Paul I

The LTPT rules only apply to a plan with a 401(k) feature in 2024, and to a 401(k) or 403(b) starting in 2025.

This thread truly is an example of a Donald Rumsfeld "unknown unknown" for the OP. “There are known knowns — there are things we know we know. We also know there are known unknowns — that is to say, we know there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know.” We all know how that turned out.

Gadgetfreak, a path to finding out what works best for your company is to discuss what you want your business to be known for in the market place. Classically, the characteristics of the business involve assessing some of the E's such as expertise, experience, effectiveness and efficiency. Here is how this may apply to a TPA. Expertise is characterized by in depth knowledge of benefits and tax laws, regulations, plan design, and specialty knowledge such as a focus topics such as M&A, related employers, for profit companies, not for profits, governmental plans... Experience is characterized by how long you having been operating in your market segment, how many clients you have with similar plan provisions or plan size, and the accumulated knowledge of topics and issues at the boundaries of your market segment. Effectiveness is characterized by doing the right things. Do you consider how a service you provide adds value to your client base, or do you find you add services just because a competitor is doing it? Efficiency is characterized by delivering your services optimizing your utilization of staff and technology to be fully engaged and providing responsive, accurate and timely services. You will find within most TPAs work is performed or assigned based what is needed to deliver the service to the firm's client base. If you want to be efficient where you have a large volume of routine transactions, then you will want to have specialty groups that focus on transaction processing. If there is enough volume of a particular transaction type such as distributions or contributions to keep staff fully employed, then organize them around those transaction types. If there is not enough volume, then the staff will need to be able to handle two or more different transaction types. A lot of firms will start a new employee in one area, say processing payrolls, and then put the employee on a rotation every 6 months or so to a team processing a different type of transaction type. The end result is a well-rounded, experienced staff member. The experienced staff member can act as a mentor to the new staff, but also is in a position to help respond to the unusual transactions that arise. This is the level where a transaction is not business as usual and requires the benefit of an experienced staff to address or fix it. If something is truly messed up, it is time to involve those who have the expertise to understand the issues and implications to the plan, and to guide both the business and the client in solving the problem. Scale is an important factor in this assessment. How many staff do you have or can afford to have? Fewer staff means you need more experienced staff. Your desired reputation in the market place also will contribute to your assessment. If you want to be the lowest-cost provider, then make sure your client base knows that you are a no-frills provider to manage their expectations. If you want to be the innovating or problem-solving go to company, you will need to have staff with the expertise and experience to meet the demands of your clients. I realize that this all sounds a bit too much like Harvard Business School, pie-in-the-sky comments, but if you give it an honest chance to guide your internal conversations you will find that your own organization will help define your business structure. Good luck!

ill, you must be getting the plan document from somewhere and I suggest that you ask the document provider to explain what the document does or does not allow you to do. Most providers will even do all of the math for you. Keep it simple and explain your goal, such as "My expected net earnings from self-employment is $xxx,xxx and my goal is to maximize my contributions to the plan and have as much as possible wind up as Roth." If you have insomnia or crave detail, you should enjoy spending some time with the attached Publication 560 Retirement Plans for Small Business. Good luck! p560.pdf

Attached is Publication 560 (2022), Retirement Plans for Small Business which gets into the details of calculating income for self-employed individuals. There is a worksheet titled Deduction Worksheet for Self-Employed with Step 1 is: Enter your net profit from Schedule C (Form 1040), line 31; Schedule F (Form 1040), line 34;* or Schedule K-1 (Form 1065),* box 14, code A.** For information on other income included in net profit from self-employment, see the Instructions for Schedule SE (Form 1040) Note that Schedule E is not listed along with the other schedules, and many of income items on Schedule have to do with passive income. It is worth looking at the Schedule SE instructions where there are long lists of what is and is not included in earnings from self-employment. If you distill all of this down, any income on Schedule E that is considered as income from self-employment for personal services would be reported on the individual's K-1. Any income reported solely on Schedule E is insufficient to determine if that income should be considered by a retirement plan. If the Schedule E income does not flow through to Schedule K-1 or to Schedule SE, then it is not income from self-employment and should not be used for retirement plan purposes. If the client believes it should be included, or the TPA believes it should be included, then the burden of proof is on them. p560.pdf

A rule of thumb is if it appears on the employee's pay stub, it is 3401(a) compensation. (This rule of thumb is not 100% reliable since it is subject to the reporting accuracy of the payroll provider.) You are correct that vehicle fringe benefits are not listed among the 20 subparagraphs under section 3401(a). The IRS Fringe Benefit Guide Publication 5137 (attached) is a resource for wading through the swamp of the various fringe benefits. It includes Employer-Provided Vehicles on page 36. And you are correct that Group-Term Life Insurance (page 58) is treated differently. (By the way, the GTL has some quirks related to dependents, retirees and terminated employees that many recordkeepers are no aware of.) Given your description of this employer's vehicle policy, I would say the $500 per month is included in 3401(a) wages. If this employer has a plan that uses 3401(a) wages as plan compensation, then the employer would need to explicitly exclude this vehicle benefit and any other fringe benefit that it does not want to use for calculating plan benefits. Fringe Benefit Guide Publication 5137.pdf

I have no opinion on who is better, and I do not use any particular service. That being said, I am intrigued by a service that was highlighted in a recent article in Plan Adviser magazine. You may want to check this out https://rixtrema.com/401kai_adviser/

I suggest looking at the courses offered through the American Retirement Association at https://www.asppa.org/ There also are other retirement-related organizations with training programs affiliated with ASPPA that you can find here https://www.usaretirement.org/ SHRM also has several 401k-related educational programs that may be better suited to someone with little experience with 401(k) plans. You can find more information here" https://www.shrm.org/LearningAndCareer/learning/Pages/EducationalPrograms.aspx

I cannot grasp the idea that a QDRO that likely: was drafted by two different attorneys, each representing separate parties, was signed by both parties, was reviewed and approved by the Plan Administrator, and was approved and signed by the court under a process that extended over a fair amount of time was a "mistake". With the approved QDRO in hand, I don't see how the participant has any standing with respect to the spouse's awarded benefit. I wouldn't do anything to impede the spouse from exercising her rights to her benefits without, at the very least, communicating with her. I also would want all parties - the participant, the spouse and anyone else involved - to communicate in writing.

I agree that it is easy to design a plan to make a family member eligible. Hours equivalencies and elapsed time work wonders for meeting eligibility service requirements (as long as the document specifies their use). I am all for plans that can benefit family members including children as long as the plan follows the rules. The hard part is justifying the compensation needed to make meaningful contributions that do not blow up plan limitations. The plan ratherbereading described frankly sounds like an abusive tax scheme. Hopefully the plan Pixie works on will follow the rules.

Congratulations on gaining new business! Technically, the Plan Administrator should make the decision and the PA likely will ask for guidance. Generally, the plan wants to be consistent in its basis for reporting, can make the change. The plan can change to reporting on an accrual basis which usually is a good idea if the plan needs or soon will need an independent audit. The auditors have to report on an accrual basis. Sometimes, full accrual accounting can be challenging particularly when the financial information is not reported to the plan on an accrual basis. Keep in mind that there is a third alternative to cash or accrual accounting and that is modified cash accounting. Under modified cash accounting, typically the assets are reported on a cash basis, but items like contributions made after the close of the plan year or distributions checks were cashed after the closed of the plan year are reported on an accrual basis. If this is a calendar year plan, you have 11 days to get the filings done. You may want to consider using cash basis for 2022 if you have to rely on data from the prior service providers, and then make the switch to accrual or modified cash basis for next year's filings.

Read the plan document and the loan policy carefully to understand who is and who is not eligible to take out a new loan. It sounds like this individual is an active employee who is on the company's payroll, and the individual has an account balance which makes him a participant in the plan. Do the plan and policy say a union employee cannot have a loan? If yes, you likely would not be asking the question. Do the plan and policy say to take a loan an individual must be an active employee and must make repayments by payroll deduction? If yes, then this employee meets those criteria. Do the plan and policy say to take a loan and an individual must be an active participant (defined as they are eligible to make or receive contributions into the plan)? If yes, then this individual does not meet these criteria and cannot take a loan. Keep going until the path from the plan document and loan policy to the answer to your question is clear. How the participant happens to be coded in the plan records does not supersede the official plan documents.

Since you have a valid QDRO in hand, you need to follow its terms. I would not suggest that the Plan Administrator act contrary to the QDRO's terms particularly if the action would prevent or inhibit the spouse's right to decide when payments should commence. One would think if the spouse somehow wants to walk away from the QDRO, she would not begin receiving benefits and would communicate her change of heart directly to the Plan Administrator. The QDRO has contact information for the spouse, so it should be easy for the Plan Administrator to find out what the spouse's position is about the QDRO. If there seems to be a consensus, then the PA should ask each party to consult their respective attorneys about asking the court to change or nullify the QDRO. It would be interesting to hear if they succeed in getting some form of amendment or agreement that supersedes the original QDRO. Tread carefully. Creating a QDRO very often is a highly emotional event and it is not rare that one party just likes making life more difficult for the other party.

If the spouse has no compensation, there is nothing to defer. If the spouse has not worked 1000 hours in an eligibility computation period, the spouse has not met the eligibility requirements. The owner must follow the plan provisions. If the owner wants to have more liberal eligibility, they can amend the plan and apply the new liberal eligibility to all employees.

We need to keep in mind that this is an 11(g) amendment adopted on 10/14/2022 after the close of the 2021 plan year and effective retroactively to 1/1/2021 = the beginning of the prior plan year. The OP says the amendment adds employees to the Plan that complete 1 year of service with no further clarification. The employee in question completed 1 year of service for the 2021 plan year. The fact that the employee terminated in the 2022 plan year on 3/1/2022 is not relevant with respect to the 2021 plan year. With an 11(g) amendment, we can pick and choose who gets to participate in the prior plan year and only need to add enough participants to pass coverage. The amendment could have specified additional criteria to restrict who was includable in 2021 but apparently did not do so. Unless there are more facts than have been presented such as the EBP's employee service history questions , this employee should have been included as participating in the 2021 plan year.

The nuance on the use of investment as an adjective to modify purposes easily can be argued, particularly if we consider it from point of view of the plan versus the point of view of the participant. From the point of view of the plan, it is an investment and is earning income (which you should reasonably ask what happens to that income). From the point of view of a participant, it is not an investment in the sense that the participant cannot elect to direct the investment of the participant's account into the interest-bearing account, but it could be considered if the participant receives some of the interest earned in that account. Sometimes its entertaining to contemplate our navels, or as a motivational speaker may say, engage in a thought exercise.

I agree that we should look to the plan's existing eligibility computation period rules and apply them to the LTPTs. Presumably, the plan could have different ECP rules for LTPTs simply because plans today can have different ECP rules for different classifications of employees - for example full-time versus part-time. Trying to use anniversary dates of hire where the date of hire used to determine the ECP shifts after a break in service to the most recent hire date likely would be a nightmare for some employers when applied to LTPTs. I say this simply because employers have a difficult time deciding if the last day the part-timer worked was a termination date or simply the last day worked with an expectation that the part-timer will work some more in the near future, and the employer does consider the part-timer as having terminated.

I suggest asking a simple question - Who owns the account that is holding the interest-bearing cash? If it is the Trustee of the plan, then it is an asset of the plan. Otherwise, it is not an asset of the plan.

I expect formulating administrative policy is allowed without impacting the ability to rely on the opinion letter. As an example, many pre-approved plans have a check box that asks "Are Loans permitted: Yes/No". The Adoption Agreement then has an appendix or addendum titled Loan Policy with all of the details like number of loans, interest rate, refinancing... I would see a Forfeiture Policy statement to be analogous.

I agree that there is very little guidance/rules on what to do when investment directions are not followed, and whether a correction is made or determining the amount of the correction seems to be driven either by the plan administrator finding the error and calculating lost earnings or by the participant informally or formally requesting to be made whole. This situation is fairly common but does appear anywhere as a prohibited transaction. I find 1.415(c)-1(b)(2)(ii)(C) regarding restorative payments and what is or is not counted for purposes of applying the 415 limit illuminating even though this section, too, does not address a correction method: Restorative payments. A restorative payment that is allocated to a participant's account does not give rise to an annual addition for any limitation year. For this purpose, restorative payments are payments made to restore losses to a plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under title I of the Employee Retirement Income Security Act of 1974 (88 Stat. 829), Public Law 93-406 (ERISA) or under other applicable federal or state law, where plan participants who are similarly situated are treated similarly with respect to the payments. Generally, payments to a defined contribution plan are restorative payments only if the payments are made in order to restore some or all of the plan's losses due to an action (or a failure to act) that creates a reasonable risk of liability for such a breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the plan). This includes payments to a plan made pursuant to a Department of Labor order, the Department of Labor's Voluntary Fiduciary Correction Program, or a court-approved settlement, to restore losses to a qualified defined contribution plan on account of the breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the plan). Payments made to a plan to make up for losses due merely to market fluctuations and other payments that are not made on account of a reasonable risk of liability for breach of a fiduciary duty under title I of ERISA are not restorative payments and generally constitute contributions that give rise to annual additions under paragraph (b)(4) of this section. The focus of text in yellow includes recognizing a payment made to the plan to because of losses due to a fiduciary's failure to act and that failure creates a reasonable risk of liability. Put another way, if you think you're going to get sued, fix it and its not an annual addition. It is interesting that the text in green is added to cover a situation where the participant lost money due to market fluctuations and the fiduciary (out of the kindness of their heart I suppose) decides to put in a little something to make up for the loss. The participant making an investment decision that did not work our does not have a reasonable risk of liability, so any such restoration of the loss to the participant is an annual addition. We never know where we may find a little bit of guidance.

This case will be interesting. Before Cycle 3 restatements, pre-approved plan included provisions where the plan specified the sequence in which forfeitures would be applied, with one sequence applicable to forfeitures of non-elective employer contributions and another sequence applicable to forfeitures of matching contributions. For Cycle 3 pre-approved plans, the IRS approved language which pretty much said do what you want with the forfeitures as long as you use them before the end of the plan year following the plan year in which the forfeiture occurred (with some choices for doing so earlier). Plans commonly chose to use NEC forfeitures first to reinstate any forfeitures for rehires under the plan provisions, then to pay plan expenses, and then to allocate to participants using the plan's allocation formula (with allocating over compensation as the next best choice). Match forfeitures were required to offset the employer's match obligation which almost always depleted the match forfeitures. If in this case the plan had such provisions, then there should have been no discretion how to use forfeitures, or there was a failure to follow plan provisions. (Notably, a plan that allows for discretionary contributions provides an end-around to using forfeitures to offset the contribution. The employer declares the amount of the discretionary contribution with an eye on the total amount of contributions and forfeitures that are allocated to participants.) A plan document with the do-what-you-want provision essentially grants that discretion to a fiduciary as identified in the plan. This case sets up a conflict between exercising discretion granted in the plan document against always choosing what is the optimal use of forfeitures for the benefit participants. Charging plan-related administrative expenses to the plan has always been allowed and, where applied, has always had participants complaining about it. The counter argument boils down to employers are not required to sponsor a plan or pay the plan's administrative expenses, so why should they if they don't want to? With many states mandating some form of access to retirement plans and the federal government moving towards "encouraging" access, it may be possible that our future may include a mandate that the plan sponsor must bear at least some of the costs of plan administration (e.g., plan audit, retirement or RMD distributions, ...) One thing this case will do is having plaintiff's attorneys searching for plans (likely by reading audit reports downloaded from 5500 filings) that use forfeitures to offset plan expenses. We live in an interesting time with respect to retirement plans.

IRS Publication 7335 (Rev. 6-2021) notes IV. Vesting Line a. Section 401(k)(2)(C) of the Code requires that elective contributions and other contributions that may be treated as elective contributions, as described in V. and VI. below, must be nonforfeitable when made to the plan. In order for a contribution to be nonforfeitable each participant, regardless of age or service, must immediately be vested in his or her elective contributions. 401(k)(2)(C) 1.401(k)-1(c) and 1.401(k)-1(c) says (c) Nonforfeitability requirements (1) General rule. A cash or deferred arrangement satisfies this paragraph (c) only if the amount attributable to an employee's elective contributions are immediately nonforfeitable, within the meaning of paragraph (c)(2) of this section, are disregarded for purposes of applying section 411(a)(2) to other contributions or benefits, and the contributions remain nonforfeitable even if the employee makes no additional elective contributions under a cash or deferred arrangement. (2) Definition of immediately nonforfeitable. An amount is immediately nonforfeitable if it is immediately nonforfeitable within the meaning of section 411, and would be nonforfeitable under the plan regardless of the age and service of the employee or whether the employee is employed on a specific date. An amount that is subject to forfeitures or suspensions permitted by section 411(a)(3) does not satisfy the requirements of this paragraph (c). This section factored into the change in the IRS position that allowed forfeitures to be used to fund QNECs and QMACs. The IRS previously said forfeitures could not be used to fund QNECs and QMACs since these amounts had to be 100% vested and would not give rise to forfeitures. Upon revisiting their logic, the IRS said forfeitures could be used to fund QNECs and QMACs because these contributions were employer contributions when made to the plan and QNECs and QMACs were not subject to a participant election as elective deferrals when made. This is a subtlety but the interpretation allowing the use of forfeitures for QNECs and QMACs was welcomed in the community. This new logic, though, is not applicable to using forfeitures to fund elective deferrals made at the election of a participant, i.e., reduce the amount of elective deferrals owed to the plan. Have employers done this? Very likely because no one told them they couldn't. Is it a failure to deposit deferrals timely? Yes. Could the forfeitures used in this manner be considered a pre-funding of elective deferrals? Could be. My take on all of this is if the employer asks if they can do this, just say no. If an employer is doing this, they should stop (and try to clean up the mess).

Was the filing put on extension? If yes, then there is a reasonable chance they will get an IRS notice within the next year following up on it. Has the client already filed their tax return? If yes, I suspect they took no deduction for a SHM. If they did, then they have a tax return issue on top of everything else. If you have access to their tax preparer or financial, you may want to explain the issue and see if they will help convince the client to fund the plan. Sometimes, a client will listen to their tax preparer or financial adviser it those relationships are long-standing. This is going above and beyond trying to keep a client out of trouble, but sometimes if a client finally listens, they come to understand the value you bring to keeping them out of trouble. If the client adamantly refuses, you can try sending them letter that explains (not in great detail) the consequences of not funding the SHM, and mentioning to name a few: that the plan can be disqualified and everybody gets taxed along with paying penalties and interest; that the plan fiduciaries are personally accountable and liable for operating the plan according to its terms; that not filing or filing with false information under penalties of perjury carries separate penalties from the IRS and DOL that can quickly add up to amounts exceeding $100,000 each; and, that the cost of meeting their obligations now is far less than trying to clean up things later. You should consider taking a look at your service agreement for clauses dealing with termination of services and for clauses dealing with the client not fulfilling their obligations under the agreement and under the plan document. It is clients like this that make me think how much more fun this business would be without clients like this. Good luck!

IRS Notice 97-45 says: VI. CONSISTENCY REQUIREMENT FOR ELECTIONS (1) Consistency requirement — in general. Except as provided in section VI(3) and (4) [related to multi-employer plans], in order to be effective, a top-paid group election made by an employer must apply consistently to the determination years of all plans of the employer that begin with or within the same calendar year. Similarly, except as provided in section VI(3) and (4), in order to be effective, a calendar year data election made by an employer must apply consistently to the determination years of all plans of the employer, other than a plan with a calendar year determination year, that begin within the same calendar year. This also is reflected in IRS's Chapter 6 401k Examination Techniques Using Automated Workpapers The top-paid group election made by an employer must apply consistently to the determination years of all plans of the employer that begin with or within the same calendar year. The election must be reflected in the plan’s documentation (Notice 97-45). Note that this requirement applies to the ability to make the top-paid group election. If either plan does not use the top-paid group election, then neither plan gets to use the top-paid group election.

After you file the 5500-SF, you have to go to the DOL site and to the DFVCP Penalty Calculator (Google will find it for you). You will input information about the 5500s that were filed with the DFVCP box checked and the calculator will tell you how much you owe (which for 1 filing is the $750). From that page, you can click to the payment box where you can enter payment information. They take credit/debit cards and possibly electronic checks. FYI, they don't care who pays as long as they get paid.