Paul I

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.

This is an interesting conundrum. There is one element of loan administration that is a protected benefit, but it likely will not help with allowing loan rollovers. The distribution of an employee's accrued benefit upon default under a loan is a protected benefit under 1.411(d)-4 Q&A 1(c), but nothing else related to loans is protected. An IRS Issue Snapshot regarding loan offsets notes: "Plan loan offset Treas. Reg. Section 1.72(p)-1, Q&A-13(a)(2) provides that a distribution of a plan loan offset amount occurs when, under the plan terms governing a plan loan, a participant's accrued benefit is reduced (offset) in order to repay the loan (including the enforcement of the plan's security interest in the participant's accrued benefit). A distribution of a plan loan offset amount can occur in a variety of circumstances. For example, a plan loan offset can occur where the terms governing a plan loan require that, in the event of a participant's termination of employment or request for a distribution, the loan be repaid immediately or treated as in default. Treas. Reg. Section 1.72(p)-1, Q&A-13(b) provides that, in the event of a plan loan offset, the amount of the account balance that is offset against the loan is an actual distribution for purposes of the Internal Revenue Code (IRC), not a deemed distribution under IRC Section 72(p)." All may not be lost. The ability to take an in-kiind distribution is a protected benefit under 1.411(d)-4 Q&A 1(b)(2) which says: "Example 8. A stock bonus plan permits each participant to receive a single sum distribution of his benefit in cash or in the form of the property in which such participant's benefit was invested prior to the distribution. This plan's single sum distribution option provides two optional forms of benefit." Technically, the participant who has a loan earmarked to the participant's account is holding that loan as an investment. If the plan allows for in-kind distributions, then the in-kind distribution of the loan note could be considered a protected benefit. A final note. A recordkeeper's system limitation does not take precedence over the plan document, nor does it take precedence over the IRC or agency regulations. If they wish to cop an attitude, then ask the IRS to ask the recordkeeper about the recordkeeper's system limitations.

The correction process in EPCRS 6.02(4)(b) would have the missed amounts deposited as contributions into the plan as Safe Harbor contributions along with missed earnings on those contributions. The contributions would be considered an annual addition for 2022 purposes of applying the 415 limitations for that year. The contributions will be deductible on the employer's 2023 tax return.

It does, but the influence is not only in one direction. On one side, we have clients that want to pay admin fees out of pocket, particularly when they realize that the fees often are charged to participants based on account balances and the owners and senior employees have the biggest balances. On the other side, we have clients take the attitude that they have the plan so employees won't gripe about not having a plan and the plan also helps with recruiting. They figure the employees should pay for the cost of administration.

These are very thought-provoking questions, and bring out of the shadows and into the light some of the nuances of being a fiduciary versus trying very hard not to be fiduciary. In our business, we are not a 3(16) administrator. As you allude to, even being a limited fiduciary will not fully isolate us from the fiduciary mandate that "if you see something, you must say something". We take every precaution we can to educate and inform the plan fiduciaries about their responsibilities, and to document that it is a plan fiduciary that ultimately is making a fiduciary decision. If these proposals are adopted, we will have to be able to explain them to plan fiduciaries. We are compensated for our work strictly based on our fee schedule which has no links to investments. We offset our fees with any revenue we receive from sources other than the plan sponsor. When we participate in a vendor selection process, we educate the client on any revenue streams that each vendor and each investment has available. I expect there will be a lot of resistance to these proposals from investment professionals involved with ERISA plans. Generally, the structure of compensation within that profession is interwoven with the revenue streams from the assets held in a plan such as commissions, trailing commissions, 12b-1 fees, other forms of revenue sharing, finders fees, expense charges based on AUM and other similar sources. This puts an investment professional in the untenable position of explaining how being rewarded for doing their job well is simply a by product of not acting in their self-interest and always putting the best interests of the plan ahead of personal reward. Try as they might, investment professionals are not omniscient about global financial markets, perfect investment performance is elusive, and the near-term performance of investments based on the advice of the most successful investment professional can fluctuate significantly.

I agree if the plan merger occurs on 12/31/2023, but the OP only says 12/31/2023 is the end of the transition period and does not specify the effective date of the merger. The cautionary point is to make sure the plan has documentation that the merger date is no later than 12/31/2023 and not some date in 2024. The OP also explicitly says the Company B plan recordkeeper will liquidate the assets (most likely because the investment menu in the Company A plan differ (but we don't know that from the information provided).

The situation seems to have some blanks that need to be filled in. Is this the scenario? A company had a standalone 401(k) plan and decided to move the plan to a PEP. The 401(k) merges into the PEP, assets were transferred out of the 401(k) plan and transferred into the PEP. Contribution sources continue to be accounted for separately in the PEP (pretax to pretax, Roth to Roth, NEC to NEC, match to match, rollover to rollover,...) All protected benefits in the 401(k) plan continue to be available in the PEP. The 401(k) plan filed final 5500 showing assets going to zero as a result of the transfer. The auditor discovered that additional Safe Harbor contributions were due to some employees. If this is pretty much the complete picture, then the company should fund the amounts due to the PEP and have them deposited into the Safe Harbor source. If the scenario differs, there could be some major compliance issues. Some examples: If the 401(k) was terminated, and the PEP was set up within 12 months, then there is a violation of the successor plan rule. If active employees were allowed to take distributions (not otherwise available as in-service withdrawals), then there were distributions made without a distributable event. If the PEP treats all of the assets transferred as rollovers, there is a problem that the character of and provisions related to the different contribution sources were removed (e.g., restrictions on the availability of elective deferrals for in-service withdrawals before age 59 1/2). If the PEP did not preserve protected benefits, then there is a violation of anti-cutback rules. Ask questions, get the complete picture, confirm that the transition from the 401(k) to the PEP was a merger, confirm that the final reporting and compliance for the 401(k) was completed timely, and if everything checks out, then addressing where to fund the missed Safe Harbor contributions is a trivial task.

It sounds as if the Company B plan is merging into the Company A plan. Is there a corporate resolution or other similar documentation of the plan merger? Assuming yes, what was the effective date of the merger? If the date is 12/31/2023, then the asset transfer on 1/15/2023 is the administration of the plan completing the merger. If the formal merger date is after 12/31/2023, then there were two plans in existence up to the formal date of the merger. This scenario would strengthen the argument that the Company B has a short plan year in 2024 along with all of the reporting and compliance requirements applicable up to the date of the merger. Lou is correct that you should be good with the transition through 12/31/2023, but if the merger is not formally documented or the documentation creates a short plan year, that will be a PITA.

Read the document carefully. For example, some pre-approved plan documents use the term Statutory Compensation to define 415 compensation with choices for permissible adjustments. Plan Compensation has its own definition elsewhere in the plan document, and it is Plan Compensation that is used for calculating contributions to the plan.

Fundamentally, this is not a payroll issue. Student loan repayments are paid to the loan service provider. A student may have multiple loans from multiple loan service providers. Participants are submitting a claim in which case the participant controls the timing of that claim, and that can be up to 3 months after the close of the plan year. There is no payroll related involvement with respect to participant compensation nor is payroll involved with the loan repayments. It will be interesting to see if large recordkeepers think there is a sufficient population of plans and participants who wish to use this feature, or will the bulk of the administration be left to individual plan sponsors to build their own internal solutions.

Managing a retirement plan for an employer that has PRN, on call, per diem, gig worker and other similar categories of employees is challenging. Retirement plans have a presumption that the employer knows when an employee is no longer employed by the employer. That is not always the case. Best practice is for the employer should document the criteria that will be used to determine when a termination of employment occurs. This could be in an employment contract, a job description, an employee handbook or other similar written document. For example, an employee could be considered if the employee has not worked for specified time period (e.g., 90 days, a calendar quarter, ...). An employee is considered terminated if the employer communicates to the employee that the employee is considered terminated. An employee is considered if they file for unemployment. These types of policies create bright lines that can help the plan to determine when distributable events occur, to determine eligibility service and vesting service, and potentially apply allocation conditions such as a last day rule. If formal policies are not in place, then decisions such as determining an employee's status under the plan can be contentious. Like most policies, put it in writing, communicate it, and apply it uniformly and consistently.