Paul I

SECURE 2.0 section 312 says the plan administrator may rely on an employee's self-certification. We have several plans where the plan administrator continues to review and approve all hardships, and does not rely on employee self-certification. We have one plan that does not permit any hardship withdrawals. Some plan administrators have been very conservative and enforce a strict interpretation of each of the safe harbor reasons. An administrator in this camp likely would not approve a hardship for housing that did not involve a purchase of a principal residence. Others have been more lenient, basing their approval or disapproval by focusing on the immediate and heavy financial need that cannot be met from other financial resources available to the participant. An administrator in this camp likely would approve a hardship where an employee who lacked other financial resources was required to put down a deposit and pay one month's rent up front to be able to rent a principal residence (a fairly common requirement among landlords). Anecdotally, plans that allow self-certification are experiencing an increase in hardship withdrawals. It would be interesting to hear of others experience.

Never underestimate the value of employee relations and participants' perception of the integrity of the company or the plan's service providers. We work with more than a dozen recordkeepers and none of them would push back on posting an expense reimbursement if it is available under the plan document. Trying to fix this with a few extra buck in a bonus just pushes the hassles on to payroll (not to mention the hassles when payroll does not report the bonus correctly when reporting plan compensation). On the other hand, tell a participant that their account was dinked $100 for an expense that was due to a setting that was missed during a change in the investment platform would not be received well. The participant likely will respond that the $100 less in their account will translate into $2,000 (or more) less money that will be available to them when they retire. (Yes, some participants read the communication material they get bombarded with.) Another participant just as likely will say $100 would get them dinner and see a movie. Own it, clean it up and let participants know the company is a responsible steward of the participants' money in the retirement plan.

See https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs questions 8 & 9. Very short version: the individual files a 5329 and attaches an explanation.

Check your plan document for provisions related to the payment of expenses. If you are using a pre-approved plan, be sure to check the provisions in the Basic Plan Document. It is very common for the BPD to have a provision that the Employer can reimburse the plan for expenses, and the Plan Administrator can determine what is a reasonable and nondiscriminatory approach on how to allocate (credit) the expense to participant accounts. If the plan document supports making a reimbursement, operationally the Plan Administrator should be able to give the recordkeeper a file of amounts by person/source, make a deposit for the total of the amounts, and instruct the recordkeeper to post the amounts so they are categorized as something other than contributions (e.g., income, positive expense amount, adjustment...).

I believe the sponsor is requesting you to send out Form 1099Rs and they did not specify the "R" and were only using the generic plural of 1099, i.e. 1099s (lower case). The Form 1099S reports Proceeds From Real Estate Transactions, so you definitely do not use this form. Before you jump into any kind of tax reporting, you should clarify your role and the facts and circumstances surrounding the "plan termination". Your brief statement suggests that there are multiple employers involved and possibly other plans associated with these employers. The statement also suggests that there was some sort of business transaction that occurred. If any of the suggestions are factual, it is possible (and maybe likely) that the options made available to some of the participants in the terminating plan were not permissible. Trying to help by sending out Forms 1099S now could make a problem far worse. Please explain more about what happened: Was there one or more plan terminations? and Bird asked, what was your role? Was this the sponsor of the plan that terminated or some sponsor of another plan? This suggests that there was some type of transaction where one company bought another company. Is this the case? It also suggests that there are multiple employers and you need to identify each of the employers involved and their role. This suggests that some people who were in the plan that terminated are still in a plan that you work with. Is this the case?

Attached is a very well written explanation of the start-up plan tax credits. It does not answer 100% of all questions, but does provide a good summary of points to consider in deciding in the credits are available. In Zoey's initial case, it is not likely that a credit can be claimed because the plan is not a new plan. There are two plausible scenarios about how the plan of the acquired company was handled and neither leads to the plan being a new plan. This was a stock transaction so the seller's plan survived and became an existing plan sponsored by the buyer (or a member of a controlled group of the buyer). If the EIN change was made to reflect the EIN of the buyer as the plan sponsor, that change would be reported on the 5500 or 5500SF on line 4 as a change in EIN. If the buyer set up a new plan and merged the seller's plan into the new plan, then the merger would be reported when the assets were transferred from the buyer's plan to the seller's new plan. This latter scenario is a more plausible argument for trying to take the credit, but given the facts is not likely to succeed. If the buyer's plan was kept separate and apart from the seller's plan, the buyer's plan could have a plausible argument to taking a credit for the buyer's plan. The strategy of creating new plans for each seller's plans going forward likely will become unavailable fairly quickly as the buyer's employee count grows. The tax credit is available to small businesses, not small plans. The tax credit starts phasing out between 50 and 100 employees. I suggest paying careful attention to the rules where the seller has made contributions to a SIMPLE or SEP IRA. It is easy to overlook these arrangements in planning for an acquisition. Changing topics from tax credits to auto enrollment/escalation, if the acquiring company established (or added) a new 401(k) feature on or after December 29, 2022, the plan needs to implement auto enrollment/escalation starting in 2025. There are rules in Notice 2024-02 about grandfathering plans of acquired companies that did not have a 401(k) feature prior to SECURE 2.0 enactment. This is an equally vexing topic to consider in doing mergers. tax_credits_under_secure-2.0-easy_reading_version_from_gps-2023-02.pdf

The IRS notes that: https://www.irs.gov/retirement-plans/is-my-401k-top-heavy "Account balance adjustments You may need to make some adjustments to the account values before calculating the top-heavy ratio. Add back these amounts: Distributions made to the employee from account during your testing period (such as hardship distributions) Cash-out distributions to terminated employees Loans to the employee during the testing period Subtract these amounts: Rollover contributions from another employer's plan or IRA. Profit-sharing contributions that were not actually paid to the accounts during the testing period (for example, an amount declared in December but not contributed in cash until March the following year)."

I have not seen any sample forms, nor have I seen anyone touting that their recordkeeping system all set to administer Employer Roth and just waiting on a client to choose that option. Unless there is a recordkeeping system set up to administer the elections employees can make on a form, a client would be foolish to tell employees that they are offering that feature. There are some pesky issues they need to deal with like documenting the decision to offer the feature. Will they amend the plan document? Or, could they have a resolution describing the provision, setting an effective date and intent to amend the plan when they can? Are they going to offer this only for Roth employer non-elective contributions, or will a Roth employer match also be available? If both, will there be separate elections for each Are they ready to communicate to employees that this will be available only if the participant is 100% vested? How often can employees change their election? There also is a not quite settled question on whether Employer Roth accounts will have their own 5-year time clock. (Most commentary I have seen says no.) Good luck finding a form, and better luck getting the client to realize there is much to be done to implement their decision.

It seems these terminated employees are includable in 410(b) testing if they get an increase in benefits. The "and" in the 1.410(b)-6(f) below makes (i)-(v) look like a 5-part test. If they event they do not get an increase attributable to the FAE, then see (v) below where the failure to accrue is not solely because of the failure to satisfy the minimum period of service. Frankly, I have never focused on this exclusion at this level of detail and it would be great to hear counterpoints. The EOB says Benefiting employees - these are the employees who get an allocation of employer contributions under a defined contribution plan or who increase their pension benefit under a defined benefit plan. If the plan includes a section 401(k) arrangement, also keep track of all employees who at any during the plan year had the right to elect to defer compensation under the section 401(k) arrangement. 1.410(b)-6(f) tells us: (f) Certain terminating employees (1) In general. An employee may be treated as an excludable employee for a plan year with respect to a particular plan if - (i) The employee does not benefit under the plan for the plan year, (ii) The employee is eligible to participate in the plan, (iii) The plan has a minimum period of service requirement or a requirement that an employee be employed on the last day of the plan year (last-day requirement) in order for an employee to accrue a benefit or receive an allocation for the plan year, (iv) The employee fails to accrue a benefit or receive an allocation under the plan solely because of the failure to satisfy the minimum period of service or last-day requirement, (v) The employee terminates employment during the plan year with no more than 500 hours of service, and the employee is not an employee as of the last day of the plan year (for purposes of this paragraph (f)(1)(v), a plan that uses the elapsed time method of determining years of service may use either 91 consecutive calendar days or 3 consecutive calendar months instead of 500 hours of service, provided it uses the same convention for all employees during a plan year), and (vi) If this paragraph (f) is applied with respect to any employee with respect to a plan for a plan year, it is applied with respect to all employees with respect to the plan for the plan year.

The EOB has a fair amount of discussion about a mistake of fact that includes some tenuous references to sources. The discussion most on point with this thread says: "1.b. Tentative contribution for employee who fails to accrue benefit for plan year is not subject to return under mistake of fact. The Joint Committee on Employee Benefits of the American Bar Association posed this question to the IRS in an informal technical session conducted in 2001. Suppose an employer, for budgetary reasons, deposits monthly to the accounts of participants in a 401(k) profit sharing plan. It is determined after the close of the plan year that some participants don’t qualify for the contribution because they fail to satisfy the plan’s last day employment requirement. May the funds revert to the employer? The IRS’s response was that the funds could not revert to the employer because the IRS doesn’t view estimates as a mistake of fact." Looking collectively at the various sources that dealt with mistake of fact situations, it seems the IRS says "we will recognize it when we see it, and we will let you know if we see it."

Cohen & Buckmann, P.C. prepared a summary of the grab bag titled Mandatory Auto-Enrollment is Coming for Some Plans - What to Know Here is their description on the rules. I parsed it to make it a little easier to follow "Mergers, Spinoffs and MEPs. It was unclear how the new requirements apply to plans involved in mergers and spinoffs. Employers also asked if they could “buy in” to grandfathered status if they became a new adopting employer in a PEP or other multiple employer plan that was grandfathered. Notice 2024-02 sets out some basic rules. If part of a grandfathered single employer plan is spun off to create a new plan, the transferee plan is treated as grandfathered. This rule does not apply to multiple employer plans. If two grandfathered plans merge, the surviving plan will be treated as grandfathered. If a new plan and a grandfathered plan are merged, the continuing plan is generally not grandfathered, unless the merger occurs as part of an m&a transaction during the period the m&a transition rule in Code Section 410(b)(6) applies. This provides an option to remain grandfathered if the plan designated as the surviving plan is grandfathered. In addition, each employer in a multiple employer plan is evaluated separately. An employer adopting a grandfathered multiple employer plan after December 29, 2022 is treated as adopting a new plan for purposes of the requirements. However, the status of the other adopting employers who joined the plan pre-enactment is not affected. My take on this in different words is: If a grandfathered single employer plan spins of a new plan, the new plan is grandfathered. If a grandfathered multiple employer plan spins of a new plan, the new plan is not grandfathered. If 2 grandfathered plans merge, the resulting plan is grandfathered. If a new plan (not grandfathered) and a grandfathered plan merge during a 410(b)(6) transition period: If the grandfathered plan is the surviving plan, then the surviving plan has the option to remain grandfathered. If the new plan is the surviving plan, then it is not grandfathered. If the merger occurs after the transition period, then the surviving plan is not grandfathered. If any plan (either grandfathered or not grandfathered) adopts a grandfathered MEP, the adopting plan is not grandfathered. Any plan that adopted the grandfathered MEP on or before December 29, 2022 is grandfathered.

See 1.401(l)-2(d)(5) (the 401(l) is an "L"). https://www.law.cornell.edu/cfr/text/26/1.401(l)-2 It looks like you calculate the amount of the integration level using the 80% SSTWB + $1 (see 1.401(l)-2(d)(3) which has a maximum excess allowance of 54%. The integration level is pro-rated over the number of months (which I understand includes the partial month) in the short plan year. This is your calculation to get to $90,780.71. The last sentence in 1.401(l)-2(d)(5) says "No adjustment to the maximum excess allowance is required as a result of the application of this paragraph (d)(5), other than any adjustment already required under paragraph (d)(4) of this section."

See Notice 98-92 Example 5 (copy attached). The first plan uses the formula of 100% on the 1st 3% deferred and 50% on the next 2%. The second plan uses the formula of 100% on the 1st 4%. An HCE in the second plan deferring 4% will have a higher match rate than an NHCE in the first plan deferring at the same 4% rate. This is not allowed. not98-52.pdf

The operational error of miscalculated overtime pay started in 2021, so that is going to drive the determination of available correction methods for the entire sequence of MDOs. The back pay on 10/20/2023 was a correction of the previously unpaid compensation. The notice was due within 45 days of starting correct deferrals which it sounds like overtime was calculated correctly going forward from 10/20/2023. That should have started the 45 day notice period. You are the service provider and not the plan sponsor. I can't see arguing that the 45 day notice period starts when the service provider learned about the issue. Note, the 45 day time period does not by itself excuse the need for a QNEC. SECURE 2.0 section 305 and Notice 2023-43 liberalized the time frames for self-correction of Eligible Inadvertent Failures which the plan will have to determine whether this failure meets the criteria for being an EIF. One of the criteria considers the number of participants that are affected (either by count or percent of the population). Consider taking a closer look at Notice 2023-43 to see if the facts of the situation could justify self-correction. There may be an argument for using a 25% QNEC versus a 50% QNEC. Fortunately, there is no match involved.

The Department of Labor just released its final rule (January 9th) on determining who is an independent contractor. Attached is a good summary of the rule. You are correct that the burden of proof is on the employer, and you may want to send Joe a copy as a courtesy FYI. At an opportune time before setting up any plans, consider having a conversation with Joe about the severe consequences of setting up the plans should the DOL decide that Mary and Jane are in fact employees and the IRS discovers that they are not included in the plans. If Joe still wants to move forward, you will need to give some very serious thought about whether you want to do business with Joe. Personally, unless Joe can provide documentation that Mary and Jane truly are independent contractors, I would not do business with Joe. DOL final rule adopts 'economic realities' test for independent contractors.pdf

The Senate Finance Committee - Secure 2.0_Section by Section Summary 12-19-22 FINAL describes Section 316: Amendments to increase benefit accruals under plan for previous plan year allowed until employer tax return due date. The SECURE Act permits an employer to adopt a new retirement plan by the due date of the employer’s tax return for the fiscal year in which the plan is effective. Current law, however, provides that plan amendments to an existing plan must generally be adopted by the last day of the plan year in which the amendment is effective. This precludes an employer from adding plan provisions that may be beneficial to participants. Section 316 amends these provisions to allow discretionary amendments that increase participants’ benefits to be adopted by the due date of the employer’s tax return. Section 316 is effective for plan years beginning after December 31, 2023. Under this provision, the plan could amend the plan before the due date of the tax return to increase the contribution rate enough to absorb the excess contribution. The description of the effective date in the summary arguably is unclear when can this provision could be used. Is it available in 2024 to amend a 2023 plan? Or, does the amendment have to be applicable to a plan year beginning after December 31, 2023? The language in the statute says "EFFECTIVE DATE.—The amendments made by this section shall apply to plan years beginning after December 31, 2023." This phrasing points to being able to first use this in a 2025 plan year to amend a 2024 plan year. 😢

I'll guess and say ahasan is looking at the top heavy rule where a more-than-1% owner with compensation over $150,000 is a key employee. Section 416(i)(1)(B) says to use section 318 ownership rules. Put another way, use the same rules that are used to determine a more-than-5% owner and also to determine HCEs.

This may help: Page 441 of General Explanation of Tax Legislation Enacted in the 117th Congress (December 2023) 17. Retroactive first year elective deferrals for sole proprietors (sec. 317 of the Act and sec. 401(b) of the Code) Present Law Present law provides a remedial amendment period during which, under certain circumstances, a retirement plan may be amended retroactively in order to comply with the tax qualification requirements.2030 Plan amendments to reflect changes in the law generally must be made by the time prescribed by law for filing the income tax return of the employer for the employer’s taxable year in which the change in law occurs (including extensions). The Secretary may extend the time by which plan amendments need to be made. Section 201 of the SECURE Act 2031 provides that if an employer adopts a qualified retirement plan after the close of a taxable year but before the time prescribed by law for filing the return of tax of the employer for the taxable year (including extensions thereof), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year. That provision permits employers to establish and fund a qualified plan by the due date for filing the employer’s return for the preceding plan year. However, that provision does not override rules requiring certain plan provisions to be in effect during a plan year, such as the provision for elective deferrals under a qualified cash or deferral arrangement (generally referred to as a ‘‘section 401(k) plan’’). Under present law, if a section 401(k) plan is established by a sole proprietor after the end of the individual’s taxable year, then the plan can be funded with employer contributions as of the due date for the business’s return (including extensions), However, any election to make an elective deferral must be made by the end of the individual’s taxable year (i.e., generally by December 31 of the prior year). In contrast, an individual who contributes to an IRA is deemed to have made a contribution to the IRA for a taxable year if it is contributed after the taxable year has ended but is made ‘‘on account of’’ that year and before the due date for filing the IRA owner’s tax return for that year without extensions (generally, April 15). Explanation of Provision Under the provision, in the case of an individual who owns the entire interest in an unincorporated trade or business, and who is the only employee of such trade or business, any elective deferral 2034 under a section 401(k) plan to which the election under section 201 of the SECURE Act applies which is made by such individual is treated as having been made before the end of the plan’s first plan year if the election to make the elective deferral is made before the time for filing the return of such individual (determined without regard to any extensions) for the taxable year ending after or with the end of the plan’s first plan year. This extension of time would only apply to the first plan year the section 401(k) plan is established. Effective Date The provision is effective for plan years beginning after the date of enactment (December 29, 2022).

Here are two IRS publications that discuss fringe benefits and neither mentions employer compensation for jury duty: https://www.irs.gov/pub/irs-pdf/p15b.pdf https://www.irs.gov/pub/irs-pdf/p5137.pdf The publications discuss fringe benefits that are not included in income and say everything else is not excluded. From the perspective of the plan, amounts paid for jury duty by someone other than the employer are not employer compensation and are not considered by the plan. Interestingly, many plans talk about jury duty in the definition of Hours of Service. For example: "Hour of Service" means (a) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties during the applicable computation period (these hours will be credited to the Employee for the computation period in which the duties are performed); (b) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, incapacity (including disability), jury duty, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation §2530.200b-2" While the above is not clearly dispositive, if the employer pays the employee for time the employee is on jury duty, it is not a fringe benefit.

You are referring to Line 15 on the 5500-SF and Line 22 on the Schedule R for 5500 filers. The date is the date the opinion letter was issued by the IRS. This would be the 06/30/2020 date in your sample. The information is required if the plan adopted a pre-approved plan that received a favorable IRS Opinion Letter. Keep in mind that the plan will disclose in the list of pension features: 3D Pre-approved pension plan - A pre-approved plan under sections 401, 403(a), 403(b), and 4975(e)(7) of the Code that is subject to a favorable opinion letter from the IRS. and that pesky declaration on all 5500s that: Under penalties of perjury and other penalties set forth in the instructions, I declare that I have examined this return/report, including, if applicable, a Schedule SB or Schedule MB completed and signed by an enrolled actuary, as well as the electronic version of this return/report, and to the best of my knowledge and belief, it is true, correct, and complete.

ac, is the owner self-employed? If yes, be aware of further complications to your calculations when the profit sharing contribution allocated to the owner and the employer's portion of the owner's payroll taxes can impact the owner's compensation in determining the owner's allocation percentage and the deductible amount of the contribution. Visit https://www.irs.gov/publications/p560 and these sections in particular: Table and Worksheets for the Self-Employed Rate Table for Self-Employed. Rate Worksheet for Self-Employed. Figuring your deduction. Community property laws.

kcarter430, as you may have surmised from Lou S.'s comments, the information used by the SSA is collected and maintained by processes that are not very controlled. If you know or think you have a benefit due, the place to start is with your own records. Some facts or documents you should gather include: Termination date from the company with the plan in which you participated (to set your time frame). Any participant statement reporting to you your account balance or accrued benefits in that plan before or after your termination date. If the amounts are significant to you or you are just curious, then you may decide to keep going. Otherwise, there is a high probability that the cost to you in time and effort is not worth pursuing this further. Next: Review any bank statements you may have for a few years starting from your termination date and going forward, looking for deposits that you do not recognize. Review any tax returns you may have for a few years starting from your termination day and going forward, looking for amounts reported on a Form 1099R or on the pension income line on the tax return. If you find deposits or reported pension income, then very likely you were paid and can put the issue to rest. Moving forward, here are some avenues to pursue: Look up the final Form 5500 filing for your plan here https://www.efast.dol.gov/5500search/ You should be able to find the filing for 2010 or possibly 2011. If the plan was subject to a plan audit, the audit report will be included in the download. The audit report may reveal information about the plan termination including if the account balances were rolled into the acquiring company or sent to an IRA provider. Make contact with these organizations and explain what you have done that led you to them. (They may or may not make an attempt to help.) Contact the National Registry of Unclaimed Retirement Benefits at https://unclaimedretirementbenefits.com/ - they exist to help people find money and it's free. Contact the Pension Benefit Guaranty Corporation at https://www.pbgc.gov/wr/find-unclaimed-retirement-benefits - they will search their records of terminated plans that sent them unclaimed benefits. They also have tips for people finding unclaimed benefits. Contact the Administration for Community Living at https://acl.gov/programs/retirement-planning-support/pension-counseling-and-information-program - this is a government funded group with a mission "AoA’s Pension Counseling and Information Program promotes the financial security of older individuals and enhances their independence by empowering them to make wise decisions with respect to pensions and savings plans. The program assists older Americans in accessing information about their retirement benefits and helps them to negotiate with former employers or pension plans for due compensation." May you have good luck and good fortune!

Be mindful of coordinating the dates in the plan termination amendment with the strategy that the partners are considering. If the amendment sets a short plan year, you will need to factor in prorating annual additions and compensation limits. Also be mindful to coordinate the plan definition of compensation and net earnings from self-employment with the the plan year end date. The above items suggest reasons for having the effective date of the plan termination be as of 12/31/2024. If so, keep in mind that in order to file a final return Form 5500 (or SF), all of the plan assets must go to zero before the end of the plan year, or there will be an additional filing in 2025. I expect others on BL will have additional considerations to contribute to the discussion.

In case anyone is interested in seeing the messages @justanotheradmin references, they are: Note that the Last Updated dates are respectively from 15 and 6 years before the 2023 form was made available to software developers. The P-230 tests a 5500 and should (but doesn't) check against Line 6a(1) for defined contribution plans as determined by the pension codes on Line 8a, and Line 5 for other plans. The P-230SF tests a 5500-SF and should (but doesn't) check against Line 5c(1) for defined contribution plans as determined by the pension codes on Line 9a, and Line 5a for other plans.

Short answer - a plan covering only working partners would file a Form 5500-EZ. I am not aware of any EFAST2 edits for the 5500-EZ that test the entry on line 5a(1) Total number of participants at the beginning of the plan year against the 120 threshold. The instructions to the Form 5500 say: Do Not File a Form 5500 for a Pension Benefit Plan That Is Any of the Following: ... 11. A “one-participant plan,” as defined below. However, certain one-participant plans are required to file the Form 5500-EZ, Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan. ...For more information on filing Form 5500-EZ, see the Instructions for Form 5500-EZ, or go to www.irs.gov. For this purpose, a “one-participant plan” is: a. a pension benefit plan that covers only an individual or an individual and their spouse who wholly own a trade or business, whether incorporated or unincorporated; or b. a pension benefit plan for a partnership that covers only the partners or the partners and the partners’ spouses (treating 2% shareholder of an S corporation, as defined in Code section 1372(b), as a partner). The instructions to the Form 5500-EZ say: Who Must File Form 5500-EZ You must file Form 5500-EZ for a retirement plan if the plan is a one-participant plan or a foreign plan that is required to file an annual return under section 6058(a). A one-participant plan means a retirement plan (that is, a defined benefit pension plan or a defined contribution profit-sharing or money purchase pension plan), other than an Employee Stock Ownership Plan (ESOP), which: 1. Covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (which may be incorporated or unincorporated); or 2. Covers only one or more partners (or partners and their spouses) in a business partnership (treating 2% shareholder of an S corporation, as defined in IRC §1372(b), as a partner); and 3. Does not provide benefits for anyone except you (or you and your spouse) or one or more partners (or partners and their spouses).