Paul I

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.

Two weeks ago, I emailed a question about this specific issue to the membership in two industry groups (about 80 individuals in total) representing a significant number of recordkeepers/TPAs from among the largest, mid-level and smallest in the industry. Three people responded with each reporting a single, unique incident of a quirky IRS extension letter. Several responded to the email and they all reported not having any issues with receiving denials of extensions. Hopefully, their response is an indication that this is not a widespread or systemic issue. I will update this post if I receive feedback reporting an issue.

Is it fair to assume that the employee was not eligible throughout all of 2023? If yes, then correct the ineligible deferrals by distributing the excess amounts to the employee. You are correct that there would be not tax impact to the employee with the exception that any related earnings would be taxable in 2024. If the employee is now eligible and not deferring the maximum, they can up their deferrals to put the amount back into the plan. The Plan Sponsor is not on the hook for a 2023 top heavy contribution but the Plan Sponsor likely will pay the price of dealing with a disgruntled employee.

I agree with @Bri and suggest that Dr. X or his plan account pay the fee for the additional work.

I do not recall ever seeing a plan penalized for a late distribution of s SAR, nor have I seen an explicit corrective action other than to send out the most recent notice. It is worth observing that there is a push to be able to consolidate multiple disclosures into a single package of disclosures for purposes of distributing to participants, not to mention that unenrolled participants no longer have to get disclosures.

Our service agreement lists pricing for each specific service listed in our menu of available services. For example, one service is posting payrolls and instructions to the custodian on where to invest the payrolls. This service is predicated on receiving timely and correct data and related funding. Any service that is not explicitly listed, and any variance from the conditions applicable to a listed service, are considered special services and billable at the hourly rates of the staff who perform the special services. Yes, if the time involved is inconsequential, we alert the client we provided a special service but may waive the fee. If client does not take steps to ensure that we get what we need to perform our listed services timely and accurately, we do invoice the client for the extraordinary efforts. It's amazing how often it takes a small charge appearing on an invoice is needed to motivate the client to act within the scope of the services agreement.

If the employee was not a more than 5% owner when his original RMDs years age, and if the plan allows for active employees to defer taking RMDs until they separate from employment, then he can defer taking his RMDs now.

Consider keeping the contribution squeaky clean both for allocations and all other plan reporting, and having the plan pay an expense that would wipe out the excess. Confirm that the plan allows for payment of an expense and for the employer to reimburse the plan for any plan expense not paid for by the company.

Let's assume that no fraud is involved in the election process. Had the election been made on paper, there would be no basis for challenging the election other than the participant's misunderstanding. If the computer system was designed to confirm and reconfirm the election before formally accepting it on behalf of the plan, then there would be no basis challenging election. If the computer system is unforgiving, then it is more credible that the participant just clicked the wrong thing and made a mistake. Under a confirm and reconfirm process, the participant enters there election, the system displays a the election along with a short description of the election (e.g., "You elected to defer x% of your salary as a Roth deferral. Your Roth deferral will not reduce the withholding of income taxes from your paycheck. If your election is correct, please on the Accept button. If your election is not correct, click on the Cancel button." If the participant clicks on the Accept button, the election is recorded by the system with a date and time stamp, and becomes irrevocable. I have seen a handful of situations where a participant elects a Roth deferral and calls up HR/Benefits/Recordkeeper after receiving their paycheck to demand that their election be changed. In most of these situations, the participant did not understand that their net pay was going to go down by the amount of the Roth deferral and they experienced a form of sticker shock.

My response to the question How important is it to apply a cutoff during a year? is it is very important, but not mandatory. Anytime excess deferrals are taken by payroll, it is a violation of 401(a)(30) and an operational failure. If the excess deferrals are not removed by April 15th of the following year, the plan could be subject to disqualification (unlikely to happen) but the correction must go through EPCRS (which is not cheap). Note that a 401(a)(30) failure is a payroll failure that differs from a 402(g) violation which is a participant failure (e.g., where the participant had deferrals made while working for unrelated companies). From what I have seen, 401(a)(30) failures are more likely to occur when there was a change in payroll systems/providers. Another relatively common 401(a)(30) failure occurs when there are other related companies such as within a controlled group where payroll was not run on a common payroll system/provider and a participant had deferrals taken from multiple payrolls that did not share YTD information. Technically, all excess deferrals should be corrected through refunds which would address the distribution of earnings on the excess deferrals. If the refunds are not made by April 15th, the excess deferrals are corrected through EPCRS (SCP, VCP or Audit Cap) and are taxable in the year of deferral (except for Roth deferrals) and in the year of distribution (including the amount of any Roth deferrals). According to the IRS web site (https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-elective-deferrals-werent-limited-to-the-amounts-under-irc-section-402g-for-the-calendar-year-and-excesses-werent-distributed) the refund could be subject to the 10% early distribution penalty, 20% withholding and spousal consent rules.

@C. B. Zeller & @Peter Gulia, I am not advocating for or against a plan being allowed to specify a catch-up limit. I will observe that I took a look at a half-dozen pre-approved plan adoption agreements and the language in their underlying basic plan documents, and interestingly none of them give the plan sponsor the option to choose a catch-up limit (i.e., there is no blank that says fill in the catch-up deferral -limit).