Paul I

Take a look at the rules for correcting missed deferral opportunities for plans with auto-enrollment. They are very generous for the plan, and the IRS admitted the leniency was because the IRS like auto-enrollment. There also is a three-month rule which can reduce the cost of a corrective action. Do keep in mind that if there is a match involved, the missed match plus earnings are more likely to be required. Take care in pointing fingers at any one particular party, and do so only after carefully reading not only the plan documents but also each service agreement with each service provider. Ultimately the responsibility and accountability for the proper operation of the plan falls on the shoulders of the plan fiduciaries. Also document a timeline of events of what should have happened and what did happen, and note any causes of delays. This is invaluable should the plan fiduciaries attempt to recoup anything from any of the service providers. As some have noted above, deferrals are a payroll function which may not have been under the control of the Custodian, and if the Custodian was not in a position to accept the deferrals, there were alternatives available until Custodian fixed its problems. Stick to the facts, take advantage of the breaks available to auto-enrolled plans, and work with the service providers to right the ship.

Interestingly, the cite says "the Participant may elect to begin distribution of his/her Vested Interest as follows: (1) from his/her ESOP Account no later than the end of the sixth Plan Year follow the Plan Year of the separation from service" If there is a 6-year delay, one would expect this to read no earlier than.

The first steps your husband should take is to ask the plan administrator for information about taking a distribution from the plan. The plan administrator's contact information including the phone number appears on page 20. The name of the company that does the plan accounting also appears on that page. I expect either contact will be able to answer your questions and provide detailed instructions on how your husband can request any benefits due to him. Most plan administrators are very helpful. If, for any reason this is not the case, then your husband can follow the steps for filing a claim. The procedures for filing a claim begin on page 15. May everything work as it should and your husband timely receives the benefits due to him under the terms of the plan provisions.

If the plan is going to attempt to argue that there was no intention to change to elapsed time when the restatement was made, then the plan likely will need additional documentation beyond the prior documents and administrative practices have always had an hours requirement. For example: Have all communications to participants about the plan amendment referred to the hours requirement? Look at the language in the SPD or Summary of Material Modifications, emails or memos to participants describing the restated document, and description of plan provisions on a plan website. Also look at any summary of plan features in required notices that may have been sent to participants such as Automatic Enrollment Notices, Safe Harbor Notices, QDIA Notices or 404(a)(5) disclosures. Is there written documentation any discussion of a change to elapsed time in Board meetings, Plan Committee meetings, exchanges of information with the recordkeeper, payroll or plan's legal counsel about changing the eligibility requirement? If there is none, then a total absence of any discussion of such a change also can be an important point supporting the position that no change was intended. Assuming that this information supports the position than there was not intention to change to elapsed time, the plan may consider providing the information to and engaging with the auditor. If you are new to the business and find this situation pretty intimidating, you should tell others who are involved with the plan who have experience with these situations, and those who can speak for the plan. The auditor will communicate directly with the plan administrator, and it is possible that the plan administrator also is feeling intimidated. Given the potential stakes, consider a recommendation to involve an ERISA counsel, ERPA or experienced plan consultant to provide input and guidance.

Are Joe and Mary willing to help each other out as each of them moves forward? If yes, would they consider structuring an amicable parting of ways where Joe effectively is continuing the existing business as a PLLC and Mary is spinning off her practice?

Generally, a loan from a DB plan treated as an investment of trust assets and is subject to all of the due diligence needed to assure that the loan is an appropriate investment to be held by a qualified plan. Company A fiduciaries would bear the responsibility of making an assessment that this is an arms-length transaction unaffected by Bob's status as a co-owner of business B, that the loan itself is a sound investment. It doesn't sound like Bob is a participant in the DB, so one would expect that a loan to Bob would be backed by sufficient collateral to cover the loan in the event of default. Unlike a participant loan from a defined contribution plan, there is no vested account balance available to support the loan. If Bob has the collateral to back up loan, it begs the question why the Bob cannot get a loan from sources unrelated to the plan. A loan from an unrelated source would keep the DB plan cleanly out of equation. To add a twist to a proverbial saying, neither lender borrower be; for loan oft loses both itself and co-owner.

The scheme is intended to allow the individual to maintain the 401(k) plan and take advantage of the higher levels of contributions. The simplest approach is to make the IRA rollovers out of the existing plan. Next, adopt a prototype plan owner-only plan and set up a bank account in the name of the trustee of the plan. She can deposit her contributions into the account and then make the rollovers into the respective IRAs. She can keep a very small amount in the bank account and will not have to file a Form 5500-EZ. Further, with the bank account there likely will be no income to have to worry about any separate accounting between the deferrals and the NEC. She will need to prepare two 1099Rs each year for the rollovers to the IRAs. As rollovers, there will be no tax withholding to deal with. None of this is technically challenging. If she feels it is still a hassle, there are local TPAs or CPAs that can do this for a small fee.

With the proliferation of new "qualified" distributions that are exempt from the 10% early withdrawal penalties, hardship withdrawals may in the not-too-distant future become dinosaurs. Unfortunately, it seems like each of the new "qualified" distributions has some quirk that needs to be tracked separately in case the participant repays the withdrawal.

Setting self-certification aside, again many of the plan administrators we have worked with havew also required proof of the threat of eviction. They likely would not see the threat of foreclosure against the owner of the property as proof of a threat of eviction. The foreclosure more likely would be viewed as a change in ownership of the property. There many different twists to the scenario that may change likelihood of eviction, but the administrators would focus specifically on the threat of eviction of the participant. If, for example, a bank foreclosed on the property, the bank may want to keep tenants who pay on time so be able to sell the property as a solid income-producing business. The bank more likely would just not renew the lease, and that technically may not be seen as an eviction, but the cost of moving may be considered to justify a hardship withdrawal. Are there statistics that show the what happens to existing tenants in the event of foreclosure on the building owner? If yes, do they support the notion that upon the foreclosure, the tenants are exposed to a near-term threat of eviction?

Many of the plan administrators we have worked with also required proof of the threat of eviction. This usually was in the form of a written notice from the landlord or bank explaining that they would act to have the tenant evicted unless the issues (typically delinquent payments) were resolved. Fast forward to today's ability to rely on the participant's self-certification, and plan administrators' reluctance to press for information to corroborate the participant's request.

Don't forget pay estimated taxes on all of that interest! 🤣

Let's start with generally the employee's termination date is the last day of active employment. Generally, because things like weekends, holidays, vacations, PTO and leaves of absence where employee does not perform any hours of service can complicate matters. Similarly, payroll practices such as salaried, hourly, and per diem among others also can complicate matters. Without going into all of the details for each situation, the employer and the plan need to have a policy on how each of these things will be applied in determining an employee's termination date, and that policy should be applied in a uniform and consistent manner.

If there is a glimmer of hope, it may well spring from SECURE 2.0 section 317: SEC. 317. RETROACTIVE FIRST YEAR ELECTIVE DEFERRALS FOR SOLE PROPRIETORS. (a) IN GENERAL.—Section 401(b)(2) is amended by adding at the end the following: ‘‘In the case of an individual who own the entire interest in an unincorporated trade or business, and who is the only employee of such trade or business, any elective deferrals (as defined in section 402(g)(3)) under a qualified cash or deferred arrangement to which the preceding sentence applies, which are made by such individual before the time for filing the return of such individual for the taxable year (determined without regard to any extensions) ending after or with the end of the plan’s first plan year, shall be treated as having been made before the end of such first plan year.’’. The logic would be if an owner who sets up a retroactive one-person plan can wait until they file their tax return to decide and fund the amount of deferral, why can't any other owner wait until their net earnings from self-employment is known to decide and fund the amount of deferral?

There are no edits that compare Schedule C to Schedule H information.

The lawinsider.com dictionary defines insurance services as "any renewal, discontinuance or replacement of any insurance or reinsurance by, or handling self-insurance programs, insurance claims or other insurance administrative functions." You will see the term used in the Schedule A instructions. The Schedule C instructions include a service/compensation code 23 for reporting insurance services. The Schedule A instructions do seem to acknowledge that there is not a clear delineation between insurance and insurance services reported for some insurance products, including insurance products used as funding vehicles. I suggest using your best judgement on what and where to report expenses based on the documentation provided by the insurer.

The intent of the regulation is to remove discretion after plan year end on the amount of the deferral, so having the self-employed specify a dollar amount or percentage of compensation parallels what a common law employee can do during the plan year. You will find Slide 2 from this somewhat-aged and somewhat-amusing IRS presentation: https://www.irs.gov/pub/irs-tege/forum08_401k.pdf Several phrases come to mind: let sleeping dogs lie don't trouble trouble til trouble troubles you don't poke the bear tis a puzzlement

It would be helpful to more about the plan design, the communications the employee received, and any documentation about when the employee became aware that deferrals were not being taken. From the perspective of the employer, generally the employer is on the hook for a correction if there was a missed deferral opportunity or a failure to implement deferrals after an employee elected to start deferrals (or should have been auto-enrolled). A missed deferral opportunity would be where the employee was eligible to defer but her eligibility to defer was not communicated to her. The failure to implement would be where the employee notified the employer that she wanted deferrals to begin and the employer did not implement her instructions. In each case, the employer will have an obligation to take the required corrective actions. The corrective actions will depend upon the facts of the situation and the type of mistake, and the employer should not take any corrective actions that are not among the actions prescribed in regulations. If the employee properly was informed she was eligible and did not make an election, and if the employee did not notify the employer that she made an election (or should have started auto-enrolled deferrals), then the employer does not have obligation to make her "whole in some way". There are not prescribed corrections for an employee who would-a, could-a, should-a make an election and did not tell anyone. The employee is accountable for the consequences of the employee's irresponsibility and inaction. Arguably, if the employer puts money into the plan to "make her whole in some way" and the employer was not at fault, then the employer potentially is making an impermissible contribution to the plan. This possibly could result in adverse consequences for the plan or the employer. Short version of all of this is if the employer failed to do something, follow the required corrective actions. If the employer did not fail to do something, do not involve the plan in any plan to "keep the employee whole."

Since you note that the plan does not use the rule of parity and does not use the one year hold out rule, it seems you have read the plan document correctly and the individual is eligible to participate upon rehire. Is there other language in the plan document that is causing some confusion? If you have read the plan document correctly, you won't find an explicit statement in the plan document that says otherwise. If you are uncomfortable with your reading of the plan document and have a colleague that is knowledgeable about plans and eligibility rules, ask them if you can give them a copy of the plan document to get their input on how it applies to this individual's circumstances.

Sending the check is the cleanest way to correct it as long as the all of the plan accounting regarding the loan and the correction are consistent. It isolates the correction to the original loan. Note that if there is not full documentation of why, when and what happened, then the plan accounting could make the extra money in the participant's account look like an overpayment, or an invalid contribution, or some form of a permissible or impermissible plan distribution, or excessive income, or other anomalies. Applying the overpayment to the new loan is tempting, but still requires full documentation of the plan accounting that would involve both the old and new loans.

In a controlled group, moving from one employer to another within the group is not a distributable event from either employer's plan. Transferring an account from one plan to another will require each plan to have provisions to allow the transfer out and to accept the transfer in as a trust-to-trust transfer. This may not be a great idea if there are differences between the protected benefits in the two plans

@CuseFan thanks, I updated the post so it will not mislead anyone.

For clarity, the individual must be fully vested upon attainment of normal retirement age, but it is possible for the plan to define normal retirement age as the later of attainment of an age not later than age 65 (i.e., it could be younger) or the passage of up to 5 years from the employee's commencement of participation in the plan [1.411(a)(7)(b)]. Note that this is NOT an accumulation of either eligibility or vesting years of service, but rather is the passage of time from the commencement of participation. If you want to see this in simpler language from the IRS, click here: https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits @Coleboy1, check the plan's definition of normal retirement age to see if there is a time component.

The count of participants with an account balance as of the beginning of the plan year in a defined contribution plan is used solely for determining if an IQPA is required. The count of participants as of the beginning of the plan year (e.g., Line 5 on the 5500 or 5a on the SF) is used for all other purposes that rely on a beginning of year count.

I take it you are asking about responding Schedule R, Part I, Line 3 - Number of participants (living or deceased) whose benefits were distributed in a single sum, during the plan year. The instructions say: Line 3. Enter the number of living or deceased participants whose benefits under the plan were distributed during the plan year in the form of a single-sum distribution. For this purpose, a distribution of a participant’s benefits will not fail to be a single-sum distribution merely because, after the date of the distribution, the plan makes a supplemental distribution as a result of earnings or other adjustments made after the date of the single-sum distribution. Note that the language does not limit the time period to the plan year being reported for when the supplemental distribution is made . Based on the instructions, the short answer is Yes. If you like to pursue a nuanced rationalizations and get to a No response, then - particularly if the plan uses full accrual accounting for its financials - the argument would be the distribution was not a single-sum distribution of "benefits under the plan". Then, to be consistent, you would include these individuals in the end of year count on Form 5500 Part II, Line 6(g)(2) as well as on any other relevant lines in Part II, Line 6. I am not aware of any edit criteria for this line item. I do have a bias towards keeping it simple.

The participant count is reported on the Form 5500 as of the end of the final plan year. As you noted, this must be zero for the 5500 to be a final filing. Similarly, the ending assets reported for the final plan year must be zero. On the Schedule A, Part I(e) asks for the Approximate number of persons covered at the end of policy or contract year. The end of the policy or contract year is reported in box (g), and this can be different than the plan year end date reported on the Form 5500. One would expect, though, that the policy or contract would have been terminated as part of the distribution of all assets from the plan, and that there would be a policy or contract termination date on which the number of persons covered is zero on or before the 5500 plan year end date. It is worth noting that the Schedule A instructions say: Line 1(e). Since plan coverage may fluctuate during the year, the administrator should estimate the number of persons that were covered by the contract at the end of the policy or contract year. Where contracts covering individual employees are grouped, compute entries as of the end of the plan year. Under this instruction, if there is no one covered by the policy or contract as of the final 5500 plan year end date, the estimate of the number of persons that were covered is zero. To my knowledge, there is no edit check between the count on the 5500 and the number reported on Schedule A, Part I(e). Be sure to report information in a way that is internally consistent. For example, consider filing separate Schedules - one for the normal policy year and one for the final policy year. A word of caution - be absolutely certain that all of the assets in the plan were fully distributed on or before the final 5500 plan year end date.