Paul I

Most likely, you are being overly concerned, but that is an indication you care and are looking out for your clients best interests. Sometimes stuff does happen, so keep all of documentation you can in case there is a need to show you made a good faith effort and get the forms in the mail before the deadline. This could include screenshots from the USPS tracking site. If the status is "moving through network", that is an acknowledgement that the certified mail is in fact in the hands of the post office. If your clients start getting letters that they filed an extension and the 5500 is due by October 16th, you will have another form of proof that the forms were received.

I have been asked this question when, and have clients where, the client already has a plan with a different financial advisor, and the client is willing to consider using the services of a second financial advisor. My experience is having two plans with different financial advisors leads to extra overall costs to the client and compliance problems when the client gets conflicting advice from each advisor.

There is no need to split a payroll period that saddles a plan year ending in the middle of the period. Include the entire payroll in the plan year or not. Be consistent. If you include it, you are using accrual accounting. If you don't, you are using cash or modified cash accounting.

Roycal, please see https://www.napa-net.org/news-info/daily-news/can-plan-charge-fees-terminated-participants-not-active-ones

This situation sounds as if each Sub is uses different payroll providers or at least have different payroll rules. Sometimes payroll departments implement procedures based on what is expedient for payroll without seeking input from benefits departments. There may even be different HR systems feeding into these payrolls. If this is the case, then the HR/payroll documentation likely will explain how each sub wound up with different procedures. The situation with Sub 2 sounds like each participant needs to make a catch-up election each year while the elective deferral election remains in force year over year. This is counterintuitive to the way most systems are set up. One would expect there would be a standing elections for elective deferrals and for catch up contributions. Requiring affirmative elections every year increases the risk of having failures to implement elections. Having the Sub 1 catch-ups automatically increase suggests that the plan may have an auto-increase provision. If the plan does have an auto-increase provision and it is not applied to Sub 2, then there is a problem. If the plan does not have an auto-increase provision, the there would have to be a participant election made by Sub 1 participants to make the "maximum available catch-up contribution" to support the auto-increase that takes place. That would beg the question of why this max available election is not offered to the Sub 2 participants, which gets into a nuance of the availability of the election. See if the plan, SPD, or administrative policies have any governing language. Review the instructions on any participant election forms or related communications. Find out why the systems were set up the way they operate. Any disconnects among these sources should help answer whether there is a problem.

The independent auditor will use accrual accounting for their financials. The Form 5500 can use a cash, modified cash or accrual accounting method. Any differences in the accounting between the audit report and the Form 5500 should be reconciled. Here is a short but good explanation of the differences in the methods: https://www.investopedia.com/terms/m/modified-cash-basis.asp Rai123, if I understand correctly your description of the accounting, you are using the accrual method. As CBZ notes, your auditor will let you know if they disagree with your numbers.

My view is that hardship withdrawals are a vestige from the early days of 401(k). At that time, the IRS focused on the tax deferral aspects of 401(k) "salary reductions". The IRS agreed to go along with a current tax deferral in support of a participant saving for retirement with the expectation of collecting taxes upon distribution. To hold participants accountable for their commitment to save for retirement, the disincentive of a 10% excise tax was put in place for early withdrawals. Recognizing that there could be situations where participants had financial emergencies, the hardship withdrawal rules were put in place but they retained the disincentive of the excise tax. There was a reluctance to allow participants to decide what was a financial emergency, so there was a need for a gatekeeper. The Plan Administrator often is the default plan fiduciary, and was saddled with the responsibility to enforce the rules to determine if a financial emergency existed. The rapid spread of 401(k)s and employers pushing more responsibility for retirement readiness onto participants by promoting higher 401(k) contribution levels has made 401(k) contributions a recurring participant "expense" that rivals a home mortgage. Today, we are emerging from the torsion of the pandemic. The pandemic accelerated the shift in the role of 401(k)s from a retirement focus to the 401(k) being a financial resource for any life event that put a financial strain on the participant. Hence, the recent enumeration of these life events in the Code and regulations that allow early access to 401(k) balances. There is paradigm shift in the approval process for allowing early withdrawals. Part of this shift is creating this list of predefined life events that the participant self-certifies and the gatekeeper's responsibility is (effectively) removed from the duties of the Plan Administrator. Another part of this shift (and one that makes the IRS bristle) is a growing number of legislators that now see taxes on distributions from 401(k)s both as a revenue source and as a mitigation for government-funded financial aid. Bottom line, traditional hardship withdrawals with their excise tax penalties and Plan Administrator approvals are an anachronism.

The plan should consider identifying what the plan will not accept as a rollover and apply that to all rollover requests including those of employees who have not yet met the plan's participation requirements. This may include requiring all rollovers to be in cash (or identifying unacceptable assets like LPs, real estate...), not accepting loans, not accepting Roth or after-tax, not accepting life insurance, and other similar restrictions designed to keep the plan investments clean. The plan should avoid exercising discretion over whether an individual is allowed to make a rollover contribution into the plan.

The biggest concern is the use of the expense charge as a forfeiture against the match. That needs to stop ASAP and the plan should consider making a match contribution equal to the sum of any prior offsets. Aside from the TPA fee, does the plan have administrative expenses for other service providers that can be charged to the plan? If yes, and they exceed the revenue sharing amount, this could help clean up the issue. If the revenue sharing is so large that it covers all expenses, then consider allocating the excess to participants as a credit. This could be done on account balance or per capita, and would include the accounts of the terminated participants. Personally, I agree with Bill that a simple approach is to negotiate a reduction in revenue sharing. It will be less work to administer the plan and less likely to attract a suit for having overpriced investments.

If you want TMI, get your favorite beverage and read FAB 2008-04 (18 pages). If you want to see what an EBSA investigator will look at when reviewing a plan's ERISA bond, peruse the Bonding checklist (3 pages). I believe anyone going through the checklist will think of at least one client that likely has a bond that is not compliant. 2008-04.pdf Bonding checklist - EBSA Fiduciary Investigations Program.pdf

As so of today, we remain without guidance and not even a hint if or what the IRS is thinking about these issues. On one extreme, imagine an increasingly likely government shutdown come October 1st that lasts several weeks. If the technical correction to restore the deleted provision allowing catch-up contributions is not passed before year-end and the IRS is unable to find a workaround, conceivably no one could make a catch-up contribution starting in 2024. That almost certainly would be fixed sometime in 2024, but it will be messy. On the other extreme, the IRS feels it has the authority to issue a workaround, likely will require a plan to allow both pre-tax and Roth deferrals and pre-tax and Roth catch-up contributions with the restriction of Roth only catch-ups for High Paids. What we do know now from a recent PSCA survey is about two-thirds of plans say they are unprepared to administer this provision and don't think they will be able to implement anything in time to be ready on January 1, 2024. To answer your question directly, I tell my clients it is unlikely that they will be able to require all participants to make catch-up contributions on a Roth basis. I also tell them we are in for some chaos, and they are in the same situation as a large number of other plans.

That certainly sounds like a practical solution to avoid having multiple single-purpose forms with associated instructions. A challenge for each plan is to present to the participant only the choices available under the plan document. There number of these choices has grown which means the number of combinations of permissible withdrawals has increased significantly. If a plan permits a lot of these options and the plan's recordkeeper administers the collection of the participant's elections, it also will be a challenge to present the choices to the participant. One drawback to online elections is screen real estate, and mobile apps are even more restrictive. It is doable, but challenging.

Peter, the attached chart from one of your earlier posts on this topic is illustrative. You list 4 columns headed Early? / Rely? / Excuse? / Repay? and hardships are the only withdrawals with the pattern Yes / Yes / No / No Hardships, unlike the other withdrawal reasons, are subject to the 10% excise tax on early withdrawals, and most other withdrawals available before a distributable event or age 59 1/2 allow for repayment of amounts to the plan while hardships do not. One can infer from these rules that hardships are a bad deal versus the other withdrawal reasons. Hardships have added taxes and cannot be repaid. But this is not the question you asked. On balance, hardships have flipped into the group of permitting self-certification. I would say that a plan - for all withdrawals where there is a choice - should choose to allow or choose to not allow self-certification . Consistency will be the key decision. If a plan picks self-certification for some kinds of withdrawals where it is allowed and not for others, participants quickly will figure out that asking for a kind of distribution that allows self-certification is the easier path to getting money out of the plan and possibly paying less in taxes, too. Distributions added or changed by SECURE 2019 and 2022-1.pdf

The root of this service model is drawing the fine line between a recordkeeper following a set of agreed-upon procedures authorized by the Plan Administrator versus the recordkeeper exercising any level of judgement on a participant's benefits or rights under the plan. Whether or not this line is crossed has been the focus of litigation over who is liable for the consequences of an operational error (and whose E&O insurance policy is going to pay.) The lines get blurred further when the PA is a committee that has not delegated any fiduciary responsibility to an internal benefits department, and the benefits department is the group with weekly or even daily interaction with the recordkeeper. The lines get blurred even further when the benefits department hires a TPA that is independent of the recordkeeper and the TPA's service agreement includes a review and sign-off on a transaction. (This happens most often when there is a determination of vesting that is needed to compute the amount payable, but can include a review of a hardship withdrawal, disability distribution or death benefit.) Despite all of this, the PAs and the related service providers in the industry is doing remarkably well in administering a vast number of plans covering a large part of the population. Shall we say good service contracts make for good relationships?

I can only speculate since we don't know what guidance will be issued regarding the PA having actual knowledge contrary to the participant's certification, nor guidance on for addressing an employee's misrepresentation. I expect big recordkeepers will want to be responsive to PAs of very large plans desires not to be burdened with approving routine transactions. The decision process likely will involve assessing and managing the risk associated with the agreed-upon processing steps. The risk of a withdrawal being made to someone where the PA has actual knowledge that should not be paid already exists today. I expect that we will see big recordkeepers explore in the near future the application of AI-based screening that will review the request in the context of the other data of the participant that is available within the recordkeeper's system. Self-certification is not mandatory, so recordkeepers need to track who does or does not permit it. This is not too different from tracking the reasons that a plan makes available or tracking the parameters within which the recordkeeper has agreed to process the withdrawals. The system issue is these items are stored as choices under a plan's system parameters and must be integrated into the system logic. So yes, there is not a lot of additional information needed, but the system needs to know at what steps in the programming logic and workflows that the system needs to check whether a self-certification will influence the next step. Not doing something that doesn't need to be done can be as important as doing something that does need to be done.

It is interesting that the ftwilliam form requires the plan administrator to approve the form. Before self-certification was available, some big recordkeepers built procedures to process "routine" hardship withdrawals as a service without requiring a sign-off by the Plan Administrator. The recordkeeper set parameters for the types of hardship they would process and get an authorization from the Plan Administrator to make withdrawals for transactions presented within those parameters. Transactions presented that were not within the parameters were sent to the PA for review and authorization. Typically, the participant would complete, sign and send to the recordkeeper a hardship withdrawal form and documentation specified from a list of acceptable documentation. The recordkeeper would review it and if it was in good order, process the the withdrawal. I believe that big recordkeepers would like to parameters to include self-certified hardship withdrawal requests as long as the Plan Administrator will extend the PA's authorization to cover those requests. I also believe that system modifications to accommodate self-certification currently has a lower priority than the other system modifications needed to implement SECURE 2.0 features effective January 1, 2024.

401kAllTheWay, no apologies needed for posting here. The BL community helps sort things out. The challenge you faced was the advisor speaking directly with the recordkeeper. This apparently was done without the knowledge of the plan representatives. The good news is the recordkeeper brought this to light and did not act on the suggestions of the advisor. I would suggest taking 2 steps to close out the incident. The first is to let the recordkeeper know they did the right thing to let the plan know what was being asked of them. Positive feedback strengthens your relationship and makes them comfortable approaching you when something seems out of line. The second is to let the advisor that if the advisor wishes to do business with the plan, the advisor should ask keep the plan representatives informed in advance and possibly even get their approval before engaging with other service providers. Good luck, and we hope to see more of you on BL!

There does not appear to be any guidance issued after 2015 that points to a loss of the top heavy exemption due to a QNEC for correcting a missed deferral opportunity. There are instances where it appears the IRS treats QNECs as Nonelective Employer Contributions, and this leads to the confusion. The classic example of taking a hard positions on this is a corrective QNEC for an MDO for an HCE in a plan that only allows deferrals. If treating a QNEC as a NEC was a hard rule, then the corrective QNEC would make the plan fail coverage (since only an HCE received the NEC). The reasonable path forward absent IRS guidance that some practitioners have put forward is to treat the corrective QNEC the same as the source upon which the corrective QNEC is based. If it corrects a deferral, it would be treated like a deferral. If it correct a match, it would be treated like a match. I can hear Gilda Radner as Roseanne Roseannadanna saying "never mind".

I have not, and I am interested in seeing an example of the letter. Could you possibly post a copy with all client indicative information redacted?

TinaW, how many participants are in a plan you would say is "huge"? It sounds like you are searching for a SaaS (software as a solution) product. These are typically accessed remotely and all of them are vulnerable to performance issues during busy periods, and especially so when sending or receiving large amounts of data. In the SaaS model, one of the likely culprits causing performance issues is very large numbers of jobs in the processing queue which is to be expected during busy periods. The other is the speed of the connection with the SaaS site which impacts exchanging volumes of data with the site or in downloading large reports. This can be addressed on the client side. If this is the type of product you need, then you may want to focus on features like ease of use, understandable documentation, quality of training, quality of support both for the system and application, and probably at or near the top of the list - availability and responsiveness. Our business has many deadlines and work flow is most efficient when we can start working on a client and follow through to the finish with fewer and shorter interruptions.

I expect anyone who is in our business has a similar of a long-standing relationship souring because the plan became subject to new rules that require more time and fees that the client did not want to pay. The 408(b)(2) fee disclosures were a good nudge to not be complacent and to document fees for services. This experience may sting a little, and very likely will sting a little more when a new TPA starts asking the client for more information which may not happen until this time next year. Should this happen take a deep breath, review your obligations if you are subject to an IRS code of professional conduct or a code of ethics for any professional associations you belong to, and do what you must. If you get asked for something outside of these obligations, decide what you want to do and charge and collect a fair fee prior to delivery.

If the individual is making decisions about where to invest contributions to the plan, and the plan says that right belongs to the participant, they are acting as a fiduciary. They can ask questions. They cannot instruct the investment. If the recordkeeper is asking whether the recordkeeper should listen to this individual about what to do with other participants' money, the answer is no.

As CB Zeller notes, there is no formal guidance for what to do with LTPT under elapsed time rules. I wonder if the IRS would consider borrowing concept from the coverage rules for determining whether a terminated person is excludable for being terminated with less than 500 hours. The rule would look something like an LTPT employee would be deemed to work at least 500 hours if the employee worked 90 days during the plan year. Simple. Better than a 10-hour per day equivalency. Too easy?

The spouse should seek some professional help for distribution and for tax-planning. There likely is more than one alternative available to the spouse depending upon the spouse's age, the spouse's age relative to the participant's age, whether the spouse also is a participant in the plan, whether there are other non-spouse beneficiaries and other similar scenarios.

You may find this survey conducted by the PSCA about preparedness for implementation of the Roth Catch-Up provision: Roth catch-up status.pdf