Paul I

Onboarding a plan requires attention to extremely granular detail that is customized to the plan provisions, the deconversion processes of the existing service providers including potentially the recordkeeper, TPA and investment firms, the client's internal administrative support including payroll, HR systems, and funding procedures, and to the you as the new service provider including everything needed to provide continuity of the rights and privileges of all of the plan participants. Coordinating all of this commonly takes 10-12 weeks, and starts with working out a detailed work plan in the first few weeks with all of the parties involved. The time for asking your questions is at the beginning of the conversion process and the people you need to ask are the client and the existing service providers.

Peter lays out the basis for arguing that the plans were closed out in 2025, and makes it clear that this is solely the plan's fiduciaries' (read client's) decision. I expect most practitioners would say don't sweat the $0.50 for Plan 1 and writing off the $0.50 with no adjustment to the 1099R, most would say it is really pushing it where the amount is $3,500 that was not closed out until 31 days after the end of the plan year. From the perspective of a service provider, I would explain to the client that it is their decision to make and their fiduciary responsibility and accountability for the consequences of their decision (unless you are a 3(16) provider). I would let the client know I disagree with the Advisor and I only would be willing to prepare a final filing for 2026 along with a 1099R for the residual payment. If the client chooses to follow the Advisor's "promise", then the Advisor can help the client find someone who is willing to close out everything for 2025. The plans are closing so there is no future work for you on those plans. If your relationship with the client is ongoing, keep in mind that if the client chooses to follow the Advisor's advice over yours, that says something about the relative value of your relationship to the client. This is also true about any relationship you may have with the Advisor.

If I understand the issue, the plan limit is 10% of the sum of the pre-tax and Roth deferrals for the year, the excess deferrals are excess amounts that must be refunded. The correction is to make a refund so the total of deferrals remaining in the plan are 10% of compensation. The correction method does not specify any requirement on whether that the refunded excess amounts must reflect proportion of pre-tax and Roth deferrals that were originally made into the plan. The plan also has no guidance. With the lack of specific guidance, its on the Plan Administrator to decide how the plan will address the situation. The PA needs to keep in mind that this type of operational decision establishes a precedent for future occurrences. One consideration for the PA to keep in mind is the time and effort involved in making the refund. Operationally, refunding from pre-tax first before refunding any Roth is far less complicated than either refunding pro-rata or refunding Roth first. Consider that refunds of Roth get into issues like tax basis accounting, possible taxation of earnings paid from the Roth account, and year of taxation. If these are not concerns for the PA or the PA is a masochist, then the PA could consider asking the participant to specify how much to refund from each account.

Terminology comes and goes. Two things are are most important. One is that the terminology is used broadly enough that there is a shared understanding of what is meant by it. The other is that the terminology does not conflict with its shared understanding within government agencies that oversee the industry. How many people today would understand what was meant by a Keogh plan or an H.R. 10 plan? How many know that today's hot Roth trend is named after William Roth, the Senator from Delaware that came up the Roth IRA in 1989 that in 2001 morphed into the Roth 401(k)? How many know that the concept of 401k deferrals was used in plans in the 1950s, frowned upon by the IRS, but then validated when section 401(k) was added in 1978? Interestingly, in the late 1970s people started out calling the 401(k) plan as salary reduction plans, and that terminology was not well received by employees. Today, solo-k generically is recognized as a one-person plan as does the IRS https://www.irs.gov/retirement-plans/one-participant-401k-plans. Some pre-approved plan document providers have products that basically are pared down adoption agreements of their 401(k) documents. These products use the term "owners only plan". Given the many ways that one-person plans get into regulatory trouble, maybe we should refer to owners only plans as "OOPs"!

The IRS on its website says you can file electronically or file on paper. All of the IRS rules about counting 10 forms to get to mandatory electronic filing apply to filing payroll forms (W2s, 1099s...) and to filing a Form 5500EZ. Here is another link https://accountably.com/irs-forms/f5558/ that does a good job talking about 5558s in plain English.

The instructions for the 5558 don' say anything about being mandatory but do say: What’s New Beginning January 1, 2025, Form 5558 can be filed electronically through EFAST2 or can be filed with the IRS on paper. and the IRS website also says so: https://www.irs.gov/retirement-plans/form-5500-corner

FYI, the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications lists 363 ERPAs. The list shows name and address, and can be searched by name or proximity to zip code. You can have a party and invite all your ERPA neighbors 🤣.

You will report credits earned in each year 2023, 2024 and 2025. It helps to see what the form looked like (https://www.irs.gov/pub/irs-pdf/f8554.pdf) to see what information is required, but renewals are easier using pay.gov. The place to start is here: https://www.irs.gov/tax-professionals/enrolled-agents/maintain-your-enrolled-agent-status Here is a fairly detailed description of the renewal process: https://accountably.com/irs-forms/f8554ep/ (my including this here is not an endorsement of their service). I agree the calendar-year dates for earning credits tied to off-calendar-year dates for the renewal application period and a different off-calendar-year dates for the expiration of the renewal makes it seem more complicated than it needs to be, but in our business most things that are tied to off-calendar-year dates seem more complicated than they need to be.

I, too, received the same message. I started receiving emails from the IRS related to Enrolled Agents (EAs) after having to make multiple requests to get my ERPA letter/card mailed to me after the last renewal. You can check your account for ERPA credits by year and your ERPA renewal date here: https://rpr.irs.gov/ptin?id=ptin_cecredits You have to have an ID.me account to login.

The Notice 2026-13 observes that "Section 1.402(f)-1, Q&A-1(a), provides that the plan administrator of a qualified plan is required, within a reasonable period of time before making an eligible rollover distribution, to provide the distributee with the section 402(f) notice." Further, the Notice observes that "The updated safe harbor explanations provided in this notice may be used by plan administrators and payors to satisfy section 402(f). The updated safe harbor explanations will not, however, satisfy section 402(f) to the extent the explanations are no longer accurate because of a change in the relevant law occurring after January 15, 2026. The IRS anticipates updating the safe harbor explanations to reflect relevant future changes, including provisions of the SECURE 2.0 Act that are not effective until taxable years beginning after December 31, 2026" Keep in mind that the 402(f) notice is a safe harbor and is optional so, if a plan wishes, it can fulfill its 402(f) obligation with alternative language as long as this alternate language covers all of the required content. Notice 2026-13 says the safe harbor will not satisfy section 402(f) if there are changes to the law after January 15, 2026. Putting this all together, we could conclude that a 402(f) notice that is distributed for an eligible rollover distribution payable after January 15, 2026, where the plan uses the safe harbor notice must use the updated safe harbor language. The implication is that a plan that uses alternative language must update the language before making an eligible rollover distribution any time after there is a change in relevant law. In the real world, I don't think this happens this quickly.

CuseFan is correct in pointing out that the 80/120 is used for determining whether the plan must file a 5500 versus a 5500-SF. BPF916, the 1-100 participants for the start-up credit really is not black and white. The count is based on the employer: having 100 or fewer employees (not participants) who had compensation of at least $5,000 (regardless of plan eligibility) in the preceding year (subject to an available election to have the first credit year be the year preceding the year containing the effective date of the plan) There also is a 2 Year Grace Period where the employer is considered eligible for the credit for the 2 years following the last year the employer was eligible. Check out all of the eligibility criteria because there are certain conditions that will disqualify an employer from taking the credit such as the employer was involved with a merger, or there are related companies with existing plans, or if the employer had a plan in the 3 years prior to the new plan. None of this has to do with the 80/120 rule.

Going fully remote with no experience in the field likely will be next to impossible. Consider a strategy that demonstrates a strong work ethic and commitment to learning the business along with establishing some personal contacts with people in the business. Pursuing starting to build professional credentials by enrolling in courses available from industry groups/associations like ASPPA. A QKA (Qualified 401K Administrator) would be a great start, as would a RPF Certificate (Retirement Plan Fundamentals). There are many different types of firms that work with retirement plans - third party administrators, recordkeepers, financial advisors, accountants, banks/brokerage houses... - so explore opportunities with any of these firms that are close enough for starting out with a hybrid approach. Look for professional associations that hold periodic, in-person events. They provide opportunities to connect face-to-face with industry professionals. There also are some mentoring opportunities such as the Thrive Mentoring Program. You can find additional here: https://www.usaretirement.org/get-involved/special-initiatives/thrive-mentoring-program/ It will be a challenge, but the professionals in the retirement plan industry welcome anyone who is committed to working in the field. Best of luck to your daughter!

Peter, you are not overlooking anything. Plans are designed to gather information beforehand about participants and money coming into the plan. This is not built into the Saver's Match design. There is a significant mismatch between how retirement plans are administered and how tax "refunds" (read money paid from the Treasury to an individual) are administered. The simplest way to characterize a recordkeeper taking on administering Saver's Match account is trying to pound a square peg into a round hole. The SPARK comment letter's great detail about the mechanics of moving the money around is just one example of the issues a recordkeeper will face.

Permissible if Pam works long enough to receive 7 paychecks during the year. The comp limit for 2026 is $360,000. Her maximum match is the lesser of 7% * 360,000 = $25,200 (calculated based on the plan match provisions) or 100% of deferrals = $24,500 (calculated based on plan deferral limit), so her maximum match is $24,500. Her maximum match limit is reached when her YTD compensation reaches 7% of $350,000 = $24,500. If she terminates before having earned $350,000 for the year, she will have an excess match that will have to be taken away with earnings (either at the earlier of a distribution or the end of the plan year). Note that Pam would not necessarily have to work 7 consecutive paychecks to get the maximum match. Note further that the plan should not have explicit provisions that apply the match formula strictly on a time period that is less than a full year. These issues would be avoided if the compensation in the match formula was not to exceed YTD compensation versus using the 401(a)(17) limit, and the plan has a true-up. Granted, this caps the match each pay period at a lower amount, but Pam quickly gets up to the max.

First, the Saver's Match has to survive 2026. The topic will start to gather attention based on the mandate for Treasury to report about it to Congress by July. The target recipients of the Saver's Match low- and moderate-income employees, replacing the pre-existing Savers’ Credit for low- and moderate-income employees who make contributions to retirement plans. There are elements rile up anti-DEI advocates such as the multilingual communications, and some analysis published in PlanSponsor magazine that concluded "Plan sponsors and participants both benefit from retirement plans implementing the Saver’s Match because adding it could reduce gender and race disparities in 401(k) balances, finds research from the Collaborative for Equitable Retirement Savings." IRS Notice 2024-65 says: "Section 104 of the SECURE 2.0 Act requires the Treasury Department to take steps to increase public awareness of Saver’s Match contributions, and to provide a report to Congress no later than July 1, 2026, summarizing the anticipated promotional efforts. The report must include a description of plans for: (1) the development and distribution of digital and print materials, including the distribution of such materials to states for participants in state facilitated retirement savings programs; (2) the translation of such materials into the 10 most commonly spoken languages in the United States after English ..." Assuming is does survive, a few recordkeepers at best will offer to receive and separately account for the match, and administer the more restrictive withdrawal provisions. No recordkeeper has access to the information needed to calculate the match or determine if the match calculation is accurate. Since retirement plans are not required to accept Saver's Match contributions and since IRAs can accept the Saver's Match, it is very likely that most plan recordkeepers will not accept it and refer clients to direct employees to IRAs. It is possible that some state-run plans built around IRAs would be more interested in pursuing this.

This issue has hung around since ERISA. The never has been a clarification in regulations or other formal guidance. It was included in a Q&A with the IRS that the IRS again addressed from the podium. Here was the question and response: "59. In a 401(k) plan, does 401(a)(17) preclude the following: A. A earns $300,000 annually. He enrolls in 401(k) calendar year plan in August, after earning $175,000. He defers $10,000 in the balance of the year. B. A earns $300,000 annually. He participates in a calendar year 401(k) plan making monthly deferrals of a flat dollar amount of 1/12 of $10,000 in 1998, even though his pay exceeded $160,000 before he was done making elective deferrals. C. Same as 2, but deferrals are a percentage of pay (3.33333%). We believe that all three scenarios should be ok. This will be discussed additionally from the podium." That's all of the formal guidance, folks! That having been said over a quarter century ago, and after the many, many plans that apply the limits on an annual basis have reviewed by the IRS and not found to be deficient, @401kology it is fair to say you understand correctly. A plan would (and could) have a provision that stops deferrals and match once a participant has YTD compensation that reaches the 401(a)(17) limit, but why would anyone except an uninformed payroll processor think this is a good idea?

@OrderOfOps suggested steps are consistent with the IRS position that, for purposes of determining the year a distribution is taxable, a distribution occurs when the check is written and not when a check is cashed (and likely @ESOP Guy also had this in mind). The IRS took this position what asked about the year of taxation when a participant delayed cashing a check beyond plan year end. If this concept is applicable here, then the check represents an asset in the deceased participant's estate and would be dealt with consistently as any other assets in the estate. Mechanically, the check would be treated similar to checks that age out if not cashed timely.

Check as many boxes as needed to cover however the tests were done. EFAST2 checks to see if nothing is checked and has an edit that issues a Warning, but not an Error. There is no edit for checking multiple boxes.

Assuming (always risky) that the plan in question applies its defined Break In Service (<1000 hours) anywhere where breaks in service are used (determining years of service for eligibility, or vesting, or benefit accrual), then I agree the answer is No. Breaks in service using hours for these purposes are based on no more than 500 hours (or a lower number if an alternative method of calculating hours of service is used). Let's also keep in mind the a plan does not have to use break in service rules (i.e., a Break in Service is 0 hours.) If the plan defined the term Break in Service (<1000 hours) and used it solely in place of some other provisions (like eligibility for an allocation), then this is very poor and misleading plan drafting - essentially replacing a widely understood term of art with a narrowly applicable alternative definition.

Look in Revenue Ruling 2007-43 regarding partial plan terminations and you will find this language: "If a partial termination occurs on account of turnover during an applicable period, all participating employees who had a severance from employment during the period must be fully vested in their accrued benefits, to the extent funded on that date, or in the amounts credited to their accounts." Based on this language, if a not-fully-vested employee was terminated as result of a partial plan termination, the employee would be considered 100% vested in their accrued benefit at that time. If this former employee subsequently is rehired, then their vesting percentage in any new accrued benefits would be determined using the vesting crediting rules of the plan document. The full vesting due to the partial plan termination does extend to or supersede the plan's vesting rules applicable to the new accrued benefits. I have not seen anything that support grandfather the full vesting due to the partial plan termination.

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Ask the questions @Peter Gulia provided above to assess whether there is an issue. Focusing on the recordkeeper's service agreement or mutually agreed-upon administrative procedures, keep in mind that the processing date (validations, control totals, compliance checks, available investment elections, ...) are data activities that precede the actual crediting payroll to participant accounts. The segregation of the payroll dollars (funding) from the control of the employer is the actual funding date (which is looked at by the DOL to determine if something there are late deposits). Typically for many plans, the movement of payroll dollars is an overnight process. An aggressive interpretation of when the actual funding occurs would be to say it happens on the date of the instruction of the transfer of funds to the recordkeeper. Another possible interpretation is the date the funds leave the control of the employer. Another possible interpretation is the date the funds arrive at the recordkeeper. A very conservative interpretation is the date the funds are invested. Smaller recordkeepers do not have the financial resources to front any funds to their clients. Major recordkeepers may make funds to be available for investment on the payroll date (or date payroll is approved for investing), and the recordkeepers coordinate the date of investment with the date of receipt of funds from the client. Theoretically, this is near perfect coordination of activities. In reality, stuff happens, and the timing goes off the track. As long as this is not a recurring pattern or a purposeful manipulation of funds, it does not seem to be a cause for concern for the regulators.

Let's face it. A client complaining about giving the SHNEC to terminated employees more often than not is motivated by two things. The first is greed. The client likes the idea that they can maximize elective deferrals and think nondiscrimination tests are unfair to HCEs (and they abhor refunds). The second is the perception that terminated employees were not committed/loyal to the company and should not be "rewarded" with a 3% contribution (even though the SHNEC is very much akin to the employer funding payroll taxes). Sometimes the message has to be if the client wants the privilege of avoiding nondiscrimination testing (i.e., being able to maximize deferrals), the cost of that privilege is the 3% SHNEC. That being said, when a significant number employees do not defer, changing the plan design to a Safe Harbor Match often reduces the overall employer cost which seems to somewhat placate the client (until the employees catch on and start deferring more). Kudos to @Tom for trying to be responsive to his client and taking a wild shot.

From the way the OP is worded, it sounds as if the client does not want to assume any responsibility for signing a plan document without fully understanding what they were signing, and they now want to declare this is totally the TPAs fault. One thing that is almost always certain, when the IRS discovers a disconnect between the plan document and plan operations, the plan document governs and the plan sponsor is accountable for the content of the document. The only instances where the IRS possibly may be possibly swayed on a hope and a prayer is if there is an overwhelming amount of documentation contemporaneous with the adoption of the plan and the original intent to have certain provisions that were not reflected in the document. The IRS more likely be agreeable to accepting the retroactive application of plan provisions that are favorable to participants and are not discriminatory in operation. Given the changes in question, there should be no issue with accelerating the vesting schedule, but be careful with the change in NRA for any participant who is withing three years of age 62 (since attaining NRA would trigger full vesting). Be a little wary of this client who will blame you when something goes off the rails, and make sure you maintain documentation of source data and any operational issues when they arise. This is particularly important in this environment when plans can be administered base on documented administrative procedures that have not yet been codified into the formal plan document.

We work with an outstanding service provider who services Southeastern Pennsylvania. If you are in this geographic ares, I can send you their contact information. Based on experience, I recommend in making your decision you consider the breadth and depth of a provider's technical support (in particular responsiveness), security (including availability of full encryption of all transmissions of email, data and storage), access to leading state-of-the-art technology, and cross-platform support (including computing, phone service, operating systems and hardware). The cost of these services almost always is higher than one would guess, but that often is because the outstanding providers provide more value for what most people don't even know they need. Consider documenting what services you will be providing to your clients over the next 2-3 months, and seeing if there is a way to deliver those services without compromising the integrity of clients' data, and be prepared to discuss with a successor provider strategies to get support through a transition period. In our business, we have an obligation to protect the information entrusted to us.