Paul I

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.

Look in DOL FAB 2014-01 in the section titled Individual Retirement Plan Rollovers – Preferred Distribution Option, third paragraph. The DOL says (and provides its supporting references) that if the plan is terminating and the participant is missing (read the plan cannot make the payment), then the plan should rollover the account balance to an IRA. You may wish to speak with some of the companies that specialize in setting up this type of account. On a separate note, it is possible to amend a plan after the termination amendment has been adopted. In this case, amending the plan should not be required unless the plan document, basic plan document, and termination amendment are silent on the issue and you want to rely on something more than the FAB.

@Tom here are some resources if you want to document that the you have the current opinion letter. You can learn about the 403(b) pre-approved plan document cycles here: https://www.irs.gov/retirement-plans/403b-pre-approved-plans You can find the current opinion letter numbers here (and the TIAA documents are on page 23, some with 8/7/2017 dates): https://www.irs.gov/pub/irs-tege/preapproved-403b-plans-list.pdf You can see that the next cylce's documents have not yet been issued here: https://www.irs.gov/pub/irs-tege/403b-preapproved-plans-list-2.pdf

@jsample technically you are correct that a fee can be charged to the employer. Practically, with our clients, if we told our clients we would charge our standard distribution fees for per payment because a participant took 4 very small payments for an undocumented "emergency", they would not agree to pay it and would think we were crazy for suggesting it.

Attached is an excellent discussion of the various IRS and DOL rules prepared by the law firm of Harter Secrest & Emery LLP last September. They do a great job presenting the alternatives available under each agency's rules. The DOL has multiple methods depending upon the employees' access to a computer at work that can be used - and employees are permitted to use - for interacting with the plan. In all instances, paper must be an available choice to any participant. In all instances, a participant can rescind their consent to receive electronic delivery. Within the DOL rules, there also disclosures about electronic deliver that must be presented to the participant before the participant can consent to electronic delivery. These requirements mean a plan must always be prepared to make paper copies available upon request, and to accommodate participants who do not have or have access to computers capable of accessing the plan information. Another DOL requirement is for the plan to have the ability to reasonably ensure actual receipt of the document. This is not a trivial requirement and does require the sender to be able to demonstrate that documents are being received by participants. The footnote at the bottom of page 2 addresses in part some of the questions. Also note the final paragraph on page 7 a new requirement that will be effective come January 1, 2026. HSE_ELECTRONIC_DELIVERY_RULES_FOR_BENEFIT_PLAN_COMMUNICATIONS.pdf

There is no reference to the date of the actual filing of the 5500 in the reg. The reg is clear that if there is a valid extension (i.e., the extension was requested before the original due date) then the SAR is due 2 months from the end of the extension period. For a calendar year plan, this is December 15th. ERISA § 2520.104b-10(c) reads: When to furnish. Except as otherwise provided in this paragraph (c), the summary annual report required by paragraph (a) of this section shall be furnished within nine months after the close of the plan year. (1) In the case of a welfare plan described in § 2520.104-43 of this part, such furnishing shall take place within 9 months after the close of the fiscal year of the trust or other entity which files the annual report under § 2520.104a-6 of this part. (2) When an extension of time in which to file an annual report has been granted by the Internal Revenue Service, such furnishing shall take place within 2 months after the close of the period for which the extension was granted.

Merge the plans, and transfer the assets from the B plan into the A plan (preserving all of the separate sources and protected benefits). There are a lot of potential land mines in this process. Before taking any action, be sure that the controlled group is passing coverage testing and nondiscrimination testing. If it isn't passing, fix it before proceeding. If the benefits or eligibility requirements available under each plan differ considerably, the fix could be expensive - but the deal is already done so A is committed to cleaning things up. Passing post-merger coverage testing also will help answer whether A wishes to continue provide benefits to B employees. If A is not so inclined, be sure the plan will continue to pass coverage with that classification exclusion. A merger very likely will end the transition period safe harbor, so again, anticipate the impact this may have on particularly on ADP/ACP testing. There are some quirks that often do not appear in discussions or commentary about mergers but they can have a significant impact. For example, determining the HCEs is after the merger is done on the basis of the controlled group which involves considering how B employees' compensation in the look-back year is determined. If one of the plans uses top-paid group rules, then neither plan can use the top-paid group rules. This is just a sample. Alternatively, A could freeze the B plan and have the B employees participate in the A plan. That leaves A with maintaining 2 plans. Or, A could terminate the B plan and allow B employees to participate in the A plan, and then deal with the successor plan rules applicable to B employees (which is what you wanted to avoid.) One last note, if neither plan is subject to an IQPA, then keeping the plans separate may be less costly administratively than having the A plan become subject to an IQPA.

@metsfan026 you (facetiously) must really be looking forward to dealing with PLESAs (Pension Linked Emergency Savings Accounts). Four features in particular will make administering PLESAs a lot of fun: They are Roth accounts. Participants can withdraw funds at their discretion. The first 4 withdrawals cannot be subject to fees or charges. Participants can replenish the account after taking the withdrawals. This almost makes the plan you are working with seem reasonable.

The predominant investment offering in plans is a menu of funds where each participant is choose the investments for their account. The fee disclosure rules are in the realm of the DOL in Labor Reg 2550.404a-5 and are applicable to plans that offer participant directed accounts. These rules do not apply to a pooled plan where the investment decisions are outside the control of the participant. One of the reasons allowing participants to choose their investments is the relief from some of the fiduciary responsibility for the choice of funds granted by the DOL regulations where plans make all of the disclosures about the various types of fees being paid from the plan. The most compelling reason to give to the plan sponsor of a plan that has a pooled plan account is the fiduciary responsibility associated with managing the trust fund, including the requirement of prudence. The plan fiduciary does not have the protections afforded by the DOL regs nor IRS 404(c). An extended period of poor investment performance relative to the markets could invite participants to challenge the handling of the investment of their accounts, including the expenses charged to the trust. Over the years, I have worked with several pooled plans where, frankly, the plans' investments demonstrably and significantly outperformed the markets. The plan fiduciaries were willing to accept their responsibilities, kept to a routine of due diligence and prudence, and some with the assistance of outside advisers, achieved excellent results for the participants. Your are correct - the decision is on them.

I am not familiar with Massachusetts taxes, but see if this site may be helpful https://www.mass.gov/info-details/wage-contributions-reporting-for-paid-family-and-medical-leave

The correction for a missed deferral opportunity in a plan with automatic enrollment is extremely liberal with plans having up to 9-1/2 months after plan year end to start deferrals before penalties kick in. Without the AE feature, the charity will at best have 3 months to offer enrollment to and start deferrals for eligible employees before some significant corrections are required. If they are not up to the task of managing eligibility and enrollment, the AE feature provides some time for their service providers to keep them out of serious trouble. Just a thought.

Let's not forget that if the employer is not a corporation, any person who owns more than five percent of the capital or profits interest in the employer is considered a more than 5% owner. Technically, for example, a 95%/5% capital interest split wouldn't make both partners key employees, but allocating more than 5% of the profits in a year to the 5% owner would make it work for that year. And while not on topic, let's add to the perks of an owners-only plan that the plan gets to file a Form 5500-EZ.

"Balance-forward" commonly is used to refer to a plan accounting method where historical transactions that occur in an account are summed up to a specific point time - typically up to the beginning of a plan year - or up to the date which provides the basis for an allocation. This technique was used to condense the data needed to be stored and processed which saved computer storage and decreased the amount of computer resources and time it took to perform an allocation. Almost all legacy recordkeeping systems used some form of balance-forward accounting, and several have an annual "roll forward" process for each new plan year. With the drop in the relative cost of storage and increase in computer power, recordkeeping can keep all transaction history available which allows them to easily compute a participant's balance at any point in time. The basis for an allocation is the amount that is used to pro-rate a participant's allocable share of an amount that is being spread across all participants included in the allocation. Employer contribution, interest, dividends, and expenses are typical examples of amounts that are allocated across all participants. The plan document may provide the formula for calculating the allocation basis for each type of transaction. If it does not, then the calculation should be well-documented in the plan accounting documentation. For example, an employer contribution may be allocated over plan compensation. Interest may be allocated over all participants who are in the fund in which the interest was paid. Expenses may be allocated over participants' total account balance. Some plans use only balance-forward method for allocating income. Typically, the investment is in a pooled fund that is valued periodically and the income earned over the period is allocated over the account's basis. Some plans use daily valuation for daily-valued investments, but may also have one or more pooled funds. There is a ton more detail to plan accounting. If your question is related to plans that use only balance-forward accounting, my experience is they are very rare and typically are used in small plans that only have a profit sharing contribution. If your question is related to any plans that use balance-forward accounting, my experience is every plan does at some level for some transactions in some accounts.

It sounds as if the plan fiduciaries no longer want to be bothered with fulfilling their responsibilities. The plan exists, needs to operate in full compliance with all operational, reporting and disclosure requirements until the plan distributes all assets to participants and is properly terminated. I suggest pointing this out to the former partners who as partners shared plan sponsor responsibilities and also pointing this out to any other party that acts or acted as the Plan Administrator. Also consider informing the company for which the investment brokers worked. If a participant has not yet filed a claim, having a participant file a claim will start the clock for requiring the plan to respond. If the plan fiduciaries don't get their act together, then consider getting the DOL involved by having a participant bring the issue to their attention. The DOL likely will follow up with each these individuals to explain what needs to be done and what happens if no one steps up. The DOL may deem this an abandoned plan and bring in an administrator to wrap things up. Some plan documents allow a trustee or a plan participant who is elected by the other plan participants to represent the plan through the close out. Don't make this your problem. If the DOL does not get actively involved, then the remaining participants should consider engaging legal counsel to lead them through the process of retrieving their benefits.

According to the ICI, there is $39,900,000,000,000 - yes, $39.9 trillion - in total retirement assets as of March 2024. This is up almost $28 trillion from $11.6 trillion since the year 2000 (remember Y2K and the prediction of the end of the world as we know it?) With all of that money and its impact on our economy, there is no way that Congress will stop meddling with retirement plans. Our biggest challenge is the rapid pace of new legislation. We have already reached a point where plans are being administered outside the terms of a formally adopted plan document and are relying on administrative intent to amend at a future date. Added to that, Congressional tinkering with funding of regulatory agencies has added to the challenge of implementing legislative changes. Further, with the passage of SECURE 2.0, several long-term practitioners decided that was the last straw and retired. In a way, we suffer from our success. While the challenges continue to mount for us as a profession and as an industry, our efforts are a significant factor to that success. Release Quarterly Retirement Market Data First Quarter 2024.pdf

Subparagraph (I) sets the RMD at age 73 for someone born in 1959, so regardless of what Subparagraph (II) says the person has an RMD due for the 2032 plan year. The conundrum is (II) says that same person turns age 74 in the 2033 plan year so the person has an RMD due for the 2034 plan year. Arguably as written, a person born in 1959 gets to skip an RMD for the 2033 plan year, or a person born in 1959 must have an RMD for the 2033 plan year because RMDs began under (I). Had (II) been written to say it supersedes (I), then there is a skip. If (II) does not supersede (I), then there is no skip. I don't think any of this has to do with Congressional intent other than Congress was looking at ways to balance out the revenue impact of the overall package. They look at a 10-year horizon for their impact analysis which would explain why the change to 75 was set for year 2033 - 10 years after the adoption of SECURE 2.0. Considering the potential impact of the recent decision on Chevron, the IRS should either hope for a clarifying amendment or go with the skip.

FYI, the IRS posted Public Inspection Documents from Internal Revenue Service for final regs and proposed regs. Final regs are effective 60 days after they are posted in the Federal Register, and there is a comment period for the proposed regs that is open for 60 days after posting. For your summer reading enjoyment, the final regs document has 260 pages, while the sequel in the proposed regs is a mere 36 pages. Enjoy!