Paul I

@30Rock you can terminate the Company B plan before the sale but cannot distribute while the employees are still employed by the controlled group. After the closing, the Company B employees are no longer employed by the controlled group so you can distribute from the terminated Company B plan.

Start with a little housekeeping. Have you confirmed that the plan document restricts the hardships to the IRS Safe Harbors.? Keep in mind that preapproved plans had an Interim Amendment to update the plan to conform with final regulations, so look beyond the original Adoption Agreement to find what was elected in the Interim Amendment. (If the recordkeeper adopted the Interim Amendment on behalf of all of its clients, there should still be a copy of the amendment in the plan's document files.) Many of the Interim Amendments included some language like "for any other event that the IRS recognizes as a deemed immediate and heavy financial need Hardship distribution event under ruling, notice or other guidance of general applicability" which may provide so wiggle room for interpretation. Unless you are acting as the official Plan Administrator, it will be up to the Plan Administrator (who likely will value your input) to make the decision.

You are going to need additional information about Company B and the Company B plan. It sounds like the Buyer is buying the stock issued by Company B as a standalone entity within in its controlled group, and Company B is sponsoring a plan that covers only Company B employees, and no employees of any other company in the controlled group participate in the Company B plan. If all of the above are true, then Company B can terminate its plan before the closing date of the acquisition, Company B's employees would fully vest. On or after the closing date, the participants in the Company B terminated plan would be able to rollover their accounts to the place of their choosing including into the Buyer's plan. This would not be true if the Company B employees were participating in any way in the plan sponsored by another company within their controlled group. Also note that the Company B accounts could not be moved by an asset transfer or merger into the Buyer's plan, but would require the former Company B employees to choose to make a rollover into the Buyer's plan. It also is worth noting that a plan termination and the distribution of accounts are different events and it is the plan termination that must be done before the acquisition. The distributions will occur after all of the recordkeeping for the Company B plan is completed which will not happen until after the closing. This is one of those situations where one small slip up can turn into a widespread disaster. Given some of the nuances, the strategy for addressing the Company B plan should be worked out in detail before the closing date, and reviewed by legal counsel with experience with these situations.

SEP are excluded from calculating the $250K threshold because the SEP is considered an IRA. The 5500EZ instructions say to "You should use the total plan assets as listed as of the end of the plan year on line 6a(2) of this form to determine whether the plan(s) assets exceed $250,000. If an employer maintains one or more one-participant plans, the total assets of all one-participant plans combined must be counted towards the amount of $250,000." Since SEPs don't file a 5500 EZ, the SEP assets are not included in the determination.

You can get there. I suggest you start here https://www.efast.dol.gov/iFileLanding/Landing.html Be sure to read everything. There are a lot of steps which means there are lots of opportunities to get something not quite right. Unless there is a business reason for being in a rush, waiting for your reporting system to be available likely would be a better use of your time.

You left out the answer to the most fundamental question - is this a stock sale or an asset sale?

@30Rock there is set of administrative steps that a plan must take to administer the cash-outs properly. If the plan has in fact followed those administrative steps, that will help support a position that the plan was operating intentionally to apply the cash-out rules. You do not appear to have an issue with cash-outs for participants with vested balances of $1,000 or less. For cash-outs of vested balances that are over $1,000 and under the $5,000 (or $7,000 or some other lower limit), the plan should have sent a notice or letter to the participant and the 402(f) notice that the participant needed to take action before a specified deadline (typically at least 30 days). This should include an explicit statement that the balance will be rolled over to an IRA if the participant does not respond by that deadline. If these administrative steps are followed and everyone elects a direct distribution, there is no issue. If these administrative steps were not followed, then the plan has an operational issue regardless of what are the plan provisions. If nothing else, the plan should begin operating according to the cash-out rules. As far as any sort of correction, it is hard to overlook the fact that the participants received their vested account balance. These are not overpayments. It is hard to overlook that each participant had the opportunity on their own initiative to rollover the distribution to an IRA within 60 days. It is hard to overlook that participants who did not rollover paid taxes on the distribution. If any amounts were returned to the plan so the plan can make a rollover to an IRA, the participant would have to file an amended tax return to try to recoup the taxes they paid previously. It is hard to overlook that the amounts in question are relatively small. The plan should consider all of the above in formulating a "correction". None of this is intended to imply that the plan should brush aside the issue. The plan should acknowledge any operational error and take immediate steps to operate the plan correctly.

@Tom is your question coming solely from the standpoint of the plan document, or is it more from the standpoint of plan administration? From the standpoint of the plan document, I am not aware of any of the major Mass Submitter having issued a SECURE 2.0 amendment. From the standpoint of plan administration, several recordkeepers have notified their plan sponsor clients that they will apply default administrative decisions to the plans for which they provide recordkeeping services. The most common provision I have seen in increasing the cash-out threshold from $5000 to $7000. It remains up to the plan sponsor client to request an override of the default. If any clients have made affirmative, documented administrative elections of SECURE 2.0 choices, then these choices should have been clearly communicated to all employees. These communications technically are not SMMs given that an SMM discloses a modification to the plan documentation. Nevertheless, it is important that plan sponsors do communicate the changes to employees as if the plan was amended.

@metsfan026 your suggested approach of using a discretionary match is the simplest approach in terms of implementing and communicating to employees, and as you noted, assuming it passes necessary testing. There are many paths to getting to (or very close to) the desired result, and the more steps needed for a path to work, there is an increasing risk of introducing operational issues when defining eligibility for who gets the additional match or contribution, when they get it and how much they get. Part of the conversation should involve an assessment of the risks. For example, a match and a profit sharing contribution are tested separately for coverage (unless using ABT which has its own issues like the nondiscriminatory classification test). A starting point is to know (or have a very good estimate) of the number of HCEs that are in the new group. If there are none, use discretionary match approach and appreciate the simplicity. If there are very few HCEs in the group, consider the impact of excluding them from getting the one-time bump in the match rate. There may be ways to keep things calm with a bonus unrelated to the plan. If there are a lot of HCEs in the group, then get as complete a census as possible to be able to model the alternative paths. At this point, you need to let the client know of the potential complexity of the paths forward and that you will charge a fee for these services. Start with the discretionary match. If that isn't workable, try the profit-sharing formula (although if the match didn't work, this approach will likely have similar compliance issues). If neither the match or profit-sharing approaches aren't workable, likely it will be do to coverage, so consider the cost of adding in additional NHCEs who were in the new group but not deferring into the calculations. The worst case scenario is implementing an approach without considering the potential compliance risks and finding out after the fact that the plan fails a compliance test. The cost of correction will almost certainly exceed the cost of making an informed decision beforehand.

Here is a fact sheet that will give you details about how abandoned plans are handled. It includes information on how to contact the Abandoned Plan Program at the DOL. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/abandoned-individual-account-plan They determine if the plan is abandoned. If it is abandoned, they arrange for a QTA to wind down the plan.

Generally, there is nothing wrong with your memory! There some nuances, though, that are worth checking. For example, if there is a key employee in the union, then the union employees are included in the required aggregation group for determining if the plan is top heavy. Otherwise, the union employees may be permissively aggregated with the nonunion employees when determining if the plan is top heavy. (The permissively aggregated group would need to pass coverage and nondiscrimination tests.) If the union employees are included in the determination of whether the plan is top heavy and the plan is top heavy, the union employees do not have to receive a top heavy contribution. There are some other fun things to consider such as the union employees are not subject to the LTPT rules, or whether the plan as actually has been subject to good faith bargaining.

You may want to point them to this law suit where the Department of Labor stepped in to recover the Davis-Bacon contributions: https://www.planadviser.com/government-contractor-accused-of-missing-401k-payments/ If anyone were to bring your client's situation to the attention of the DOL, the DOL very likely would intervene. (Note that the suit later was dropped by the DOL after the past due contributions plus earnings were paid.)

Generally, I would say an electronic-only requirement would not be onerous for the vast majority of practitioners. Most already use EFTPS for transmitting taxes and Pay.Gov for other types of payments.

A very large portion of business-to-business transactions are electronic payments. This differs from plan participants we serve. The FDIC provides a survey of unbanked or underbanked households https://www.fdic.gov/household-survey which has some surprising numbers. For example, in Mississippi 9.4% of households are unbanked. It can be challenging to make payments to this segment of the population. Many within this segment use non-bank money orders, check cashing services or non-bank money transfer services. As an industry, we need to be mindful of the needs of the populations we serve.

I, too, am very conservative when it comes to using mistake-of-fact. This situation technically could be seen as not being an operational error since payroll ran on schedule, and the 360 file arrived on the usual day. Is there precedent where where a 360 file containing deferral elections was processed after payroll ran? If yes, were any adjustments made to payroll to recognize the order of processing was not post the 360 file elections before running payroll? The answers could color whether there was an operational error. If there is no precedent, is there documentation that payroll was instructed not to run until after the 360 file was posted? If yes, this would reinforce the point of view that an operational error occurred. Certainly, any communications to participants that explained the change/change back procedure for excluding the bonus would support the notion that an operational error occurred. This argument would be strengthened if the communication specified the dates by which the elections would need to be made in order for the elections to be in effect when the bonuses were payable. Notably, this is not a situation where there was a violation of a plan limit. A violation of a plan limit would allow the amounts to be considered excess allocations. Excess allocations are refundable (with earnings) and are not considered in compliance testing. If these are not excess allocations, then there is not a prescribed EPCRS list of steps to correct the problem other than to file a VCP with a proposed cure (old school). If there is no operational error, then the participants should live with the consequences. If there is an operational error and there is ambiguity about how to correct, then given the number of people involved it may make sense to file a VCP. But that takes time and payroll is going to run again and again before there is any response to the VCP. I agree that if payroll runs without adjusting the employees' YTD amounts, there will be additional layers of errors upon errors. Almost every payroll has a correction process to rerun payrolls to correct prior payrolls. The questions and concerns should be presented to the payroll company on how they would go about fixing the issue. So what would I consider doing in this situation? I would confirm there is an operational error (i.e., there is not a good argument it was not an operational error). I would calculate amounts that should not have been funded the plan, remove the amounts from the affected participants' accounts and hold the amounts in a separate account inside the trust to be used against the next deferral deposit(s) and forfeit any positive earnings or fund negative earnings , have payroll adjust their records to reflect what should have happened, have all related payroll taxes paid asap, monitor the next few payrolls especially for the affected participants' paychecks, and review the year-end payroll reports to confirm they report the corrected amounts, and file a VCP asking for a blessing after the fact. Hopefully this helps breakdown the many issues involved. There are a lot of moving parts, likely there are some weak points in this process, and this is not advice to anyone on how to proceed. Obviously, payroll has to cooperate or this will fail. If payroll refuses to be part of the solution, then they are part of the problem and that needs to be fixed, too.

Are you asking if the Employer chooses to have a discretionary match, then is the Employer able to specify the definition of Plan Compensation each year when instructing the discretionary match? If this is your question, and the plan is using a pre-approved plan document, the very likely the answer is no. Most pre-approved plans have a set of provisions applicable to the definition of Plan Compensation depending upon the type of contribution (elective deferrals, match, nonelective employer...). These provisions will control what compensation is considered in the calculation of the match, the time period for determining the compensation, if pre-participation compensation is included, and any other provisions related compensation.

From the standpoint of what a recordkeeper needs to know about a participant's gender for the recordkeeper to provide plan accounting services, they do not need to know. From the standpoint of interacting with the participant in delivering notices, sending out plan-related correspondence, emailing or having conversations with a participant, acknowledging the participant's gender identity helps build a rapport with the participant. Gender identity goes beyond the use of pronouns and includes things like Mr., Mrs., Miss, Ms. or Mx. as titles or honorifics typically intended to show respect for the individual.

It is likely @Bri 's boss was making the comment long before the EBSA started to be used. The name of the group at the time ERISA was enacted was the "Pension and Welfare Benefits Program". In January 1986, the group became the Pension and Welfare Benefits Administration and used the acronym PWBA. It was February 2003 when the group became the Employee Benefits Security Administration (EBSA). Did someone just whisper "OK Boomer"?

Short answer... Yes. Also note deferrals that exceed 6% of comp can be matched. There is a lot of flexibility in how to structure a match. The more creative the formula, the greater need to test for compliance. If you would like to see what could be called the ultimate match formula, type "triple stack match" in the search box at the top this BL page.

For sole proprietorships and partnerships, the owners are allowed to make deferrals against any draw they take from the business. All of the income from self-employment and deferrals are considered to be determined as of year. S-corp shareholders typically get W-2 income and S-corp dividends. The S-corp dividends are not considered compensation for purposes of the plan. Conceivably, the IRS could say that if payments made during the year that were not from amounts subject to taxation when paid, then salary deferrals cannot be taken from those payments. I haven't seen this situation, so this is just my thoughts.

For clarity, the formula says 133 1/3% of the first 3% of contributed eligible compensation. I does not say 133 1/3% of 100% of compensation It is permissible to have a match rate on elective deferrals where the match rate exceeds 100%. There are plans that go up to a 200% match on deferrals up to 6% of compensation. If this match formula is intended to be a Safe Harbor Match, then the match must be applied to deferrals that do not exceed 6% of compensation. The plan sponsor even may think it is too good to be true.

There are some instances in the instructions for the 5500 and the 5500-EZ that caution the filer not to reveal a Social Security Number. For example, this comes up in the instructions for the Schedule DCG where it says: "Do not use an SSN in lieu of an EIN. Because of privacy concerns, the inclusion of an SSN or any portion thereof on this line may result in the rejection of the filing." On the Schedule H, there is an instruction that says "Schedule H and its contents are open to public inspection and may be published on the Internet. The inclusion of a Social Security number, or any portion thereof, at line 3c may result in the rejection of the filing. For privacy reasons, a Social Security number should never be shown on line 3c." On the Schedule MEP, an instruction says "Enter the EIN of each participating employer. Do not enter an SSN in lieu of an EIN. The Schedule MEP is open to public inspection, and the contents are public information and are subject to publication on the Internet. Because of privacy concerns, the inclusion of an SSN or any portion thereof on a Schedule MEP may result in the rejection of the filing." You haven't missed the boat.

Most systems allow you to create multiple employer accounts and assign a different vesting to each account. This also is not uncommon where a match has a different vesting schedule than a profit sharing contribution, or a participating employer has a different vesting schedule from the plan sponsor, or union members have a different vesting schedule from non-union participants, or the plan changed vesting schedules and had to grandfather existing participants who were already partially vested.... I think you get the picture. This should not be difficult to accommodate.

Note that Q3 in the DOL FAQs, the process is first file the form and second pay the penalty. Completing the filing is no guarantee that the IRS will give a complete pass on an examination, but they do take into consideration that the form was filed and the plan is acting in good faith.

For clarity, can we assume that this is for a 5500 or 5500-SF? (Form 5500-EZs have to use the IRS late filer program.) The DFVCP Q&As https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/dfvcp.pdf say: Q2. Who is eligible to participate in the DFVCP? Plan administrators are eligible to pay reduced civil penalties under the program if the required filings under the DFVCP are made prior to the date on which the administrator is notified in writing by the Department of Labor (Department) of a failure to file a timely annual report under Title I of the Employee Retirement Security Act of 1974 (ERISA) Note that the DFVCP is available unless the DOL has sent the plan a notice of a failure to file. If the information is available to make a complete filing, then it is worth filing under the DFVCP asap to get ahead of getting an official notice from the IRS. However this develops, one thing is that is certain is the plan ultimately will have to file the 5500 for the that is late.