Paul I

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.

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.