Paul I

Reading Section 109 of SECURE 2.0, the change adding the availability of the increased catch-up limit for participants aged 60-63 does not appear to be optional. This increase is part of the definition of the overall catch-up limit. If so, then the only option a plan has is to permit catch-ups or not to permit catch-ups. If the plan chooses to permit catch-ups in 2025 and going forward, then the plan must permit the increased limit for participants aged 60-63. (I recently have seen a statistic that something like 98% of 401(k) plans allow for catch-up contributions.) While we are on the topic of catch-ups, there are some other related points to keep in mind: Section 109 notes the "adjusted dollar 19 amount, in the case of an eligible participant who would attain age 60 but would not attain age 64 before the close of the taxable year" so beginning January 1, 2025, a participant who on January 1, 2015 is at least age 59 (i.e., would attain age 60 before the close of the tax year) and under age 63 (i.e., would attain age 64 before the close of the tax year) will be able to make catch-ups up to the increased limit. Catch-up contributions are subject to an universal availability requirement applicable to all plans sponsored by the employer and any related employers. If the plan includes Long-Term Part-Time Employees (LTPTEs) from 401(a)(4), ADP, ACP and 410(b) testing, then if the plan allows catch-ups, the plan has to allow the LTPTEs to make catch-ups. If the plan excludes LTPTEs from all of these tests, the plan could exclude LTPTEs from making catch-up contribution. Payroll service providers are on the critical path to implement the new limits. Cycle 4 restatements likely will start in late 2026 with the cylce ending in 2028. IRS Notice 2024-3 includes the 2023 Cumulative List of Changes in Plan Qualification Requirements for Defined Contribution Qualified Pre-approved Plans which includes the age 60-63 catch-up limit. @Gina Alsdorf's observation about the coming mandatory Roth catch-ups for High Paid participants is fair warning to all other service providers who will be significantly impacted by that change. At least this change does not appear in the 2023 LRMs. All of the above may be particularly valuable for those practitioners who are contemplating retirement. 😀

I agree with @Bri that the individual trustee(s) of most small plans are associated with or part of the management of the employer. For many of these companies, all of the decision-making for the companies is concentrated within a group of 5 or fewer individuals, and the duties of the plan administrator are performed by individuals within that group, and the trustee is also within that group. When the company is named in the plan document as the Plan Administrator, often no one in the management of the company is specifically designated to have that responsibility, but the trustees often are clearly identified in the plan document. Often, the trustees are one or more of the owners, the individual named as the president/general partner, or the treasurer, and the focus of the trustees is on the investment menu. They leave (and don't ask, don't tell) plan operational considerations to others such as human resources or payroll. It is fairly common that only or two individuals have hand-on knowledge of the operations of the plan, and these individuals most often have some responsibility for the company's payroll. As a result, they should know about any missed/late payroll deposits, but often they do not know the timing requirements for the making deposits to raise the issue with others. Note that, in an effort not to be considered a plan fiduciary, outside payroll providers generally do not alert the company about late deposits. Investment advisers go out of their way to disavow any responsibility for fiduciary responsibility, and to limit their services to at most the oversight of the investment fund menu. Some advisers may comment to the company about a late payroll, but this comment primarily is in response to their keeping tabs on asset growth and associated adviser fees tied to deposits or asset balances. Most recordkeepers will alert a client if a routine payroll is not timely deposited. The alert occurs after the fact and at best is accompanied by a message that a correction may be needed. The service agreement does not include any accountability resulting from missed or late deposits. All of the above being said, the decision on whether to have an independent trustee often comes down to the company not wanting to pay a fee no matter how small that fee may be.

For the moment, let's shift focus away from issues related to disclosing information to participants who must make personal decisions about their ESOP interest, and focus on what the plan document says about voting rights. Do participants have the right to vote shares allocated to their accounts on the sale of the company or the assets of the company, on a dissolution of the company, or conversion of the company to another corporate status? Are there provisions that allow participants to vote unallocated shares? Does the plan designate each participant as a plan fiduciary? If the plan specifies that the participants must be involved in the decision to sell the company, then the participants will need access to information sufficient for them to make decisions.

Here is an article from Employee Fiduciary that does a decent job. You may want to search for it online to get a cleaner copy or a link to send to others. ASGs.pdf

The determination of who is or is not a nonresident alien can be very involved. Chapter 1 of IRS Publication 519, U.S. Tax Guide for Aliens provides guidance on how to determine whether an individual is a non-resident alien or is a resident (or has dual status!) https://www.irs.gov/pub/irs-pdf/p519.pdf The individual may qualify as a resident but can abandon their status. There also is a Substantial Presence Test which gets into topics like counting days worked in the US, commuting to work from another country, days while traveling through the US to name a few. The publication has 99 pages discussing rules for Aliens (but not even a word about UFOs 😁). The bottom line is a plan may have an exclusion for non-resident aliens but it may not be obvious when an individual is a resident alien.

The instructions for Code 2 say "Any other distribution subject to an exception under section 72(q), (t), (u), or (v) that is not required to be reported using Code 1, 3, or 4." Code 72(t)(2)(M) says "(M) Distributions from retirement plans in connection with federally declared disasters. Any qualified disaster recovery distribution." Codes 1, 3, and 4 respectively are 1—Early distribution, no known exception, 3-Disability and 4-Death.

@AlbanyConsultant do you know the type of MEP that Company F wants to join? Is it: an association retirement plan? a professional employer organization (PEO) plan? a pooled employer plan (PEP)? some other multiple employer plan (e.g., among related employers that are not in a controlled group)? For the first 3 types, the association, PEO or PEP will dictate what the Company F will be allowed to do if they join the MEP. If the MEP does not allow SDBAs, then Company F will need to assess the importance to them of that investment option. If the MEP supports all of the existing protected benefits in the Company F plan, then Company F likely merge their plan into the MEP through a trust-to-trust transfer. If the MEP does not support all of the existing protected benefits in the Company F plan, then Company F likely will need to freeze their plan, fully vest anyone who is not already vested, merge into the MEP those benefits that the MEP will support, and keep the frozen plan around until all participants are out of the plan. If the MEP is the "other" type, then Company F will need to sit down with the MEP sponsor and work through all of the details.

Let's assume as Peter notes that participant self-certification is not available. Generally, taking a hardship withdrawal to make loan repayments such as for delinquent mortgages (with the threat of eviction) financially does more harm than good. The withdrawal is taxable and often triggers the early distribution excise tax. Student loan provider haves many alternatives available to help individuals who have difficulty making loan repayments. It would be in the better interests of the participant to encourage them to pursue those alternatives before tapping into the plan. Student loans commonly are written for expenses for an upcoming academic year. It is not uncommon for an individual to have multiple loans that may be consolidated later. An administrator who is parsing the safe harbor language could conclude that a student loan repayment on a loan for a prior academic year does not meet the requirement that the hardship is for an expense associated with the next 12 months of expenses. It also is notable that paying off credit card debt by itself is not a safe harbor hardship reason, but having sufficient available credit on a credit card to cover a heavy and immediate financial need is a reason to deny a hardship. This quirk merely highlights that the safe harbor hardships are not intended to be a universal solutions for relieving debt.

Let's not be in a hurry to condemn the major recordkeeping platforms, and certainly only someone who has never made a mistake should cast the first stone. As a business, the major platforms operate within the constraints of their service agreements, most of which at some level leave to the plan sponsor the responsibility to interpret the plan and decide what to do. Plan sponsors should not assume that everything that could happen with a plan is within the scope of formal scope of services presented in the agreement. Plan sponsors also should not assume that the service agreements protect them from breaches in their fiduciary responsibilities. Yes, some individuals at service providers do not know the boundaries of their knowledge and try to be helpful (sometimes even try to be logical), resulting in providing incorrect information to the plan sponsor. Best practices for a plan sponsor is to work with a retirement plan professional who will have detailed knowledge about the plan provisions, the plan sponsor's perspectives on the goals and objectives for the plan, and the role of other service providers. This may be an attorney, accountant, retirement consultant, financial adviser or TPA. The independence of the retirement plan professional goes a long way to keeping a plan in compliance. Certainly none of us who are not lawyer's specializing in retirement plans should be providing legal advice to the plan or its fiduciaries.

The best approach is to follow the provisions of the plan to identify the source of the contributions whenever a deposit is made into the plan. It should be easier to identify the source at the time of deposit instead of trying to "redistribute" everything later on. Without going into too much detail, consider that: Partners as well as employees must make elective deferral elections on or before the end of the plan year. If partners are deferring from draws, then any deposits from the draws based on deferral elections are deferrals. If too much is designated as elective deferrals, it is appropriate for any excess amounts to be distributed using the excess deferral procedures. Deposits for the SHNEC and profit sharing contributions should be made for all partners and employees at the same time. The plan has a problem if the partners get allocations of these non-elective employer contributions earlier than the employees. While not endorsing the "redistribution" process, hopefully any earnings related to amount moved around include earnings associated with those amounts. Otherwise, those earnings are in the wrong accounts.

The company is making the decision to move to a MEP, and the company is picking the MEP as the service provider. The company is responsible for knowing the consequences of this decision before they sign documents and formally join the MEP. If the plan is going to merge into the MEP, the company also should take a look at any benefits in their existing plan that are protected benefits and ask how they would be handled in the MEP. These days, this is ripe for confusion and misinformation given that plan sponsors can make administrative decisions to adopt and apply plan features made available in recent legislation, but the plan sponsors do not have to incorporate these plan features in the plan document until later. If you are feeling magnanimous, consider doing the company a favor - BEFORE they sign up for the MEP - by sharing the questions they should be asking the MEP provider to help the company decide if the MEP provider is a good fit for the company's employees.

The option is not available so you likely will not find a reference. Often, we would like to see explicit rules about what cannot be done, but generally the rules are written to say what can be done. The MPPP contribution is an employer contribution and the employee has no choice to instruct the employer to change it. A CODA is an employee choice where the employer offers the employee the opportunity either to take cash or have a contribution made to the plan. This difference is highlighted in many ways. For example, the 410(b) coverage ratio test employer contributions separate and apart from CODA (think elective deferrals), and also separate and apart from matching contributions because the match is associated with the elective deferrals.

Keep in mind that plan documents have default beneficiary provisions and the Plan Administrator cannot force a participant to make an affirmative elective. Also keep in mind that a terminated participant who has an accrued benefit can change their beneficiary designation while they remain terminated. It is good practice to encourage participants to make affirmative elections, and to periodically remind participants to review their affirmative elections. Some plans have generic communications that center around how life events - including rehire - that can impact benefits and those communications include the reminder to update beneficiaries.

A money purchase plan specifies a mandatory employer contribution of a fixed percent of pay for each employee. It is not a CODA and employees cannot make an election to change the percentage. If the plan is a CODA, the notion of a negative deferral election in a CODA was raised in Revenue Ruling 98-30 (see the attached article). Assuming a negative election is permissible, there is no need to structure a plan with an arcane provision that will confuse everyone. Design the plan with an auto-enrollment default of 10% and participant can make an affirmative elective to adjust the percentage up or down, including completing opting out. Negative elections Revenue Ruling 98-30.pdf

A good starting point is the IRS web site: https://www.irs.gov/retirement-plans/voluntary-correction-program-general-description This site also will lead to some pages specific to 403(b) plans. For example: https://www.irs.gov/retirement-plans/403b-plan-fix-it-guide If you are looking for a gold-standard resource, among your best bets are the ERISA Outline Book, Wolters Kluwer, or ERISApedia. Be prepared to pay for a subscription, but the value of the guidance and time-savings are worth every penny.

Focusing on the PS allocation, if the allocation conditions say a participant who works more than 500 hours will get a PS allocation regardless of whether the participant is active at plan year end, then modifying the definition of compensation used in the PS allocation for a terminated participant in a way that reduces their PS benefit would result in a cutback of the accrued PS benefit for that participant.

The best approach when too much is deposited for a payroll is to leave the excess in the trust and use it as a credit against the next payroll. The company is made whole as of the next payroll date when the credit is applied. Administratively, this is the cleanest approach, but be sure to document, document, document everything. What was the reason for the voiding/reversal of the paychecks? Sometimes there are paycheck reversals because payroll was processed incorrectly such as when hours worked were wrong. This could be appropriate. Sometimes there are paycheck reversals because payroll is trying to fix a plan issue such as when a participant made a valid deferral election and then after receiving a paycheck, changed their mind, decided not to defer, and want their money back. This is inappropriate.

S2.0 section 301 added Code 414(aa)(4) “(4) OBSERVANCE OF BENEFIT LIMITATIONS.—Notwithstanding paragraph (1), a plan to which paragraph (1) applies shall observe any limitations imposed on it by section 401(a)(17) or 415. The plan may enforce such limitations using any method approved by the Secretary for recouping benefits previously paid or allocations previously made in excess of such limitations." If the issue is the individuals received an allocation formula that incorrectly included compensation in excess of the compensation limit, then the plan should take steps to recoup the excess amounts. If the allocation of excess amounts affected other participants (e.g., they received less because the total allocation basis was overstated), then these participants need to be made whole. Given that the individuals are very highly paid and very likely HCEs, and possibly could have been owners, officers or other disqualified persons listed in Code 4975(e)(2), failing to recoup the overpayment can lead to a host of other compliance issues.

Fundamentally, the plan must be administered according to its plan provisions. If there are operational errors, they must be corrected and each participant should receive the benefits to which they are entitled under the terms of the plan. You do not indicate the reason there was over-funding to certain accounts and the number of participants that are affected by the error. This information could be relevant to deciding the procedure to use make the corrections.

@CuseFan is on target with the comment about the QSLOB election. A QSLOB must meet certain criteria. This includes: Each QSLOB must have at least 50 employees. Each QSLOB must: Be a separate organizational unit, Have separate financial accountability, Have separate workforces, and Have separate management. The employer must have filed to be a QSLOB using Form 5310-A Notice of Qualified Separate Lines of Business, that remains in effect until a filing is made to revoke the election. The QSLOB election applies to all members of the controlled group, and each employee of the controlled group has to be allocated to a QSLOB. No employee can be treated as an employee in more than one QSLOB. For each QSLOB to operate as a QSLOB each year is it must pass administrative scrutiny. There are two ways for a QSLOB to pass administrative scrutiny. A QSLOB can either pass the statutory safe harbor coverage test or satisfy any of five administrative safe harbors. There is even more complexity to keeping QSLOBs compliant so it is prudent to work with someone with experience with QSLOBs. Regarding @Cephas's second question. Entity 2 can easily have a plan covers only its NHCEs. If the HCEs are an issue, then look to a non-qualified plan as their consolation prize. Other structures also may be feasible, but that would require a lot more information about the demographics. In short, Entity 2 can have a 401(k) plan that does not need to cover Entity 1 without using a QSLOB election.

Does the plan file a Form 5500-EZ? If yes, then it is even more important to preserve the plan's EIN. EFAST2 will be looking for continuity and likely at some point will send out a penalty letter if it doesn't get a filing that shows a final filing and assets going to zero for that EIN. You may want to try to contact a compliance officer at the bank (not at the branch, and who hopefully know a smidgen about retirement plans), and have a discussion about the bank making an unauthorized change to the plan's EIN. You may want to salt the conversation by saying "IRS" and "compliance" a few times. You actually may be doing them a favor. If this does not go well, then definitely follow Lou and David's advice!

It sounds as if you are in a stalemate with the employer where you expect the employer to make changes to accommodate you and the employer expects you to mange your situation within the constraints of the plan provisions. Please note that none of the discussion below is intended to be judgemental in any way either of you or the employer. Consider what will happen if the employer refuses to accommodate your situation. You will have to meticulously manage your affirmative elective deferral percentage of zero and if you don't, then you will face some punitive penalties attributable to your status as a sanctioned man. Your other alternative would be to find work with another employer that will accommodate your situation, and you have acknowledged that you have worked for other employers that have been accommodating. Your asked your employer to accept a waiver of your right to participate in the plan. This type of waiver is an optional plan provision available to employees who have not yet become eligible under the terms of the plan and would have to be available to all employees before they became available. Many employers do not want this provision in their plan, and without this plan language, you have no right to demand a waiver. You could achieve your goal if the employer was willing to accept a standing election from you of zero deferrals. The employer apparently wants employees to participate in the plan and does not want to set a precedent that other employees could point to as a reason to let them make standing elections. You have involved the DOL which is appropriate with respect to addressing eligibility issues, but you have not said anything about approaching the IRS which is heavily involved not only in the regulation of retirement plans but also with managing sanctions. Frankly, it is doubtful either agency will do anything more than be sympathetic and encourage the employer to be accommodating. Absent legislative or regulatory guidance allowing an employee to waive their right to participate if the plan does not allow this waiver, it also is doubtful that hiring an attorney will succeed in forcing the plan to accommodate you. The above being said, and assuming the employer wishes not to risk your leaving them, then it is worth exploring potentially another possibly palatable step to accomplish your goal of not being required to manage your zero deferral election with extreme care. You may wish to ask the employer to have a conversation about the following suggestion. Ask the employer if they would consider adding a plan provision that excluded from participation the classification of employees who are subject to the sanctions. This would not require them to name you explicitly in the plan document and other employees likely would not understand the exclusion (other than it does not apply to them). Good luck!

Is it fair to assume that you have determined that the benefits you would have earned in the defined contribution plan somehow are more valuable that the benefits you earned in the cash balance plan? If not, what is your motivation for asking the question? Moving on, let's assume that you do not have any documentation of your choice and your employer is unable to find any documentation of your choice. You should expect that your employer will point to all of the benefit statements and plan disclosures that they have sent to you over the past couple of decades explaining your cash balance benefits to you as evidence that you chose the cash balance option roughly 20 years ago. If you are going to pursue this, you should start by follow the claims procedure in the SPD for the defined contribution plan. You should be prepared to provide information about the basis for your claim. If the claim is rejected, you can appeal. If you lose the appeal, you can take it to court. If you are going to go down that path, you are going to invest a lot of time and expense for something you admit you have no documented reason for making the claim. Do not be surprised if your efforts are unrewarded.

Determining the year in which back pay will be considered for purposes of a retirement plan can be mind-breaking for several reasons: Back pay affects hours of service for the year to which the back pay was made which likely is a factor in determining eligibility service. vesting service. allocation conditions. breaks in service. Back pay affects compensation, and compensation likely is a factor in determining the amount of benefit accrued in any year. whether the employee was an NHCE or HCE. whether the employee was a key employee. plan limits including 415 or caps on compensation eligible for deferrals. ADP/ACP testing. Social Security Taxable Wage Base (think integrated formulas). Back pay awards may include items that are not related to an employee-employer relationship. As a general principle for making any plan correction, the affected participant or participants and any other participants in the plan should not be harmed by the correction. This principle on its own should be sufficient to say a correction is okay if the benefit an individual is made whole if they get a current year correction to provide the benefit the individual would have accrued after applying back pay to each year for which the back pay is related (plus earnings). With some recognition that availability of data, effort needed to apply a correction, and common sense are relevant, then demonstrating that an individual will be made whole or better if the back pay is applied in the current year also should be consistent with the general principle. In this case, it would be important to demonstrate that the plan would not have any deficiencies (test failures, coverage issues, violations of limits...) if the back pay was not included in the plan accounting. Obviously, this is not the granular type of analysis supported by a multitude of common and obscure regulatory references. This approach is akin to an argument to be made if the plan is under review. Rather, this is from the Hippocratic school of retirement plans: "Practice two things in your dealings with retirement plans: either help or do not harm the participants."

I, too, agree that you need to hire an attorney to work with you. Here are some things you can do now to facilitate the process. Gather every scrap of written documentation you have that is related to any agreement between your wife and the medical practice. Preferably, the parties to each document and the date of each document are available. Documentation includes letters, agreements, contracts, email, text messages... If there were oral promises, at least describe to the best of your knowledge who made the promises, when they were made, and who else may have known about them. Gather copies of your tax returns showing any income received from the business. This includes all supporting documentation and schedules going back as far as available. Included copies of any information that may have been provided to your wife about the finances and financial condition of the practice. Prepare a timeline of events from her starting to work with the medical practice up to now. In particular, was the offer of ownership made around the time the COVID loan was in default? With respect to the promised retirement plan, provide any information that show she was accruing a benefit. In particular, have documentation if the offer of partial ownership was in place of the previously retirement benefits. Be prepared to respond to the question of why she did not ask about her retirement benefits earlier. Gather similar documentation about the promised dividends. Note that corporations pay dividends to shareholders. Your wife should have documentation of the number of shares that she owns, and of how she acquired (or was given) those shares. With this information in hand, schedule an interview with a reputable attorney from a reputable law firm to discuss your wife's case. If you are not comfortable with how the discussion goes, approach another attorney or law firm. You may wish to ask whether the attorney sees this as a likely case of employment law, or a case of fraud on the part of the other owners, or both. You commented that "if she leaves her job, we lose everything." The attorney can provide some guidance to what extent, if at all, this may be true. Depending on the terms of the agreements, walking away may be the better option. You also need to be prepared in case the medical practice can force your wife out of the business. Full disclosure - I am not an attorney and this is not legal advice. I am sharing with you the kinds of steps I have seen others take when confronted with seemingly impossible situations. You have a difficult and stressful road ahead. You will need help to navigate the way forward. Stay focused on the facts, get help, and may you find peace.