Paul I

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.

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.