Paul I

Short answer: No. The timing requirements for Form M-1 differ from the timing requirements for the 5500, and each form has its own online filing system. See https://www.dol.gov/sites/dolgov/files/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/forms/m1-filing-tips.pdf

Remember to check the plan document to make sure the plan does not use the Top Paid Group election to determine the HCEs.

It is fair to recognize that for excess deferrals that are not a 401(a)(30) violation (i.e. the excess is not known to the plan), the participant has the responsibility to report the excess and to choose how much of the excess is in each of the plans. It the participant does not provide this information, neither plan will know about the excess and each plan will not be able to account for the amount of the excess. Each plan doesn't know what the plan doesn't know. If the participant does inform a plan that it holds an excess deferral, then that plan's recordkeeper should ask for information about the amount of the excess and the type of deferral (pre-tax or Roth) that is in that plan. Then recordkeeper should properly account for the excess going forward. Note that the reg says "For this purpose, if a designated Roth account includes any excess deferrals, any distributions from the account are treated as attributable to those excess deferrals until the total amount distributed from the designated Roth account equals the total of such deferrals and attributable income." If there is no separate accounting, then the first dollars out are a refund of the excess plus earnings and are not eligible for rollover. (This is similar to what is done for RMDs.) As evidence that @Lou S.'s odds on how this is reported are fairly accurate, I observe that I have never seen a conversion data request that asks for the amount of excess deferrals that are in a participant's account.

See Reg. 1.402(g)-1(e)(8)(iv): "(iv) Distributions of excess deferrals from a designated Roth account. The rules of paragraph (e)(8)(iii) of this section generally apply to distributions of excess deferrals that are designated Roth contributions and the attributable income. Thus, if a designated Roth account described in section 402A includes any excess deferrals, any distribution of amounts attributable to those excess deferrals are includible in gross income (without adjustment for any return of investment in the contract under section 72(e)(8)). In addition, such distributions cannot be qualified distributions described in section 402A(d)(2) and are not eligible rollover distributions within the meaning of section 402(c)(4). For this purpose, if a designated Roth account includes any excess deferrals, any distributions from the account are treated as attributable to those excess deferrals until the total amount distributed from the designated Roth account equals the total of such deferrals and attributable income." Short version as I understand it: Excess Roth deferrals and related income are taxable and cannot be rolled over. Shorter version: less like a loophole, more like a snare.

The attached article published in January 2023 notes that IRS Code section 6511 "prevents a refund from being provided after the limitations period, which is generally 3 years. Thus, there is not a mechanism that allows someone who took a QBAD to recontribute the distribution more than 3 years later and amend their return to receive a refund for taxes paid in the year of the withdrawal." A copy of the full article is attached and the QBAD comment appears on page 2. (It has a couple of other interesting, unrelated nuggets.) Keating Muething & Klekamp PLL WHAT EMPLOYERS NEED TO KNOW ABOUT SECURE 2.0.pdf

That's pretty much it at a high level. I suggest visiting the DOL site https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs The DOL provides a comprehensive checklist that will help make sure all the details are covered https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/vfcp/checklist

Whether or not it is good or bad to allow another loan to a participant who previously defaulted on a loan but has fully repaid the defaulted loan will be colored by the circumstances. The fact that a participant's loan goes into default may or may not be an indication that the participant is financially irresponsible or is a poor credit risk. We have seen examples where loan repayments are required to be made from payroll deductions and - for reasons beyond the control of the participant (e.g., layoff, LOA, medical leave) - the participant is not receiving a paycheck for several months. Even if the participant could could afford to make loan repayments by writing checks to the plan, non-payroll-based repayments are not allowed and loan goes into default. We have seen examples of payroll errors that led to loans going into default for reasons beyond the control of the participant such as: The payroll provider changes or the payroll system is upgraded and the loan repayments are not properly set up for a participant. By the time the issue is fixed, the loan is defaulted. Payroll takes loan repayments from the participant's paycheck but does not report the loan repayments on the data feed to the recordkeeper who then defaults the loan. We have seen examples where the recordkeeper was partly complicit in the default such as: The recordkeeper did not recognize loan repayments made by the participant because the participant ID in the recordkeeping system does not match the loan repayments reported on the payroll data file, and the loan is defaulted. While not applicable here, the participant had multiple loans and the recordkeeper applied loan repayments in a way that looked as if one loan had an outstanding balance with no repayments being made, and another loan was being paid off prematurely, and the one loan was defaulted. In the above circumstances it seems that the plan should not have defaulted the loan and the service providers should have worked with the plan to reverse the default, but the service providers flatly refused. This obviously is a service provider relationship issue, but the participant was still saddled with a defaulted loan. On the other hand, we have seen examples of participants who go to great lengths to attempt to manipulate a one-loan limit when the participant already has an outstanding loan. (An old trick was to take an available eligible rollover distribution, payoff the loan, take out a new loan and then rollover the distribution.) And then there is the financially irresponsible participant who takes out a loan that they cannot repay. For the plan in question, the fact that the participant repaid the defaulted loan is in part an indication of some level of financial responsibility. It seems punitive that this participant will never be able to take another loan from the plan for the remainder of their employment with the plan sponsor. The easy solution would be for the plan sponsor to have the option to review the facts and circumstances for the participant who repaid the defaulted loan and then either approve or disapprove a new loan. This particular plan sponsor seems reluctant to make any such determination. A possible compromise may be for the loan policy to allow a new loan after the passage of a fixed time period (e.g. a year or two) following the date of repayment of the defaulted loan.

@Lou S. has laid out what likely is the best path forward - terminate the plan effective 12/31/2024. Very likely there will be some assets still in the plan after that date which will require a 2025 5500 filing, but that should be easier than juggling all of the other issues that would come up with a mid-year termination. Make sure to dig into the details when navigating this situation. For example, here are some random thoughts: The client is a partnership of corporations, and the other owners do not participate in the plan. Do the other corporations have employees? You need to confirm that there are no (and never have been any) coverage issues. Is the plan top heavy? If yes, letting the plan run to 12/31 may provide a pass on making a top heavy minimum, and keep in mind that the top heavy contribution is subject to a last day rule. If everyone is terminated by 12/31, that should not be an issue. Why Is part of there a concern about hiring some people back? Is the owner thinking he doesn't want to give the rehires the SHNEC? If the rehires are HCEs, their status as HCEs will not change during this plan year. If there are rehires, will the plan continue possibly into next year? If so, then it is possible many of the rehires will not be HCEs next year if they are out of work for a significant part of this year. It sounds as if the owner is overthinking every detail, including wanting definitive answers to situations based on not-yet-known facts. Keeping it simple likely will be the best approach, and in the end, least expensive one.

It sounds like you answered your own question. If there are other assets available (with Nationwide) to cover the RMD, then take the RMD from there. That leaves the remainder of the year to rollover the LP. Once the LP is in an IRA, he can use funds in any of the other IRAs (assuming he has some other IRAs) to cover the RMD due based on the collective balances in all of his IRAs (including the one with the LP). This could be motivation to make the move.

Section 315 of SECURE 2.0 addressed two issues related to family attribution. The first was to disregard state community property laws when determining ownership for plan purposes. The second was to modify the rules for attribution between parent and minor child where each parent owns a business that is separate and unrelated to the other parent. It seems like these rules do not affect this situation. Before setting up any retirement plans for any of the businesses, seek competent advice and counsel. Dad's and Second Son's businesses already appear to be related entities.

Look at EPCRS Appendix A section .05(2)(g): "(g) The methods for correcting the failures described in this section .05(2) do not apply until after the correction of other qualification failures. Thus, for example, if, in addition to the failure of excluding an eligible employee, the plan also failed the ADP or ACP test, the correction methods described in section .05(2)(b) through (f) cannot be used until after correction of the ADP or ACP test failures. For purposes of this section .05(2), in order to determine whether the plan passed the ADP or ACP test, the plan may rely on a test performed with respect to those eligible employees who were provided with the opportunity to make elective deferrals or after-tax employee contributions and receive an allocation of employer matching contributions, in accordance with the terms of the plan, and may disregard the employees who were improperly excluded." To distill this down, the plan needed to pass the ACP test for the 2021 plan year without including the excluded employees. If this ACP test failed, the plan would take corrective action to cure the test failure. The plan would then calculate the corrective contributions due to the excluded employees using the contribution rates that were needed to to get a passing result for the original ACP test. If the original ACP test did not fail, just make the contribution corrections. To answer the question assuming the above section applies, no, do not re-run the ACP test using the new matching contribution data.

I suggest considering what explanation you would present to the IRS to support a VCP filing, and gathering any supporting documentation. You will then be in a better position to assess whether the story is plausible. Sometimes the IRS surprises us when they look at communications to employees, minutes of board meetings, correspondence with service providers, participant elections and other similar documentation of an operating plan, and then they conclude that a plan actually existed. The conclusion is based on well-documented intent and actions that indicate everyone - plan sponsor, employees, service providers - all believed that the plan was formally established. A no-harm-no-foul situation seems like a likely candidate for this outcome, but ultimately that is not our decision. Random thought: This situation looks like an operational failure when viewed from the perspective of the plan adopted by Employer A. It was the Employer A plan that allowed Employer B employees to participate. If you have a good story to tell but would like the assurance of a VCP, you may want to consider at VCP Pre-submission Conference. Anecdotally, plans that have used the process have reported that having a discussion with the IRS beforehand provided an opportunity for open dialog with then led to a quick conclusion of the VCP.

You may find Q&A 7 helpful in this IRS Q&A https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers As I read it, you repay the amount to the plan and then file amended tax returns for each year in which you received a payment to claim a refund of taxes you paid on the distribution in each year. In effect, you are reversing the payments out of each year's tax return. It would make sense to have the repayment flow back to it's original source. Of course there is no mention of what to do about state taxes. FYI, Q&A 7 in particular reads: Q7. May I repay a coronavirus-related distribution? A7. In general, yes, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution. If, for example, you receive a coronavirus-related distribution in 2020, you choose to include the distribution amount in income over a 3-year period (2020, 2021, and 2022), and you choose to repay the full amount to an eligible retirement plan in 2022, you may file amended federal income tax returns for 2020 and 2021 to claim a refund of the tax attributable to the amount of the distribution that you included in income for those years, and you will not be required to include any amount in income in 2022. See sections 4.D, 4.E, and 4.F of Notice 2005-92 for additional examples.

In the world of defined contribution plans, the aspirational standard is perfection. In the real world, stuff happens and mistakes happens. The abundance of rules dedicated to correcting mistakes is a testament to our imperfection. The guiding principle behind the rules in general and EPCRS in particular is to do no harm. The plan sponsor has the ultimate responsibility to choose the correction method that will keep whole all of the other participants. If the plan sponsor is okay with the chosen correction mehtod, so be it. As a further testament to our imperfection, TPA's almost universally have errors and omissions insurance coverage. The plan sponsor separately can decide if they wish to pursue reimbursement from the TPA. By noting that stuff does happen, I am not an apologist for less than perfect services. What is important is how the TPA works in good faith with the plan sponsor to make the correction, and also what a TPA does to prevent the same stuff from happening again to any client.

Take a look at Notice 2023-43 and see if this can be considered an Eligible Inadvertent Failure under the Self Correction Program. If there is no whiff of discrimination and if there were established policies and procedures in place and this one slipped through, then that may be good enough. Having the plan sponsor make a corrective amendment that allows this particular individual to come in early could be included in the SCP documentation if the plan sponsor wants to cover themself formally.

The tax withholding would have been reported on the Form 945. If this was within the last 3 years, then consider filing a Form 945-X. You can find the instructions here: https://www.irs.gov/pub/irs-pdf/i843.pdf

Each covered service provider is responsible for disclosing to the plan sponsor of any fees it receives from any source other than from the plan sponsor. If the broker account provider is receiving payments from the participants' accounts or from investments held in the participants' accounts, then the broker account provider is responsible for disclosing all such fees to the plan sponsor. If all of your fees are paid by the plan sponsor, then you have nothing to disclose. https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/final-regulation-service-provider-disclosures-under-408b2.pdf

The follow Q&A on this topic is from the American Bar Association Section of Taxation - May Meeting in 2004. Basically, whether the forfeiture buy-back creates basis can depend on the source of funds that were used for the buy-back. 36. Sec.411(a)(7)(C)-Buy-back of Cash out Distribution Section 411(a)(7)(C) provides that the accrued benefit of an employee that is disregarded by the plan must be restored upon repayment to the plan by the employee of the full amount of the distribution. Employee A participated in Employer's qualified defined benefit pension plan, terminated employment, received a lump sum distribution of the present value of his normal retirement benefit and rolled over his lump sum distribution from the plan into an IRA. The lump sum distribution did not include the value of any early retirement subsidies. Employee A was rehired by Employer and would like to repay the Employer's defined benefit plan the full amount of the distribution with pre-tax IRA funds. The repayment will be part of the Employer's defined benefit pension plan trust and will not be segregated in a separate account in the name of Employee A. May the Employer's defined benefit pension plan accept pre-tax funds from Employee A's IRA as repayment and include the repayment as part the trust's general assets? Does the answer vary if the amounts in the IRA are not funds from a tax-qualified plan distribution? Is the repayment from Employee A's IRA to the Employer's tax-qualified defined benefit plan a taxable event to Employee A? Proposed Response: Employer's defined benefit pension plan may accept the pre-tax funds from Employee A's IRA as repayment of the prior distribution and include such amounts as part of the trust fund's assets. The repayment provisions of Sec.411(a)(7)(C) and Treas. Reg. 1.411(a)-7(d) do not state that only after-tax funds may be used to repay a pension plan and does not require that the repaid amounts be specifically set aside in a separate account for the participant. The answer is the same whether or not the pre-tax funds in the IRA originated from a tax-qualified plan. The amounts repaid by Employee A from his IRA to Employer's defined benefit pension plan will not result in ordinary income to Employee A because the amount is not distributed to Employee A. IRS Response: The IRS agrees with the proposed response. It doesn't matter whether the buy-back is made with pre- or post-tax funds. The source of the money used for the buy-back is not important, but buying back a benefit with after-tax funds may create basis in the benefit for the participant. The source of the funds might be relevant to whether lump sum distribution treatment is available for the ultimate distribution from the qualified plan.

There is no formal, explicit guidance so how these situations resolve is depends on the extant documentation and on the tenacity of the participant. We have the ability to retrieve plan accounting and tax reporting history for our clients extending back over 35 years. When these situations do come up - mostly when the Social Security Administration sends out the you-may-have-a-benefit letter - we can respond whether the individual was on a census file during the time period where we were the service provider. If yes, we can provide the last participant statement we prepared and the Form 1099R if that was within our scope of service. Still, having access to all of this history has not resolved situations where the individual terminated and was paid out before we became the service provider or where the individual joined the plan after we no longer were the service provider. Generally, when we have relevant information the matter is resolved quickly. If the matter is not resolved, the individual often considers the time and cost of continuing to pursue the matter. Relatively frequently, they may decide that they are gambling that the amount that may be recoverable may not be worth the effort. The DOL's focus on lost participants and their new charge to provide a resource to find missing participants seems to be trending towards a mandate that a Plan Administrator (as distinguished from service providers) should be able to inform any participant at any time the disposition of the participant's benefit. Given the evolution of technology, turnover of service providers, turnover of employer staff and a host of other factors, this will be a monumental challenge. This RFI regarding the DOL's new resource is out there with a June date for sending in responses. Perhaps plans could send the DOL a record that a participant in the plan EIN/PN was paid in full this amount on xx/xx/xxxx date and the plan is done with them. We could then refer these situations to the DOL. Just a thought.

Apparently, the IRS informed pre-approved document providers it would not approve Cycle 3 documents if the CBA formula was incorporated by reference. This approach had been allowed in the PPA cycle documents. The rationale was the allocation formula had to be in the Cycle 3 document itself or the formula was not considered definitely determinable (i.e., subject to modification if a change was made in the CBA which is outside the control of the plan). I have not seen an IRS directive to that effect, but I have seen commentary to that effect from pre-approved document providers.

File the Form 5500 and in Part I B check the box that the filing is an amended return/report. EFAST2 tracks Plan Sponsor EIN, Plan Number and Plan Year of all filings, and the most recent amended filing should supersede any prior filings.

The root cause for this scheme seems to be that the plan lacks cash available to give to the participant to make the loan. If so, then the scenario should start with the business making a cash contribution the plan sufficient to cover the MRC which would put the plan in the position to issue a loan check. That would provide a documented trail of the sequence of events. The idea of writing a check to himself is a stretch in an attempt to circumvent the lack of availability of cash in the plan. This supposes that there is $50,000 in the business checking account (for the contribution) that would cover a check to his personal bank account (for the loan). If there are not separate checking accounts, would a bank even cash a check from an account payable to the account upon which it is written? If the bank will not honor the check, is it a valid financial transaction? Trying to net the contribution and loan into a single transaction is vulnerable to an interpretation of events, and the IRS likely will have its own view of what transpired. Consider that the IRS could view the result of the net transaction as if the business funded the contribution by the having participant give the plan a promissory loan note secured by his vested balance in the plan, and then consider the potential consequences. @Lou S.'s suggestion to have a clear paper trail is on point. If the plan has the cash to make the loan, the paper trail should methodically step through the participant takes the loan, the participant makes the proceeds of the loan available to the business, and the business funds the MRC. If the plan does not have the cash to make the loan, the paper trail should include methodically step through the business funds the MRC, the participant takes the loan, and if necessary, the participant makes the proceeds of the loan available to the business. This is not advice of an kind, nor a recommendation. Frankly, this whole scenario has a whiff of a business in trouble and possibly with a plan that it cannot afford. Prudence would add taking steps to evaluate how assure the business and the plan can function within common norms.

@Lou S. is on target with the intent of USERRA. See the Department of Labor website here https://webapps.dol.gov/elaws/vets/userra/ben_pens.asp This is a link within this site https://www.dol.gov/agencies/vets/programs/userra and the Know Your Rights menu item. The short answers, subject to some disqualifying circumstances, are yes, the individual gets eligibility service, and no, the military service is not disregarded. These answers also apply to vesting and benefit accrual service. @justanotheradmin in on target with reading the plan document. There are some choices that plan sponsor can make that will affect how benefits are calculated such as adjustments to plan compensation. how hours are counted, crediting hours to avoid a break in service, treatment of an outstanding loan balance, in-service withdrawals, death benefits, make-up contributions and likely more.

I agree, leave it blank. To my knowledge, the responses to these new compliance questions (at least for the 2023 forms) are not edited. They could have, but apparently did not, build some edits to check the pension codes for a 401(k) feature and then checked to see if there were responses to the new compliance questions.

The allocation condition to be an active employee on the last day of the plan year typically applies to employer contributions such as non-elective contributions or matching contributions (allocated annually). The fact that the last day is on a Sunday is not an issue for employees who are continuing actives. The common decision a plan administrator has to make is whether an employee formally terminates employment and/or retires on the last pay date (6/28 in the question). Some plan administrators take the position the last day is satisfied if the employee worked on the last available work day. Some plan administrators take the opposite position. Some plan administrators consider the reason for the termination (retirement, disability, voluntary termination, involuntary termination). Some plan administrators look at payroll practices so if an employee is paid for a pay period that includes the last day of the plan year, then the employee was active on the last day. Some plan administrators look at how the last day is defined in their health and welfare plans. Whatever or however the decision is made, it must be applied consistently and uniformly to all similarly-situated employees. If the plan is top-heavy, the plan could exclude an employee who is not active on the last day from getting the top heavy minimum contribution (if there is one). Again, be careful that the decision is applied consistently and uniformly.