Paul I

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.

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.