Paul I

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.

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.