Paul I

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.

Imagine what an employee's reaction will be when they prepare their taxes and learn their occupation is not listed by the IRS as an occupation eligible for the employee to take the deduction for tips.

It seems like @Nic Pospiech is posing the question more out of curiosity about what the situation rather than to advise the client or to act on behalf of the client. Yes, there are many dimensions to this situation that can be lessons for all TPAs, and most will distill down to documenting clearly between the client, the fiduciaries and the TPA who will held accountable for the consequences of operational errors. Without clear documentation, the client and fiduciaries need to know that they almost always will have or share that accountability. Without clear documentation, the TPA may not be held accountable by regulatory agencies but will be held accountable by the client or fiduciaries who have engaged the TPA for its services. In this case, the prior TPA lost the client. The conundrum is here is the late deferral previously was reported but the lost earnings were not funded. Forgetting the magnitude of the numbers, technically the reported late deposit has not yet been fully corrected and would be reportable until it is. Whether of not the 2024 5500 reports it is a decision for the client and fiduciaries to make. Nic's likely best option is to discuss alternative consequences but not advise the client on which path to take. Hopefully for Nic, the client and fiduciaries will recognize that Nic's response to operational issues will be as a part of the same team working on behalf of the plan, and not adversarial while only looking out for Nic's own interests. This is my just $1.31 opinion.

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Certainly what the plan says about compensation will have a bearing on the answer, but the following observation may help focus on what appears to be a disconnect in Jane's argument. If I follow the description correctly: Jane's S-corp PC owns part of the LLP. Jane's S-corp PC gets earned income from the LLP which would be reported on a Form K-1 (1065) Jane's S-corp PC would send Jane as an S-corp shareholder a Form K-1 (1120s) which would identify her W-2 earnings, S-corp dividends and various other allocations of income and expenses. Jane receives a W-2 from Jane's S-corp PC. I expect that Jane's income on the W-2 is less than the income Jane's S-Corp PC received from the LLP by amounts listed in the 3rd bullet, and Jane would like to have the higher income considered as plan compensation. The amounts reported on Form K-1 (1065) to Jane's S-corp PC is not plan compensation, and only Jane's W-2 income from the S-corp is plan compensation. There always do seem to be some special rules somewhere out there, but the reporting path for Jane's income should be fully documented through all of the returns filed for Jane and her businesses. Jane or her advisors should be willing to provide that information to you.

Generally applicable across the board, getting affirmative elections is better than using default elections.

The National Center for Employee Ownership (NCEO) at nceo.org has a lot of resources available to members (and a fair amount available for free). There is a wide range of information available from the what and why of ESOPs to some of the more technical aspects of leveraged ESOPs. Membership is relatively modest. If you want to dive into the deep end, there is a national forum in Philadelphia next week https://forum.nceo.org/

@Belgarath thanks for the feedback. I have seen this issue come up several times with respect to short plan years, particularly when the short plan year is a result of a plan termination. The problem usually surfaces when the plan files a 5558 to extend the date and enters on the form a date that is 9 1/2 months from the end of the short plan year. That pretty much locks in the due date that is earlier than the latest permissible due date.

You read and applied the instructions correctly. Out of curiosity, what is the pushback you are getting (too soon, too late, day of the month...)?

The deductions should not affect a plan's definition of compensation (unless there is special language in the document that somehow manages to cross the line). My primary concern is that payroll to needs to track and report to the employees some new information. It seems every year payroll is saddled with additional reporting requirements, there is an increase in errors on reporting plan compensation. These particular provisions are retroactive to 1/1/2025, and payroll typically does handle retroactive changes very well. The IRS published on August 7 some indications of will be required to be tracked by payroll. https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions Notably, regarding tips: "Reporting: Employers and other payors must file information returns with the IRS (or SSA) and furnish statements to taxpayers showing certain cash tips received and the occupation of the tip recipient. Guidance: By Oct. 2, 2025, the IRS must publish a list of occupations that “customarily and regularly” received tips on or before Dec. 31, 2024. The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and payors subject to the new reporting requirements." and regarding overtime: "Reporting: Employers and other payors are required to file information returns with the IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year. Guidance: The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and other payors subject to the new reporting requirements."

The new Federal income tax deductions are effective for income earned starting January 1, 2025. This may have an impact on how payroll reports tips and overtime pay when providing 2025 census data. Note that payroll does not yet have full guidance about the new rules. The new law is much more complicated that one would think. It creates a Federal deduction for tips that can be taken on a personal income tax form. It does not exclude tips from all payroll taxes. The exclusion is solely for Federal income taxes. Tips are subject to Social Security and Medicare taxes, and any applicable State and Local taxes. There is a cap of $25,000 on the amount of tips that are deductible, and this phases out as income rises above $150,000 (for single filer) and phases out if income reaches $400,000 (for single filer). Not all occupations qualify for the tips deduction. The IRS is required to publish a list of occupations eligible for the tips deduction by October 2, 2025. If you earn tips in an occupation that does not appear on the list (when it is published), you get no tips deduction. While you are looking at income taxes, also keep in mind that there is a new deduction up to $12,500 (for single filer) available on overtime pay. *Re-posted from 401(k)/Tips*

There is a difference between fulfilling the plan's eligibility requirements and the plan's entry date. The plan should specify all the rules needed to determine when the individual starts participating in the plan. If the plan says the entry date is immediate upon fulfillment of the eligibility requirements, then there is an argument that this participant became a participant on 12/31/2023. If the plan definition of compensation is compensation earned while a participant, then the participant will have 1 day of compensation. Best practice would be to clarify in the plan document the definition of the Entry Date.

Since there is no new disclosure required for employees affected by the High Paid Roth Catch-Up, it could be inferred that - from a regulatory perspective - existing disclosures are sufficient to provide an effective opportunity to elect against Roth contributions. A large number of plans already have an obligation to send out notices to participants in the 30-to-90 day window before the start of the new plan year for things like fund disclosures, QDIAs, safe harbors... and the plan's Roth rules can be added to the group. This does not answer the question makes sense. The plan sponsor most likely will decide how Roth elections will be collected for payroll to have the information necessary to apply the elections to the participants' first paychecks of the year. The plan's design and administrative procedures will need to spell out how and when elections can be made so payroll will know what they have to do. What makes sense is whatever payroll needs to have available to be ready to take the correct type and amount of elective deferrals.

It all depends on the demographics. That is why we test for coverage. Any time I see this type of convoluted eligibility provisions, I suspect it is a form of cherry-picking individuals the client wishes to benefit and excluding "undeserving" individuals the client wishes to exclude. This type of provision inevitably fails spectacularly when the demographics change, particularly when a change occurs mid-year and an "undeserving" individual becomes eligible for a benefit.

A decision on whether to deferrals should be made pre-tax or Roth should be made based on a complete understanding of personal income and personal preferences. The new law regarding is much more complicated that one would think. It creates a Federal deduction for tips that can be taken on a personal income tax form. It does not exclude tips from all payroll taxes. The exclusion is solely for Federal income taxes. Tips are subject to Social Security and Medicare taxes, and any applicable State and Local taxes. There is a cap of $25,000 on the amount of tips that are deductible, and this phases out as income rises above $150,000 (for single filer) and phases out if income reaches $400,000 (for single filer). Not all occupations qualify for the tips deduction. The IRS is required to publish a list of occupations eligible for the tips deduction by October 2, 2025. If you earn tips in an occupation that does not appear on the list (when it is published), you get no tips deduction. While you are looking at income taxes, also keep in mind that there is a new deduction up to $12,500 (for single filer) available on overtime pay. NOTE TO PRACTIONERS: The new deductions are effective for income earned starting January 1, 2025. Payroll does not yet have full guidance on how to report tips and overtime so expect compensation information reported on 2025 census data to be exceptionally vulnerable to errors.

Speculating about the possibility of an agency being unable to detect or enforce an issue can be seen as a violation of a practitioner's professional ethical standards (and possibly of Circular 230 (10.37(a)(2)(vi)).) The current assault on the ability of agencies capabilities to detect or enforce regulations has an element of intentionally disabling enforcement. There exists a relatively small but significant number of individuals who will ignore regulations simply because they do not expect to be held accountable. If their noncompliance is discovered, they often will be more than willing to challenge at least the initial efforts to hold them accountable, knowing that agencies will lack resources on a vigorous pursuit of enforcement. May all generations of retirement plan practitioners embrace honesty and integrity, and not be tempted to counsel clients on the risk of being caught for noncompliance.

Acquisitions of companies with retirement plans have occurred since retirement plans have been in existence. Business merger transactions are different from plan mergers and there are long-standing best practices for completing these transactions correctly and accurately. Except in very rare scenarios, corporate transactions will precede or be simultaneous with - but not follow - the plan merger. When all parties - business executives, legal counsel, plan fiduciaries, trustees, custodians, recordkeepers, plan accountants... - are informed and execute an agreed-upon plan of action, the process flows quickly and accurately. The motto "All for one, and one for all" reflects the spirit of cooperation among the businesses and its service providers. The saying "The tail wags the dog" is a recipe for disaster.