On the other hand, Box 3 and 5 do not include the 2% S-corp shareholder employee health insurance premium of $16,293.32 since it is not subject to FICA tax, but includes the pre-tax deferral amount of $20,150 since it is subject to FICA tax. Statutory comp would include both of these items, so if you make the applicable adjustment to each box, you get to the same number (rounding to the integer) - Box 1: $96,143 + $20,150 = $116,293 and Box 3/5: $99,999.90 + $16,293.32 = $116,293. Note Peter's point about checking the document, though. It might exclude the 2% S-corp shareholder employee health insurance premium (e.g., exclusion of taxable fringe benefits) for plan/allocation comp purposes, in which case you would use $99,999.90 for computing your employer allocations.

I would add one thing to C.B. Zeller's comment. To be deemed not top-heavy, the plan must consist solely of deferrals and safe harbor contribution AND the eligibility requirements for both deferrals and the safe harbor contribution must be the same.

Here is what the ERISA Outline Book says: "Whether definition of compensation used to determine matching contributions satisfies IRC §414(s) generally is not relevant in analyzing nondiscriminatory availability of rates of match." And it provides this example: "Example - uniform match based on reasonable definition of compensation. A 401(k) plan matches 100% of the first 3% of compensation deferred by a participant. Compensation for this purpose is defined as base salary. ➤Marshall is an eligible NHC under the 401(k) plan. His base salary is $28,000, although his compensation under IRC §415(c)(3) is $35,000, due to overtime. Marshall is eligible for a match only on the first $840 he defers (i.e., $28,000 x 3% = $840). ➤Gisele is an eligible HCE under the 401(k) plan. Her base salary is $120,000, although her IRC §415(c)(3) compensation is $140,000 due to a year-end bonus. Gisele is eligible for a match on the first $3,600 she defers (i.e., $120,000 x 3% = $3,600). Since the same definition of compensation (i.e., base salary) is used to calculate the matchable deferrals (i.e., the first 3% deferral rate), the definition of compensation is reasonable, the same definition applies to all participants, and a uniform rate of match (i.e., 100%) is applied to all eligible participants on the first 3% deferred, the rate of match is available on a nondiscriminatory basis, regardless of whether the definition of compensation used to compute the deferral rates satisfies IRC §414(s). This is true even though Gisele, who is an HCE, is able to receive a maximum amount of match equal to 2.57% of IRC §415(c)(3) compensation (i.e., $3,600/$140,000), but Marshall, who is an NHC, is able to receive a maximum amount of match equal to only 2.4% of IRC §415(c)(3) compensation (i.e., $840/$35,000). Of course, the amount of the matching contributions must also satisfy the ACP test under IRC §401(m)." Maybe I'm reading this incorrectly? Totally possible!

Would BRFs just apply to the formula (which is uniform based on plan comp definition), but not the contribution rates used in the ACP test, or do you have to pass BRFs testing using the rates calculated in the ACP test?

Is the participant eligible for catch up?

"Likewise, if considering the retroactive amendment, keep in mind that you would need to make sure that the plan was operated that way with respect to all participants (immediate entry rather than first of January/July)." KEC79, I don't believe this is true. Others can correct me if I'm wrong, but it's my understanding that you can do a retroactive amendment to allow early entry for a specific person (assuming the participant isn't an HCE, which again, is unlikely as C.B. Zeller points out).

While our recordkeeping system can certainly track the "sources" of money, we usually recommend actually setting up separate investment accounts to hold Roth and non-Roth assets, if for nothing else, to facilitate in-kind transfers upon distribution from the plan.

Electronic delivery question aside, it's my understanding that a plan termination notice for a non-pension plan is not required. That being said, you'd want to let active participants know that deferrals/contributions to the plan will cease, as a courtesy. Is that not correct?

"This requirement effectively restricts employers to making the QSLP match on an annual basis, even if the plan’s regular match is made more frequently, such as on a payroll period or quarterly basis." Is this really the case? I read the provision to say that you can't set the deadline for claiming the match at, say, 30 days after year end - you have to give participants at least three months to submit a claim (and could allow even longer than three months if desired, but I'm not sure that would be a great idea!). In my mind, that doesn't preclude you from funding it more frequently, it just means you may have to do a true up if a claim for an additional amount came in after the end of the year. Doesn't the part in the provision of the Act that allows for funding of the match on the student loan payments on a different frequency seem to allow for this? I guess it's just another thing we need guidance on!

Austin, I like to call it the "No Notice Notice".

But doesn't Sec 1.411(d)-4 - 411(d)(6) protected benefits, A-2(e) provide an exception that allows the ad-hoc optional form to be eliminated as long as the single-sum form of benefit is available? (e) Permitted plan amendments affecting alternative forms of payment under defined contribution plans - (1) General rule. A defined contribution plan does not violate the requirements of section 411(d)(6) merely because the plan is amended to eliminate or restrict the ability of a participant to receive payment of accrued benefits under a particular optional form of benefit for distributions with annuity starting dates after the date the amendment is adopted if, after the plan amendment is effective with respect to the participant, the alternative forms of payment available to the participant include payment in a single-sum distribution form that is otherwise identical to the optional form of benefit that is being eliminated or restricted. (2) Otherwise identical single-sum distribution. For purposes of this paragraph (e), a single-sum distribution form is otherwise identical to an optional form of benefit that is eliminated or restricted pursuant to paragraph (e)(1) of this Q&A-2 only if the single-sum distribution form is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the participant) except with respect to the timing of payments after commencement. For example, a single-sum distribution form is not otherwise identical to a specified installment form of benefit if the single-sum distribution form is not available for distribution on the date on which the installment form would have been available for commencement, is not available in the same medium of distribution as the installment form, or imposes any condition of eligibility that did not apply to the installment form. However, an otherwise identical distribution form need not retain rights or features of the optional form of benefit that is eliminated or restricted to the extent that those rights or features would not be protected from elimination or restriction under section 411(d)(6) or this section.

We used to have a number of plans that weren't on our recordkeeping system, mostly SDBAs only plans, but not anymore! The lifetime-income illustration requirement forced us to put them all on our system, and frankly, I'm happy about that.

Curious to know what others are doing. In Part I, item 2, field b of the Form 5500 Schedule C, do you use service code 10 for non-3(16) third party administrators handling such things as preparation of 5500, 1099R, 8955-SSA and other governmental forms; compliance testing; providing annual participant notices; etc.? If not, what code do you use?

My understanding is if the entity is a partnership and has a tax-year ending 12/31, the unextended deadline to file the 2019 return is 3/15/2020, and thus it doesn't qualify for the delayed 7/15/2020 due date.

This is our understanding of it: Because of the extensions provided by the IRS, the deadline to make loan repayments due on or after April 1 (without running afoul of the deemed distribution rules), is extended to July 15. This applies to all loans, not just loans to Qualified Individuals which can enjoy a longer suspension period under the CARES Act. With maximum use of regulatory cure period provisions, a participant can make up any missed payments by December 31. For example, if a “non-qualified individual” stops making payments any time during the period of 4/1/2020 through 7/15/2020, it’s treated as if the payments stopped during Q3 2020, thus making the end of the cure period 12/31/2020.

I'm thinking, if it's a hardship, you're required to take all other distributions available to you first. So for example, if you're under 59 1/2 and have rollover money in the plan, and the plan provides for distributions from the rollover source, you would have to pay the 10% early withdrawal penalty, whereas if the distribution under the CARES Act is a new stand-alone distribution type, you can go right to that and avoid the 10% penalty. Furthermore, the distribution from the rollover source would not be able to be paid back, whereas the CARES Act distribution would.

Is this a hardship distribution as we would normally think of it, or is it just a new allowable type of distribution similar to birth or adoption distributions added by SECURE? I don't see anything in the CARES Act that indicates it would be considered a "hardship".

Nope, just wanted to clarify that you're looking at it from a vested balance standpoint as opposed to whether or not everyone had some level of vesting service. What you've said makes sense.

So Mike, you're saying if every one in the number listed earlier in the sentence has a some kind of vested balance in their account, you would answer yes and not have the "although not all of these persons had yet earned the right to receive benefits" language on the SAR, right? Would you still answer yes if any of those in the number had no balance at all (i.e., eligible participant who hasn't deferred or received an employer contribution) even though they might have years of vesting service under their belt?

We use ftwilliam.com to produce our 5500's and Summary Annual Reports. In the General Information section of the SAR checklist, question 5 asks "Have all participants earned the right to receive benefits?" If you answer yes, it removes the "although not all of these persons had yet earned the right to receive benefits" language. We're not sure how to answer this from a defined contribution plan perspective. Is this tied to whether or not everyone is fully vested, whether or not everyone is entitled to take a distribution from the plan, whether or not all of the participants listed in the count earlier in the sentence have a balance, or some combination thereof? If it's tied to whether or not everyone is entitled to actually take a distribution, it seems like there would be very limited circumstances when you would not include the language. It's interesting that ftwilliam.com gives the option to include or exclude this language when the model notice in the DOL reg (§2520.104b-10) hard codes the language (i.e., doesn't provide for alternative language or qualify when you would or wouldn't use it like it does for other parts of the notice). I'm inclined to just follow the model notice and include the language in all cases, but I'm curious as to what criteria others are using to determine how to answer this question?

Alright, conventional wisdom it is! Thanks again.

Yeah, I tend to do that! But you get my point about wondering if the intention of the add back is to put those that terminated during they year in the same position, whether they took a distribution or not? BTW, thanks for the discussion on this, I follow you guys a lot and always respect what you have to say.