Paul I

When drafting plan provisions related to changes to exclusion by classification, be sure to address what happens in situations such as: a participant is hired into a covered classification and then at a future point in time the participant starts working in an excluded classification. a participant is hired into an excluded classification and then at a future point in time the participant starts working in a covered classification. if a participant worked in a classification that was covered, and the plan grandfathers participants who worked in that classification before the effective date of the new provisions excluding that classification, and the participant terminated employment prior to the effective date of the new provisions, and the participant is rehired after the effective of the new provisions, will this participant be grandfathered or excluded. consider the impact of the change should these situations occur during the time period between when the an employee meets the eligibility requirements for a type of contribution and an employee's entry date which may be months later. if the plan uses rules of parity for eligibility, consider how these rules can complicate these situations particularly if the plan requires a one year wait to re-enter the plan. When considering situations like this, be sure to consider how the plan will apply to each of the three types of contribution sources: elective deferrals, match, and nonelective employer contributions, particularly when applying any allocation conditions for the match and NEC. The most important consideration that @Lou S. pointed out above is that the plan will need to consider employees in the coverage testing for each of the three contribution sources who met the plan's eligibility requirements but are excluded by classification.

Every payroll company we work with or that our clients use will only issue tax forms for payments instructed by the payroll company.

We have had very good results (at a reasonable cost) from searches done by EmployeeLocator.com

With the obvious? assumption this is an owner-only plan, technically it is not an ERISA plan (and is not subject to all typical ERISA and DOL requrements like filing a 5500, keeping in mind that the 5500-EZ is solely an IRS form). It is worth noting that it is relatively easy for an owner-only plan to become an ERISA plan by having an employee become eligible to participate, particularly with the new LTPT rules in place now. It may be worth posing the question "Why are you asking this question?" to see what are the implications for this investment if the plan's status is an ERISA plan or is not an ERISA plan.

All of the various ways the agencies have proposed procedures or made suggestions about finding a missing participant, no one explicitly tells us what to do when, for a plan that is not terminating, we try everything in good faith and cannot locate the missing participant - with some exceptions that are not considered acceptable by all of the agencies. The IRS says we can forfeit the benefits and pay it if the participant is found. The DOL doesn't like this. The IRS at least acknowledges in the 5500 instructions to the compliance question about benefit due but not paid that some participants will not be found by saying: "Note: In the absence of other guidance, filers do not need to report on this line unpaid required minimum distribution (RMD) amounts for participants who have retired or separated from service, or their beneficiaries, who cannot be located after reasonable efforts or where the plan is in the process of engaging in such reasonable efforts at the end of the plan year reporting period." There does seem to be some grudging, temporary acceptance by the DOL of the notion to write the check and let it escheat to the state. The IRS doesn't seem to mind as long as they get default withholding. The IRS and DOL want us to report to them people due benefits, but neither agency wants to let a plan cease to have the responsibility to find a missing participant (unless the plan can pass off that responsibility to a business that will take the participant's account where it slowly disappears into the abyss of administrative fees). The PBGC is willing to help, but not for DC plans unless the plan is terminated. Hopefully, sometime, we will have clarity across all agencies about what a plan can do with benefits due to participants who remain missing despite everyone's best efforts to locate them. This has about the same chance as there being universal peace, love and happiness.

It is permissible, it is not required, and there are pros and cons. Some companies fund the SHNEC with each payroll because the contribution is 100% vested and not subject to other allocation conditions (like a last day rule). They do this as a convenience and feel it helps them manage their finances. The TPA should know better than to say there is no "true-up". The SHNEC is not like a match. A plan can specify a time period for funding the match that is more frequent than annually. The SHNEC requires each participant receives must the the SHNEC percent of annual plan compensation. Payroll is notorious for having adjustments from pay period to pay period, and for having challenges reporting plan compensation should the definition of plan compensation be something other than 3401(a) W-2 compensation. The prudent plan administrator, payroll and TPA all would double check after year-end that everyone received the SHNEC they were due.

It is not protected. We went through the same scenario with a physician group with brokerage accounts spread across a dozen brokerage firms and following a merger into the practice of another physician group that used different brokerage accounts. There was a Committee that was the designated Plan Administrator and Trustees that presented the idea to discontinue SDBAs to the Board (which basically was all of the physicians). The Board adopted a resolution to eliminate the SDBAs. We communicated with each physician with an SDBA about the transition process and set a hard deadline (4 months away) by which time all accounts had to be transferred into the plan's investment menu. The deadline allowed time for individual's to unwind any investments or trading schemes (for example, one individual was trading covered calls). A couple of individuals had some favorite assets and were eligible to withdraw their accounts, and so they arranged to move those assets out of the plan. It was tedious, but mission accomplished.

It seems that the answer will hinge on how the last day rule is written in each plan. There would be no separation from service as long as the employee is working for a participating employer. Consider if the last day rule may be written to say that the employee must be actively employed on the last day by Employer A to get an allocation from Employer A, with a similar provision for Employer B.

There is no pre-funding issue as long as there are no other plan provisions (other than vesting) that could cause the participant to give up the pre-funded match. The task remains for the plan to have explicit provisions about when the gets incremented. This should be done in the definition of the match formula. Take care in drafting the provision since it will impact the calculation of the true-up at plan year end for participants who on the threshold of getting to the next incremental rate. I suggest modeling some numbers illustrating for the client how this would work in practice so they understand clearly how to operate the plan.

If the match is an annual match, technically it is accrued at plan year end as of the end of the benefit (allocation) computation period. The tier is determined at the end of the year when the match is allocated to the participants' accounts. You could write language into the plan the explicitly adjusts the tiers when an employee has worked 1000 year-to-date, but that would be creating the problem that you want not to have and don't have with the current design. Again, there is nothing inherently wrong with the plan design. The issues arise because of the funding frequency of the match.

@30Rock from your comments, it sounds like the plan design is: The initial eligibility computation period (ECP) is the first 12 months of employment and an employee must work at least 1000 hours in the first ECP to be eligible to make deferrals into the plan. In your example, the employee's first ECP ended June 26, 2024. If the employee meets this requirement, the employee begins participant as of the next entry date (which sounds like this plan uses the next payroll date). The employee entered the plan on June 28, 2024 and starts deferring. At the end of the plan year on December 31st, employees who have deferred during the year receive a match if they have completed at least 1000 hours during the year. As of 12/31/2025, this employee has 2 years of service and has more than met the requirement to get a match for 2025. It seems the conundrum is the company is funding the match during the year, but the match really is an annual match. Since the funding occurs more frequently than the match period, the plan must make a true-up match. This plan has an issue if an employee was deferring and getting a concurrent match, but then terminated employment before working 1000 hours during the year. There would be a match in the employee's account that the employee is not entitled to have. The issue could be exacerbated if the match funding also was anticipating an employee working 1000 hours in a year where the match percentage was going to increase to the next level. There is nothing inherently wrong with the plan design. The issues arise because of the funding frequency of the match.

Were it that straightforward. I would say most big recordkeepers have a default set of benchmarks that they use for the the 404a-5 disclosure, and may allow a plan's financial advisor or the plan's investment committee an option to pick their own benchmarks. Some mutual fund companies (Vanguard being one) built their own benchmarks for their funds which can vary from Morningstar or S&P benchmarks. As illogical as it may seem, it also is worth noting that some 404a-5 disclosures use a single benchmark for all of the target date funds in the investment menu regardless of the target year. Given the mix of categories of assets vary as the calendar approaches a target date, we would expect to see a difference in the benchmark.

The first thing that comes to mind are the SPD and SMM. ERISA does not require that these disclosures must be made in languages other that English, but DOL 2520.102-2(c) does have the rules that do.

The FY2025 Lapsed Appropriations Contingency Plan was released in July 2024 to have an orderly plan for coping with the ploy of letting government funding lapse in an effort to further a political agenda. The plan anticipated that this ploy will become very much commonplace and the plan codifies steps to take for an orderly shutdown and then an orderly restoration of activities. Effectively, the plan anticipates that funding ultimately will be restored, paychecks will be issued covering lost pay, staff will return and pick up where they left off. Oversimplifying things, the plan basically puts the agency into hibernation. We are now in 2025 and are in the midst of an aggressive Reduction in Force initiative to permanently eliminate certain staff, to permanently stop funding certain initiatives, and to impose permanent limitations on staff and budgets for those who choose to continue working. In complete contrast to the Contingency Plan, a goal of the current actions are not to restore staff and budgets. Aspects of our business that will be impacted the most by these reductions is unknown. Our industry works with our professional counterparts in the IRS who have in depth knowledge of our shared interests and concerns. The RIF is being conducted almost solely based on headcount without regard to each individual's role or knowledge base, and without regard to funding of certain initiatives. Depending of what we may need as feedback from the IRS or what we may wish to provide as input to the IRS, the interaction could range from business as usual where our contacts remain in place and in their roles, to a complete shut down as our contacts are no longer employed and as the IRS stops funding certain initiatives. All of this makes the Contingency Plan seem like marvelous fantasy.

Welcome to the twilight zone! If you are working with a preapproved plan document (Cycle 3), your plan provide may provide an amendment that includes this so you should pose the question to the preapproved plan document provider. Note that the Cycle 4 restatement cycle that should open 10/1/2026 (yes, folks, that is 19 months away) and this particular feature is not on the list of provisions that are required in the Cycle 4 documents. Here is where the fun really begins! amendment for SECURE 2.0 have to be amended by December 31, 2026, which is 4 months after opening of Cycle 4. The proposed regulations say the mandatory Roth catch-up rules will be effective for the first day of the plan year starting 6 months after the rules are published in the Federal Register. Given the timing of the comment, review and approval process (and several thousand IRS employees laid off), the earliest effective date will be January 1, 2027. BUT, in the meantime, the plan must operate in accordance with a good-faith interpretation of the proposed rues. The least complicated action to take right now is to adopt an administrative policy about how the mandatory Roth catch-ups will be administered, communicate this policy to the plan participants, and share it across all service providers working with the plan.

Here is a little bit of background to start: I assume you are referring to filing the Form 5500-EZ and that you (and maybe your spouse) are the only individuals to participate in the plan. The rule is you must file for a plan year when the total assets (adding in the assets you may have in other qualified plans like this one) reaches the $250K threshold. Note that each plan needs to file even if a plan by itself is below threshold. You look at the total assets that will be reported on the Form 5500-EZ on line 6a(2) of the form which is total assets of the plan for the plan year. Note that this line does not take into consideration any outstanding liabilities that the plan may have as of the end of the plan year. To answer your question, you do not have to file for a year if your total assets go below the $250,000. That being said, going forward you may want to file anyway if your asset dip below the threshold since the IRS may send you a letter noting you filed in the previous year but not for this year. Worse, they may send you a penalty letter for a delinquent filing. The effort to complete a Form 5500-EZ can be much less than the effort to respond to the IRS letters. Since you appear already to have delinquent filings, you should file under the Form 5500-EZ Delinquent Filer Penalty Relief Program using Form 14704 to transmit all of the filings. One quirk with this process is you have to file on paper Form 5500-EZ for each year using the Form 5500-EZ for that year. You can download previous year forms and instructions going back to 1990 here: Prior year forms and instructions | Internal Revenue Service Good luck!

The LTPT rules are designed to create an opportunity for them to defer, and a selling point for this is the LTPTs can be excluded from all of the other requirements to provide benefits and for compliance testing. My understanding is for LTPT employees, once you move beyond providing the opportunity to defer, they will be treated as any other employees eligible for those other benefits.

It is possible, but there should be a good explanation. For example, a 401(k) profit-sharing plan adopted late in the year (deferrals aren't available until the start of the next plan year), and only a profit-sharing contribution is made and it is funded after plan year end. If the 5500 is done on a cash basis, then the ending balance for the first year would be $0. Given the lack of attention to the plan, it would seem very likely that the notices required for the "maybe" safe harbor were mishandled or just not done. The company needs to have a plan of action not only to file the 2024 5500 on time, but have a plan of action to file all of past due forms asap using DFVCP. This plan of action would include making sure participants have gotten all allocations of all of the benefits due to them.

Was the plan communicated to employees and for 21 years no one elected to defer? I hope the plan has all of the elections over the years not to defer, or there is the possibility the plan is due 21 years of missed deferral opportunity for each eligible employee! Is there really a firm out there representing itself as a TPA that let 21 years go by without raising alarms? The plan sponsor may want to entertain making an argument that with no trust assets, the plan never was fully established. Dealing with no reporting since 2020 by itself is enough of a nightmare, not to mention all of the missed plan document restatement cycles.

Beg for mercy! The company would have to document fully that their intent was to establish the plan and had decided on a specific set of plan provisions. They would have to show the plan was communicated to all eligible employees, and the account was in fact a trust account. They also would have to get all of the work done that should have been done including the actuarial work and 5500, and then attempt to convince the IRS to accept this body of evidence that the company fully intended for the plan to exist. There is no guarantee that the the IRS will buy it, but sometimes the IRS in open to a company having made an honest effort. Definitely work with legal counsel who sincerely embraces this strategy. The alternative is to restate their 2023 tax return, pay taxes and associated penalties and interest, and put in the plan now retroactively to 1/1/2024.

For this particular case, @david rigby is correct to point out that the total value of all of the real estate exceeds the total value of the deceased owner's account and we all agree that transferring all of the real estate as part of the distribution to the deceased owner is not appropriate. It would be a step forward if the plan's participants, working with independent fiduciaries, could at least transfer one of the properties as part of the distribution. This would require having an independent appraisal of the fair market value of the property. The remaining property would remain in the trust until such time as the trustees and independent fiduciaries can arrange for the sale of the property to put the plan in the position of being fully liquid. This likely should be done sooner than later in the event the death of the owner puts the company on a path that leads to the termination of the plan. The key element for this piece to work is also to document that the sale of the real estate is an arms-length transaction price fair market value. This can be a challenge when dealing with real estate, and is yet another reason to engage legal counsel. It is worth noting that this scenario comes up with other non-traditional assets such as gold bullion, art work, certain private placements and limited partnerships, and other similar investments that can only be liquidated in a single transaction.

We worked with a client in a very similar situation and their ERISA legal counsel. The assets of the plan were not participant-directed and there were no ties between the real estate and any of the plan fiduciaries. The appreciation on the property was included each year in the allocation of trust income to all participants. The facts including a current appraisal of the property were communicated to each participant to get their concurrence with allowing an in-kind distribution of the real estate. We understood the participants essentially did not want their retirement accounts tied up with an illiquid investment and they signed off on the transaction. This was all worked out with legal counsel guiding the process and drafting the related communications and agreements. Definitely, do not try this without active involvement of legal counsel at every step.

This may help. See the last paragraph. https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues The bottom line is the insurance is taxable to the the employee shareholder. This begs the question of is the spouse is a more-than-2% shareholder? It does not answer the question about the plan definition of compensation and in particular what compensation is used to calculate deferrals and contributions. This begs the question of who turned payroll into plan experts? Maybe payroll should read this: https://www.irs.gov/retirement-plans/avoiding-compensation-errors-in-retirement-plans

Compensation is among the most vexing topics for us all. Part of the challenge starts with asking about "W-2 Comp". Some adoption agreements use this term to refer to all income reportable on Form W-2 which can include items that are reportable under Code sections 6041(d), 6051(a)(3), and 6052. Other adoption agreements call this "Wages, tips and other compensation on Form W-2" or just "6041 and 6051 Compensation". The another common term is "Section 3401(a) wages" or just "3401(a) Wages" which basically is wages that are paid to the employee in that paycheck. Which brings us to the question of what does "Health Insurance Expense of $20,000" refer to? This is a term that is a label used by this particular payroll for a payment made by the employer that is related to health insurance for the employee. Given that the $20,000 is not included in Box 3 and Box 5 (and is such a large, round number), it was not subject to payroll taxes, and likely would not be included as 3401(a) compensation but would be included in 6041/6051 compensation. It is worth asking the client or payroll provider for a description of that payroll item, reviewing the description against the plan definition of compensation, and confirming with the client and payroll how the amount should or should not used in administering the plan. It is this type of situation the plan may, for example, include the amount in the definition of compensation for purposes of making elective deferrals, and everyone now finds out that payroll has never done so. May you have the good fortune that, even though no one may have asked the question before, everything has been done according to the plan document.

Were it that simple. The starting point is to explore the requirements of 1.410(b)-7(c) regarding mandatory disaggregation and 1.410(b)-7(d) regarding permissive aggregation. Browsing some IRS training material at https://www.irs.gov/pub/irs-tege/epch1302.pdf provide a flavor for how these rules apply. At a very high level, mandatory disaggregation is about when plans cannot be tested together, and permissive aggregation is about when plans can be - but are not required to be - tested together. The rules can also get into how a plan's participants may be separated into groups that can be tested separately which is about permissive disaggregation. One thing in particular that catches some practitioners off guard is when in a 401(k) plan elective deferrals, matching contributions and employer nonelective contributions are tested as if each is a separate plan. Be keenly aware of what you know you don't know. Hopefully you have access to an experienced practitioner who can guide you through how to apply these rules to a specific situation. Welcome to the wonderful world of coverage and testing!