Paul I

The facts and circumstances that @Peter Gulia points out are relevant, but it may take a significant effort to get the information needed to make a decision. I suggest starting with asking the bundled service provider to give you for the due diligence they did to be able to assure clients that this is acceptable. Further, you may want to ask them to answer questions that you can anticipate receiving from participants like: If I have an existing rollover account, will the entire account have no fee? If not, how will the new rollover contribution be accounted for? If I take a distribution from the new rollover account before the end of the 6 month period, will I be charged an asset-based fee? If I take a loan from the new rollover account before the end of the 6 month period, will I be charged an asset-based fee? If I take rollover a distribution from my existing rollover account and then subsequently decide to roll it back into the plan, will that be eligible for this offer? Does this offer apply to all asset-based fees such as including fees that may be associated with the plan's investment options such as 12b-1 fees, commissions, sub-TA fees, redemption fees and other similar fees? You also may want to ask: If the bundled service provider's fee schedule is based in part of total assets of the plan, will the new rollover contributions be included in determining the provider's fee applicable to all participant in the plan? If a Schedule C of the Form 5500 is required, will the amount of the fee that is not charged to the participants be reported on Schedule C? As a colleague always liked to say, the devil is in the details.

Look beyond the distribution paperwork and look at the plan document. Most pre-approved plan documents have several sections addressing hardships. These sections answer questions like: which accounts are available (and under what circumstances)? is there an order in which accounts are accessed? are hardships limited to specific events? does the employee have to take an available loan before taking a hardship distribution? The documents are Cycle 3 documents. Note that the Bipartisan Budget Act of 2018 required certain changes to plan provisions related to hardship distributions. Final regulations were effective on or after 1/1/2020 and plans had to be amended to include the changes by 12/31/2021. Most pre-approved plans provided an Interim Amendment that added the required hardship amendments. Some of the new provisions were optional, so the Interim Amendments may or may not have modified the provisions in the original text of plan document. The Interim Amendments were very lengthy and often included a menu of choices for each provision. check to see if any Interim Amendments modified the plan provisions. All of this was happening during the pandemic, and a plan easily may have continued to use distribution paperwork and related procedures that do not reflect the plan documents and related amendments. On another note, if the plan is using a recordkeeper, the recordkeeper may have default hardship provisions in its service agreement that may or may not align with the plan document as amended. If copies of the plan document and the Interim Amendments are available, it should take less than a half-hour to confirm the answers to any questions.

If the plan wishes to approach the issue an overpayment, here is an excellent article about how to recoup overpayments after SECURE 2.0: https://www.mercer.com/insights/law-and-policy/correcting-retirement-plan-overpayments-under-secure-2-0/ Given the size of the extra payment ($11K), the plan should consider making an attempt to get the money back. Regarding the 1099R, it can be corrected by filing a corrected 1099R (basically void the original and providing a replacement. The participant would then file an amended 1040X to recoup the taxes. This is not as onerous for the participant as it may seem. Here some guidance with some greater detail on how this would flow: https://www.irs.gov/taxtopics/tc154 The rationale as to why the participant may want to do this is the same rationale the participant should have for her contributions - accumulating assets for retirement. She would not be double-taxed on the amounts returned to the plan, and there would be no need for the plan to set up an after-tax amount. The whole situation does beg the question why no one checked the trust to see if the first refund was cashed before issuing another check, or if someone did check the trust, why the second check was written. If the check was cashed but not credited to her account, it seems there may be an issue with reconciling trust assets to participant accounts that is worth investigating.

It sounds as if the portfolio companies that the company buys and sells can have very different demographics and very different benefit plans. In an environment like this, the approach the company may want to take is to put in place a due diligence action plan of steps taken before an acquisition to assess how a target's benefit plans could impact the other plans of the portfolio companies. At a very, very high level, the action plan would assess how the acquisition could impact post-transition period 410(b) coverage testing across all of the plans in the company. Assuming there is no impact (everybody continues to pass), then the action plan would assess if the target's plans could pass 401(a)(4) nondiscrimination either on its own or possibly when aggregated with another plan among the portfolio companies. I agree that QSLOBs likely are not the better solution in most cases, but they would always remain available as an alternative. The challenge to executing the action plan is having current testing data across all of the portfolio plans. Another challenge is getting testing from a target company before the transaction closes. A benefit to executing the action plan is being able to negotiate and inform the terms of the acquisition on topics such as if and when it makes sense to terminate or freeze the target's plans. Notably, the action plan likely will reveal if the target's plans have any potential compliance issues that could expose the company to an expensive cost of correction. Again, this is at a very, very high level. I have seen many times where due diligence before closing has avoided a major disaster, and I also have seen many times where not doing due diligence before closing has led to a major disaster.

Benefits are negotiated between the company and the union. The union represents the union employees in the negotiations. Once an agreement is negotiated, there is a collective bargaining agreement documenting among other things, if the company will include the union employees in the company's retirement plan and if yes, any plan provisions that may or may not apply specifically to union employees. You may want to first speak with your union representative and also read the most recent bargaining agreement to get an answer to your question.

The plan has a 3% Safe Harbor Nonelective Contribution, so there is no need to test ADP. From an ADP standpoint, it doesn't matter if they defer or do not defer. If the owners do not want to get the 3% SHNEC, then they would have to be excluded from participating in the SHNEC. Since a plan does not have to give an SHNEC to HCEs, I expect an amendment that excluded just the owners from the 3% SHNEC would not invalidate the safe harbor.

You may also want to put on your bulletin board $10 as another magic number. You will see on the IRS website https://www.irs.gov/instructions/i1099r that: "Specific Instructions for Form 1099-R File Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for each person to whom you have made a designated distribution or are treated as having made a distribution of $10 or more from profit-sharing or retirement plans, any individual retirement arrangements (IRAs), annuities, pensions, insurance contracts, survivor income benefit plans, permanent and total disability payments under life insurance contracts, charitable gift annuities, etc." This can come in handy when the plan posts dividends to a terminated participants' accounts who already received a distribution, or to accounts where a correction of late deposits results in a lot of participants getting very small deposits.

@Lou S. is correct that you want the EIN on the 1099s to be the same as the EIN used to make the tax deposits AND the EIN used to file the Form 945 Annual Return of Withheld Federal Income Tax. TPAs and recordkeepers do not all use the same approach, but as long as the EINs are used consistently, there should be no problem. That being said, here is a word of caution - avoid using the plan sponsor's EIN. If the plan sponsor files a Form 945 for tax deposits for other payments that are not plan distributions, the plan sponsor likely will get a notice from the IRS that the Form 945 amount does not match total tax deposits reported to the payees. It can consume a lot of time trying to straighten this out. As examples where this can be a problem, the instructions to the Form 945 say: All federal income tax withholding reported on Forms 1099 (for example, Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.; Form 1099-MISC, Miscellaneous Information; or Form 1099-NEC) or Form W-2G, Certain Gambling Winnings, must be reported on Form 945. We are sitting here in January 2025 preparing forms for distributions made in 2024. Hopefully, the tax deposits made during the year did not use the plan sponsor's EIN.

Great question! The EOB says in Chapter 8 Coveage Testing Part C., Average benefit percentage test, 2. Computing benefit percentages, 2.i. Certain distributed amounts must be included in benefit percentage: 2.i.2) Corrective distributions of excess deferrals under IRC §402(g). Whether to apply the rule described in 2.i.1) to excess deferrals under IRC §402(g) is less clear. Treas. Reg. §1.415(c)-1(b)(2)(ii)(D) provides that excess deferrals which are distributed by the April 15th deadline under IRC §402(g)(2) are not treated as annual additions for §415 purposes. However, Treas. Reg. §1.402(g)-1(e)(1)(ii) provides that the excess deferrals of nonhighly compensated employees (NHCs) are excluded from the nondiscrimination test (i.e., the ADP test) under §401(k), but the excess deferrals of the highly compensated employees (HCEs) are included in the ADP test. With the difference in treatment between HCEs and NHCs for nondiscrimination testing purposes, it is recommended that excess deferrals made by HCEs be included in the benefit percentage, even if they are distributed by the April 15th deadline. The short version of the logic that leads to this conclusion is it the excess is included in the ADP test, the excess should be included in the ABT. Note that the analysis admits that this is "less clear" and the conclusion is "recommended" which will leave up to the plan and the practitioner to decide if they embrace this interpretation. The most conservative approach is to include the excess deferrals.

Given the circumstances, it seems that the plan administrator and/or recordkeeper have conflated the rules for treating deemed distributions and for treating loan offsets. Either way, the interest should not have been reported on a Form 1099R (see the Instructions for Forms 1099-R and 5498 (2024) page 9). [Note that the instructions also address topics related to reporting deemed distributions and loan offsets on a Form 1099R that you may find interesting.] Many plans require loans to be repaid solely through payroll deductions, so a terminated employee cannot continue to make loan repayments even if they wanted to. Some plans do allow terminated employees to continue making payments, and the participant should be informed of the process on how to continue making loan repayments and also how to inform the plan/recordkeeper not to default the loan. Part of the issue may be incomplete disclosure about how the plan will treat loans in the event a participant terminates employment. IMHO, leaving the loan for a terminated participant on the books and simply waiting for the loan to default is probably the worst way to administer the loan.

The proposed change will be more restrictive than the existing provision and would defer the availability of the distribution for small account balances, so the existing provision is a protected benefit. I expect that the existing provision would be preserved for current participants, but the new provision could be applicable to new participants.

The thought process the IRS used to develop the rules applicable to the Roth Match and Roth Nonelective Contribution was to treat the contributions as if they were put in a participant's account as a regular contribution and then reclassified as Roth through an in-plan Roth rollover. This approach would make the year of taxation the year in which the rollover occurred and reportable on Form 1099R. The IRS also uses similar logic in the recently released rules for corrections applicable to Roth Catch-Up contributions. In these rules, there is a pre-tax catch-up in a High Paid participant's account, it can be corrected by treating it as an in-plan Roth rollover in the year in which the rollover occurs and reportable on Form 1099R. So I agree that the taxable event occurs when the dollars are deposited into the participant's account.

The rules attempt to address the various combinations of plan document provisions and administrative policies, and the interplay of each combination with a participant's personal taxation. One scenario is where the plan doesn't have any provisions about allowing Roth catch-up contribution for a High Paid employee. The correction procedure in this scenario is to treat any amount that would be a catch-up contribution for the employee as an excess deferral using existing correction rules (e.g., timely refunding of the excess plus earnings). If the plan has provisions for deemed Roth catch-up election and the plan accepts a pre-tax elective deferrals in that should be treated as Roth, then the plan can use the new correction methods. One of the new correction methods says that the amount that needs to be treated as Roth can be put in a Roth account in the plan (applying the deemed election) and the amount is included on the employee's Form W-2 as Roth for the year. This has to be done before Form W-2 are issued and will require the plan informing payroll of the amounts. The other correction method says that the amount that needs to be treated as Roth can be put in a Roth account in the plan (applying the deemed election and treating the amount as an In-Plan Roth Rollover) and the amount is reported to the participant on a Form 1099R. Either correction must be made by April 15th. This is just an example of some of the rules. The rules also address scenarios such as treating amounts as catch-up after failed ADP testing (including the 6 month ADP test deadline for EACAs), 415 excess amounts, excess amounts over employer-provided limits (versus 402(g) limits). Getting all of this sorted out among payroll, recordkeepers, and High Paid participants by January 1, 2026 is going to be a major challenge. The IRS did what is could with Notice 2023-62 to delay implementation, but the IRS could not retract what Congress wrote into law. The motivation in Congress was meeting the law's overall revenue impact and was not based on the implications of implementing the law. In 2025, the burden now falls on service providers, plan sponsors, and participants to try to get this to work.

@EPCRSGuru I have worked with Fidelity clients over the years and have never seen where Fidelity monitored the deferral limits for across plans for unrelated companies. Here are some comments. There is not requirement for a recordkeeper to monitor deferral limits, unless the recordkeeper wishes to provide that service and includes the service in their service agreement. I haven't seen any recordkeeper including having such a provision, but someone may have an example of a recordkeeper who does. The plan has an obligation to apply the salary deferral limits across all companies within a controlled group, and this typically is coordinated within the payroll function. This obligation is under 401(a)(30) and not under 402(g). Section 401(a)(30) reads: "(30) Limitations on elective deferrals.—In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year." and includes by reference the amount of the limit that appears under 402(g). The plan does not have an obligation to monitor 402(g) limits which is the deferral limit applicable to the participant. Section 402(g) reads: "(g) Limitation on exclusion for elective deferrals (1) In general (A) Limitation ... (B) Applicable dollar amount For purposes of subparagraph (A), the applicable dollar amount is $15,000. (2) Distribution of excess deferrals (A) In general If any amount (hereinafter in this paragraph referred to as "excess deferrals") is included in the gross income of an individual under paragraph (1) (or would be included but for the last sentence thereof) for any taxable year— (i) not later than the 1st March 1 following the close of the taxable year, the individual may allocate the amount of such excess deferrals among the plans under which the deferrals were made and may notify each such plan of the portion allocated to it, and (ii) not later than the 1st April 15 following the close of the taxable year, each such plan may distribute to the individual the amount allocated to it under clause (i) (and any income allocable to such amount through the end of such taxable year). The underlined highlights that is it the participant's obligation to choose which plan or plans will distribution all or part of the excess, and to make sure the excess is removed in a timely manner. Given the circumstances in your OP, the failure to remove the excess most likely looks as if it is all on the participant.

There are no penalties for amending a filing. Your topic is Amended 5500EZ but your post says 5500 and appears to suggest that there are multiple participants. How you file the amended filings will depend in part on which form was filed for each year, and how was each form filed (electronically, or a paper EZ). The amended filings can get complicated if there was a change in the form (e.g. a 5500-SF versus 5500-EZ, or a change in how the form was filed. This link can help you get started: https://www.askebsa.dol.gov/FormSelector/ Good luck! and don't hesitate to bill for fixing someone else's work.

@Lou S. As you likely expected, the answer to whether SCP is available to correct RMDs is "it depends". For starters, https://www.irs.gov/retirement-plans/correcting-required-minimum-distribution-failures notes that a correction using SCP will require payment of the participant-owed excise tax. The IRM 7.2.2 https://www.irs.gov/irm/part7/irm_07-002-002 says: Special Tax Relief Requests Generally, excise taxes and income tax consequences associated with failures can’t be resolved through EPCRS. However, plan sponsors may ask the IRS in writing not to pursue certain specific income and excise taxes imposed by IRC 72(t), IRC 4972, IRC 4973, IRC 4974, and IRC 4979 for certain operational failures. Most special tax relief is granted through VCP. It’s not available through SCP or Audit CAP. Special tax relief is not granted automatically; VC approves it in appropriate cases and only if certain conditions are met. See the table below for the tax relief in Rev. Proc. 2021-30, Section 6.09, and the requirements/conditions to evaluate these requests. Tax Requirement/Conditions Evaluating Criteria IRC 4974 - excise tax imposed on late required minimum distributions of IRC 401(a)(9). If some affected participants are owner employees (including a 10% owner of a corporation), applicant must submit a written explanation supporting the request. Plan must distribute accumulated RMD amounts (adjusted for earnings) to the affected participants and beneficiaries. If the affected participants are only NHCE participants, automatically approve the request unless there are some unusual facts or circumstances. For owner employees, approve the request if the failure was inadvertent and doesn’t appear egregious. Consult your manager if unsure whether to grant relief or if the request involves some unusual circumstances. If the plan wants to try to get the participant off the hook for the excise taxes, the plan will have to file a VCP. The rules seem pretty forgiving.

The IRS issued a "Notice of proposed rulemaking and notice of public hearing". The effective date of the guidance will be as of the first plan year at least 6 months after publication of the final rule. Given the process for accepting comments, holding hearings and finalizing guidance, the rules likely will not be effective for calendar year plans until 2027. In the meantime, plans are expected to comply with "a reasonable, good faith interpretation" of the new rules. That being said, there should be no need to go through the election process all over again. It sounds as if the plan received affirmative elections from employees. If an employee did not make an affirmative election, then the AE default elections should have been applied. This is somewhat of a simplification of what is in the new guidance, but it should suffice as having made a reasonable, good faith interpretation. Here is a link that will provide more detail about the contents of the guidance, and can help you track the potential issues as the guidance moves through the process of being finalized. https://ferenczylaw.com/flashpoint-and-not-a-moment-too-soon-in-fact-a-little-late-mandatory-automatic-enrollment-guidance/ There's a lot to absorb, so keep informed as this all unfolds.

It seems like there are several details missing to be able to walk through what needs to be done. The reference to refunds implies ADP testing. The reference to the first half of 2024 seems to reference 1/2 of the sum of annual limits on deferrals plus catch up contributions. The short version of sorting this out is: ADP testing is done using deferrals made during the plan year (e.g. 7/1/2023-6/30/2024) The limit on elective deferrals applies to elective deferrals made during the calendar year (e.g. 1/1/2024-12/31/2024) The limit on catch up contributions applies to catch up contributions made during the calendar year (e.g. 1/1/2024-12/31/2024) Here is a detailed example for how to apply the limits for a non-calendar year plan: https://tra401k.com/news/case-of-the-week-deferral-limits-for-off-calendar-year-plans/ It is somewhat tedious, but it will get you to the right answer.

The following article talks about the IRS tax-related issues in the event of escheatment of a benefit. https://www.groom.com/wp-content/uploads/2022/12/IRS-Version-of-Missing-Participant-Guidance.pdf The IRS presented how the escheated benefit would be reported for tax purposes, which adds another layer of complexity to this approach. It is hard to assess the value of the DOL's temporary enforcement policy. Sometimes it feels like we would all be better off if the agencies would stop coming up with creative ideas on how to "help".

What is most important are what the employer payroll and accounting records show are deferrals and employer contributions, and what the employee's tax records (including W-2, K-1, ...) show. That will be the documentation support the proper source of the deposit. Mislabeling the deposit in the brokerage is poor records management and a potential source of confusion, but by itself should not be fatal. It is possible for a single brokerage account to hold salary deferrals and employer contributions as long as there is a separate accounting maintained between the contribution sources. The separate accounting could be done by a TPA and does not have to be done by the brokerage house. From the time 401(k) came into existence, if any contribution sources were co-mingled with salary deferrals and not accounted for separately, then everything in that account was subject to the 401(k) rules (including vesting, in-service withdrawals, ...) Encourage the client to practice good hygiene and make separate deposits into the brokerage accounts for each contribution source to create a clear audit trail. If you need to provide a sub-accounting by within the brokerage account by source, be sure to charge an appropriate fee for the extra effort.

@Belgarath thanks for sharing what you found recently. It is an opportunity to review and refresh the post from 2023 with what has or hasn't changed, and being January when companies are scrambling to issue W-2 makes it all the more relevant. Section 200.431 is an example of how fringe benefits have been defined by a federal agency. This section in particular deals with what the government will reimburse a company for employee compensation where the company is awarded a federal contract. Section 200.431 was amended in April 2024 (https://www.govinfo.gov/content/pkg/FR-2024-04-22/pdf/2024-07496.pdf#page=91) and again in October 2024 (https://www.govinfo.gov/content/pkg/FR-2024-10-01/pdf/2024-22520.pdf#page=2). As you noted, "vacation" among other examples was removed from the text and the text relies on the use of "leave". This is not surprising because "leave" is used generically across the federal government and the military to describe paid time off. The reference to the DOL https://www.dol.gov/general/topic/benefits-leave/vacation_leave continues to follow the path Home -> Leave Benefits -> Vacations and essentially notes that FLSA does not require paid time off for vacation, holidays, and sick leave, and a being paid for this time off is negotiable between the employee and employer. I believe that the takeaway from this reference is if the employer and employee agreed on terms for paid time off, than that pay is a fringe benefit. If the employee is not paid for time off, then it is not a fringe benefit. The importance here is, unlike many other fringe benefits, "vacation" as a fringe benefit is not automatically imputed as compensation but rather is determined by an explicit agreement between employer, and employee whether the employer pays the employee for the time the employee was on vacation. The IRS site https://www.irs.gov/businesses/small-businesses-self-employed/employee-benefits continues to list vacations is its list of fringe benefits.

As @justanotheradmin notes, you need more information about the DFVCP and your role. Here are some things to consider: Does the plan sponsor have in hand the Schedule SB Actuarial Information and all of the related attachments for each plan year? If not, who will coordinate gathering this information from the actuary? Does the plan require an audit for any of the plan years? If yes, does the plan sponsor have in hand the completed audit report for each year? If not, what role if any, might you have in working with the auditors? When filing retroactively under DFVCP for more than 2 years past due, the plan will have to use a current year form to report the earlier years AND will have to use the prior versions of any Schedules that needed to be attached to the original filings for each year. See https://www.askebsa.dol.gov/FormSelector/ to get a flavor for how this works. In some ways, this is the tip of the iceberg, so you may get drawn into things like determining if appropriate fidelity bond coverage was in place, or tracking participant counts, or filing Form 8955-SSA, ... A reasonable fee not based solely on hours spent, but also includes recognition of the knowledge and expertise you bring to the process.

This was settled with Revenue Ruling 2019-19. If the check was written in 2024, it is reported by the plan as 2024 income to the participant. Any withholding is reported as withholding in 2024. Yes, the timing may seem unfair. Yes, the circumstances of the delay in cashing the check may have been beyond the control of the participant (lost in the mail, wrong address, the dog ate the check). None of this by itself changes the year of taxation for distribution. A case possibly may be made for a genuinely missing participant. Here is an excellent write-up about RR 2019-19 - https://www.blankrome.com/publications/questions-after-irs-guidance-uncashed-401k-checks Enjoy!

IRS guidance for Catch-Up contributions is scheduled to be published on Monday. See https://public-inspection.federalregister.gov/2025-00350.pdf for 57 pages of weekend reading. Guidance for Auto Enrollment is scheduled to be published on Tuesday. See https://public-inspection.federalregister.gov/2025-00501.pdf for 62 pages of additional reading. This is only 2 weeks after the effective date of the respective SECURE 2.0 provisions, so we will at least have some feedback on how accurate our guesses have been about the details.

The existing language in the pre-approved documents that I have seen incorporate the catch-up limits by references to code and regulatory which include the age 60-63 increased limit. If no action is taken, then the increase is automatic under these documents. A plan is not required to offer any catch-up contributions, and if it does offer them, it is not required to offer the maximum available catch-up contribution. The only requirement is the catch-up provision be universally available. A plan that does not want to have the age 60-63 limit should adopt an amendment or a formal administrative procedure documenting their position, and then make sure everything is included in the plan document when all the other recent legislation changes are required to be included in the document.