Paul I

The 5500 instructions say: "Plans that check “Yes,” must enter the aggregate amount of all late contributions for the year. The total amount of the delinquent contributions must be included on line 9a for the year in which the contributions were delinquent and must be carried over and reported again on line 9a for each subsequent year (or on line 4a of Schedule H or I of the Form 5500 or line 10a of the Form 5500-SF if choosing not to rely on a DCG Form 5500 filing to satisfy the plan’s reporting requirement in the subsequent year) until the year after the violation has been fully corrected by payment of the late contributions and reimbursement of the plan for lost earnings or profits. All delinquent participant contributions must be reported on line 9a at least for the year in which they were delinquent even if violations have been fully corrected by the close of the plan year." There is no reference to whether or not a VFCP was filed. The only requirement is the deposit of the late contributions and lost earnings.

The delinquent contributions are reported in each successive year if they were not fully corrected at any time during the plan year being reported. They are not fully corrected until the contributions and all associated lost earnings are deposited into the plan.

Typically the participation part of the age plus participation vesting provision refers to active participation and not the mere passage of time. Active participation is based on plan years in which the individual had a contribution or forfeiture reallocation to their account. If the individual was terminated, then there would be no additional years of participation. That being said, if the plan document says explicitly that vesting occurs at the later of age 65 or the fifth anniversary of plan participation, and the meaning of "plan participation" is not defined, then it is up to the Plan Administrator to decide how the rule applies.

Check the plan document including the Adoption Agreement and Basic Plan Document. There is at least one pre-approved plan where the AA includes an explicit exclusion of compensation received from non-signatory related employers, and the default definition of compensation in the BPD includes amounts earned from a related employer regardless of whether the related employer is or is not a signatory employer. This may be helpful in this case if the plan has these provisions and if the contribution to the ABC plan was made by ABC based on compensation that included compensation earned at XYZ. This could be a proverbial Hail Mary.

There are several companies that will electronically file 1099s as a service. Pricing for small batches usually is a fixed fee per form. A simple search for "1099 R filing service" will get you started.

Ask if the form to report the K-1 income is from Schedule K-1 (Form 1120-S Shareholder’s Share of Income, Deductions, Credits, etc.) This is different from Schedule K-1 (Form 1065 Partner’s Share of Income, Deductions, Credits, etc.) The Schedule K-1 (Form 1120-S) is used to report a shareholder's portion of the corporation's income, deductions... and it does not report dividends paid to the individual. Dividends are reported on Form 1099-DIV. See the instructions for Schedule K-1 (Form 1120-S) here https://www.irs.gov/instructions/i1120ssk and note the comment on the IRS website that says "Your share of S corporation income isn't self-employment income and it isn't subject to self-employment tax." Your understanding is accurate. It can be confusing where there are two different forms (1120-S and 1065 in this case) that use the same schedule name (Schedule K-1).

There is no fee. See https://www.irs.gov/retirement-plans/updated-irs-correction-principles-and-changes-to-vcp-outlined-in-epcrs-revenue-procedure-2021-30 and select Anonymous VCP submission changes.

Take a look at IRM Part 7: Exhibit 7.11.7-1 Specific Law Provisions and How They Apply to a Multiple Employer Plan Code Section Must be Met by Multiple Employer Plan Must be Met by Each Participating Employer Authority IRC 401(a) - Qualification requirements Yes 26 CFR 1.413-2(a)(3)(iv) IRC 401(a) -Exclusive benefit rule Yes IRC 413(c)(2) and Professional Employer Organization Rules in Rev. Proc. 2002-21 IRC 401(a)(4) - Nondiscrimination Yes 26 CFR 1.413-2(a)(3)(iii) and 26 CFR 1.401(a)(4)-1(c)(4) IRC 401(a)(26) - Minimum Participation (DB Plans) Yes 26 CFR 1.401(a)(26)-2 IRC 401(k) /IRC 401(m) - ADP/ACP Yes 26 CFR 1.401(k)-2(a)3(ii)(A) and 26 CFR 1.401(k)-1(b)(4) IRC 404 - Deduction Adopted before 1989 Adopted after 1988 IRC 413(c)(6) IRC 410(a) - Eligibility Yes IRC 413(c)(1) IRC 410(b) - Coverage Yes 26 CFR 1.410(b)-7(c)(4)(i)(A) and 26 CFR 1.410(b)-7(c)(4)(ii) IRC 411 - Vesting Yes IRC 413(c)(3) and 26 CFR 1.413-2(d) IRC 412 / IRC 430 - Funding Adopted before 1989 Adopted after 1988 IRC 413(c)(4) 26 CFR 1.414(l)-1 - Mergers or Transfer of Assets - see note below Yes 26 CFR 1.414(l)-1(b)(1) IRC 414(q) - Definition of Highly Compensated Employee Determination is made separately by each adopting employer 26 CFR 1.414(q)-1(T) Q&A-1 IRC 414(v) - Catch-up Contributions Yes 25 CFR 1.414(v)-1(f) IRC 415 - Limitations on Benefits All compensation is included 26 CFR 1.415(a)-1(e) IRC 416 - Top-Heavy Yes 26 CFR 1.416-1, Q&A G-2 and T-8

Great question! Scammers have discovered that retirement plan accounts have big balances that can be easy targets if the scammer can gain access to a participant's account credentials on the recordkeeping system. We also have to include family members in the mix, too. Part of the discussion needs to be around what is in the TPA's service agreement with respect to the approval process. Is the TPA only checking that a transaction is permissible under the terms of the plan given the participant's demographics, the plan document and accounts? This makes the process somewhat mechanical. Is the TPA review/confirmation not constrained by the service agreement? This could easily push the TPA into a role where they could be considered a plan fiduciary with authority to pay or reject a request. In either case, it helps if there is written procedures or documentation where the TPA should escalate a request to the Plan Administrator. The TPA would present the request and the reason for the escalation and let the PA decide. Your E&O insurance provider also may have notification requirements that you must follow if you want coverage. Operationally, the best control is educating staff to recognize when a request is not quite right. In many ways, this is similar to knowing how someone is trying to scam anyone. Is the request made with a sense of urgency that something bad will happen if funds are not delivered immediately? We have had requests for payments to be sent overnight to prevent eviction or repossession of a car. Sending out a distribution overnight is far from any standard procedure, and we will ask for more information that can be used to validate the request like birth date, address on file, part of an ssn, or a beneficiary name, and then discuss the approval with the PA. Is the individual asking to stop by to pick up the check? We had an instance where the individual found our phone number and knew we were part of the approval process, and wanted to come to our offices to get the check. It turned out that the individual had a criminal record for assault. Is any required documentation missing or vague? If so, we will not make an approval until we have what we need to be comfortable the request is valid. Is the individual asking for full payment of a death benefit when records show multiple beneficiaries (or there is no beneficiary on file)? Are there multiple requests in a relatively short period of time? A scammer may test to see if they can get a small payment, and if they succeed, then they try for a larger amount? We have two people review any large payment request (for example, requests for more than $100,000). Is the request for an amount that may change due to a correction that is in process? This takes a little bit more internal information, but we have had to push back on the amount of a payment when we are aware that a refund or other correction will impact the distribution. It can get awkward sometimes, and we have to make sure our bias towards being helpful and problem-solvers does not supersede good judgment.

That's correct, but there are other ways to get to the total. The easier math for 2025 is the maximum annual additions are $70,000 plus the super catch-up limit $11, 250 equals $81,250. A forfeiture reallocation also is an annual addition which could result in a 415 issue if the participant focuses solely on contributions.

I suggest treating the rollover as a discrete event and applying the rules as if there were no additional deferrals. Agents tend to frown on netting transactions that get to the same result but do not follow established procedures. It doesn't help that the participant is an HCE. The participant apparently is able to take withdrawals from the plan and can restore any amount taken from the IRA by making another rollover from his account.

There is a rapid expansion of providers focusing on small businesses. Some are specialty groups within major providers, offerings from providers of payroll and HR services for small businesses, and fintech start-ups are fully automated and that bundle plans in with investment, banking or other financial services. Here is a small sample: Guideline 401Go Human Interest Fidelity Advantage Schwab Small Business Betterment for Business ADP Paychex Paycom Paycor Ubiquity Simply Retirement Sharebuilder 401k Ascensus Vestwell ForUsAll Gusto Rippling With trillions of dollars at stake, we can expect continued expansion of high tech integration of plans with other financial services. We also already are seeing AI being applied to investment advice, financial planning, plan design and tax advice. From the perspective of having and maintaining a plan, we all know that company demographics, human errors, ignorance, and expanding regulatory complexity can easily derail plan accounting and cause operational failures. We can expect to see attempts to apply AI to these concerns. To borrow a conclusion from the British Journal of Clinical Pharmacology: "Like the iconic scene from Malcolm in the Middle, we must avoid finding ourselves unprepared for the unforeseen consequences of these powerful tools. As Dewey's famous line from the show reminds us, ‘The future is now, old man’, indicating that we already live in a time that was once considered the distant future."

Peter, your instincts are correct - there will be plans that should add the EACA provisions by 1/1/2025 and will not have done so by the start of the new year. I expect that this will be a small percentage of those plans that must do so since the requirement has been out there for almost 2 years. The industry highlighted this requirement and new plans adopted after 12/29/2022 would have been informed about the effective date. I expect the plans most vulnerable to not meeting the 1/1/2025 date will be plans who do not know they were not grandfathered. This more likely would occur as a result of a corporate transaction (spin-offs in particular), or in a standalone plan moving to a MEP. It will be interesting to see if the 5500 edits for the 2025 filings include an edit of a plan without a Pension Characteristic Code 2S (auto-enrollment) and an original effective date after 12/29/2022.

One of the first things a recordkeeper does is obtain an existing plan document or provide a new plan document, and then get confirmation from the plan sponsor the recordkeeper's understanding of the plan provisions is correct. I doubt there would be a default EACA or any other plan design since in the near term most clients new to the recordkeeper already will have had a plan in place with another recordkeeper. A recordkeeper can take a quick look at a plan's 5500s on the EFAST2 and know the answers to most or all of those questions within minutes.

The plan administrator receives a DRO and is tasked with determining if the DRO is a QDRO. One would expect there to be some documentation of the decision to approve or disapprove the DRO (e.g. committee minutes) and some formal communication (e.g. letters to the participant and alternate payee) of that decision. It would seem that best practice would be to keep a copy of this documentation with the participant's beneficiary elections.

I have not seen an explicit answer for this situation. Consider the Form 5500 instructions for Line B: "Line B – Box for First Return/Report. Check this box if an annual return/report has not been previously filed for this plan or DFE. For the purpose of completing this box, the Form 5500-EZ is not considered an annual return/report." The comment that a Form 5500-EZ is not considered an annual return/report provides an example of a where a plan existed before the time before this filing, but the box is checked for first return/report. (We could conclude from this instruction that a Form 5500-EZ is not a type of a Form 5500, but a Form 5500-SF is a type of Form 5500.) I expect this ostensibly is because plan that files a Form 5500-EZ is not an ERISA plan. Assuming that the this box is checked, it would seem reasonable to file the form with an initial short plan year and report all of the participant and financial information for that short plan year. If someone does have an explicit answer, hopefully they will share it with us.

Here is a link to just about everything you may want to know about automatic enrollment: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-automatic-contribution-arrangements-automatic-enrollment-arrangements See item 7 which starts out saying "You can't deduct automatic enrollment contributions from an employee's wages until the employee has a reasonable time to make an affirmative election (opt out of the plan) after receiving notice. An affirmative election is when the employee decides: not to participate in the automatic contribution arrangement or contribute an amount different from the plan's default percentage rate." Breaking this down, Give the employee the notice explaining the automatic enrollment contributions. Wait a reasonable time for the employee to make an affirmative election. Start taking deferrals based on the employee's affirmative election or the plan's default election. Looking at the QACA rules, it seems the IRS believes a reasonable time is 30 days. Using a start date of the earlier of the date of receipt of an affirmation election or the end of the reasonable time period, deferrals should start no later than the pay date for the second payroll date after the start date. @CDA TPA If employees are given the notice 30 days before 1/1/2025 and the employee does not respond by 1/1/2025, deferrals should start no later than the pay date for the second payroll date after 1/1/2025. (Arguably this may be earlier in 2025 if the notice is given more than 30 days earlier than 1/1/2025, but this argument is better left for when there is nothing else left to talk about.)

A Prime Rate is the interest rate a commercial bank will give for its customers with the lowest credit risk. Banks use the Federal Discount Rate as the basis for setting the prime rate for the bank's customers. The Federal Discount Rate is the interest rate the Federal Reserve charges banks for short term loans. The Federal Discount Rate is the same for all banks, but the incremental points added by a bank to determine its prime rate can vary. This is why different sources can show different prime rates. Further, changes in bank prime rates typically are made based on a bank's procedures for how and when to change rates. This can lead to differences in the timing of changes. A plan's document or loan policy should specify the source used to determine the interest. Regulations include saying the plan should set plan loan rates based on commercial bank rates available in the geographic area in which the plan is located. Most plans use a "prime rate plus" formula for simplicity (although the IRS has commented that prime plus 1% is too low, but there does not seem to have been any enforcement to back up the comment). @R. Scott there is not Federal web site involved, and it does seem the WSJ is the most common source, although this is not univesal. As @justanotheradmin notes, some recordkeepers update loan interest rates once a month even though almost all changes in the FDR and hence prime rates occur on a different date. Take care to confirm that the plan document or loan policy is consistent with the process the recordkeeper is using. Most TPAs do check the loan interest rate for a loan. A participant may submit an application for a loan for approval and the plan's loan interest rate could have changed during the loan initiation process. This may lead to sorting out which interest is applicable to the loan.

The new CFO can get an Individual Taxpayer Identification Number (ITIN). This is a 9 digit number starting with 9, so having an ITIN will not be a problem with your systems. Here are some references that get into the details on how the CFO can do this: https://www.irs.gov/individuals/international-taxpayers/taxpayer-identification-numbers-tin https://www.usa.gov/itin https://www.irs.gov/taxtopics/tc857 If the CFO is going to live full time in the US, then they will be a resident alien. If not, then there are rules to consider how to determine if the CFO is a nonresident alien. This may be an issue if nonresident aliens are excluded by classification from participating in the plan. Getting an ITIN generally is not a difficult process, but going through it for the first time will mean learning a lot about something you may never need to use again.

The plan must provide that LTPT employees have the opportunity to make elective deferrals. Anything beyond this is optional. The number of employees is not a consideration. The plan is not required to give LTPT employees the safe harbor match or non-elective contribution.

EACAs and QACAs have different features. Section 101 of SECURE 2.0 says the plan needs to be an EACA (to allow employee to withdraw any contributions and earnings made shortly after being auto-enrolled.) A QACA does not have this withdrawal provision, but it does have the safe harbor match. To answer the question, a non-grandfathered plan must be an EACA and can be both a QACA and an EACA. A standalone QACA without an EACA is not permitted.

When using the Ratio Test for coverage testing, each source is tested separately as if it is a standalone plan. Where the plan has deferrals, a match and a non-elective employer contribution, there are 3 separate Ratio Tests. In the scenario above, if the deferrals and match each have identical 1 Year of Service eligibility, shifting Eligibility Computation Period (ECP), and entry dates, then the test Ratio Test results should be identical. The profit sharing contribution Ratio Test would use the 2-year eligibility, anniversary date of hire ECP, entry dates, and any allocation conditions. If any one of the Ratio Tests fails, then the next step would be to try the Average Benefits Test. Since the Average Benefits Test applies to all sources, then the most lenient eligibility rules will be considered in performing the ABT (which is the rules used for the deferrals). If the HCEs are contributing greater percentages of their compensation than the NHCEs (because they can at will because of the Safe Harbor Match), and the profit sharing formula uses new comparability, then there could be a problem passing the ABT. This is one of those plans where it is helpful to look each year for quirky shifts in demographics that could trigger a compliance issue.

Reg 1.401(a)(17)-1(a)(1) says in part "Section 401(a)(17) provides an annual compensation limit for each employee under a qualified plan." There is no time element associated to the limit. The IRS does note that a plan document could specify that deferrals (and related match) could stop when a participant's compensation first reaches the compensation limit. See https://www.irs.gov/retirement-plans/401k-plans-deferrals-and-matching-when-compensation-exceeds-the-annual-limit Taken together, if the plan document doesn't explicitly require stopping when YTD pay reaches the compensation limit, then it is okay not to stop. The plan sponsor and advisor need to show you where the plan document says to stop when YTD compensation first reaches the limit.

Consider a PEP or DCG that has been operating at least since early 2022 and has a significant book of business. These types of plans bundle in most of the fiduciary functions, plan document, disclosures, and investments needed to operate a plan on top of their stable recordkeeping platforms. A 401(k) plan with an SHM is pretty much plain vanilla these days and this one should fit easily within the service offerings. Look for a PEP or DCG plan provider that has a very good relationship with the company's payroll provider, or have the company consider switching to a payroll provider who the plan provider works with. Otherwise, disconnects between the plan and payroll will be a source of problems and costs for fixes. Keep in mind that second place quality all too often leads to unavoidable costs that exceeds the quoted standard service fees.

The calendar shows that we are in November with 50 days left in 2024. Assuming you have a calendar year plan, there are two initial questions to ask your TPA ASAP: Which of our objectives are attainable under the provisions of the existing plan document and with our projected demographic and compensation data for 2024? Which of our objectives are attainable if we adopt permissible amendments to our plan document effective January 1, 2025 based on projected demographic and compensation data for 2025? (You will have the most flexibility if the plan is amended before the start of a new year.) @truphao is correct that this is not a DYI exercise and an in-depth look likely will incur some cost. There is a third question to ask - what can we do to optimize our benefits and our deductible contributions? Given your demographics, there is a very good possibility that adding a defined benefit or cash balance plan as a second plan could greatly increase the contributions for some participants well above the $69K annual additions limit for the 401k plan for both 2024 and beyond. Ask your TPA to think outside the box. Time is of the essence.