Paul I

This looks like a creative attempt to incorporate the original Long Term Part Time rules into the document. Hopefully, they did not get too creative elsewhere in the document and create rights to benefits for part timers that the plan sponsor didn't want. In my experience, long entries in the blank lines in the Adoption Agreement available when "Other" is checked or "Describe" is available all to often have lead to operational errors. Assuming you are replacing the document, use the opportunity to clean it up.

We all have our war stories of skirmishes with the IRS and EBSA. We had a plan that went from a one-participant only plan with assets under $250,000 and no EZ filing to a plan that required a 5500. The 5500-SF showed it was an initial filing and had a beginning balance, and the client received a love letter from the IRS. We called the IRS and spoke with an agent who took down the information, submitted it for review, and the issue was closed. All in, we spent more time on hold waiting for an available agent when making the initial call than the time we spent speaking with the agent.

Here is the link to model VFCP Application Form: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/vfcp/model-application-form Note the item 6 says: "6. Specific calculations demonstrating how Principal Amount and Lost Earnings or Restoration of Profits was calculated: (if the Online Calculator was used, you only need to indicate this and attach a copy of the “Printable Results” page, attach separate sheets if necessary) Online Calculator (“Printable Results” page attached) Manual calculation (see attached calculations)" You can try submitting just the results, but you likely will be asked to provide more details. In particular, reporting any negative earnings for any participant very likely is going to attract additional scrutiny.

Over the history of 5500s, the IRS has added (and removed) questions about compliance tests. Typically, this foreshadows their launching a project once the data are in for 2 or 3 years to study if there is a need to investigate plans or to see if additional regulations may be needed. This type of analysis is part of the reason 5500 was created starting in 1975.

There appears to be some nuanced interpretation of when the participant notice is required. Backing up a little bit, the IRS was concerned about 2 issues going into Cycle 3 about the match needing to be definitely determinable. The first issue was the total amount of the match to be funded had to be communicated by the employer to the Plan Administrator or Trustee before the contribution was deposited into the trust. This is a simple formality and parallels the documentation required for specifying a discretionary profit sharing contribution. The second issue was whether the match is definitely determinable meaning do participants know who gets the match, what is the frequency the match is made, and how is each participant's match calculated. The elements needed to determine the match include specifying: matching period (e.g., annual, each payroll, quarterly...) allocation formula (e.g., fixed percent, percent by tiers, flat dollar...) eligibility (e.g., varying allocations by business unit) If all of these elements are explicitly defined in the document (some plan say "fixed", "rigid" or similar adjectives implying could only be changed by plan amendment), then there is no need to send a notice to participants. In this instance then the SPD effectively communicates to participants about a definitely determinable match in the same manner in which a discretionary profit sharing contribution is communicated to participants. If any of these elements are not explicitly defined in the document (the plan sponsor can has discretion), then a notice is required to be sent to participants within 60 days after the last match is funded for the plan year. This timing requirement could vary considerably from year to year. One interesting note is the notice is an IRS notice (subject to the IRS rules for electronic delivery), why the SPD generally is a DOL disclosure. Another interesting note is that the notice requirement seems to apply to only to pre-approved documents. Apparently an individually designed plan possibly may not be subject to the notice requirement.

Before doing any 5500 filings, follow @RatherBeGolfing's suggestion to involve an ERISA attorney. Given the long period of time the plan was operating out of compliance, the attorney and TPA together can work with the client to determine if all of the information is available to complete the forms accurately, and is available to apply remedial actions to bring plan into compliance. If the information is incomplete, then the path forward likely will ultimately involve negotiating a resolution with the IRS and DOL. Sometimes in situations where plans have been out of compliance for many years, the cost and effort try to to reconstruct exactly what should have happened versus what did happen, and then trying to apply the prescribed remedies can be economically fatal to the company. A knowledgeable ERISA attorney may be able to propose another strategy that could be painful but not fatal. Having a strategy for remediation can help determine when the 5500 filings should be submitted.

For a plan participant in dire straits, it was not uncommon for them to take a loan and then a few days later take a hardship withdrawal (plan provisions permitting). This got the participant the maximum dollars out of the plan.

@Peter Gulia I think you can safely advise that, because there so many tried-and-true ways to handle forfeitures, this is a dumb idea!

Assuming the plan document is silent on the issue, there is some guidance out there. As noted in Rev. Rul. 81-10, "Forfeitures, like employers' contributions, may be allocated to participants' accounts pursuant to a formula that takes into account factors other than current compensation. However, if such factors are used, it must be shown on a year-to-year basis that their use has not resulted in discrimination in favor of the groups enumerated in section 401(a)(4) of the Code. A permissible method for determining whether the allocation formula produces prohibited discrimination in any given year is to compare the allocations to employees in the enumerated groups as opposed to other employees where such allocations are expressed as a percentage of compensation." What is relevant here is the forfeitures could be allocated based on something other than compensation (like years of service, age plus service points...), as long as it is not discriminatory. Regarding the 415 issue, there is a private letter ruling (i.e., we can't rely on it) IRSWD0213033 where an allocation of proceeds from a liquidation of an ESOP was considered in part an allocation of earnings (not contributions or forfeitures) for purposes of applying 415(c). This is such a narrow set of circumstances, it is very difficult to think it could be applied elsewhere. Ideally, @austin3515's client has in writing the comment the "big recordkeeper and an ERISA attorney has confirmed".

The Form 5500 Preparers Manual notes: "Entity Control: Edit tests or checks programmed into the EFAST2 system that are used to determine whether certain identifying data was being reported each year for a particular filer in order to maintain accurate year-to-year records for each filer. Such data as the employer identification number (EIN), plan number (PN), plan name, sponsor name, effective date of the plan, and total assets (beginning and end of plan year) are items commonly targeted for matching a current year filing to the prior year's report for the same entity." Reporting a plan with a beginning balance and also checking the box that say this is the initial filing should not trigger a rejection of the filing. However, if the EBSA undertakes one of its periodic reviews of the 5500 data, they could send a letter to the plan sponsor questioning the circumstances. Should this happen, responding with the facts should suffice to answer the question.

Here are the instructions for Line 14a on the SF: "Line 14a. A multiple-employer plan should skip this question. Check "Yes" if this plan was permissively aggregated with another plan to satisfy the requirements of Code sections 410(b) and 401(a)(4). Generally, each single plan must separately satisfy the coverage and nondiscrimination requirements. However, an employer generally may designate two or more separate plans as a single plan for purposes of applying the ratio percentage test of Treasury Regulations section 1.410(b)-2(b)(2) or the nondiscriminatory classification test of Treasury Regulations section 1.410(b)-4. Two or more plans that are permissively aggregated and treated as a single plan for purposes of the minimum coverage test of Code section 410(b) must also be treated as a single plan for purposes of the nondiscrimination test under Code section 401(a)(4). See Treasury Regulations sections 1.410(b)-7(d) and 1.401(a)(4)-9(a) for more information." Unfortunately, the question is structured where the answer for most plans is "No", which is a negative response, which leads clients to think something is wrong. Something like: "Did this plan satisfy the coverage and nondiscrimination requirements without relying on permissive aggregation with one or more other plans?"

The IRS released the unpublished version of the final catch up regulations which should be published in tomorrow's Federal Register. For 94 pages of reading enjoyment for those who can wait, see here https://public-inspection.federalregister.gov/2025-17865.pdf The final version should be here tomorrow https://www.federalregister.gov/public-inspection/2025-17865/catch-up-contributions One interesting right up front is "Applicability date: These regulations generally apply with respect to contributions in taxable years beginning after December 31, 2026. However, see §§1.401(k)-1(f)(5)(iii), 1.414(v)-1(i)(2), and 1.414(v)-2(e)(2) and the Applicability Dates section later in this preamble for additional details regarding applicability dates."

My point would be that fiduciaries likely are not offered the opportunity to choose an assumed retirement date. That assumption typically is made by the investment manager that is choosing the investments and percentage mix of investments when building the target date series of funds. Fiduciaries more typically are offered a choice from target date funds provided by various investment companies, and the assumed retirement age is baked into how the investment mix determined for each target age groups.

All good questions. Target date funds are a popular choice for a plan's QDIA primarily because average investment performance over a longer time period is better than the performance of safe or capital preservation investments. The target date concept appeals to those who are approaching retirement and don't want to incur investment losses. This masks the underlying operation of a target date fund, and many are surprised to learn that different target date fund offerings yield widely ranging investment performance for the same target dates. The fiduciary should do her homework to understand the mechanics of any target date fund offerings. One big difference can be whether a target date portfolio for an age group is designed with an assumption that a participant will retire at normal retirement and take their account out of the plan (a "to retirement" investment strategy), or is the target date portfolio for an age group is designed with an assumption that the participant will continue to keep their account balance in the plan through out their retirement years (a "through retirement" investment strategy). The latter will have a lower percentage of safe or capital preservation investments since the expectation is the assets will remain invested over a longer period of time. Simplistically, one the investment mix of one target date provider for 55 year old participants may look like the investment mix of another target date provider's investment mix for 65 year old participants. Note that the fiduciary typically is presented a choice of target date fund providers with input from the plan's financial adviser. Recordkeepers easily can administer different target date fund families for different clients. Recordkeepers can even administer a plan that has different target date funds from different fund families for different age groups. None of this even touches lifestyle funds, asset allocation funds, and other similar products to package diversified portfolios. This topic is wide and deep.

Our actuary provides an Excel spreadsheet with the factors (which takes them about 5 minutes) and we import the factors into the report writer that applies them to the participant's account balance when it generates the disclosures.

@Bill Presson you are correct... my bad... should not have said asset purchase.

Generally, you are in the ballpark. The biggest issue is, if the transaction is an asset purchase, the seller's plan should be terminated before closing to avoid the same successor plan issue for stock purchase. Note that the termination must occur before closing but the distributions do not have to be completed before closing. There can be many other topics for the seller to consider going into the discussion/negotiation with the buyer in an asset sale. Here are some examples: How long will the seller continue to exist after the sale? If there are outstanding loans to participants in the plan, will they become due upon the termination of the participant? Are there any last day rules or service rules in the seller's plan that could cause participants to lose out on current year benefits? If the buyer's plan does not have immediate eligibility/entry, can there be an accommodation to allow the newly hired, former seller's employees early entry? This is a very small sampling of the potential issues for an asset purchase and doesn't get into issues for a stock purchase. No question is too trivial to ask, and seek advice and counsel from those who will have in mind the best interests of the seller. The seller should have answers for all questions before signing off at closing.

Look at the instructions for the 5500 page 6 or 5500-SF page 7 in the section titled Authorized Service Provider Signatures. It says among other things that: "(3) that, in addition to any other required schedules or attachments, the electronic filing includes a true and correct PDF copy of the completed Form 5500-SF (without schedules or attachments) return/report bearing the manual signature of the plan administrator or employer/plan sponsor, as applicable, under penalty of perjury; (4) that the service provider advised the plan administrator or employer/plan sponsor, as applicable, that by selecting this electronic signature option, the image of the plan administrator’s or employer/plan sponsor’s manual signature will be included with the rest of the return/report posted by the Department of Labor on the Internet for public disclosure;" The instructions for the actuary's signature on the Schedule SB are "The actuary must provide the completed and signed Schedule SB to the plan administrator to be retained with the plan records and included (in accordance with these instructions) with the Form 5500 or Form 5500-SF that is submitted under EFAST2. The plan’s actuary is permitted to sign the Schedule SB on page one using the actuary’s signature or by inserting the actuary’s typed name in the signature line followed by the actuary’s handwritten initials."

The answer to the question about how are people handling address changes will vary from plan to plan, recordkeeper to recordkeeper, TPA to TPA... Addresses should be treated a Personally Identifiable Information (PII) and subject to the same data security methods applicable to of PII. At a high level, there should be a clear policy for managing PII shared across all partied involved in plan administration, and a clear delineation of steps each party will take for handling PII, and a clear assignment of accountability for any breaches that expose PII. If the plan is audited, how PII is managed should be part of an independent auditor's review of privacy and cybersecurity practices. With respect to addresses it, handling address changes for participants who have long since been terminated from employment with the plan sponsor are the most challenging. In this instance, the recordkeeper is more likely to have more recent interaction with the participant than the former employer. This suggests that an approach like @RatherBeGolfing described is appropriate to protect the plan.

Here is an example that is on point: https://ferenczylaw.com/solutions-in-a-flash-overpaymentsif-it-comes-back-it-is-yours/ Essentially, the individuals who received an overpayment of a refund are given the opportunity to return the amount of the overpayment to the plan. While not explored in the example, the timing of an repayment could have an impact on issues like lost earnings. If the overpayment already was reported as taxable income on a 1099 then there could be issues of correcting the 1099, or creating basis in the account. Document everything, and keep that documentation to just this side of forever.

What is the motivation here? Is the approach designed to let some HCEs drop in a chunk of after tax (and do a mega back door Roth) just to take advantage of the 3% testing default? The ACP test lives by its own rules and can use prior year testing without regard to how the ADP is done. While it is possible, is it really practical? Is the ADP test using current year testing? If yes, then using prior year testing for the ACP can be exceptionally messy particularly when ADP test fails and associated match has to be removed, and the ACP fails in the same testing year and requires refunds. It takes a plan amendment to change between current and prior testing (and vice versa), and the change cannot be made at will from plan year to plan year. The plan should not set itself for major headaches in the future just to take advantage of a one-shot opportunity.

With so many outstanding questions, why not just do a simple plan amendment either naming or describing circumstances that only apply to this person, and saying that they are eligible for immediate entry. This is not setting a precedent for future situations, and avoids doing a time-consuming, extended analysis. KISS!

If the B employees become eligible for the A plan on 12/1, and the A plan provides for a true-up, that is no different from any other new participants in the A plan who entered the A plan on any other day during the year. All participants in the A plan get the true-up for the time they were participants in the A plan. Whether B employees get any true up related to the time before entry into the A plan or any time before the purchase of B by A will depend on multiple factors like was this a stock purchase or asset purchase, was the B plan terminate prior to or on or after the purchase date, did the B plan have a catch-up provision, is compensation earned from B used for other purposes in the A plan, does the purchase agreement have any provisions about how the B employees will be treated under the A plan... Reviewing this type of documentation is best left to legal counsel, a consultant well-versed in acquisitions, or both. Depending on these factors, Corporation A HR person may be pleasantly surprised or horrified at the what A is required to do for former B employees.

First, check for any provisions in your service agreement, if any, dealing with the ending of your relationship with the plan, a merger, or other plan amendments that could impact your scope of services or fees. Look specifically for provisions for a deconversion. You may be pleasantly surprised that the service agreement spells out some terms and conditions that are favorable to you. The SA may also say explicitly services that you will not provide. This can provide you with an opportunity to charge extra for a service you are not obligated to provide but are willing to provide. Also note that your SA may specify time frames for deliverables as part of the process. Don't feel obligated to make extraordinary efforts and jump through hoops for the convenience of the successor provider. Next, try to get a copy of what the receiving plan's service providers have in their requirements documents regarding their assumptions about data to be provided by you (as @Lou S. lists in his post). If your service agreement does not commit you to provide what is being asked of you, you can refuse or negotiate what you are willing to provide.

Your best bet is the ERISA Outline Book. Start with an advanced search for "peo" and "hce". You should review the agreement between the PEO and the company, the PEO plan, and the proposed plan for the company. You also should look at the PEOs payroll practices, vacation, holidays, work schedules and other similar time for which employees receive compensation. It is fairly easy for an arrangement with a PEO to be treated as a leasing arrangement due to how the PEO functions operationally. Do not rely solely on representations about the status of the employees from the PEO or from the company. Facts matter more than representations. It is very likely that the PEO employees working for the company will need to be considered in coverage and nondiscrimination testing for the company plan.