Paul I

Before launching a project to take over administration of beneficiary elections, find out is considered the existing primary source for capturing and maintaining beneficiary elections. Many employers are the primary source and keep originals (or certified copies) of beneficiary election forms along with other employee records. Their motivation often is to be able to work with survivors and executors deal with death benefits across multiple insurance and benefit programs. The service agreements with providers should document who is the primary source of records, and communications to employees on how to make elections should be clear about how to make their elections. I agree that reminding participants relatively frequently to review and update beneficiary elections is a best practice. I also is best practice to make this a step when dealing with changes in family status such as marriage, divorce, birth of children and other similar events that are likely to result in changes to beneficiary elections.

The answer is tied into the definition of "principal residence" (likely what you meant by "primary residence") which in turn is tied into other rules related to tax deductions allowed for interest on home mortgages and their associated tracing rules. See IRS Regulations 1.72(p)-1 Q&A-5, 6 and 7. "Q-5: What is a principal residence for purposes of the exception in section 72(p)(2)(B)(ii) from the requirement that a loan be repaid in five years? A-5: Section 72(p)(2)(B)(ii) provides that the requirement in section 72(p)(2)(B)(i) that a plan loan be repaid within five years does not apply to a loan used to acquire a dwelling unit which will within a reasonable time be used as the principal residence of the participant (a principal residence plan loan). For this purpose, a principal residence has the same meaning as a principal residence under section 121. Q-6: In order to satisfy the requirements for a principal residence plan loan, is a loan required to be secured by the dwelling unit that will within a reasonable time be used as the principal residence of the participant? A-6: A loan is not required to be secured by the dwelling unit that will within a reasonable time be used as the participant's principal residence in order to satisfy the requirements for a principal residence plan loan. Q-7: What tracing rules apply in determining whether a loan qualifies as a principal residence plan loan? A-7: The tracing rules established under section 163(h)(3)(B) apply in determining whether a loan is treated as for the acquisition of a principal residence in order to qualify as a principal residence plan loan." The tracing rules deal with identifying when the acquisition indebtedness was secured by the qualified residence. Also see IRS Notice 88-74 that defines acquisition indebtedness that provides an alternative of 90 days from the date of the loan as an alternative to the section 163(h)(3)(B) tracing rules in Q&A-7. Frankly, I have never seen any plan loan provisions or plan loan policy provisions or related promissory notes that specify a time period by which time the participant must begin residing at the property. Conceivably, provisions could be added to the plan or policy. Further, participants could be asked at the time of the loan is requested to certify that the property will by occupied within the prescribed time frame. If there is a lingering concern that somehow the extended time available to repay a loan for a principal residence, then consider something like it the property is not used as a principal residence within 5 years, the loan will be declared not to be a for a principal residence and will become immediately due upon reaching the end of year 5 of the loan term. Keep in mind that if the plan imposes restrictions, then the plan must make them applicable to all similarly situated participants and must administer the restrictions.

Before adding a new contribution source to the plan design, find out it the plan is top heavy and if yes, are any of the HCEs non-key employees.

@Peter Gulia, you may have seen this recent article titles Suit Says IBM’s Custom TDF Benchmarks ‘Insufficient’ https://www.napa-net.org/news/2025/11/suit-says-ibms-custom-tdf-benchmarks-insufficient/?ite=49712&ito=1681 It will be interesting to follow its progress to see if this type of litigation spreads to other plans, or even to mutual funds companies that use DIY benchmarks. This could be a motivation for a plan's legal counsel to provide input into a plan's investment benchmarks.

A form of this question was posed in the ASPPA 2002 Annual Conference - IRS Questions and Answers question 5: 5. If a 401(k) Profit Sharing Plan uses an individual funding vehicle with a $2,000 threshold and the business owners are able to immediately move into this funding vehicle that had multiple investment options, but non-owners with smaller 401(k) contributions are in a pooled money market until they reach the $2000 threshold, is this discriminatory? What if the threshold is $10,000? $25,000? $100,000? This is a benefits, rights and features issue and, depending on the facts, could either pass or fail. Also note that SDBAs got a lot of attention in EBSA's Field Assistance Bulletin No. 2012-02R, not about a dollar threshold, but about all of the disclosures that must be provided to all plan participants about SBDAs as an investment option.

Getting stiffed for providing professional services in good faith almost always ends with a feeling of regret including what you shoulda, woulda, coulda have done differently to have avoided the situation. Your question in particular asks what would be ethical ways to proceed. As an EA, you are subject to the Joint Board for the Enrollment of Actuaries and its Standards of performance of actuarial services which includes guidance on what is considered "records of the client". You also should be aware of the ethical standards of any professional organization to which you belong such as ASEA, SOA, ASPPA, AAA... Generally, while there are differences between each organization's code of ethics, if you delivered work product prior to receiving payment for those services, you cannot withdraw or invalidate a client's reliance on that work product. Generally you do have a right, absent any formal contractual obligation, not to perform future services. You appear to have a direct relationship with the plan sponsors since you have filing authorizations and also because you personally sign the Schedule SB. If ultimately you decide not to perform future services for the client, you should notify them in time for them to find another actuary, but you may find in some of the applicable codes of ethics that you should not disclose the reason is the TPA did not pay your fees. If this is the case, consider offering to continue working directly with the client as a change in your business model. Keep in mind that it is the TPA that is not paying for your services, but it is the plan sponsors who are using and relying on your services. The ways to proceed you listed have an element of vengeance or punishment which commonly is driven more by emotion, and it is the plan sponsors (not the TPA) who would suffer by attempts to remove the SB. Temper the emotion, seek legal counsel about how to proceed about getting paid for services delivered, and get some guidance on the cost of exploring legal paths forward in terms your time and expense against the known cost of writing off uncollected fees. Do take some time to implement, maintain and follow the terms service agreements and engagement letters with the TPAs and clients.

@Bri is correct in pointing to the plan documents - adoption agreement and basic plan document - as a starting point. Conceivably, an amendment that says the spouse is eligible immediately could be simpler approach. This does assume that the spouse has earned income from the company. Be very careful as the employment of a common law employees can become a minefield for owner-only plans (OOPs!) For example: Some pre-approved OOPs documents have provisions that say as on the date there is an eligible common law employee, all contributions to the OOPs stop immediately on that day and the company needs to adopt a traditional plan to provide for any contributions to anyone after that date. If the common law employee becomes eligible to defer as a Long Term Part Time Employee, then the plan will no longer be an OOP.

Stepping back a little, it's important to keep in mind that the purpose of the 5500 is for the agencies to fulfill their obligation to provide oversight of ERISA plans. In the words of the Troubleshooters Guide To Filing ERISA Annual Reports, "The information in the [5500] annual report is carefully reviewed by the DOL, IRS, and PBGC for compliance with applicable reporting requirements and used for enforcement, compliance assistance, research and other purposes." Generally, the DOL, IRS and PBGC each year contribute additions to the form or request removal of existing items depending upon each agency's strategic plans and more specifically each agency's initiatives to assess topics that may require providing additional guidance. The ebb and flow of these areas of focus is reflected in the periodic changes in the forms. That being said, the information collected on the form has value for purposes of enforcement. The agencies commonly announce as part of their annual operating or strategic plans, topics that will be subject to scrutiny. Plan sponsors and service providers need to "read the tea leaves" and anticipate whether a plan likely has a compliance or operational issue that warrants added attention before the plan receives a love letter from an agency. The agencies have published the edits that applied to the information provided on the Form 5500, and most 5500 software developers have integrated these edits into their products. Notably, the edits vary from a full stop or failure of the filing to warnings and observations of possible concerns. The market place also demonstrates the value of the information collected to mine for prospective clients that fit a service provider's targeted profile. Those who sell to fear, or exploiting perceived or even actual weaknesses in a retirement plan’s administration will not hesitate to leverage this information, including sounding alarms over issues that do not exist for a plan. Ideally, reputable service providers will incorporate into their operations and more specifically into the 5500 process a review of key indicators of operational and compliance issues, and inform the plan sponsor and plan administrator. The ability of anyone to download historical 5500s makes it easy to gather information about a plan and identify indicators of operational issues and trends towards noncompliance. One particularly valuable exercise for large plans is to compare the contents of the audit report to the information provided on the form. There are far too many to list in a single post, but here are some examples: Does the description of the plan features in the audit report match the plan characteristic codes? Does the audit report describe events like corporate events that could cause fluctuations in participant counts which in turn could flag a change in audit requirements or possibly a partial plan termination? Are there any assets listed in the audit report that are known to cause operational headaches (real estate, art, life insurance...)? Is the disclosure of late deferrals consistent with the response to the question on the form about late deferrals, and are late deferrals a persistent problem? Is there an indication that the plan sponsor is part of a controlled group, but there is no indication that coverage testing across the controlled group was reviewed? Are there "Other" contributions reported without some explanation of what they are? Was there a a change in service provider that was disclosable on Schedule C, but was not disclosed? .... and the list goes on. All of this having been said, it will not be a reach to have the industry and the agencies dump all of the historical 5500 data files and audit reports into a single data source and use AI to identify the interrelationships among the data elements collected on the forms.

They look only at the amended return. If the 5558 box is checked, they will see that the original filing was put on extension. The very short version is you don't file an extension for an amended return, but an amended return should disclose that the original filing originally was extended.

Assuming there was a 5558 filed to extend the original filing and the box was checked on the original filing, then check the 5558 box on the amended return. An amended return replaces the original filing in the EFAST2 records.

Read the plan document and the loan promissory note very carefully. There can be a difference between being eligible to take out a new loan while on medical leave versus being able to suspend repayments of an existing loan due to going out on medical leave. This difference may be buried in provisions that say there has to be a reasonable expectation at the time the new loan is taken that the loan will be repaid through payroll deductions. How medical leave plan works also may factor into the decision. Is the participant while on leave receiving pay from the company, a short term leave plan or a long term leave plan, and is any of this considered plan compensation? It may be unlikely but it may be possible for the source of these payments be a factor to consider. Some plan provisions may require a participant to be unable to make the loan repayments in order to qualify for the suspension. There also is the issue whether, by permitting this loan, the plan sponsor is creating a precedent that other participants who are on other types of leave could use to take out new loans. It also would be helpful to clarify the role of the participant versus role of the plan sponsor in invoking the suspension. It would seem the plan would say whether the participant medical lease has the right to suspend repayments, and the plan sponsor just needs to administer the plan's loan provisions.

@Gilmore , is the business being terminated or does the partnership only wish to terminate the plan but the business will continue? If the business is continuing, then you may want to get a clear understanding of the partners' motivation for wanting to terminate the plan, and work with them on how best to attain their overall objectives. For example, do they want to terminate because: they think the cost of contributions for employees is too much? they think the top heavy contribution is "unfair"? they think the cost of plan administration is too much? they think the plan overly complicates their personal tax filings? It also would be worth having a conversation about their view on accumulating tax-privileged assets towards their own retirement. Are they proverbially throwing out the baby with the bath water?

If asked, we recommend 15 years with 20 years being okay but not preferred. We point out that: The maximum plan loan is $50,000 and the mortgage amount typically is considerably higher. The plan loan often helps spread paying off realtor fees, closing costs and moving expenses. A $50,000 loan will have monthly repayment of about $400 for 15 years or $330 for 20 years. Most loans for purchase of a primary residence are considerably lower since the individuals taking the loan commonly do not have a vested balance that exceeds $100,000. For a $10,000 loan, the monthly repayments are about $80 for 15 years or $66 for 20 years. These are small amounts (and even smaller when the payroll period is semimonthly or biweekly). Processing loan repayments for small amounts can become an annoyance for payroll. The longer the loan amortization, the more the participant and/or employer likely will pay in loan administration fees. The longer the loan is outstanding, the more likely the participant will terminate with an outstanding loan balance which always seems to add time to process the distribution.

I came across this article from Verrill about implementing Roth Catch Ups when a plan has a provision to spillover deferrals to a NQDC once the 401(k) limits are reached. The article in particular highlights a potential conflict between giving the participant an effective opportunity to elect out of a deemed Roth election and a requirement to make deferral elections before the start of the year for the NQDC. https://www.verrill-law.com/blog/consider-nonqualified-plans-when-implementing-new-roth-catch-up-contribution-rules/ The article makes suggestions on steps to take now to be sure the operation and administration of plans with the spillover/link to a NQDC is reviewed before 2026 starts, and that everyone involved with the plan - plan administrator, plan sponsor, service providers, participants - are all informed. This wasn't on my radar screen when discussing implementing Roth Catch Ups, so I am sharing it in case others also have plans that use these features.

The plan administrator and its service providers will make separate payments of the Roth and non-Roth accounts. In addition to the fact that IRA providers will not take on the responsibility of splitting a distribution into Roth and non-Roth accounts, the plan has to report the distribution to the participant on a 1099R, and there is not enough room on one 1099R for all of distribution codes needed to report the distribution correctly if it was made in a single payment. In short, no IRA provider would accept a check with co-mingled amounts, and the plan would have no way to properly report the distribution to the participant.