Paul I

@MD-Benefits Guy , note that the link in your post to the IRS page also includes: The IRS is pointing out your plan document could specify that deferrals and match would stop when someone reaches the comp maximum, but the IRS is not saying that the plan document must stop deferrals and match when someone reaches the comp limit. The example in your post illustrates that for a plan year, a participant cannot make deferrals or receive an associated match that exceeds the terms of the plan. The IRS noted early on in the life of 401(k)s that high paid individuals who were not eligible to participate until later in the year would be disadvantaged by putting a hard stop on deferrals and match based on a plan year-to-date comp limit.

The issue of reimbursing participants affected by a Market Value Adjustment (MVA) triggered by an early termination of an insurance contract was address in Private Letter Ruling 200404050. The conclusion was the MVA reimbursement is not a contribution and is not considered 401(a)(4) or 415. This interpretation also is consistent with Revenue Ruling 2002-45 which addressed "restorative payments" and concludes these are not contributions or considered for 401(a)(4) or 415. Whether or not forfeitures can be used top reimburse participants depends upon the terms of the plan document regarding the use of forfeitures. The plan's ability to use of forfeitures increasingly has come under scrutiny, and we have seen an increasing need for the plan to specify possible uses of forfeitures. In other words, since the MVA reimbursement is not a contribution, having a plan provision that says it can be used as a contribution likely will not permit the use of forfeitures here. None of the pre-approved documents that I have seen do not have language that explicitly says forfeitures can be used to make corrective allocations. I suggest consulting ERISA legal counsel for advice before the plan moves forward with using forfeitures to cover the MVA.

There is a distinction between late deposits and crediting contributions to the wrong participant. Late deposits are tied to the company not timely transferring participant money to the trust. When looking at the payroll-by-payroll funding, if at anytime there was a shortfall, then that is a late deposit. If there were crediting of contributions to participants so that at times some participants were underfunded and and at times some participants were overfunded, then not only should the correct total contributions be credited correctly, but also that related investment earnings should be credited correctly. This may require funding if there is a net shortfall. Don't forget to look at participants who were affected by this mess and who have taken distributions from the plan. This definitely is not a trivial exercise and consider having the client sign an engagement letter prior to starting work.

I, too, was wondering about Overnight Expert's credentials. Not only was the "A Year in the Life of a TPA: Retirement planning fundamentals for people getting started in a TPA role" - 48 pages - released on September 8th (yes, less than 3 weeks ago), but also Overnight Expert released "Retirement Plan Fundamentals: A Practical Guide for Aspiring TPAs, Compliance Professionals, and Exam Candidates" - 75 pages - on September 10th. The paperback versions are relatively expensive. The sample available in the Retirement Plan Fundamentals is on point, avoids jargon and is readable by a novice. I would not be surprised if the author is someone with a depth of experience who saw a need for a layman's version of "how do you describe to your relatives at Thanksgiving dinner what you do for a living", and then used AI to bring it all together.

The reason for my suggestion to use the current limits along with a comment that the limits will be adjusted when the updated limits are available is to decrease the possibility of operational errors. None of the limits are going down without some legislative action. All of the limits currently announced late in each year are effective in the next year. Almost every participant will have an effective opportunity in that next year to take advantage of any increase in limits. If, in the very unlikely event an estimated limit is used and it turns out that limit is not adjusted upwards, then there is the possibility for having excess amounts/benefits in the plan which would require a correction. There is a distinction between predicting the limits in communications (which is fine if they are labeled as estimates) and using predicted limits in operating the plan (which can cause problems).

There is a lot of information in the annual notices going out to calendar year plans by December 1 that needs to be communicated to participants, so those will go out as scheduled. If a communication typically includes the annual limits, we will use the current limits with a comment that the limits will be adjusted when the updated limits are available. Probably the bigger headache will be if there is a change in the High Paid Individual compensation level that does not get released until very late in December or later. This would be an issue particularly for a plan that gathers separate affirmative elections for Catch-Up Contributions. Granted, it won't affect the vast majority of participants, but it will affect enough to consume precious time.

The Federal Register is scheduled tomorrow to publish the IRS notice of PTIN user fees for 2026. It will say the "amount of the user fee as $10 per application or application for renewal, plus an $8.75 fee per application or application for renewal payable directly to a third-party contractor." There are 14 pages of history and legislation disclosing how the IRS arrived at the new number. The "big" news is a reduction in the PTIN user fee to $10 from $11. (Start planning now on how to use this windfall. 😀)

As the saying goes: "Better late and right, than first and wrong." Maybe we need to tweak it a little bit: "Better confirmed late and right, than AI first and wrong."

This is one of those questions where you are looking for references to an explicit negative which likely doesn't exist. Use of NUA is a taxation issue related to a distribution, and continuing to participate in the plan is a participation issue. The NUA is not related to participation but is related to other distributions from the account to the extent of the NUA rules @fmsinc describes.

This looks like a creative attempt to incorporate the original Long Term Part Time rules into the document. Hopefully, they did not get too creative elsewhere in the document and create rights to benefits for part timers that the plan sponsor didn't want. In my experience, long entries in the blank lines in the Adoption Agreement available when "Other" is checked or "Describe" is available all to often have lead to operational errors. Assuming you are replacing the document, use the opportunity to clean it up.

We all have our war stories of skirmishes with the IRS and EBSA. We had a plan that went from a one-participant only plan with assets under $250,000 and no EZ filing to a plan that required a 5500. The 5500-SF showed it was an initial filing and had a beginning balance, and the client received a love letter from the IRS. We called the IRS and spoke with an agent who took down the information, submitted it for review, and the issue was closed. All in, we spent more time on hold waiting for an available agent when making the initial call than the time we spent speaking with the agent.

Here is the link to model VFCP Application Form: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/vfcp/model-application-form Note the item 6 says: "6. Specific calculations demonstrating how Principal Amount and Lost Earnings or Restoration of Profits was calculated: (if the Online Calculator was used, you only need to indicate this and attach a copy of the “Printable Results” page, attach separate sheets if necessary) Online Calculator (“Printable Results” page attached) Manual calculation (see attached calculations)" You can try submitting just the results, but you likely will be asked to provide more details. In particular, reporting any negative earnings for any participant very likely is going to attract additional scrutiny.

Over the history of 5500s, the IRS has added (and removed) questions about compliance tests. Typically, this foreshadows their launching a project once the data are in for 2 or 3 years to study if there is a need to investigate plans or to see if additional regulations may be needed. This type of analysis is part of the reason 5500 was created starting in 1975.

There appears to be some nuanced interpretation of when the participant notice is required. Backing up a little bit, the IRS was concerned about 2 issues going into Cycle 3 about the match needing to be definitely determinable. The first issue was the total amount of the match to be funded had to be communicated by the employer to the Plan Administrator or Trustee before the contribution was deposited into the trust. This is a simple formality and parallels the documentation required for specifying a discretionary profit sharing contribution. The second issue was whether the match is definitely determinable meaning do participants know who gets the match, what is the frequency the match is made, and how is each participant's match calculated. The elements needed to determine the match include specifying: matching period (e.g., annual, each payroll, quarterly...) allocation formula (e.g., fixed percent, percent by tiers, flat dollar...) eligibility (e.g., varying allocations by business unit) If all of these elements are explicitly defined in the document (some plan say "fixed", "rigid" or similar adjectives implying could only be changed by plan amendment), then there is no need to send a notice to participants. In this instance then the SPD effectively communicates to participants about a definitely determinable match in the same manner in which a discretionary profit sharing contribution is communicated to participants. If any of these elements are not explicitly defined in the document (the plan sponsor can has discretion), then a notice is required to be sent to participants within 60 days after the last match is funded for the plan year. This timing requirement could vary considerably from year to year. One interesting note is the notice is an IRS notice (subject to the IRS rules for electronic delivery), why the SPD generally is a DOL disclosure. Another interesting note is that the notice requirement seems to apply to only to pre-approved documents. Apparently an individually designed plan possibly may not be subject to the notice requirement.

Before doing any 5500 filings, follow @RatherBeGolfing's suggestion to involve an ERISA attorney. Given the long period of time the plan was operating out of compliance, the attorney and TPA together can work with the client to determine if all of the information is available to complete the forms accurately, and is available to apply remedial actions to bring plan into compliance. If the information is incomplete, then the path forward likely will ultimately involve negotiating a resolution with the IRS and DOL. Sometimes in situations where plans have been out of compliance for many years, the cost and effort try to to reconstruct exactly what should have happened versus what did happen, and then trying to apply the prescribed remedies can be economically fatal to the company. A knowledgeable ERISA attorney may be able to propose another strategy that could be painful but not fatal. Having a strategy for remediation can help determine when the 5500 filings should be submitted.

For a plan participant in dire straits, it was not uncommon for them to take a loan and then a few days later take a hardship withdrawal (plan provisions permitting). This got the participant the maximum dollars out of the plan.

@Peter Gulia I think you can safely advise that, because there so many tried-and-true ways to handle forfeitures, this is a dumb idea!

Assuming the plan document is silent on the issue, there is some guidance out there. As noted in Rev. Rul. 81-10, "Forfeitures, like employers' contributions, may be allocated to participants' accounts pursuant to a formula that takes into account factors other than current compensation. However, if such factors are used, it must be shown on a year-to-year basis that their use has not resulted in discrimination in favor of the groups enumerated in section 401(a)(4) of the Code. A permissible method for determining whether the allocation formula produces prohibited discrimination in any given year is to compare the allocations to employees in the enumerated groups as opposed to other employees where such allocations are expressed as a percentage of compensation." What is relevant here is the forfeitures could be allocated based on something other than compensation (like years of service, age plus service points...), as long as it is not discriminatory. Regarding the 415 issue, there is a private letter ruling (i.e., we can't rely on it) IRSWD0213033 where an allocation of proceeds from a liquidation of an ESOP was considered in part an allocation of earnings (not contributions or forfeitures) for purposes of applying 415(c). This is such a narrow set of circumstances, it is very difficult to think it could be applied elsewhere. Ideally, @austin3515's client has in writing the comment the "big recordkeeper and an ERISA attorney has confirmed".

The Form 5500 Preparers Manual notes: "Entity Control: Edit tests or checks programmed into the EFAST2 system that are used to determine whether certain identifying data was being reported each year for a particular filer in order to maintain accurate year-to-year records for each filer. Such data as the employer identification number (EIN), plan number (PN), plan name, sponsor name, effective date of the plan, and total assets (beginning and end of plan year) are items commonly targeted for matching a current year filing to the prior year's report for the same entity." Reporting a plan with a beginning balance and also checking the box that say this is the initial filing should not trigger a rejection of the filing. However, if the EBSA undertakes one of its periodic reviews of the 5500 data, they could send a letter to the plan sponsor questioning the circumstances. Should this happen, responding with the facts should suffice to answer the question.

Here are the instructions for Line 14a on the SF: "Line 14a. A multiple-employer plan should skip this question. Check "Yes" if this plan was permissively aggregated with another plan to satisfy the requirements of Code sections 410(b) and 401(a)(4). Generally, each single plan must separately satisfy the coverage and nondiscrimination requirements. However, an employer generally may designate two or more separate plans as a single plan for purposes of applying the ratio percentage test of Treasury Regulations section 1.410(b)-2(b)(2) or the nondiscriminatory classification test of Treasury Regulations section 1.410(b)-4. Two or more plans that are permissively aggregated and treated as a single plan for purposes of the minimum coverage test of Code section 410(b) must also be treated as a single plan for purposes of the nondiscrimination test under Code section 401(a)(4). See Treasury Regulations sections 1.410(b)-7(d) and 1.401(a)(4)-9(a) for more information." Unfortunately, the question is structured where the answer for most plans is "No", which is a negative response, which leads clients to think something is wrong. Something like: "Did this plan satisfy the coverage and nondiscrimination requirements without relying on permissive aggregation with one or more other plans?"

The IRS released the unpublished version of the final catch up regulations which should be published in tomorrow's Federal Register. For 94 pages of reading enjoyment for those who can wait, see here https://public-inspection.federalregister.gov/2025-17865.pdf The final version should be here tomorrow https://www.federalregister.gov/public-inspection/2025-17865/catch-up-contributions One interesting right up front is "Applicability date: These regulations generally apply with respect to contributions in taxable years beginning after December 31, 2026. However, see §§1.401(k)-1(f)(5)(iii), 1.414(v)-1(i)(2), and 1.414(v)-2(e)(2) and the Applicability Dates section later in this preamble for additional details regarding applicability dates."

My point would be that fiduciaries likely are not offered the opportunity to choose an assumed retirement date. That assumption typically is made by the investment manager that is choosing the investments and percentage mix of investments when building the target date series of funds. Fiduciaries more typically are offered a choice from target date funds provided by various investment companies, and the assumed retirement age is baked into how the investment mix determined for each target age groups.

All good questions. Target date funds are a popular choice for a plan's QDIA primarily because average investment performance over a longer time period is better than the performance of safe or capital preservation investments. The target date concept appeals to those who are approaching retirement and don't want to incur investment losses. This masks the underlying operation of a target date fund, and many are surprised to learn that different target date fund offerings yield widely ranging investment performance for the same target dates. The fiduciary should do her homework to understand the mechanics of any target date fund offerings. One big difference can be whether a target date portfolio for an age group is designed with an assumption that a participant will retire at normal retirement and take their account out of the plan (a "to retirement" investment strategy), or is the target date portfolio for an age group is designed with an assumption that the participant will continue to keep their account balance in the plan through out their retirement years (a "through retirement" investment strategy). The latter will have a lower percentage of safe or capital preservation investments since the expectation is the assets will remain invested over a longer period of time. Simplistically, one the investment mix of one target date provider for 55 year old participants may look like the investment mix of another target date provider's investment mix for 65 year old participants. Note that the fiduciary typically is presented a choice of target date fund providers with input from the plan's financial adviser. Recordkeepers easily can administer different target date fund families for different clients. Recordkeepers can even administer a plan that has different target date funds from different fund families for different age groups. None of this even touches lifestyle funds, asset allocation funds, and other similar products to package diversified portfolios. This topic is wide and deep.

Our actuary provides an Excel spreadsheet with the factors (which takes them about 5 minutes) and we import the factors into the report writer that applies them to the participant's account balance when it generates the disclosures.

@Bill Presson you are correct... my bad... should not have said asset purchase.