Paul I

There is a difference in the instructions for the Form 5500 between Line 5 Total number of participants at the beginning of the plan year Line 6g(1) Number of participants with account balances as of the beginning of the plan year (only defined contribution plans complete this item) The 2023 instructions for the 5500 line 5 [lightly edited] say: " For pension benefit plans, “alternate payees” entitled to benefits under a qualified domestic relations order are not to be counted as participants for this line. For pension benefit plans, “participant” for this line means any individual who is included in one of the categories below: 1. Active participants (i.e., any individuals who are currently in employment covered by the plan and who are earning or retaining credited service under the plan). This includes any individuals who are eligible to elect to have the employer make payments under a Code section 401(k) qualified cash or deferred arrangement. 2. Retired or separated participants receiving benefits 3. Other retired or separated participants entitled to future benefits 4. Deceased individuals who had one or more beneficiaries who are receiving or are entitled to receive benefits under the plan. " The 2023 instructions for the 5500 line 6g(1) say: "Line 6g. Enter in line 6g(1) the total number of participants included on line 5 (total participants at the beginning of the plan year) who have account balances at the beginning of the plan year. Enter in line 6g(2) the total number of participants included on line 6f (total participants at the end of the plan year) who have account balances at the end of the plan year. " Clearly Line 6g(1) is counts either a subset or all of the participants reported on Line 5. Participants who are eligible to defer but who do not have a balance at the beginning of the plan year are NOT included on Line 6g(1), but they ARE included on Line 5. The Form 5500-SF instructions are the same where Line 5a is the same as the Form 5500 Line 5 and Line 5c(1) is the same as the Form 5500 Line 6g(1). Note there is an EFAST2 edit check which may be contributing to the confusion: "Z-007 - WARNING - Fail when the total participant BOY count on Line 5 of the Form 5500, Line 5a of the Form 5500-SF, or Line 5a(1) of the Form 5500-EZ of the current submission does not match the total participant EOY count on Line 6f of the Form 5500, Line 5b of the Form 5500-SF, or Line 5b(1) of the Form 5500-EZ from the previous year's submission."

The IRS does not have the resources to check everything every year. Each year, they will announce special projects or initiatives to take an in-depth look at a specific topic. For example, they had a project to look at plans that had a discontinuance in contributions. The found about 1/3 of their sampling of plans had a deficiency in how the discontinuance was handled (mostly due to vesting, and they found some plan terminations, too). The IRS has an expectation that a plan will operate in compliance with the rules, and we cannot assume that they don't care about early terminations. Any client who is cavalier about an early termination at least should be informed of the potential consequences of their decision.

Here are the 2023 Instructions for Forms 1099-R. https://www.irs.gov/pub/irs-pdf/i1099r.pdf The line-by-line instructions are consistent with where you suggest reporting each of the numbers in their respective boxes, and the Table 1. Guide to Distribution Codes starting on page 15 shows that you can pair Code 1 and Code B in Box 7. Looks like you are good to go.

Plan permanency is a "thing". It is best discussed with an employer BEFORE the plan is adopted. This takes away the first excuse an employers makes is "no one ever told me so". Is the IRS serious about it? Yes, it's in the regulations and the IRS Manual. See https://www.law.cornell.edu/cfr/text/26/1.401-1 and 1.401-1(b)(2) in particular. Also see the IRS Manual Section 7.12.1.13 Permanency Requirements/Reasons for Termination https://www.irs.gov/irm/part7/irm_07-012-001#idm139730249437392 . This latter link provides a lot of details on what is considered by the IRS in reviewing a plan's permanency, and you will find the answers to your questions and a lot more information. Is this something the IRS even checks? Yes. One way the IRS can learn about the issue is during a review of a company's tax returns. Seeing a deduction for a contribution in one year but not in subsequent years likely will trigger a question. Another way depends in part on whether to plan has filed a Form 5500-EZ, 5500-SF or 5500. The IRS has a formal Entity Control Check that it uses to keep track of filings made year over year. See page 24 of the IFILE User Guide https://www.efast.dol.gov/fip/pubs/EFAST2_IFILE_User_Guide.pdf . The IRS can track filings for the pairing of the employer's EIN and Plan Number. If there are too few or an abrupt end with no designated final filing, this may trigger an inquiry. Keep in mind that a discontinuance of contributions also can lead to a plan being considered terminated. Take a peek at IRM 7.12.1.14. If you convince a plan to delay terminating but the employer makes no contributions, you potentially are making the situation more complicated. Consider cutting your losses with these clients, and focusing your time and resources on educating employers before they sign up.

Out of curiosity, how big were the "big bucks" for the employee's salary in 2023? The HCE threshold in 2023 is $150,000 and the Key Employee-Officer threshold in 2023 is $215,000.

The predictable, automatic, without-thinking response would point to the transition rule which says they have up to the beginning of the plan year following the first full plan year following the year in which the acquisition took place. The reality is that the realm of retirement plans involved in mergers & acquisitions can be exceptionally complex and arcane depending upon many factors. Attached are two decent checklists that identify key points to consider and that will illustrate the breadth and depth of the issues that should have been considered both before and after each acquisition took place. I suggest reading through both of them and use each checklist for two or three of actual acquisitions the company has done. I expect this will be an eye-opening exercise into the topics and issues involved. At a very high level, here are some highlights: Consider each acquisition as a separate event both within and across plan years. Identifying the nature of the acquisition as a stock transaction or an asset transaction is paramount. Actions taken before the an acquisition is consummated significantly affect actions available after an acquisition is consummated. Changes made to either the seller's plan or the buyer's plan after the acquisition can result in an early termination of the transition rule mentioned above. Plans with different plans years have an added layer of complexities. An acquisition can have an unanticipated impact on determining who is or who is not a highly compensated employee, particularly when the top paid group rule was used by any plan in the controlled group, or when the acquisition is an asset transaction effective during the plan year. You should have substantial experience with 410(b) coverage testing and 401(a) nondiscrimination testing for plans within a controlled group when dealing mergers & acquisitions. May the common owner have the good fortune, either through due diligence or sheer luck, to find that all of the acquired companies and their plans are in compliance. Checklist-for-Plan-Merger-Acquisition-2017.pdf MA Retirement Plan Due Diligence.pdf

The application of the shifting rules applicable to the eligibility computation periods for LTPTEs is the same as these rules have applied since the 1970s. (The original example and the comments below are for a calendar year plan year.) No new programming required. First example The first Eligibility Computation Period starts on the hire date and ends on the day before the anniversary of that hire date. In the first example above, an employee with a 12/31/2023 hire date has a first ECP from 12/31/2023 ending 12/30/2024. The shifting rule says the second ECP starts on the first day of the plan year that contains the first anniversary of the date of hire. Applying shifting rule to the first example, the first anniversary of the date of hire is 12/31/2024. The first day of the plan year that includes the first anniversary of the date of hire is 01/01/2024, so the second ECP is 01/01/2024 ending 12/31/2024. Second example Moving to the second example, the first ECP starts on the hire date and ends on the day before the anniversary of that hire date. An employee with a 01/01/2024 hire date has a first ECP from 01/01/2024 ending 12/31/2024. Applying shifting rule to the second example, the first anniversary of the date of hire is 01/01/2025. The first day of the plan year that includes the first anniversary of the date of hire is 01/01/2025, so the second ECP is 01/01/2025 ending 12/31/2025. The key to how this has worked all along is the consideration of the first anniversary of the date of hire to determine the start of the second ECP.

The filing for the short plan year should be checked as the final filing for the plan, and the due date is the last day of the 7th month after the date of the transfer (which is the date plan assets went to 0). That would put it due on 12/31/2023 unless it was extended 3/15/2024. If the filing is late, the DFVCP is a bargain! https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/dfvcp

Here are the links to quickly find your members in Congress: https://www.senate.gov/senators/senators-contact.htm https://www.house.gov/representatives/find-your-representative Dropping them a line takes about as much time a post or 2 on BL.

The determination date for 2022 plan year was 12/31/2021 (assuming this is a calendar year plan). Let's say for example on the determination date you were considered a Key employee based on having more than 5% ownership in 2021. Assume you were no longer an owner on 1/1/2022 and had no ownership throughout 2022. The next determination date is 12/31/2022 to identify Key employees for the 2023 plan year. On the 12/31/2022 determination date you are now a Former Key employee. A Former Key employee's account is ignored when determining the Top Heavy Ratio. A Former Key is not a Key employee. If the plan Top Heavy for 2023 you will get the Top Heavy Contribution. You will remain a Former Key in future years unless subsequently you become Key again.

PS, you note that the plan sponsor is becoming unresponsive, which suggest they are not totally unresponsive. I'm sure you have communicated to them the consequences of not closing out the plan in a timely manner, and the fact that the plan will no longer be considered terminated if assets are not zero within 12 months. The penalties will start increasing exponentially as reporting and compliance deadlines are missed. Hopefully, there is a reason for the lack of a response (other than the plan sponsor just doesn't care), and they will finish the termination. I expect others involved with the plan are aware of the situation (plan's legal counsel, companies CPA, custodian...) since it sounds like there was a formal plan termination amendment that should have been communicated. They may be able to reinforce the message of urgency. You should avoid jumping into the role of the plan fiduciary, particularly if there has been no formal delegation of that responsibility that you agreed to. Further, if you try to keep the plan going on your own, you very likely will not get paid for your efforts. You (or a willing plan participant) can approach your local DOL office and explain the situation. The DOL can follow up informally when it gets this type of information.

The ICI says $9.9 TRILLION is held in defined contribution plans of which $6.9 TRILLION in in 401(k) plans. The BLS says 67% of private industry workers have access to employer retirement plans. With that kind of money in play, there are a number of industries (primarily in the financial services sector) that lobby for expanding the number of people who can participate in retirement plans. They also lobby for encouraging more new plan formation. The financial services lobbyists have very, very deep pockets. We also are seeing a sea change in the perceived role of 401(k) plans. They started as an opportunity for an employee to enhance retirement savings. The emphasis was on retirement and restricted access for other purposes. The pandemic and natural disasters have changed everything. We had massive unemployment and people needed money to live on, so the floodgates were opened to give participants liberal access to their 401(k) accounts. If we look at all of the new and proposed categories of penalty-free "qualified" distributions, many are centered around life events. As the number of these distributions expands, the 401(k) is becoming more analogous to the Depression era cookie jar or rainy-day fund. And the administration gets even more complicated. If there is a path towards restoring the focus on retirement, it must come from plan sponsors. It remains possible to have a plan design focused on retirement and to leave out or avoid a lot of the new features we are seeing. Consider IBM's recent announcement to end the match and add back a traditional DB plan. We cannot turn back the clock on 401(k)s and will have to live with the reality of their new purpose as an employee benefit. We can work with clients to see the difference between providing for retirement and providing for life events.

Our determination of whether a non-owner employee is a an officer and a key employee is in the realm of considering the facts and circumstances. Yes, we ask the client to identify on the census who the client considers to be an officer. We look at the individual's compensation and ask for more details if we are not familiar with an individual who is designated as an officer. We do not provide a written detailed explanation of the rules from Q&A T-13. We do factor in our experience, relationships and interactions with long-standing clients. For new clients, we do have a conversation our contacts about our census data request and discuss what it means to be an officer. We do rely on our experience with certain types of businesses and typical management structures. Applying a comprehensive analysis for all clients to determine who is or is not an officer would not be a practical use of our time or the client's time. Sometimes in our industry we get carried away with over-analyzing something when we do not have to be 100% precise. The reality (based on periodic analyses over the years) is the vast majority of plans with more than 15 participants are not top heavy. Further, many small plans now use a design the provides a safe harbor for top heavy testing. Note that Q&A T-39 says: T-39 Q. Must ratios be computed each year to determine whether a plan is top-heavy? A. No. In order to administer the plan, the plan administrator must know whether the plan is top-heavy. However, precise top-heavy ratios need not be computed every year. If, on examination, the Internal Revenue Service requests a demonstration as to whether the plan is top-heavy (or super top-heavy; see Question and Answer T-33) the employer must demonstrate to the Service's satisfaction that the plan is not operating in violation of section 401(a)(10)(B). For purposes of any demonstration, the employer may use computations that are not precisely in accordance with this section but which mathematically prove that the plan is not top-heavy.

Definitely leave this up to the employer in conjunction with their legal counsel. The facts smack of retaliation against a terminating employee. A lot will hinge on the wording of communication that was given to the employees. If the wording is definitive (e.g., "you will get $$$", "your 2023 PS contribution is $$$"...) and there is no disclaimer that these are not final numbers, then the employee may be disgruntled enough to challenge a lesser amount. Precedent also could play a part. In the past, if nobody's contribution was reduced if they terminated after the communication to employees was given out and before the contribution was finalized with the employer resolution, then lowering the contribution for this terminated employee reinforces the idea that this a form of retaliation for the employee leaving. Similarly, the perception of other employees about how the employer handles the situation may be a consideration. People talk. Unless there is clear justification for making the change, it may make sense for the employer to avoid the negatives and move on given the potential cost in terms of time and money. That is their decision.

If the document requires "consecutive months" of service, then there needs to be a clarification on how that will be administered. One interpretation focuses on the "consecutive" aspect where the employee works a period of a number of months without having a termination date. The service measurement would have to provide a backup calculation if the employee has 1 Year of Service (at least 1000 hours during the eligibility computation period). Another interpretation focuses on what is a "month". I have seen provisions where a "month" is a calendar month in which the employee works at least 1 hour, and may be paired with an hours equivalency of 190 hours per month. This service also would have to provide a backup calculation if the employee has 1 Year of Service. There is something of a Catch-22 here. If service is not measured using elapsed time, then any other service measurement will contain an hours requirement or a need to be backed up by a 1 Year of Service rule which contains an hours requirement. Administratively, we are stuck with counting hours.

The client should have a discussion with their personal tax attorney, CPA or tax return preparer about how the $500,000 non-compete payment will be recognized on the client's personal tax return. The topic is beyond the expertise of most retirement plan consultants. I suggest taking a look at the following sources to see the types of issues that are involved: https://willamette.com/837/Noncompetes_2022.pdf https://www.thetaxadviser.com/issues/2021/may/tax-issues-noncompete-agreements.html From the perspective of a retirement plan, ultimately you will want the client to provide documentation of how much if any of the payment will be reported as net earnings from self-employment for a year on the individual's personal tax return.

See my response to your post under "Filed 5500-SF instead of 5500-EZ for several years – can I switch?"

You definitely should file your 2023 return on Form 5500-EZ. For the years you filed a Form 5500-SF for plan years 2014 through 2019, you checked the box in Part I Line A that the filing was for a one participant plan, then that form will not be available to the public. These filings are okay and there should be no need for concern. If you did not check that box, then likely the forms can be found using the Form 5500 search tool. You can check by searching for your forms at: https://www.efast.dol.gov/5500Search/ For filings for 2020 to 2022, the instructions for the 2023 plan year filings say: "If you are filing an amended return for a one-participant plan or a foreign plan that previously filed electronically using Form 5500-SF or Form 5500-EZ, you must submit the amended return electronically using the prior-year Form 5500-EZ for amending returns originally filed for the prior years or use the current-year Form 5500-EZ for amending returns filed for the current year or returns originally filed older than 3-years. Do Not use Form 5500-SF for an amended return of a one-participant plan or a foreign plan, even if you previously filed using Form 5500-SF." You may also find useful this IRS page that was just updated in December 2023: https://www.irs.gov/retirement-plans/filing-an-amended-2020-form-5500-ez If you have copies of your previous filings, the whole process to clean up 2000 - 2022 everything should not take more than 2-3 hours (including reading the instructions and preparing amended filings). If you are going back to 2014, then double that time estimate.

If the suggestion is to require 1 year of service and no hours requirement, essentially you have an elapsed time eligibility service which would allow all PTs to participate (not just employees who would be considered LTPT).

If this was the first RMD due, then the participant had until April 2024. The year of taxation will still be in 2024, but there will be no penalty. If this was not the first RMD, then definitely the participant should have known better. It was not their first rodeo.

There will be HCE LTPTs, for example, in hospitals where per diem employees have been receiving exceptionally high compensation, and in businesses where the failure-to-launch children of the owners are working part-time. The LTPT rules are insidious! It will be interesting to see if the IRS takes a hard line on enforcing missed deferral opportunity corrections on companies who were not able to timely implement the LTPT rules, or just guessed wrong on how to identify LTPTs. It also will be interesting come 2025 to see what plan auditors will feel obligated to report about whether LTPTs were handled correctly.

The IRS published the long-awaited grab bag of clarifications on some of the outstanding issues in SECURE 2.0. Those who cannot spend the holidays without some technical reading, check out https://www.irs.gov/pub/irs-drop/n-24-02.pdf Specifically, this notice addresses issues under the following sections of the SECURE 2.0 Act: section 101 (expanding automatic enrollment in retirement plans), section 102 (modification of credit for small employer pension plan startup costs), section 112 (military spouse retirement plan eligibility credit for small employers), section 113 (small immediate financial incentives for contributing to a plan), section 117 (contribution limit for SIMPLE plans), section 326 (exception to the additional tax on early distributions from qualified plans for individuals with a terminal illness), section 332 (employers allowed to replace SIMPLE retirement accounts with safe harbor 401(k) plans during a year), section 348 (cash balance), section 350 (safe harbor for correction of employee elective deferral failures), section 501 (provisions relating to plan amendments), section 601 (SIMPLE and SEP Roth IRAs), and section 604 (optional treatment of employer contributions or nonelective contributions as Roth contributions). Enjoy the holidays!

The can be significant price differences for retirement plan services for several reasons. Here are some examples. The services that are included or excluded in considering what are "retirement plan services" an vary widely. Some plans want only very basic services while others want only the best of everything for participants. There can be multiple service providers involved with plan administration. Recordkeeping services (plan accounting, transaction processing,...) may be delivered by one provider and compliance testing may be done by another provider. This is more likely to occur when the plan design pushes the limits permissible by regulations. There can be multiple service providers involved with investments. Some plans make all of their decisions about the selection of investment funds and leave participants on their own to decide how to invest their funds. Other plans engage independent investment advisors who perform annual, semiannual or quarterly reporting. The service providers may or may not be fiduciaries. This includes 3(16), 3(38) or 3(21) providers. Within these categories, there can be limitation on which services the provider is willing to act in a fiduciary role. Service provider pricing can be influenced by the service provider's overall company relationships with the plan sponsor. Some companies view retirement plan services as a loss leader with the opportunity to create an additional relationship with a client that generates significant revenue for other services. Many financial services companies have taken this approach, and so have many accounting firms and law firms. Service provider pricing also can be influenced by the amount of revenue received from asset-based fees. Retirement plan services typically are transactional in nature or are based on time worked. Neither is based on assets. If pricing for retirement plans services includes an offset for asset-based fees, his is not a big concern until the asset-based fees exceed the fees for services. There can be pricing differences between service providers simply because some service providers are mindful to increase fees to keep them current with the provider's operating expenses, and some service providers have not increased fees for years. Some plans have no clue what they are paying service providers. This is more likely to happen asset-based revenue sharing is used to pay for retirement plan services, and the plan sponsor does not understand the total picture of how much the plan is paying for these services. There likely are more scenarios. Determining the scope of retirement plan services and the full measure of the price of those services can be complicated. Plan sponsors may have varied perspectives on what services they want for their plan participants. Bottom line, plan sponsors are charged with understanding what they are paying and with being comfortable that they can justify as reasonable any fees paid by participants.

If she is a Virginia resident when she receives the distributions, then she will pay Virginia state income tax on her distributions. https://www.tax.virginia.gov/news/virginia-taxes-and-your-retirement For those who are curious about other states, visit: https://www.kiplinger.com/retirement/602202/taxes-in-retirement-how-all-50-states-tax-retirees

Given the number of years and the number of participants affected by the failures, you should file a VCP. There are operational and document failures. After a closer look, you may find demographic failures, too. The DOL alone cannot address this range of issues including the document issues. The reporting of late deposits on 5500s is cumulative which means you add each year's late deposits to this year's late deposits and report them until they are fully corrected. Similarly, the 5330s are cumulative with each year added to the next year's 5330 until all the taxes are paid. Essentially, you pay each year's tax over and over again until there are no more late deposits associated with that year. Filing amended 5500s once this is cleaned up is a good idea to formally set the record straight. The 5500s are used by the agencies to identify plans with deficiencies so not amending them is inviting future agency reviews, audit or investigations. The amended returns supersede that prior filings. Note that when the plan files the VCP, the expectation is that the VCP will cover all deficiencies. Take time to look at employee census data for each year. You may find failures to implement deferral elections, missed deferral opportunities, ineligibles getting contributions, eligibles not getting contributions, unpaid benefits, unpaid RMDs, and more. The process not only will involve fixing participant accounts but will also communicating to the plan sponsor and to participants what is happening inside the plan. Be sure to prepare a service agreement documenting your fees to do this work, and include provisions for progress billing throughout the engagement. Plan remediation over a long period of time compounds the effort needed to get a plan in compliance.