Paul I

Lets break is down further. Merging plan Participant terminates in 2025. In calendar year 2026, the plan files a 2025 8955 and reports the participant with Code A. In calendar year 2026, the plan merges mid year into the surviving plan. The merging plan files a final 5500 for the short plan year ending on the date of the merger. The plan files a 2026 8955 reporting the participant as Code D Surviving plan In calendar year 2026, participant has vested account balance transferred into the surviving plan. In calendar year 2027, the surviving plan files a 2026 8955. The participant is reported on the 2026 8955 with Code A.

Yes, a 2025 1099R still needs to be prepared and included as 2025 income on the participant's tax return. If they already filed their 2025 return, then they need to file an amended return. If the refund is not made by April 15, 2025, it is still taxable for 2025 and the excess amount must remain in the plan and cannot be removed until a distributable event occurs (or is corrected under EPCRS). When the excess amount subsequently is paid, it is taxed again in the year of distribution. The taxation in 2025 does not create tax basis in the plan.

This issue has been addressed by each both the IRS and DOL. See IRS §1.401(k)-1(a)(6)(iv) and DOL Advisory Opinion 99-04A.

The intent for reporting participants on a For 8955-SSA is to enable the Social Security Administration to inform someone that they may have a retirement benefit available. The SSA uses the a pairing of the individual's SSN with the EIN of the plan that has the available benefit. With the plan merger, the EIN of the plan that has the available benefit will be the surviving plan from the merger. Because the plan is merging in 2026, the plan will file a 5500 for the entire plan year using its own EIN. The 2025 terminations can be reported on the Form 8955-SSA for 2025 also using the plan's own EIN. When the merger occurs, the merging plan will file a final 5500 for 2026 for the short plan year ending on the date of the merger using the plan's own EIN. The plan should file for the short year a Form 8955-SSA using the plan's own EIN for all participants who previously were reported on Form 8955-SSA using the plan's own EIN and Code D (delete) for all participants. The surviving plan should include all of the merged-in terminated vested participants on its 2026 Form 8955-SSA with a Code A.

He gets 2 1099Rs, one for his 2025 tax filing reporting the return of the $4100 with a Code E in Box 7 and one for his 2026 tax filing reporting the earnings also with a Code E in Box 7. Code E is for Distributions under Employee Plans Compliance Resolution System (EPCRS).

Interesting question. When a Sole Proprietor files their income taxes, there is a distinction between what is deductible as a business expense and what is deductible as a personal expense. This can be influenced by the type of business that the individual has formed and whether there are choices on how the business is taxed (like with LLCs). For a sole proprietor, the instructions to Schedule C say "If the plan included you as a self-employed person, enter the contributions made as an employer on your behalf on Schedule 1 (Form 1040), line 16, not on Schedule C." which flows into a Line 10 on the 1040. If the only contribution are in question are elective deferrals, there is some logic to treat them solely as late deposits. Consider other businesses that have late deposits. They do not restate the businesses tax filing for a prior year because there were late deposits. This is not advice.

If the assets fall below the $250,000 threshold for a Form 5500-EZ filer, no EZ must be filed but you definitely should not check the final filing box. Keep in mind that a terminating plan for an EZ filer that checks it is a final filing must submit a form showing the assets going to zero without regard to the $250,000 threshold. If a plan was required to file an SF because the plan covered non-owner participants (including LTPTs), and that plan subsequently only covered owners, the file the SF for the last year in which there were non-owners at any time during the plan year. For the year in which there are only owners, the plan must file an EZ if the assets are above the threshold, or optionally may file if the assets are below the threshold. I suggest filing the EZ regardless of the asset level because it will document that a 5500 was filed for the plan for that year. The SFs are processed by the DOL. The EZs are processed by the IRS (even though they are filed through EFAST2). The plan may receive a letter from the DOL noting that there was an SF for the prior year and not the current year. The plan also may receive a letter from the IRS that the EZ was not an initial filing and the plan had assets at the beginning of the year. In both cases, the appropriate response is an explanation of the facts.

I wholeheartedly agree with @ESOP Guy and will add that if the company gives the participant a promissory note to repurchase the shares, the transaction almost certainly will be considered a prohibited transaction subject to all of the associated penalties.

I agree. Here is the 2022 Form W-4P https://benefitslink.com/src/irs/fw4p-dft-11052021.pdf as it was being implemented. In particular, see the Caution on page 5. Essentially, if a participant had an election prior to the implementation of the new form, the participant did not have to change their election, and a processor could use a computational bridge to for their system to solve their calculations to yield the pre-existing result. There is a caveat I have seen that says if the participant's tax situation changes, then they need to file a new form. I expect the new vendor is saying they cannot continue to honor the pre-existing elections because their system does is not set up have the computational bridge.

If you have multiple plans (including plans within a controlled group) they all must use the top paid group rules or else none of the plans can use the top paid group rules. If you have multiple plans they all must use the calendar year look-back rules or else none of the plans can use the calendar year look-back rules. This most likely would be an issue come into to play if one or more of the plan has a non-calendar year plan year. The top paid group rules and calendar year look-back rules are applied independently from each other. Amending the plans now - like ASAP - is easy and will avoid getting overlooked with the looming chaos of SECURE 2.0 amendments and Cycle 4 amendments coming later this year. Keep in mind, though, that the HCE determination is critical to coverage, nondiscrimination and ADP/ACP testing. The plan cannot just amend now and disregard the fact that prior years' testing did not determine HCEs accurately.

The instructions for the 945 are very straightforward: "Nonpayroll payments include: • Pensions (including distributions from tax-favored retirement plans, for example, section 401(k), section 403(b), and governmental section 457(b) plans), annuities, and IRA distributions;" "Who Must File If you withhold or are required to withhold federal income tax (including backup withholding) from nonpayroll payments, you must file Form 945." When taxable payments are made from the plan and taxes are withheld, look for the EIN and name that is on the IRS account that receives the deposit of the taxes withheld. The IRS has the capability to add up taxes reported withheld on 1099s using the payer EIN and compare this to the taxes withheld on the 945 by the payer EIN. Short version, look for the payer on the 1099s sent to participants. That is who should have filed the 945. Ideally, the 1099s and the 945 show the plan as the payer and the forms use the plan's EIN. Most problems occur when there is a mismatch between these EINs.

I have found the IRS not to want to pursue penalties just because they could as long as everything has been restored to its proper place. The 8955 information held by the SSA would be correct under either scenario. I also assume that the plan provided statements to every terminated vested participant with all of the required information and could answer to that question on the 8955. Otherwise, there could be penalties for a failure to provide a statement. If you wish to be very conservative or are dealing with other operational issues, then file the SSA for each year based on the facts known at the time the filing should have been made.

One interesting aspect about the one-time opt-out election is the plan could say the employee could elect to opt-out of the plan and the participant could have the contribution they would have received paid to them as compensation. Essentially, the regulation was put in to say this arrangement would not be considered an elective deferral. This likely was included because many CODAs before 401(k) was adopted were applicable to profit sharing plans. Note, though, that this does not say this arrangement excludes considering the employee as being counted as an eligible, non-benefiting employee.

Take a look at IRS Notice 2014-35 https://www.irs.gov/pub/irs-drop/n-14-35.pdf. It supports your position. Consider that the purpose of the 8955 is to identify participants who have deferred vested benefits so that they can receive a notice when they reach retirement age. The instructions to the form says not to report anyone you know has been paid or has started payments. Also consider that you have until the filing deadline for the 8955 to determine if a participant is reportable (i.e., has not yet been paid out). Taking advantage of this knowledge about a participant's current status may greatly simplify the filings.

This begs the question of whether a fiduciary can know the participants' levels of sophistication to be able to begin to factor this into the fiduciary's decision.

You may have seen the American Retirement Association's posting https://www.asppa-net.org/news/2026/3/why-ara-supports-the-proposed-investment-selection-rule/ They are highlighting the fact the the content of the proposed rule does not explicitly address private equity investments but rather emphasizes that plan fiduciaries must use due diligence and perform a reasonable analysis in deciding on funds that can be included in a plan's investment menu. The emphasis is on the selection process that is not really new. Here is the ARA teaser. Why ARA Supports the Proposed 'Investment Selection Rule' Process, not politics, should guide 401(k) investments. By providing vital asset-neutral, process-driven clarity to 401(k) investment selection, the proposed rule will help America’s retirement plan system remain strong and durable.

PEOs and Leasing Companies go out of their way to incorporate language in the agreement with an employer to structure it so individuals employed by the PEO or Leasing Company are not considered under 414(n) as employees of the contracting company. As we all have seen, what is on paper is not always consistent with what happens in practice. One common problem occurs when a leased employee works more than either 1500 hours or 75% of the hours than a company employee would work doing the same job. When this happens, the leased employee at least is included in compliance testing even if the plan says they are excluded from participation. Worst case is the leased employee is treated as a company employee and eligible for the plan. This is just an example of the type of issue that could be a problem for the company and is not the complete picture. For example, there is a safe harbor where the leasing company provides a 10% money purchase plan for the leasing company's employees, although I have never seen one. In addition to the universal advice to read the plan document, also read the leasing agreement and educate the client on what needs to be monitored to inadvertently triggering a need to consider the leased employees in any aspect of the plan. The ERISA Outline Book is the best resource I have seen discussing this topic in depth.

@Bri 's suggestion is a good one. Keep in mind that in electronic filings of Form 5500 started in 2009. You are looking for a plan in effect in 2013 which conceivably could be an EGTRRA or PPA plan. Looking at EGTRRA documents, E*trade sponsored standardized profit sharing plan/CODA plan https://benefitslink.com/boards/topic/81080-etrade-prototype-standard-psp/ (see page 37) approved on 10/29/2008. This matches the IRS determination letter number M288284 in your original post. Using the 5500 search feature https://www.efast.dol.gov/5500Search/ and filtering "e*trade" in the plan name and then adding a filter for plan numbers "001 002 003" brings up a list of plans. This includes a handful of one participant plans, but since E*trade did not have a special document for one-person plans, it is reasonable to expect that the standardized profit sharing plan/CODA basic plan document was used for all of their 401k plans. If you download the associated 5500 filing, it will give you a contact name and phone number. Good hunting!

Many plan fiduciaries have considered these issues when considering whether to include Self-Directed Brokerage Accounts (SDBAs) in the existing investment menus. The decisions have varied. Based on the fiduciaries' considerations, some have: not added SDBAs because of a concern that the participants will invest unwisely. added SDBAs with restrictions on what percentage of a participant's account can be in the SDBA. added SDBAs with restrictions on the type of investments in which a participant may invest and often is limited to publicly traded mutual funds or ETFs. added SDBAs with restrictions to investments in mutual funds, ETFs or stocks that specialize in the plan sponsor's industry. added SDBAs permitting only publicly traded investments. added SDBAs permitting trading stock options excluding naked options. added SDBAs permitting virtually anything such as limited partnerships, real estate, annuities, physical metals, commodity futures... but subject to approval by the fiduciaries. added SDBAs where some of all of the above are permissible but only when a participant passes a test that indicates they comprehend the risks associated with different type of investments. added SDBAs and anything goes. In almost all cases, the fiduciaries' include a disclaimer that a participant directing investments through an SDBA do so at their own risk. I have seen clients adopt differing approaches and most clients have had a good grasp on their participants' appetite for risk tolerance. Over the years, I can count on one hand the instances where a participant has seriously hurt themselves financially. With the new addition of the possibility of adding private equity investments to a plan menu, could be added as permissible investments in an SDBA. Alternatively, they could get the same consideration from plan fiduciaries that has been given to SDBAs. To answer your question, I think plan fiduciaries need to know their own level of knowledge about the risks, rewards, and performance metrics of any and all of the investments that they approve to be included in the plan's investment menu. If there is any investment where the fiduciaries lack such knowledge, then they should not include the investment in the plan's investment menu until they learn more and can make an informed decision.

The decision to add private equity investments to a plan's investment menu belongs to the plan fiduciaries. The plan fiduciaries will be hearing from their service providers and investment advisors about what to consider when looking to include private equity in the plan's investment menu. My experience is when plan fiduciaries are making investment decisions, they give greater weight to the opinions of the investment advisors. The fiduciaries do give greater weight to opinions about operational and recordkeeping issues from the other service providers. Being conversant in how characteristics of private equity investments impacts individual participant's accounts will help earn a seat at the table. If we think about issues associated with other non-traditional assets like gold bullion, real estate, private placements, art, collectibles among others, we know that the: periodic valuation of the asset is a concern in plans that are daily-valued, level of liquidity across all assets is necessary for smooth inter-investment transfers and timely payment of distributions and loan proceeds, timely implementation of changes in investment elections depends on the two items above, plan limits on the percentage of assets a participant can be held in a participant's account (e.g., no more than xx% of the participant's total account can be held in certain investments) are difficult to administer particularly when the investments are highly volatile, in-kind distributions of certain investments may be precluded based permissible ownership rules associated with that investment. Certainly our BL colleagues have other points to contribute to inform plan fiduciaries that the attraction of extreme returns of private equity is like drawing moths to a flame.

Revenue Ruling 91-4 dealing with the return of a contribution that is a valid mistake of fact says "Earnings attributable to the excess contribution may not be returned to the employer, but losses attributable thereto must reduce the amount to be so returned." To address the earnings remaining in the plan, consider possibly including the earnings along with other allocations of income to participants, or possibly paying a plan expense. Do not use it to offset an employer contribution.

The definition of HPI stands as is, and the plan should follow the rules. It is between the accountant and the owner on how the owner's income is characterized as W-2 or dividends. You don't want to hear later that the IRS is challenging the reporting of income as tax avoidance and the client and accountant say they did what you told them to do.

... and the moral of @Artie M's story is you must "respect" people in South Jersey

Check the plan document's rules for determining the employee's eligibility computation period after incurring a break in service. Some plans shift the eligibility computation period for the employee's first ECP following rehire to start with the employee's rehire date. Also check the plan document's definition of month. Some plans count only whole calendar months, or consider the 6 month anniversary of the hire date, or have some other quirky rules. These rules may not change the employee's status as ineligible, but the employee's work history may result in their being eligible. We have seen stranger things happen.

A 1099-R is for reporting "Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc." On what form is the lawyer's income being reported to him?