Paul I

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

They may hold a lot of knowledge but apparently they don't know they became a fiduciary by virtue of their actions. This is worth pointing out to the plan's named fiduciaries (plan administrator, trustee...) that there is a rogue fiduciary in their midst.

After we have completed the valuation, we use a table of factors for SLA and 100%J&S as of the valuation date that the actuary we work with provides to us. The factors are prepared using the specified parameters such as the interest rate and mortality table. We then download the participants' ending balances and birth dates, match the factors for each age, and apply them to the ending balance. The results are provided to our report writer where they are merged into the Lifetime Income Illustration model language. The whole process takes about 15-20 minutes, is a PITA, and many of the results are of questionable value - but it gets it done. This was our best effort to meet the requirements using the software we already have available (basically Excel and a report writer). Hopefully this can help provide some direction for a path forward. Frankly, all of the magic is getting the factors. It would be great if the EBSA would publish a table every month and just say use these factors to comply.

Dougsbpc, this is an idea that may seem like its coming from out of left field, but it may be attractive to the shareholder in this particular case. Has the owner considered offering a qualified small employer HRA (QSEHRA)? Help with medical expenses may be very attractive to the employees, and any unused amount can accumulate inside the plan and be invested much like in an IRA or DC plan. HRAs in general when used to cover medical expenses can be more tax advantageous for everyone, and the ability to include spouses and legal dependents may also be an added attraction. Just a thought.

I agree that right now there is unrestrained availability to rely on self-certification unless or until the IRS issues regulations where the PA has actual knowledge that the reason for the hardship is not valid. This leaves us with an open question: What would the IRS do should they audit an individual's tax return and determine that the hardship distribution did not meet the terms of the plan? The participant already is paying taxes on the amount withdrawn. Presumably, the participant already would have spent the distribution on some major expense. Could the IRS force the participant to return the invalid hardship to the plan? Currently, there does not seem to be any exposure to the plan if the plan receives the self-certification. As a permissible distribution having received the self-certification, it would be hard to argue there hardship distribution was a prohibited transaction. Certainly, plan disqualification would be ridiculously punitive to everyone else in the plan for the actions of one participant. This must be a nightmare for those who are concerned about leakage from a plan.

The answer likely will be to make a good-faith effort to comply. This is not very helpful and everyone whose good-faith effort doesn't mesh with future final guidance will have to change what they implemented. We do have a precedent with our experience with the pandemic. The world shut down in March 2020 and Congress went on a to pass a lot of legislation permitting bending the rules to make money available from retirement plans. There was very little guidance, and the shutdown lasted longer than anticipated. The significant cuts in funding to the agencies that preceded the pandemic had already hampered their ability to recover once we learned how to cope with pandemic. Dare we imagine a scenario where industry associations, major recordkeeping firms, benefits consulting firms and ERISA law firm come together collectively to provide guidance?

We have an ESOP that charges a fee to terminated participants once the terminated participant has the ability to take a distribution. Actives and terminated participants who are unable to take a distribution under the terms of the plan are not charged. The amount of the fee is based on the cost of recordkeeping and administrative fees divided by the number of participants.

Part of the challenge is the remaining 3/4 of the purchase likely is going towards an income-producing investment. The individual will not be able to treat the entire building as a residence when preparing the individual's income taxes. The personal income tax reporting rules may be illustrative in how to determine what is a personal residence and what is an investment property.

I suggest working with a selection service providers to balance cost and effort to finding missing participants. For example, EmployeeLocator.com has a very high success rate at a very low cost if you have and are willing to provide the SSN. (Check you PII policies.) At the other end of the spectrum are private investigators which often charge an hourly rate. They tend to be more successful working within the likely geographic area of the last know whereabouts of the participant, and are much more expensive. I have found using a combination of search sources - BeenVerified, TruthFinder, Google... - helps build a dossier which then can lead to a more focused search. For example, one participant died in a car accident. Having found an individual with a very similar name and with the same birth date lead to a news article about the accident which then lead to finding next of kin. Typically, if you can find the county in which a death occurred, the coroner will readily work with a plan but is less likely to work with an individual seeking information. In another example, it turned out that a former co-worker of the participant was named as a beneficiary on an insurance policy. The company had enough information about the former co-worker and when contacted, the co-worker provided enough information to be able to find the participant. The stories that emerge from some of the searches are amazing!

Notice 2010-84 Q&A 7 was modified by Notice 2013-74 Q&A 9.

We do not yet have guidance related to ADP corrections and Roth catch-up contributions. The answer to your question will hinge on whether we will look at the plan year for which the deferrals were made into the plan, or the calendar year in which the ADP refund is classified as a catch-up. The former would seem to the be practical way to go, and any ADP refund from a 2023 plan year test that could be left in the plan as a catch-up for a person who is High Paid in 2024 would not have to be Roth.

Jsample, it sounds like they will accept Roth catch-up contributions if the plan allow catch-contributions but does not have Roth. Generally, a payroll service provider will be sending in the contributions so I suspect they are saying they will accept them if they receive them. This seems to be a slick way of avoiding the issues and leaving it up to the plan sponsor and payroll to figure out what to do. Thanks for the information!

See IRS Notice 2013-74: "Q-9. Is an in-plan Roth rollover treated as a distribution for purposes of determining eligibility for the special tax rules on net unrealized appreciation (“NUA”) in employer securities paid in the form of a lump sum distribution under § 402(e)(4)(B)? A-9. Yes. An in-plan Roth rollover is treated as a distribution for purposes of determining eligibility for the special tax rules on NUA, whether the rollover is made by an in-plan Roth direct rollover or by an in-plan Roth 60-day rollover. See also Q&A-7 of Notice 2010-84." This goes to determining the amount that is taxable related to the conversion and the basis in the Roth account. If circumstances are such that a distribution in employer securities is made from the Roth account before the account has aged 5 years, then the basis will factor into taxation of the NUA on the securities at the time of distribution. This will be very complicated if there are other assets distributed concurrently with the stock, or if there have been multiple in-plan Roth rollovers involving employer securities. These transactions have their own pro-ration rules between the ordinary income on the other assets and the NUA related to the employer securities. Definitely seek knowledgeable, professional expertise for those calculations.

The OP notes that the "safe harbor match amounts were not calculated based upon a specific time period or earmarked for any specific participant". This implies there was no linkage between the deferrals and the amount funded for the match. We don't know how the amount of the match deposits was determined. The easiest thing to check is whether the accumulated funding for the match without regard to earnings exceeded the calculated match at year. If no, then probably there is no problem. If yes, then there is a problem. If the match funding was front-loaded during the year, then there is greater potential for a problem. Whether the match funding was made to a pooled account or to self-directed accounts is not relevant.

The conundrum for rule-making is companies have used classifications to keep part-timers out of their plans. The intent of the LTPT provisions is to force companies to offer the opportunity to defer to part-timers. Unfortunately, the definition of a LTPT employee is heavily service-based and ignores how non-service-based exclusions may apply. Let's hope the rules will not add too much of a work load to determine compliance. Something simple may be to allow non-service-based exclusions for LTPTs such as geographic location where all other employees are subject to the same exclusion. The IRS likes to use testing formulas and hopefully they resist the urge to create mathematical LTPT coverage tests. I can imagine a nightmare like identifying excludable and nonexcludable LTPTs in a plan for a group of LTPTs that represents more than the safe harbor percentage using the nondiscriminatory classification test, and then applying a percentage coverage threshold. 😱

See 1.401(m)-1(a)(2)(iii)(A). "(A) General rule. Employer contributions are not matching contributions made on account of elective deferrals if they are contributed before the cash or deferred election is made or before the employees' performance of services with respect to which the elective deferrals are made (or when the cash that is subject to the cash or deferred elections would be currently available, if earlier). In addition, an employer contribution is not a matching contribution made on account of an employee contribution if it is contributed before the employee contribution." A deposit for a matching contribution made before elective deferrals on which the match is based are deposited is not a matching contribution. You may want to review the timing of the "match" deposits versus the timing of the associated salary deferrals to see if any amounts intended to be a match were pre-funded. Similarly, funding match amounts before it is known that the deferrals will be eligible for a match is not allowed. This should not be an issue for a SHM but could be for plans that have allocation requirements like a last day rule or 1000 hours. As a corollary, if the match is always funded after the deferrals are funded, there is no need to keep the match contributions in a separate account earning income. The match should go into the participants' accounts and earn income in those accounts like any other allocated contribution. On a separate note, if this plan has been using any earnings to satisfy part of their matching obligation, they have underfunded the match and this should be corrected. In a similar vein, any such earnings would not be annual additions, not includable in ACP testing, or, as others have noted, deductible.

The first thing that came to mind while reading this thread is "let {whoever] is without sin cast the first stone." We are in a service business. Our business has grown exponentially over the years. It has attracted a very large and diverse array of service providers that today are delivering innovative services that where unimaginable not too long ago. Our business is unique in its focus on retirement plans. Our business is not unique as service providers within the financial services industry. The financial services industry in general wrestles with rapidly evolving technology, less-than-sophisticated users, cost pressures, consolidation of service providers, less-than-knowledgeable support, protecting clients' assets and PII, and more. This is not to excuse the frustration we all have experienced at one time or another while trying to help a client solve a problem. We hope our clients value our services and our expertise plus our ability ultimately to help them. Industry consolidation will continue, and as fewer and fewer service providers get bigger and bigger, and as it does it will be more likely we will have war stories of our experience with these providers. Imagine our world (and as some in our government have contemplated) if there is only one retirement plan service provider. Let's keep in positive and do our best for our clients.