Paul I

I agree that would seem to make sense, but why bother risking some agent deciding otherwise? If you are preparing the filing using software that supports 8955-SSA filings, the software very likely imports the participant data from a spreadsheet. If should be very easy to copy data from one year to another, and report an employee as an 'A' in one year and a 'D' in a subsequent year.

The short answer is do not try to manually check the 5558 box on Form 5500-SF and expect it to be acknowledged and accepted. The Form has to be submitted electronically on EFAST2. Software vendors build their 5500 programs that create information files in a specific format that is input into the EFAST2 system. While an image copy of the filing may be attached and submitted concurrently with the electronic filing, EFAST2 will only look at the data in the information file it receives and that will show that no 5558 was filed. That likely will trigger a late filing notice and you will spend many, many more hours trying to convince the DOL and IRS that the extension was filed timely while also trying to calm down the client who sees the amount of potential penalties. There are 3 weeks left before the due date. Inform the client of the need to file timely and of the penalties for late filings. Also let them know that signing the form takes very little time on their part. Otherwise, after the you file for the extension and the deadline passes, you will need to send them a new form to sign which basically restarts the signing process. We all have stories about clients who procrastinate. We have a client that kept putting of signing the form so we put them on extension. At 6:30pm on October 15, we tracked them down having dinner at a resort in the Dominican Republic and had them sign the form electronically using their mobile phone. They never were late again. A little bit of education and some persistence pays off in terms of time spent by both you and your client. Hopefully, your client appreciates your work.

The instructions to the Form 5500 include this note: Note. An amended filing must be submitted as a complete replacement of the previously submitted filing. You will need to resubmit the entire form, with all required schedules and attachments, through EFAST2. You cannot submit just the parts of the filing that are being amended. The reason EFAST2 takes this approach is when a form is amended, the existing filing is removed from the system and the amended is added into the system. In the described situation, an amended filing will need to include the audit report for the year being amended. It seems that the auditors need to answer the question whether anything changes in the audit report, if any new audit steps need to be taken in this situation, and if nothing changes in the audit report, that the auditor stands by the original audit report as valid. My bet is the audit report will need to be reissued. Hopefully the audit firm will rely on its previous and only charge a fee for work impacted by the change to a MEP filing.

The triple-stacked match is approach is designed to maximize the match and also keep the SH for the ADP. The caps are designed to limit the amount of the match which is a method to controlling cost. The stated goal is to make some of the match subject to vesting while encouraging greater participation by lower earning employees. At a high level, it seems that the proposed match structure is using approaches that are not designed to achieve the stated goals. In the vernacular, it's like pounding a wooden square peg into a round hole. That being said, if the goal is to fill a round hole with wood, then go for it. You may want to consider other approaches to achieving the stated goals. For example, what is the impact of excluding HCEs from the SHM? What is the outcome of using average benefits testing and a new comparability formula? What is the impact of using or not using top-paid group rules? How many of the HCEs and NHCEs are or are not eligible to make catch-up contributions? Are catch-up contributions eligible for a match? Modeling alternatives using actual census data would provide a clearer picture of the effectiveness of each strategy to achieve the stated goals.

The IRS provided guidance in Notice 2014-35. This was when the Schedule SSA was replaced by Form 8955-SSA and the filing were made through EFAST2, and yes, that was 10 years ago. You will need to file a form for each year that needed to be filed. If the 8955-SSA is late for a year, there is relief from penalties if the 8955-SSA is filed within 30 days after the 5500 under the DFVCP for that year. The late 8955-SSA must be filed on paper and sent to the IRS. On the 8955-SSA, check the special extension box in Part I Box C and enter DFVC for the description. Send the forms, if using mail to: Department of the Treasury Internal Revenue Service Center Ogden, UT 84201-0024 If using a private delivery service, send to: Internal Revenue Submission Processing Center 1973 Rulon White Blvd Ogden, UT 84201

For starters, the vast majority of 401(k) plans are written so that once an employee is eligible to make salary deferrals, then the employee will continue to be able to make salary deferrals. At the end of the day, the plan document governs so you will need to read it carefully to confirm your conclusion. Now let's dive into the deep end of the pool. Plans have three sets of service rules: eligibility, vesting and benefit accrual. While the rules all may talk about hours, computation periods, time periods, breaks in service, rules of parity and such, each set of rules can be different. Further, the applicable rules may be different for each source of contributions (e.g. deferrals, match, profit sharing...) Your question is refers to deferrals and to two of the sets of rules: eligibility and benefit accrual. We assume the employee also has meet any entry date requirements. The employee's having satisfied the eligibility rules in the employee's initial eligibility computation period means the employee is eligible to make deferrals. That eligibility will continue year over year unless the plan has rules that would take away that eligibility. These are the rules of parity and they typically come into play when an employee has when an employee terminates employment and subsequently is rehired. That is not the case here, so the employee remains eligible to make deferrals. A rule that an employee must work 1000 hours to be eligible to receive a contribution is a benefit accrual rule. Typically, benefit accrual rules apply to the match or profit sharing contributions, and do not apply to deferrals. Note, that if the plan has a provision that excludes an employee from based on a classification, the an employee who met the eligibility requirements and was deferring would not be able to defer if the employee's classification changed to an excluded class of employees. An example of this would be a plan that excluded union employees from participation in the plan. If a non-union employee was eligible and deferring in the plan became a union, then that employee would no longer be able to participate. Again, read the plan document, and focus on the rules for eligibility to make deferrals.

@Benefits Plan you commented the employee was improperly excluded from participation. Some additional details would be helpful. When did the employee receive EACA Notice informing them of the terms of the EACA, and notifying them that they were eligible to make deferrals under the plan? What was communicated to the employee about the timing of notifying the plan of an election not to participate, and procedure to opt out? Are there other auto-enrollment features in the plan (e.g. QACA) and, if so, what are they? How much time has passed between the date the employee should have been included and the date it was discovered that the employee was improperly excluded? Is there a match under the plan, and if so what are the provisions related to the match? Plans with automatic enrollment features have some very liberal rules for correcting a missed deferral opportunity that could allow a plan to avoid a QNEC for an MDO up to 9-1/2 months after the close of the plan year in which the employee could have started deferrals. It is possible that there is a path forward that not only satisfies the participant's desire not to have any balance in the plan, and that also could save the employer some of all the cost of the QNEC. Consider the correction methods available under IRS Notice 2024-02 section I. The opening paragraph of this section reads: "Section 350(a) of the SECURE 2.0 Act adds new section 414(cc) to the Code. Section 414(cc) provides that, if certain conditions are satisfied, a plan or arrangement will not fail to be treated as described in section 401(a), 403(b), 408, or 457(b) solely by reason of a corrected reasonable administrative error made (1) in implementing an automatic enrollment or automatic escalation feature with respect to an eligible employee (or an affirmative election made by an eligible employee covered by such a feature), or (2) by failing to afford an eligible employee the opportunity to make an affirmative election because the employee was improperly excluded from the plan (implementation error). " The concept of an "implementation error" should now be considered when addressing MDOs in plans with automatic enrollment.

Personally, I think that any 5500 filing made by 10 1/2 months after plan year end should be exempt from penalties without anyone having to file for an extension. There are no taxes paid with the form and the filing for an extension has no filing actions other than its due date. If a 5500 filing is received after the 10 1/2 months date, then the penalties can be computed using the existing 7 month due date. (This could avoid needing an act of Congress to implement the change.) Bottom line... no extension to file, no form to maintain, eliminate a deadline, save time and cost.

@Mark G if you follow your proposed strategy, and the proceeds from the sale of the old car are less than the price pay for the new car, then the net result of the strategy is a taxable withdrawal from the IRA. For example, assume you have $500,000 in your IRA and take a distribution of $50,000 to buy the new car. You now have $450,000 left in the IRA. You sell the old car for $20,000 and deposit the $20,000 in cash into the IRA within 60 days as a rollover. You now have $470,000 in the IRA and a net taxable distribution of $30,000. Do you happen to be taking Social Security payments and not have other taxable income that triggers paying taxes on the Social Security payments? If so, then the taxable distribution could trigger needing to pay taxes on the Social Security payments. You do not mention what your rate of return is within the IRA. If your rate of return within the IRA (adjusted for your marginal tax rate you would pay on a withdrawal) is greater than the interest rate you will pay on a car loan, then you are better off taking out the car loan and making the payments over time from your IRA distributions. If you or your spouse are still working, you have the option to contribute funds received from the sale of the old car. If you do this, then consider making the contributions to a Roth IRA to keep the contribution and future income from being taxable later (after 5 years) and from being included in the calculation of your required minimum distributions when you reach age 73. There a lot of variables and assumptions that go into comparing the different strategies. There are no guarantees that all of your assumptions will accurate, and some strategies will carry a higher risk of unintentionally creating unwanted tax consequences. If you are adamant about taking the DIY approach, get the best information you can about the price you will pay for the new car, the proceeds you can reasonably expect from the sale of the old car, the likely terms of taking a car loan, any of your and your spouse's expected earnings from employment, a reasonable estimate of the investment performance of your IRA over the next 5 to 7 years, your marginal tax rates, start dates and amounts of any Social Security payments to you and your spouse, and any other factors. Write them all down, and do the math. If you think you are good to go, then ask someone you know and trust or ask a professional who is financially savvy to review your work and help you assess the risks. May you find a clear path forward.

The conversion data had to have included a separate accounting for the Roth contributions (or you have to deal with an even bigger problem.) Ask the client for any plan reports from 4 or 5 plan years ago that show a participant's account balance by source (e.g., individual statements, registers, trial balances, vested balances...) If a Roth account existed as of the beginning of the 4 year ago, then it is reasonable to assume that Roth deferrals were made before then to create a balance in the account and it has been at least 5 years since the start of the plan year in which the first Roth contribution was made. Applying this method to the plan years since then will allow the plan to determine year in which the first Roth contribution was made. Yes, we can come up with some combination of circumstances where this is not perfect, but those circumstances likely will be very rare.

The 5500-EZ is included in the DFVC filing. The DFVC steps for an EZ are, for example: To complete the filing: • Form 5500-EZ - prepared, and signed and dated. • Put the Form 14704 - Transmittal Schedule - Form 5500-EZ on top of the Form5500-EZ. • Attach a check for fees payable to the "United States Treasury". The forms and check should be mailed by first class mail to: Internal Revenue Service 1973 Rulon White Blvd. Ogden, UT 84201 The instructions have a slightly different if the filing is sent by a delivery service. It actually is a very simple process.

Technically, there could be a penalty. If you file the wrong form, it can be treated as if no form was filed. The suggested course of action is to file the correct form ASAP to show the plan did file the correct form. If the filing past its due date, then follow the late-filing procedures. The 5500-SF instructions say: "Plans required to file an annual return/report that are not eligible to file the Form 5500-SF must file a Form 5500, Annual Return/Report of Employee Benefit Plan, with all required schedules and attachments (Form 5500), or Form 5500-EZ, Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan." AND, elsewhere in the instructions: "Do not file a Form 5500-SF for an employee benefit plan that is any of the following: .... 9. A “one-participant plan.” It is worth noting that in the relatively recent past, there have been many instances where the 5500-SF and 5500-EZ filings have been mixed up. When the 5500-SF could be filed on EFAST2 and the 5500-EZ had to be filed on paper, some practitioners were filing one-person plans using the 5500-SF. Then, the box was added on the 5500-SF to indicate that the filing was for a one-person plan so the plan's data would not be made available to the public. When the 5500-EZ was able to be filed using EFAST2, it seemed to have created a brighter line between the two forms, and in the first year when electronic filing was available plans that had used the 5500-SF in the prior year were told to use the 5500-EZ in that first year. Adding to the overall confusion over the years is plans that do not file a 5500-EZ when the assets had been above $250,000 and then they dropped below this threshold. When things got mixed up, some plans received penalty notices and some did not. Among those receiving the notices, all were required to file the correct form. Some were able to argue successfully that filing the wrong form proved the intent of the plan was to file timely and the plan should not be penalized for having a late filing. Bottom line... file the correct form now and avoid anxiety of waiting to see if a letter from the IRS shows up in the mail.

The new company's formation mid-year by itself will be a limiting factor since service and compensation will be earned during the less-than-full calendar year of the new company's existence. This narrows down the question to whether the plan can use full applicable calendar year limits - by defining the first plan year as the calendar year - even though the company and the plan existed for less than the full calendar year. There are other analogous situations that support the notion that this is acceptable. For example, the relatively new rules that allow a company to create a new plan retroactive to the beginning of the prior year (and use the prior year limits for that year) seem to support it. As you noted, adopting a new plan mid-year with a calendar year plan year effective as of January 1st of the year of adoption is common. Similarly, 402(g) limits are always based on calendar years and are not pro-rated. One nice feature about the first plan year for a new plan for a new company is, other than more-than 5% owners, there are no HCEs. Unlike the rules for the first determination date for top-heavy testing, the IRS did not go out of its way to define a special rule to determine HCEs in a new plan based on compensation earned in the company's first year of existence. I take this as an example where the IRS could have created a special rule if it wanted to, but they didn't. Sometimes (or should I say often), when we see a situation where the IRS could have created a rule but didn't, we wonder "Did we miss something?!?"

A plan can exclude employees by classification, and an employee scheduled to work at least 20 hours a week is a classification. The plan will have to pass 410(b) coverage testing. Without getting too technical, there are multiple ways to conduct coverage testing, and most plans start out running the Ratio Test. At the most fundamental level, the plan would need to allow at least 70% of the NHCEs to participate in the match. So, yes, it is possible, and it adds another layer of compliance to test. This is a very high level response, and the details will matter significantly.

From the point of view of recordkeeping, treating the amounts posted in the system as pre-tax and accounting for the correction as if an in-plan Roth rollover occurred is creative and gets the plan accounting close to what should have happened, but consider some of the other potential implications of of this approach. The impact on the personal taxes for each individual could vary significantly. The amount of Roth deferral reported as taxable on a W-2 could increase an individual's marginal tax rate for the year for which the income is reported which would result in the individual overpaying taxes had the error not occurred. The amount of Roth deferral not reported as taxable could decrease and individual's marginal tax rate resulting in a larger amount of unpaid taxes. If a correction happens to involve a plan fiduciary, company executive or HCE and the correction resulted in less taxes than should have been paid, then that individual's correction and the plan would be looked upon unfavorably by the regulators. This could expose the individuals involved and the plan to more serious issues tied to fiduciary responsibility, to nondiscrimination or to tax avoidance. Conceivably, the plan may want to try to characterize the correction as an Eligible Inadvertent Failure. However, the EIF rules generally are designed to encourage self-correction, but they are not designed to allow a plan to make up its own correction method. Given that the IRS has a prescribed correction, it makes sense to follow it. A mistake happened. Own it, follow the rules, fix it, take steps to prevent it from happening again, and know steps were taken to protect the plan and the individual's involved.

The IRS addresses how to handle the situation here: https://www.irs.gov/retirement-plans/fixing-common-mistakes-correcting-a-roth-contribution-failure Note that the plan may be able self-correct if the situation can be considered insignificant. Since it was the company's mistake, they should make keep the participants whole. This may include covering any penalties and interest that may be assessed. Willfully Ignoring the problem is a bad idea.

If the service provider follows the procedures in the FAQ33a (see @C. B. Zeller's post above) and the service provider electronically signs the filing, the FAQ says "Under the e-signature option, the name of the service provider who affixed their own electronic signer credentials will not appear as the “plan administrator,” “plan sponsor,” or ”DFE” in the signature area on the image of the form that DOL posts online for public disclosure. The name will also not be disclosed as the electronic signer in publicly posted Form 5500 datasets or the public EFAST2 Filing Search application." Further, the FAQ says: "The IFILE application includes a statement for service providers that use this electronic signature option. The statement says that, by signing the electronic filing, the service provider is attesting that: • the plan administrator/sponsor/DFE has authorized the service provider in writing to electronically submit the return/report; • the service provider will keep a copy of the written authorization in their records; • in addition to any other required schedules or attachments, the electronic filing includes a true and correct PDF copy of the completed Form 5500 (without schedules or attachments), Form 5500-SF, or Form 5500-EZ return/report bearing the manual signature of the plan administrator, employer/plan sponsor, or DFE, under penalty of perjury; • the service provider advised the plan administrator, employer/plan sponsor, or DFE that, by selecting this electronic signature option, the image of the plan administrator’s, employer/plan sponsor’s, or DFE’s manual signature will be included with the rest of the return/report that the DOL posts online for public disclosure; and • the service provider will communicate to the plan administrator, plan sponsor/employer, or DFE signees any inquiries and information received from EFAST2, DOL, IRS, or PBGC regarding the return/report." The short version of all of this is the service provider should keep everything for each year. The written authorization does not say explicitly that it must be provided each year. Having a standing election runs the risk of it not being updated when the individuals involved change. The requirement to attach a "true and correct PDF copy" of the completed form "bearing the manual signature of the plan administrator" will be unique for each year. Getting the authorization concurrently with the manually signed form seems to be a best practice. To answer @Peter Gulia's question, this process is designed to require proof the plan administrator retains the responsibility to review and approve the filing, and that proof must be attached to the filing.

Each plan can set its own rules about what is or is not acceptable documentation for a hardship withdrawal. I suggest that you direct your question to your plan's Plan Administrator. The contact information for the Plan Administrator should be in your Summary Plan Description (SPD). If you don't have or cannot easily find your SPD, you may start with asking your Human Resources or Benefits Departments. If the plan has a web site, the contact information (and a copy of the SPD) may be readily available. Some plans do not require formal documentation and allow a participant to self-certify the need for a hardship. These are relatively new rules which some companies have decided to use, but the plan documents and the SPD have not yet been updated to communicate this change. When you reach a contact, you may want to ask if the plan now permits self-certification. It is worth asking to save time having to jump through hoops trying to gather paperwork.

I agree that this plan design is permissible. The safe harbor rules do not impact and are not impacted by the normal retirement date. If the State has a requirement that the employer must maintain a retirement or acceptable alternative, this plan design is a retirement plan. While we are at it, why not add auto-enrollment and auto-escalation and no EACA withdrawals? You also could add in rollover in and keep those to NRD. Over time, the plan proportion of terminated vested participants very likely will accumulate to be greater than the proportion of active participants. The plan will have the burden of providing all of the required disclosure to these terminated participants (SH notice, SPD, SAR, QDIA notice, 404(a)(5) notice...). The accumulation of participants with account balances very likely will push the count of participants with account balances beyond the threshold for requiring an audit (keeping in mind that the deferrals and safe harbor are both 100% vested). There likely will still be payments other than retirement benefits for QDROs and death benefits. Autoportability is off the table since it now pretty much relies on the benefits being distributable. If the plan is going to hold the account balances until NRD, then it should at least allow for the contributions to be made as Roth contributions. I expect that our BenefitsLink colleagues who have read this far are cringing at the thought of such a plan.

I suggest you hire a tax accountant who is well-versed in 1031 exchanges to work with you. Your frustration is not surprising. These exchanges have many, many rules upon rules and each rule seems to have several exceptions. Someone who has expertise and experience will ask about all of the facts and details about the farm, the sale, the S-corp, your goals, your siblings' goals and more. With that information in hand, they can lay out a path forward and explain in detail to you and all other stakeholders before taking any steps. Typically retirement plans and IRAs are not involved in these exchanges because distributions from these vehicles are subject to ordinary income taxes (unless Roth amounts are involved on which ordinary income taxes were already paid). May you treasure the heritage of a 200+ year old family farm, and good luck to you and all of the siblings!

Keep in mind that in-service withdrawals, including hardship withdrawals, are not required to be permitted in the plan document. You are going to have to look at the plan provisions to see what is or is not permissible for this employer's plan. Most likely, you will not find a restriction in the plan that in-service withdrawals are not available to participants with outstanding loans. Until recently, the hardship withdrawal rules required a participant to take a loan before taking a hardship withdrawal (assuming loans were available under the plan and the taking of the loan itself was not causing additional hardship). While no directly relevant to this situation, it does illustrate that taking an in-service type withdrawal while having a loan was and is permissible. The amount of a loan @Bill Presson notes is based on vested amount in the participant's accounts available at the time the loan is taken. There is a strategy with taking a loan first and then taking an in-service withdrawal. It maximizes the amount available when the loan is taken and the loan is a not distributable event, does not incur potential early withdrawal penalties, and does allow for the opportunity to repay the loan. The amount of the subsequent in-service withdrawal was less and hence the adverse consequences of an in-service withdrawal were less.

I suggest that you try to pose this question to the plan's original document provider. They are the most knowledgeable about what they provided and how they addressed all of the LRMs for each year in question. For example (and not a suggested course of action), they may have provided a termination amendment for the PPA document that would have added all of the required provisions needed should the plan have terminated before the Cycle 3 document was needed. If the plan's original document provider is uncooperative, you may want to pose this question to you current document provider to get similar input. Some document providers will sort this out for a plan but they may charge a consulting fee.

@david rigby this link may take you down memory lane:

With Roth accounts in 401(k) plans not being subject to the RMD rules, some people without other taxable income other than Social Security are looking to reduce prospective current year income below the threshold that triggers taxation of their Social Security benefits. Add in the potential exemption of earnings from taxable income from the Roth accounts, this may be an attractive option for someone who is betting on living longer than their average life expectancy. There also are individuals who see the sun setting in 2025 on the Tax Cuts and Jobs Act provisions and they are anticipating a hike in their personal rates.

The IRS has said in conferences that they believe letting having the employer receive funds from the plan and then writing the check for a distribution is unacceptable. That being said, some employers have done it although the rationalization on its acceptability is a bit murky. There was a temporary regulation that implied this was permissible. See Q&A 16 in https://www.ecfr.gov/current/title-26/section-35.3405-1T (which was "reserved" when the regulation became final). Some practitioners felt this Q&A made it acceptable for the employer to be involved with making both the distribution, while others felt that this Q&A made it acceptable only for the employer to submit the tax withholding. Some practitioners took the stance on the question of whether there was a prohibited transaction is it would not be if and only if the employer did not benefit from having had the funds pass through an employer's account. Those who took that stance cautioned employers to hold the cash for the least amount time it took to issue the distribution, and to not put the funds in an account that earned interest. Treasury 31.3495(c)-1 Withholding on eligible rollover distributions; questions and answers Q&A 5 answers: Q-5: May the plan administrator shift the withholding responsibility to the payor and, if so, how? A-5: Yes. The plan administrator may shift the withholding responsibility to the payor by following the procedures set forth in § 35.3405-1, Q&A E-2 through E-5 of this chapter (relating to elective withholding on pensions, annuities and certain other deferred income) with appropriate adjustments, including the plan administrator's identification of amounts that constitute required minimum distributions. Prudence says do not involve the employer in writing distribution checks. Should circumstances result in the employer receiving and depositing a check in an employer's account, then the employer should as quickly as possible write the check to the participant or to the trustee/custodian who routinely issues distribution checks, and the employer should document all of the circumstances, the actions taken to have the distribution issued, and if needed, any steps taken to give up any interest earned on the amount while in the funds were in the employer's account.