Paul I

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).

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.