Paul I

Plans that allow QSLPs should communicate clearly the differences between a Qualified Education Loan (QEL) versus a plan loan, and repayment of a QEL using QSLPs versus repayment of a plan loan. In the case of a parent wishing to take a loan to pay for education expenses, here are some points to consider: The participant has to be the person obligated to repay the QEL, and the participant is obligated to repay a plan loan. QELs are based on need as determined by the lender, plan loans generally are not. The amount of the QEL is based on need, plan loans are subject to limits based on the size of the vested account and loan history. The participant may have a QEL for each year of education expenses with payments deferred until the student no longer is in school, while repayments on plan loans begin immediately. Repayments of the QEL (i.e., QSLPs) often can be extended over 20 years or more, while plan loan repayments generally cannot exceed 5 years. QELs are not considered in the calculation of the plan limit on the amount of loan available. I'm sure there are more points to be made and our BL colleagues may have some suggestions.

One would think so, but consider that Peter Thiel turned a $2,000 balance in a Roth IRA into $5,000,000,000 (yes, billion) and it's not taxable when distributed.

Part of your question was is it advisable to purchase another RE investment. If their financial portfolio outside the plan is made up of a variety of other investments, they may well be quite diversified and the investment in RE inside the plan could be a fraction of their total financial situation. Considering solely the assets inside the plan may be myopic.

Whether it is advisable depends upon the owners' overall financial situation. It is permissible in this case because the participants, plan sponsor, and plan administrator (i.e., the owners who fill all of these fiduciary roles) can decide this is a sound investment for themselves. They certainly could diversify if they wish, but are not required to diversify.

Generally, protected benefits are based on eligibility for the benefit, timing, and available sources. Looking at some of the new types of distributions, it seems reasonable to conclude that these are protected: QBAD - Qualified Birth or Adoption Distribution QDRD - Qualified Disaster Relief Distribution (note that some plans are considering provisions that constrain the availability and amounts of these distributions to specific events or to geographic areas) EEW - Emergency Expense Withdrawal DAVD - Domestic Abuse Victim Distribution Not protected are: PLESA - Pension Linked Emergency Savings Accounts (the plan sponsor can amend the plan to eliminate the feature at any time) TIID - Terminal Illness Individual Distribution (TIID is payable if there is an in-service withdrawal available, and that in-service withdrawal would be a protected benefit, but the other features of the TIID are not protected) Hopefully, some of our BL colleagues will offer some insight and perspective to these and any other of the new types of distributions.

Has the plan document been amended or has the plan sponsor made an administrative decision to adopt later the provision to permit a participant to self-certify that a they have a hardship? Does the plan administrator have actual knowledge that the participant's need does not meet any of the hardship conditions? Are you the plan administrator with the fiduciary authority to make the decision to accept or reject the request for a hardship? There has been a significant shift in the role of the plan administrator with respect to responsibility to determine if a participant has access to their accounts due to hardship. You may want to have answers to these questions before making a decision. (If the responses in order are no, yes, yes, then likely it is your call.)

Before focusing on how to report everything on the 5500, consider getting everyone including the plan administrator, recordkeeper and payroll to agree on what will be done to complete the correction. Some questions to which you may want to have answers are: What happened to the money taken out of participant accounts? Was it held at the trust and taken as a credit against another payroll (if yes, keep an audit trail)? Was it returned to the company? What about earnings? Are participant W-2's impacted in any way? Will participant compensation reported for nondiscrimination testing be impacted in any way? What appears in each participant's plan accounting records? How are the corrective transactions labeled? When you have consensus from everyone on how this is being accounted for across payroll, the trust and the recordkeeper, the 5500 reporting should be readily apparent. For example, the 5500 has a line for Other contributions (commonly used for rollovers but not limited to rollovers). Participants who received distributions should be included on the Benefits Paid line. Participants who had amounts removes from their accounts but not paid out may have the contribution included along with other deferrals (if the extra amount was used to offset a subsequent payroll) or this may be included in the Other contributions if it was not used. The earnings could wind up in the Other income line. Document, document, document everything that was done too make the correction and that should protect the plan from anyone not familiar with the circumstances second-guessing what happened. [Edited for clarity]

I have never heard of this situation before, primarily because I have never heard of a financial institution setting up an account in the name of trustees of a plan without the institution having documentation that the trust exists. If the account was not titled in the name of the trustees, then consider making an argument that the plan's trust did not receive the assets. If the account still does not yet have any indication that it is owned by the trust, then this argument would also say the rollover has still not yet been made to the plan. It will be interesting to see others comment on this situation.

Qualified Disaster Relief Distributions QDRDs are not subject to the 10% early distribution penalty. Keep in mind that there is a limit on the amount ($22,000), that a participant can treat it as gross income spread over 3 years, and than the participant can be repay it to the plan or an IRA within 3 years. QDRDs are protected benefits, so be careful in drafting the administrative policy or plan amendment. Similarly to how hardship distribution provisions are drafted, some plan sponsors are considering limiting sources, amount, and even which disasters will be available.

As @RatherBeGolfing noted, this topic came up in a few of the presentations at ASPPA National. The consensus response was to apply the plan's eligibility rules and if an employee or LTPTE is eligible to make deferrals on 1/1/2025, then they should be subject to auto-enrollment. The topic of whether all eligible employees should be auto-enrolled or only newly eligible employees could be auto-enrolled often was paired the LTPTE question. The consensus response was, absent explicit guidance, to at least follow the plan rules (or permissible plan rules) where the plan would honor existing affirmative elections that differ from the auto-enrollment minimum, but applying auto-enrollment all eligible employees on 1/1/2025 was an administrative fail-safe approach. It was acknowledged that we are a little more than a month away from the deadline to send to participants annual notices for the 2025 plan year, and this could be an administrative challenge for some plans.

See the IRS advice here https://www.irs.gov/individuals/understanding-your-cp283-notice In particular, they comment "You may want to: You can send a signed statement and request removal of the penalty, if you have an acceptable reason why your return was late or incomplete. You can complete Form 843 PDF and submit it with your signed statement requesting removal of the penalty and a refund of the penalty previously paid, if you previously paid the penalty and feel you have an acceptable reason. Keep this notice in your permanent records." I suggest gathering any and all documentation that shows why they were not aware of the availability of relief (including hiring a new service provider to help them), submitting a filing under the penalty relief program, and filing a Form 843 requesting acceptance of the filing and $500 fee in lieu of the penalty on CP283. There is no guarantee this will work, but generally the IRS likes to work with plans to bring closure where the plan acts in good faith to correct an issue.

You file the EZ on paper and check the box D If this return is for the IRS Late Filer Penalty Relief Program, check this box (Must be filed on a paper Form with the IRS. See instructions) There is no need to file online first.

@Bri's suggestion is simplest. Another approach is to consider clarifying that deferrals will be made from payroll periods beginning before 10/31. Keep in mind that they can amend the termination amendment to document the whatever approach works best as long as they are not taking away anything from participants.

The 404a-5 disclosure also would include other fees that may be charged to the participant such as distribution fees paid to a recordkeeper/TPA. We are a TPA and have several clients where everyone has a brokerage account. We prepare a notice for these plans and have found that the language for each plan commonly doesn't change over time. The plan administrator keeps a copy on hand. We send a reminder to the plan administrator to send out the notice and they take care of distributing it to participants. It really is a minor effort.

Tom, are you saying the plan defines a Vesting Computation Period (VCP) based on anniversary date of hire and no hours requirement, or the plan say vesting is based on elapsed time? If it is elapsed time, then the participant would need to have a 2-year Period of Service to get to 100% vesting. If the plan has a VCP based on anniversary date of hire, consider what would happen if the plan specified 1 hour as the number of hours in a VCP to earn a year of vesting service. Under this scenario, the anyone who worked 1 hours in a VCP would get credit for the full year. Essentially, if the participant was credited with one hour of service on or after 3/1/2024, they would be 100% vested. The question seems to be is there a distinction under the VCP/hours methodology if the required number of hours in a VCP is 0 hours or 1 or more hours? In other words, does 0 hours in a VCP automatically trigger elapsed time rules? Since elapsed time rules in this situation are less favorable to the participant, there is an argument to say elapsed time rules are not triggered by a 0 hours requirement.

As you noted, an IRS Notice CP-406 is from the IRS. You should find this link very helpful in sorting out steps to take in response to the letter: https://www.irs.gov/retirement-plans/irs-filing-notices-for-forms-5500-5500-sf-5500-ez-or-5558 particularly in the section titled Understanding your CP403 or CP406 delinquency notice in subtopic Is there any way to reduce late-filer penalties? Basically, the advice is to file under DFVCP. The DFVCP process is very user-friendly. Only 2022 form is late if the 2023 form was filed on 10/15, so amend the 2022 form and check the DFVCP box. Note that filing an amended form replaces the prior filing in the EFASTs system which should make it unlikely that the DOL will initiate an assessment. You will need to do this before using the DFVCP penalty calculator since it will ask among other things for the EIN, plan number and date the form was filed. The DOL uses this information to cross check the form filing to the form filings listed in the calculator and will expect the 2022 form to have the DFVCP box checked. Both agencies really want us to use these delinquent filer programs and they commonly respond well to a plan taking proactive steps to correct an issue. Good luck!

It is easy to overthink filling in a blank line explaining what Other means. I agree something should indicate it is a defined contribution plan. Here a some examples the may trigger some creative thoughts: 401(k) with multiple companies DC plan for ## participating companies ## companies covered by this Profit Sharing Plan If you decide on a style, it will save time when completing forms for other clients that use the Schedule MEP.

They can get signing credentials here https://www.efast.dol.gov/portal/app/welcome and use the credentials immediately for a filing. Let's hope they know the potential implications of changing the information in the original filing. This could wind up like giving an 8 year old a power drill who proceeds to drill holes in anything and everything is sight.

My understanding is QDRDs are optional but are protected in the same fashion as for hardships. In other words, funds in the plan while the QDRD is in place would remain available in the event of an QDRD, but contributions and related earnings on amount added to the plan after the QDRD is removed would not be subject to the QDRD rules. If the QDRDs truly are treated similarly to hardship, the plan should be able to specify limitations on the QDRD such as a geographic area, or disasters occurring within a specific time period, or contribution sources available for a QDRD.... QDRDs and several other new withdrawal features have the potential to cause major recordkeeping headaches to benefit a small subset of the participant population. But it is the law, and we soldier on.

The match formula is discretionary and allocated per payroll with no true up. If the match is funded with each payroll, as long as the calculation of the match for each payroll is done according to the plan provisions in effect for each payroll, then there should be no need to consider an annual limit. At the end of the year, the plan will need to pass the ACP test and BRF testing of various rates of match. If the match is not funded with each payroll, then that could trigger a need to do true-up calculations consistent with the funding schedule (e.g., monthly, quarterly, annually...) which would be a pain to apply to the time period that included the change in the match rate. Arguably, using the highest match rate during the time period would be acceptable but potentially more costly depending on the length of the time period. Using a weighted average of the match rate over a participant's eligibility during the time period to calculate the true up would be less costly and has some logic associated with the calculation. Again, the end result will need to pass ACP and BRF testing.

if there were only 2 people in the plan at the beginning of the year, that's far away from the audit threshold of 100 participants for an audit to be required. There are multiple counts done on a 5500-SF. As of the beginning of the year there were 2 active participants and 1 of the participants had an account balance. The NHCE terminated with $0 balance and a vesting percentage of 40% and is deemed to have had an immediate distribution of their vested balance. The count for terminated employees during the year is 1, the count for participants at the end of the year is 1 (the HCE), the count for participants at the end of the year with an account balance is 1 (again, the HCE) and the count of participants who terminated with a partially vested benefit is 0 (the question asks if the NHCE is partially vested, yes, and is there a benefit, no, so no partially vested benefit).

It seems Notice 2024-73 is introducing some new terminology in an effort to deal with the long-standing ability of 403(b) to exclude students from deferring and having that exclusion not violate the universal availability requirement. The position in the Notice seems to accept an interpretation that there are two components to the exclusion - one being a student (based on status and not service) and the other being an ERISA LTPT employee (based principally on service), and that being a student permits the exclusion to stand. Question 6 adds that becoming a "former ERISA LTPT employee" cannot be excluded under section 403(b)(12)(D) to exclude the individual from getting a match or NEC. The new terminology in the Notice references "ERISA LTPT employees" and "401(k) LTPT employees" in Section VII with the request for comments: Additionally, comments are requested on any rules with respect to section 401(k) LTPT employees (including former section 401(k) LTPT employees) that should apply differently for ERISA LTPT employees under section 403(b) plans. This interpretation of this Notice conceivably could open the door for using "intern" as a classification based on status, but the Notice comments that more is coming about plans other than 403(b)'s. I want to see what gets issued in a notice about 401(k)s. This whole issue seems to be adding layers of complexity and increased data collection that are going to make plan administration significantly more complicated.

You will find this article helpful for finding a path forward for terminating the plan. https://www.groom.com/wp-content/uploads/2022/11/IRS-Guidance-Provides-More-Detail-on-Terminating-403b-Plans.pdf It addresses what to do if the plan holds annuity contracts or custodial accounts, and also comments on using the PBGC missing participants program for terminating defined contribution plans. It seems the insurance company is being somewhat casual about the documentation needed to clarify that the account no longer is a plan asset, or they are just being condescending. You may ask for clarity on the titling of the account and on reporting the distribution of the account to the participant.

We typically don't see this if the plan has been terminated for a while. Usually when amounts do appear well after the termination and final reporting of the plan, the amounts are attributable to a settlement of litigation. It would be absurd to resurrect the plan, update for recent legislation, pass around some pennies, make payments, amend the prior final 5500, prepare a few more 5500s for the intervening years and file another final 5500, send SAR to participants, ... Let's get real and not overthink it. The trustees or plan sponsor should ask the brokerage firm to close the account and write off the amount. If the brokerage firm adamantly refuses, then one of the former service providers likely will be willing to send an invoice to the brokerage firm to close out the account.

This sounds like a "failure to implement" which is similar but different from a "missed deferral opportunity". Keep in mind that the corrective action depends upon factors such as whether the plan has auto-enrollment, the timing of when the issue was discovered and is being corrected, and the employee's current employment status. These factors could determine if the correction is a 50% QNEC, 25% QNEC or no QNEC. The full match with earnings will be due based on what should have happened. Others here are correct that the QNEC will offset the 402(g) limit on deferrals the employee can make for the remainder of the calendar year.