Paul I

The 5330 has its own deadline.

For 2024, the amount involved was ($400 so 15% tax of $60) was due by 7/31/2025. For 2025, the amount involved is the ($400 plus $60 for the unpaid tax for 2024, i.e., $460 * 15% = $69), and is due by 7/31/2026. For 2026, the amount involved is ($400 plus $60 for the unpaid tax for 2024 plus $69 for the unpaid tax for 2025) * 15% = $79.35 that can be prorated on the number of days in 2026 the tax was unpaid. If it is paid now, this would be 1/2 of $79.35 = $39.68. The total taxes are $60 + $69 + $39.68 = $168.68. Note that on the 5330 you can report all of the taxes due that are subject to the same tax rate regardless of the tax year. This is all spelled out (somewhat opaquely) in Revenue Ruling 2006-38. Double check the math on any of the above before filing the taxes. Do submit a cover letter requesting an abatement of any interest and penalties. Otherwise, the IRS may feel obligated to bill interest and penalties after reviewing the form. Note that at least a couple of software/plan document vendors now offer a 5330 filing service that make this process much easier.

There are special rules for self-employed owners of multiple businesses. Take a look at §1.401-10 - Definitions relating to plans covering self-employed individuals. subsection (c). The rules are intended to avoid an abuse where one company generates all of the income and gets a big deduction, while another company has the losses. It gets complicated because the whether or not the income from the company that has not adopted the plan depends on factors such as the level of compensation the owner received from each business for personal services performed for each business, and the level of compensation where capital is a material income-producing factor. If capital is not a material income-producing factor, then likely the income (loss in this case) from the company that did not adopt the plan could be disregarded. Unless the facts are clear, then you should ask whoever is preparing the tax returns for the businesses and declaring the deductions for each business and for the owner's personal taxes understands these rules and can support the decision to include or exclude the losses in the determination of plan compensation.

Playing games with eligibility generally is frowned upon.. by all of the other employees. The top tier hire will be an NHCE for their first year of employment since their prior year compensation from the company is zero. The plan could be amended to say the individual is immediately eligible and would be discriminating if favor of an NHCE. The individual could be identified by name, by title, or by any other unique identifier. Note that any plan amendment must be communicated to all eligible employees so the plan will be advertising to everyone in writing in the SMM or SPD that this individual received special treatment. The client should know if the employees are as excited as the client is about the prospect of this individual joining the firm. If so, some employees may be welcoming. Alternatively, the client could consider bumping up the employer contributions above normal for the year as a gesture of goodwill. I suggest the client explore other potential options - bonus compensation, deferred compensation, equivalent value perks... - rather than messing around with the pan. IMO, if this top tier hire is communicating that their decision is based on a year of eligibility for the plan, this suggests their loyalty is higher to themself over the client and comes across as arrogant. This type of individual often is toxic.

If the excess amount adjusted for earnings is distributed on or before April 15, 2027, and the excess was pre-tax deferral, then use Code 8 on the 1099R. If it was Roth, use 8B. Any earnings will be taxable in the year of they are distributed from the plan. There is no double taxation as @Bri notes since the 1099R adds the amount back to the participant's income. If it was Roth, the 1099R also would report any non-taxable basis.

Since the plan has been active since before 1/1/2026, the full 415 limit is applicable to the sum of all contributions and reallocated forfeitures made during the year. Elective deferrals must be made from compensation that the participant has not yet received. A participant could defer the entire $24,500 if the employee makes and election to defer beginning after effective date of the amendment allowing deferrals, and defers that amount from compensation earned after the later of the effective date of the amendment and the effective date of participant's deferral election.

@WDIK a lot of companies do not track hours for employees who are designated as full-time. They either use hours equivalencies or elapsed time for determining service for plan purposes. For all employees, life happens and sometimes an employee is unable to work for some period of time during the year so not all employees who are designated as full time actually do work at least 1000 during the year.

Since the excess deferral is due to a payroll error, use EPCRS 6.06(2) to refund the excess and related earnings to the participant. The refund is reported on a 1099R with code E (no 10% penalty will apply). The suggestions by Apex and by the CPA are fraught with all sorts of compliance issues.

The PBGC maximum benefit is most relevant to plans of bankrupt plan sponsors, or plans the terminate with insufficient assets (i.e., when the PBGC may be called upon to pay out benefits). In these cases, the AFN should use the maximum in effect in the year that above events occurred. Otherwise, I agree with @Effen that you could use the "notice year" (2025 for AFNs being sent out in 2026), or the year in which the notice is sent (2026).

@bp parv raises several points to consider. Here some related points to keep in mind: The determination of whether a partial plan termination occurred is based on facts and circumstances. This determination is relatively easy when the relationship with the employees is severed completely. Otherwise, the determination can be challenging. Consider visiting IRS Notice 84-11 and Revenue Ruling 2007-43 for starters. Most agreements with leasing companies repeatedly emphasize that the leased employees are not common law employees of the client company, and many even position the leased employees as independent contractors of the leasing company. Unfortunately, these representations often fall apart in operation. Part of the determination of the status of a leased employee considers who decides which leased employees are assigned to work at the client company. Commonly, this is the leasing company with the client company reserving the privilege to reject some of the assignments but without complete authority to determine all assignments. This gets dicey when a group of employees gets spun off to a leasing company when individuals who have been working together for years get split up. If the employees who are spun off to the leasing company work essentially 75% of a full time equivalent employee at the client company, then the client company's retirement plans will need to include the leased employees in the plans' compliance tests. This is by regulation which supersedes any plan provision that excludes leased employees. There are more details about how these rules operate in 414(n) regulations. There is much more to think through beyond whether there was a partial plan termination.

You have a good argument for how to address any funds that have been contributed to the funds. With respect to an amendment containing pro-active language, you likely do not want to put the fund in the position of policing the information submitted by the employer. You note that the contributing employer, and not the fund, is responsible for complying with the I-9 requirement. If anything, the employer who is enrolling the individuals and submitting contributions should address this issue. The issue goes beyond the two funds and extends to all compensation paid by the employer to the individual. The employer may or may not know than an individual does not have to have a Social Security Number to receive compensation or to participate in a plan. The individual or the employer definitely should not just make up a number. They should apply to the IRS for an Individual Taxpayer Identification Number (ITIN) https://www.irs.gov/tin/itin/individual-taxpayer-identification-number-itin Many plans' provisions would allow anyone who gets US compensation to become eligible to participate. The fund could consider including a requirement (either operationally or in the plan document) that the employer must represent in writing ( and subject to responsibility for any consequence for failing to do so) that they have validated the SSN or ITIN for everyone for whom the employer submits funding. From the IRS website: Who's eligible for an ITIN If you're a resident alien, nonresident alien or their spouse or dependent, you can apply for an ITIN regardless of immigration status. Resident alien or nonresident alien If you're not a U.S. citizen, your tax status can be either: Resident alien – If you were present in the U.S. for more than 183 days* (substantial presence test) or you’re a lawful permanent resident of the U.S. (green card test) Nonresident alien – If you don’t meet either the green card or substantial presence test for resident alien status. These are just some thoughts that may stimulate some further ideas about how to frame and address the issues. I definitely recommend that you get legal counsel involved before implementing any changes to the plan document or to administrative procedures.

General Counsel Memorandum (GCM) 39310 deals with these issues. Essentially, once a nonvested amount is considered a forfeiture under the terms of the plan, it does not become fully vested upon the termination of (or complete discontinuance of contributions to) the plan. If the plan referenced in the original post had a provision that forfeiture occurred when a participant had a 5-year break in service, then those amounts would remain forfeited. The plan would have to deal with the operational failure of not following the plan's forfeiture provisions. If the plan provision also would mean that a participant who still had an account balance in the plan and had not had a 5-year BiS at the time of termination would become fully vested. If the plan provision also had a provision that the participant, upon a full distribution of their vested account balance, would forfeit the nonvested amount (either immediately or upon a BiS), then that participant would not become vested in that nonvested portion due to the plan termination. Based on the above, the timing of forfeitures needs to be reviewed. Given the passage of time, of the three plan options for handling of forfeitures, only the reallocation option remains available now. It is worth exploring if the plan document requires the allocation basis for the forfeitures to be the same as the allocation basis for the contribution. If not, then the plan could use a per capita allocation basis for the reallocation of the forfeiture which would greatly simplify the remedial action.

This is a question where the answer is based on the demeanor of the lawyer and using discretion to get to the ultimate goal of having a valid QDRO. I have seen lawyers who try to bully plan administrators into including in the DRO that are biased to the lawyer's client. Any conversation with them generally starts out with a comment like "I have done 5,000 QDROs and they all accepted this language..." I have seen lawyers who worked very hard on the divorce decree who were adiment that the decree superseded the DRO. I have seen lawyers put the idea in the head of the alternate payee that the plan administrator is favoring the participant to the detriment of the alternate payee. I have seen lawyers who ask politely what needs to be done to get the DRO approved and have been responsive. As Detective Joe Friday migth say, "All we want are the facts" to move foreward.

It is fixed at $1,000. That being said, I have seen an instance where the IRS deemed the filing incomplete because of the missing schedule and applied one of the other penalties for late filings that is based on days late. In that circumstance, it was worth challenging the penalty.

As @justanotheradmin notes, there have been instances where the intent to establish a plan was exceptionally well documented and all operational activities were performed correctly as if the plan was adopted properly, so the plan sponsor was allowed to adopt the plan formally. One persuasive piece of documentation is having signed trust documents with the institution holding the assets that acknowledges that the trust is for a qualified plan. Placing the assets in an account that separates control of the assets from the company helps support the argument. This is not DIY project. You can consider accepting the prospective client when they have engaged an attorney and the attorney provides guidance on the path forward to resolve the issue. Be clear that your services above and beyond routine services are not free regardless of whether or not they and the attorney are successful. The incentive for the prospective client is, absent getting recognition that the plan can be adopted formally and retroactively, there is a $500,000+ rollover that will be considered a taxable distribution in 2025.

How is the compensation from which the deferrals were made being handled? I would expect that the employee deferrals to the Division A plan were made from compensation paid (incorrectly) by Division A. If this is the case and the payroll records are being corrected to show compensation was paid from Division B, then that is a reasonable argument for moving the deferrals that were made to the Division A plan to the Division B plan. If in fact the plans are identical (including investments), the participant is kept whole. A purist may feel compelled to consider this a collection of interconnected operational failures each with its own prescribed correction procedures, but I've know agents and investigators who would be okay with the outcome. If the compensation reporting is not corrected, then the odds of getting some push back may go up a little bit.

@Peter Gulia highlights that a plan with all brokerage accounts doesn't have designated investment alternatives so the table of financial information in the 404(a)(5) notice is not applicable, but any fees chargeable to a participant's account (e.g., admin fees, distribution fees, brokerage account fees...) remain disclosable on the notice. There is no explicit penalty for a failure to issue the 404(a)(5) notice, BUT the DOL can deem the failure to be a breach of fiduciary responsibility by the plan fiduciaries. (No fiduciary wants to be in that position.) Send out the notice ASAP once the decision is made confirming the new investment menu, and disclose any fees payable from a participant's account. This will demonstrate good faith compliance going forward and likely would placate a DOL investigator.

I agree with the advice that the DRO be reviewed without regard to the divorce decree, and I would not consider a DRO is a QDRO if it incorporates other documents by reference primarily because of a lack of control over the content of these other documents. I agree that the reviewer of the DRO should not be giving advice to either party about the terms of the DRO beyond what content is needed to be clarified to gain approval as a QDRO. The authority for approving a QDRO on behalf of the plan should be explicit in the plan document. Service providers can opine to the holder of that authority on whether the terms of the DRO can be administered (and be able to explain if not, then why not) so an informed decision can be made. A service provider having final say if a DRO is qualified without having been delegated that authority is putting itself at risk of being challenged by either party to the DRO or plan fiduciaries. Just my thoughts.

@ConnieStorer could you clarify if the owner is making deferrals based on wages from both companies A & B, or based solely on wages from Company A?

An outstanding loan balance does not reduce the vested balance in the plan. The loan is an asset that is part of the overall plan account. It is included in the formula for determining the amount available should the participant is permitted to and wishes to take out a second loan. It is included in the total value of the vested account balance payable upon distribution (and any unpaid loan balance at the time of distribution is taxable.) For a QDRO, how it is handled is subject to the agreed-upon terms of the QDRO. (Commonly, the party who is the participant in the plan keeps the loan and continues to make loan repayments by payroll deduction, but if the plan loan procedures facilitate it, the alternate payee could agree to have part of the loan kept in the alternate payee's account inside the plan and make payments on the loan.

Managing cash is often behind the different methods and timing used to pay termination distributions. An ESOP may provide for an immediate payment of smaller account balances, but require for larger balances require payment over a 5-year period. Similarly, the plan may specify a starting date for payments to allow the company time to have sufficient cash available to make the payments. An ESOP may have provisions for recycling shares out of terminated participants' accounts where an annual cash contribution is allocated to active participants which in turn is used to purchase shares from the terminated participants. Since the contributions are subject to deductible limits and active participants' allocations are limited to annual additions limits, the repurchase is spread over time. The what and why of how your distribution is handled should have been explained to you. You seem to be seeking a clear understanding of when and how your distribution will be made, and are not being adversarial. If no one at the company can explain this clearly, then you may want to ask politely if there is a service provider for the plan who knows the details of how the plan operates who can.

The ADP test passes if the NHCE ADP is 4.06% (using +2). That leaves 0.45% (4.51% - 4.06%) available for use for the NHCE ACP % in the ACP test. The NHCE ACP test passes if the NHCE ACP borrows 0.07% to add to the 1.21% and get to 1.28%. The ACP test passes since 2 times 1.28% is 2.56%.

It is not clear who the pronoun "they" refers to in the OP. All to often I have seen situations where the partnership (Firm) acts as the plan administrator but Firm collects funds from the individual partners. Is the "they" who failed to deposit the SHNEC and PS contributions the Firm or the individual partners? Is the "they" who failed to deposit the deferrals the Firm or the individual partners? Is the "they" who already filed a tax return the Firm or the individual partners (or both)? From the perspective of the plan, the deposit the deferrals should be treated late deposits. Depending who "they" are, the correction could have an added dimension of making the correction for each individual partner. I also have seen some partners freak out because they have complicated personal tax returns and they do not want to do anything extra that may draw the attention of the IRS.

If the plan invested in mutual funds at all times throughout the plan year, then you do not need a Schedule D. If the plan invested at any time during the plan year in any of the investment types CCT, PSA, MTIA, 103-12 IE, then you will need to a Schedule D for that plan year.

You are doing this correctly where the plan is the Payor and responsible for tax withholding from taxable distributions. The plan sponsor definitely should want the plan to have its own EIN and have the plan make the tax deposits using that EIN. I have seen (typically small plan) sponsors who used their EIN as the Payor for a taxable plan distribution. The IRS could not distinguish some of the nonpayroll tax withholding for plan sponsor from the tax withholding from the plan, and sent a penalty letter for untimely deposits. It ultimately was resolved, but the it wasted a lot of people's time sorting it out. You can let the plan sponsor know that the plan having its own EIN does not require filing a 945 in any year where there are no tax withholding to report for that year. The language in the 945 filing instructions is clear about this. If the plan does withhold taxes from a payment, then the plan sponsor is prepared to make the filing.