Paul I

Read the plan document and more specifically any basic plan document associated with an adoption agreement. Most documents have a section that addresses the situation when the plan upon adoption fails to be a qualified. If you have some difficulty finding the section, it often exists alongside "mistake of fact" language. The provision typically calls for a return of contributions. Having the document in hand may facilitate the process of closing down the plan.

From the perspective of accounting principles, an expense is incurred when the employer becomes liable for during the accounting period for paying that expense. If this liability is paid during the accounting period, then the expense is categorized as incurred and paid. A clean example in our industry is a fixed match calculated each payroll period. On each payroll date, the employer incurs the liability to fund the match for that payroll period. If the funding occurs during the accounting period, then that payroll period match was incurred and paid. If the liability is paid after the close of the accounting period, then the expense is categorized as incurred and accrued. In effect, all accrued expenses are incurred expenses, but not all incurred expenses are accrued expenses. If, in our example above, a payroll funding occurs after the close of the accounting period then that payroll funding was incurred and accrued. From the perspective of plan accounting method, cash accounting would include only expenses that were incurred and paid during the accounting period, modified cash accounting would include all expenses that were incurred and paid during the accounting period plus some but not all expenses that were incurred and accrued, and accrual accounting would include all expenses that were incurred during the accounting period including all those that were paid during and paid after the accounting period. For tax purposes, the accounting for the tax credit should follow the accounting for the tax deduction for discretionary employer contributions (both match and NEC). Best practice for discretionary contribution is to memorialize tax year of the contribution in a Board or entity resolution declaring or authorizing decision.

We have no knowledge of anyone floating that idea. I doubt is would be considered by the IRS. The RAC process was part of a major initiative to reduce IRS staff time and commitment of resources. I also had a similar impact on plans and plan sponsors. The vast majority of plans now are on pre-approved documents and the IRS has drastically cut the number of determination letters they issue. Further, the concurrent cycles for types (DB, DC, 401(a), 403(b)...) of plans are scheduled to manage peak work loads for the IRS by spreading out pre-approved plan document approvals over time. On balance, the process was a big improvement. The current chaos springs from a very active period of Congressional actions that resulted in significant changes compressed into a short period of time. An overall RAC for a type of plan is very active for the IRS and document providers on the front-end (roughly the 2-3 years leading up to the release of IRS approval letters) of the cycle, and then very active for plan sponsors for the next 2 years through the restatement period. We had emergency legislation attributable to the pandemic in 2020 continuing into 2021, followed by multiple retirement plan proposed bills that were consolidated and passed in a massive new law, and now most recently a repeat performance. It is not surprising that the RAC now seems to follow a leisurely pace compared to the pace of legislation. Using specific legislation-based restatement periods would likely will be doomed to fail unless the pace of legislation moderates, or the IRS and industry comes up with a much more efficient document process. Imagine in some alternate reality if the IRS created a master plan document that included all of the required language to be a qualified plan, and then the document providers could create effectively adoption agreements that linked into that master basic plan document. (This would be similar to a plan today incorporating required provisions by referencing applicable regulations.) This would eliminate a substantial amount of the work that currently goes into creating, reviewing and approving pre-approved plan documents, and would preserve the ability of document providers to decide which choices will be made available under their documents.

My bet is on the IRS will not delay the next DC cycle for any reason other than their having insufficient resources to review and approve the documents. The document cycle has been resilient to increased frequency of regulatory changes (with my thanks to all of the pre-approved document providers out there). A large number of changes already have accumulated that need to be memorialized in the C4 RAC, and I don't see the IRS waiting just because there are more changes in the queue. This does not even consider that we do not guidance on several of the most recent changes, and in some instances will not have guidance until 2025 or later.

Both of the above suggestions above are worth exploring. Part of the consideration to declaring this particular loan as having been distributed and therefore having been offset is there was no distribution of the participant's remaining balance.

From in-person interaction with IRS and DOL reps, I have the impression there is a lot of concern about a classification that looks like, smells like or acts like a service based classification. From experience with large medical services employers and with large staffing services employers, they seem to be resigned to considering per diem/ad hoc/on call employees as LTPT employees if the 500 hours/consecutive years requirements are met. They do intend to exclude LTPT employees from match and nonelective employer contributions, and from all coverage and nondiscrimination tests. Several companies do not track in their HR/payroll systems hire dates and termination dates for these workers. Rather, the systems track an original hire date and a last day worked. This is a PITA for their retirement plans where regulations rely on service definitions based on periods of active employment or hours worked. These companies are implementing in the employment agreements and in company policies definitely determinable definitions of a termination date to help fix the time periods. For example, if an employee does not provide services for a period of 6 months, that employee is considered terminated as of the end of the 6 month period. We have been promised guidance by the end of this year, so it should not be too much longer before we get the big reveal. Sentiment seems to be leaning towards we will be underwhelmed.

Fundamentally, (or should I say SIMPLy stated), an employer with a SIMPLE IRA cannot have any other retirement plan. https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan

This situation may be very nuanced, and you should read the plan very carefully as well as having a conversation with the recordkeeper about any tax reporting that will occur. The IRS has FAQs that can be helpful in sorting out the possibilities. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans There are two technical terms - "default" and "offset" - that too often are used casually and interchangeably, and they are not the same. You should get clarification on the plan provisions describing the treatment of the loan upon termination. If it is truly defaulted, check to see if the date of default is specified in the plan document. For example, if the loan is considered in default as of the end of the calendar quarter following the calendar quarter in which the last loan repayment was made, this default date may be later than the date the rehired participant returned to active status (and restarted repayments and made up missed repayments). If the plan truly says there was an immediate default, then IRS FAQ #6 says "[A] deemed distribution is treated as an actual distribution for purposes of determining the tax on the distribution, including any early distribution tax. A deemed distribution is not treated as an actual distribution for purposes of determining whether a plan satisfies the restrictions on in-service distributions applicable to certain plans. In addition, a deemed distribution is not eligible to be rolled over into an eligible retirement plan. " That is pretty harsh news for a rehire to pay taxes on the loan and possibly pay an early withdrawal penalty. Should the plan language supports characterizing the loan as being offset, the IRS FAQ #7 says it can be rolled over to an eligible retirement plan by "the due date, including extensions, for filing the Federal income tax return for the taxable year in which the offset occurs." This is the rule you referred to in your last question. If your plan allows for rollovers of loans into the plan and this loan was an offset (not a default), then the rehired participant could rollover the loan back into the plan. Document, document, document all of the details surrounding how this ultimately is handled to protect the plan, to protect the participant and to memorialize the precedent it will set for future situations that may occur under these circumstances.

The math works, but you will not know if the IRS put all of the pieces together until time passes without the participant receiving correspondence from the IRS. This may take as much as three years or so. Do consider letting the participant and plan administrator know the details so any correspondence will not be a surprise.

Here is the link to the IRS website: https://www.irs.gov/retirement-plans/form-5500-corner#collapseCollapsible1699465613274 Essentially, the IRS is saying EFAST2 will be open for business for plans to file the 5558 electronically. There is no association between the availability of filing electronically and the plan year. Note that there is no ability to batch filings for a group of clients, so an electronic filing will be submitted for each plan. Also note that "Form 5558 is no longer used to apply for an extension of time to file Form 5330, Return of Excise Taxes Related to Employee Benefit Plans. You can, instead, use Form 8868, Application for Extension of Time To File an Exempt Organization Return or Excise Taxes Related to Employee Benefit Plans, to apply for an extension of time to -file Form 5330."

Keep in mind that there are categories of employees that can be excluded from the count of the number of employees. For example, you can exclude anyone who : did not reach age 21 by the end of the determination year, did not complete 6 months of service during the determination year. This typically involves employees where the time between the hire date and termination date is less that 6 months (e.g., hired later in the year prior to the determination year and terminated early in the determination year, or hired in the second half of the determination year), is not regularly scheduled to work more than 17.5 hours per week, normally did not work more that 6 months in any year of their employment, is in a union and excludable from the plan, or is a non-resident alien and exlcudable from the plan. These exclusions are optional and could reduce the count of 37 to a lower number, particularly if you round down. Keep in mind that the owners means more-than-5% owners in the event there are owners with 5% or less ownership. Most importantly, keep in mind that the top-paid group election must be elected in the plan document.

The IRS most likely will raise any concerns directly with the participant who will then have to explain what happened. The IRS may do so sooner or later depending upon their schedule. Consider providing the participant and the plan administrator with complete documentation of what happened and along with attempted corrections, if any.

It is that simple now that it is clear that the 2 owners in question are not employees, should not have received W2's, and cannot participate in the plan. The clarification was needed to confirm that they did not have a dual status as being both directors and employees (which is not uncommon). Now comes the hard part for Renee who has to tell 2 owners that they cannot be in the plan. They likely will ask why not? The response is they are not employees and their compensation is being reported incorrectly. I expect whoever has been preparing the W-2s will push back on being told they are reporting income incorrectly, and I expect the 2 owners in question will push back on not getting a contribution. Renee, start practicing saying, "you can't handle the truth!". Good luck!

You have to follow the plan document. If the allocation conditions say a participant must work 1000 hours to receive an allocation, and there is no other exception to this allocation condition (typically for terminations due to death, disability or retirement), then the participant does not get an allocation. There are other provisions that may be applicable and again, you have to follow the plan document. Are they employees? The definition of participant commonly requires an individual to be an employee to be able to participate. This likely will impact your cross-testing results. (This also opens up questions about why the amounts were reported on a W-2 instead of a 1099, and the company's accountant should have an explanation.) Is this pay included in the definition of plan compensation? The amounts 2 out of 3 of the owners may not be considered plan compensation for purposes of calculating the contributions, and you have to follow the plan document and exclude it from the contribution calculation. No plan compensation would result in no contribution. You may expect that the 2 owners will not be happy if they feel they are not getting a PS contribution and therefore are not benefiting from their inheritance. There are other strategies to address the situation without involving the PS plan (and possibly triggering compliance issues with the PS plan).

I agree. Keep in mind that the Pooled Plan Provider must designate a fiduciary to enforce the timely collection of payroll-based amounts so the PEP is in a position to prevent or minimize late deposits. An argument could be made that the PPP must ensure that payroll providers and employees of employers who are considered to handle funds have bond coverage. If a PPP did not arrange for coverage of those employees but instead tried to get the employers to obtain coverage, the PPP quickly learn that is easier to herd cats than to track bond coverage on an employer-by-employer basis.

The Department of Labor released an Information Letter on 9/7/2022 specifically addressing this question (see attached). There are 3 interesting points. First, the DOL notes the maximum bond for a PEP is $1,000,000. Next, on page 2, the DOL observes the PEP does not have to extend ERISA fiduciary bond coverage to employees of employers participating in a PEP. This conclusion follows comments that the bonding regulations address the point at which contributions to a plan become "funds or other property" of the plan for purposes of the bonding requirements, and this does not occur until the contributions are received by the plan administrator (i.e., the PEP). Immediately after arriving at this conclusion, the DOL comments "that there may be circumstances in which participant contributions are not timely transmitted to the PEP". In other words, the contributions handled by employees of employers are not plan assets until the contributions are received by the PEP, or under some unspecified circumstances, the contributions are late deposits and then they become plan assets in the hands of the employer. Then, at the end of the letter the DOL observes the PEP needs to make sure that an independent contractor administrator or manager who handles plan funds must be properly covered by an ERISA fiduciary bond. To answer your question, it appears that according to this letter, the employees of employers to adopt the PEP do not need their own ERISA bond unless they fail to timely transmit contributions. Gummint logic. DOL Information Letter 09-07-2022.pdf

R. Scott, here are some things to consider when addressing this challenging topic: First there is a fundamental reality that you have a business to run and you need to align your revenue stream with your expenses no matter what anyone else is doing. To the extent that your fees are paid from a plan, you must disclose the fees to a Responsible Plan Fiduciary in accordance with DOL's 408(b)(2). It is a good time to review the rules to make sure you consider what must be disclosed, and here are some resources: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/final-regulation-service-provider-disclosures-under-408b2.pdf https://www.davis-harman.com/pub.aspx?ID=VFdwak5BPT0= When you discuss fees with a client, you will raise their consciousness that you are a service provider and they pay you fees. Much like you have not addressed fees for almost 10 years, the client may not have evaluated the fees they are paying you over that same time period. Essentially, if a plan pays your fees and a client has not periodically re-evaluated your fees, they have not performed their fiduciary responsibility to monitor fees. You can expect varied reactions. A longstanding client that values their relationship with you as a trusted resource likely will not blink at the increase. A client that see you as a vendor providing perfunctory services will likely shop around. A client that has had a recent less than pleasant experience with you likely will use the fee as an excuse to terminate the relationship. A client may be experiencing its own need to reassess their revenue stream versus their expenses and you will be shining a light on the expense of your services. Hopefully, the client perceives that the value of your services match or exceed your fees. As part of this process, you also should address any clients that are vampires. They consume extraordinary amounts of your time and do not pay you for that time. You should be ready to have a frank discussion about services you have performed that were outside the scope of your existing agreement. Be prepared to walk away from any such bloodsuckers. A few others commenters have suggested what I consider best practices for keeping fee agreements up to date year over year. You should adopt a best practice and include it in your discussions and updated fee agreements. Good luck!

Green, you need to provide some additional information that is fundamental to making a decision about what to do with this plan. You mention pension plan, but do not say if the plan is a pension plan in the ERISA sense (defined benefit, cash balance, money purchase plan) or you are using pension plan in the generic sense which would include 401(k) and profit sharing plans among others. You only mention an owner but do not indicate if there are other participants in the plan. The plan very likely uses a pre-approved plan document, and the authors of pre-approved plan document are fastidious about provisions regarding who is the Plan Sponsor, what are constraints on the employers who adopt the pre-approved plan, and sometimes what happens when a Plan Sponsor is not available (e.g., an abandoned plan, or a sole proprietor dies and there are employees remaining in the plan). Repeating mantra along with everyone else - read the plan document, and most importantly, this includes the basic plan document that accompanies an adoption agreement. Assuming the owner finds a viable path forward to keeping the plan, the owner needs to consider if the cost of maintaining a plan is worth it to preserve the opportunity to take a loan in the future. Minimally, there is a cost to keeping a plan document current with regulatory and legislative changes. There is a cost to filing 5500s. There is a cost to deliver various recurring notifications. There are administrative fees. Is the opportunity to take a loan in future really worth the time, cost and effort? All of this being said, a potentially simple answer may be to merge the plan into a Pooled Employer Plan. The Pooled Plan Provider is the Plan Sponsor of the PEP, the PEP files the 5500 and sends out required notifications, and if the employer ceases to exist, the participants remain participants in the PEP. To meet the objective of the owner, the PEP would have to allow loans to terminated participants, the account balances would have to be large enough to not be subject to cash-out rules, and the cost of administration must be tolerable. These comments leave out important details about specific steps to take and potential compliance issues that cannot be known until the additional information is known, so please take these comments as food for thought.

If everything is identical, then permissive aggregation very, very likely should not pose a problem for either plan. Under permissive aggregation, the more vulnerable test may be testing the NECs if Company B has a disproportionately large number of employees who, on applying allocation conditions like 1000 hours and a last day rule, are not benefiting but are considered nonexcludable (think for example terminated with more than 500 hours). Again, not likely. Looking forward to the 2023 5500s, there is a new compliance question asking if the plan used permissive aggregation.

It looks like you are hoping to pass the Ratio Test. Keep in mind that when you are testing a plan for coverage within a controlled group, the numerator is the count of individuals benefiting in the plan, and the denominator is the number of nonexcludable individuals in the controlled group. For A, you have 25 out of 100 HCEs and 100 out of 1350 NHCEs. The ratio is (100/1350) / (25/100) = 7.41% / 25% = 29.63% < 70% = fails. For B, you have 75 out of 100 HCEs and 1250 out of 1250 NHCEs. The ratio is (1250/1350) / (75/100) = 92.59% / 75% = 123.46% > 70% = passes. (Please double check the math). You can test the plan together (permissibly aggregate) the plans and get a ratio of 100% = passes, or try using average benefits testing on A. Also keep in mind, when it comes to coverage testing, Elective Deferrals are a "plan", Match Contributions are a "plan" and Nonelective Employer Contributions are a "plan".

FYI, ASPPA has Benefits Councils around the country and accessible in most metropolitan areas. Some are active and others not so much. If you are near an active ABC, it likely offers local programming and educational opportunities that are in-person (=interactive, better learning experience) and that are less expensive. ASPPA membership is not required to participate in an ABC. It is worth checkout. You can learn more here: https://www.asppa.org/about/abcs

Here is a link to an outstanding article by McDermott, Will & Emery based on a webinar they presented in September. https://www.mwe.com/insights/employer-student-loan-debt-benefits-following-secure-2-0/ It gets into the details about the requirements of QSLPs and identifies several outstanding questions for which we do not yet have answers. The article reinforces my belief that payroll's role is minimal, and that much of the administration should be done by the plan's recordkeeper or a specialty service provider that is contracted to administer QSLPs either by the company or the recordkeeper. It is interesting that there are firms that already are offering full QSLP administration services to companies and recordkeepers. Here are two examples: https://www.meetsummer.com/recordkeepers https://getcandidly.com/student-loan-retirement-match/?gad_source=1 Anyone who does ADP/ACP compliance testing for a plan that allows QSLPs needs to explore the impact the QSLPs will have on their testing procedures and software. One major potential problem is an employee has up until 3 months after the end of the plan year (think by April 1) to send in their student loan information and receive the associated match, but the ADP/ACP testing must be fully completed by March 15 (for calendar year plans) to avoid excise taxes.

Double check everything with the vendor to confirm that everything that was submitted with the original filing was handled correctly. The most common cause of this type of problem is human error. Assuming there was an issue with the attachment (wrong file, empty file, not a pdf...), then make sure the vendor has the correct attachment uploaded. With most 5500 software, you can view the attachments and a pdf of the filing before it is transmitted to EFAST2. If all looks good, consider sending an amended filing. When an amended return is filed, the amended return gets a new AckID for the EIN and plan number pair and the original return is replaced by the amended return on the EFAST2 web site. There is no crosschecking of the numbers on the amended return against the original filing. Filing amended return likely is the least time consuming approach. Keep all of the documentation including the confirmation than the original return was accepted with no errors and the same confirmation for the amended return. Note that when an audit report is missing or unreadable, the plan likely will get a letter saying that the report is missing and the plan must file a complete form package by the deadline specified in the letter. If the complete filing is not made by that deadline, it triggers the next communication the plan receives is the penalty notice.

Part of the challenge is getting the loan provider to amortize the loan using repayments based on the payroll period. This could be further complicated if there are more than one loan provider that require different loan repayment frequencies.

That is a good idea. You can start a new board on BL. On the Forums (Message Boards) page, click on the Start new topic and name it. PEPs are odd ducklings because the Plan Sponsor is a Pooled Plan Provider versus a business, and companies join the PEP by adopting a participation agreement. The fiduciary responsibilities that in a single employer plan all belong to the business are divided between the PPP and the participating companies. Right now, there are less than 200 PPPs and the number of PEPs is below 350. The industry is in limbo with respect to many topics and the regulating agencies have projected time frames to release of regulations that extends out 2 or more years from now. There are instances where a plan cannot wait, and the path forward is guided by precedence and by principles embodied in existing regulations. Taken together, they provide a foundation for taking good-faith action. When these good-faith actions demonstrably are favorable to participants, they very, very rarely (if ever) are found to be egregious or unacceptable. In this particular thread, the topic distilled down to how to account for a corrective action to give some participants a contribution that should have received but did not. Participants who did receive the contributions they were entitled to get had those contributions put into the plan and then transferred into the PEP. The suggested treatment is to put the participants who did receive their contributions in the same position as those who did.