Paul I

This topic was discussed at the ASPPA National conference earlier this week. The bullet points for the discussion were: For this purpose, a terminally ill individual means an individual who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death in 84 months or less after the date of the certification. The employee must furnish sufficient proof to the plan administrator that the employee qualifies under this standard. Not subject to the 10% early withdrawal penalty tax Can be repaid within three years Note: This provision does not create a new distribution right under retirement plans, so a participant would need to be eligible for a distribution under an existing rule. It was taken as a given that the employee needs a physician to certify the individual is terminally ill and is expected to die within 84 months. There was a lot of discussion around the employee furnishing proof to the plan administrator. Some comments addressed HIPAA and privacy concerns. Other comments were concerned that an employee would be hesitant to disclose to their HR department that the employee was likely to die within 84 months. The concern primarily focused on the information leaking out and on the impact the information could have on career advancement and salary increases. These would be a significant burden on an employee where the only additional benefit derived from this disclosure is avoidance of the 10% penalty. Note that the text of S2.0 326 says "an employee shall not be considered to be a terminally ill individual unless such employee furnishes sufficient evidence to the plan administrator in such form and manner as the Secretary may require". No one yet knows what the Secretary may require, and there are efforts to have any such requirements acknowledge the privacy concerns. The rules for repayment within 3 years for the terminally ill provision points to the QBAD rules in 72(t)(2)(H)(v). The repayments are at the discretion of the participant and the repayments could be made to an eligible retirement plan or an IRA as a rollover contribution. The provision does not say the repayments have to be made to the retirement plan from which they are taken. The question was asked why would a participant want to repay the distribution? The response was the repayment would be part of a death benefit distributed to the plan's beneficiaries (as opposed to being part of the participant's estate). The treatment of the terminally ill distribution is different from virtually every other one of the newly or recently added forms of distribution that allow for self-certification. Expect more clarification to come from the agencies.

On the surface, it seems like an attractive plan design feature to have a mandatory lump sum distribution at a retirement age that is earlier than the RMD age in an attempt to avoid all of the complexity in determining the benefits payable under 401(a)(9). Practically speaking, there is no foolproof way of completely avoiding the RMD rules in a 401(k) plan. Consider, we cannot prohibit an eligible participant from making deferrals based on age, which means dollars can flow into the plan in each year for an active participant who is RMD eligible. If these dollars are credited to the participant at the end of the plan year, then the dollars could be part of the calculation of an RMD (for example, where the participant terminates in the following plan year, or elects to begin taking RMDs, or elects to take an in-service distribution).

Transferring the balance to states unclaimed property division reminds me of the last scene in Raiders of the Lost Ark. The balance will live forever in a government warehouse never to be seen again. Unfortunately, the DOL and IRS are not on the same page with how to handle the case where a plan truly has made extraordinary efforts to find a beneficiary and the search has not been successful. The IRS says the plan can subject the balance to a "contingent forfeiture" which is kind of like a forfeiture of a nonvested amount, but the plan must retain all of the information it has about the participant (and about the search effort). If the plan gets a legitimate claim for the benefit, then the plan has to restore the account and pay the benefit. The DOL, when asked, most often rarely otherwise, says the plan cannot forfeit the balance, and the plan needs to keep searching. Some DOL investigators are not even aware of the IRS contingent forfeiture provision. The PBGC will accept balances from defined contribution plans for lost participants, but will do so only in the event of the termination of the plan and if they get all of these lost participants. The PBGC requires that the terminating plan give them cash equal to the amount of the balances and give them proof that a good-faith effort was made to locate the individuals. (Does the PBGC own the warehouse where the ark is stored?) So, where does that leave a defined contribution plan? Unless and until the agencies can agree on a common solution, the plan can consider periodically including these accounts in a search while keeping the account open (i.e., cash available) along with the search documentation until forever when the plan terminates, and at that point in time dumping this all on the PBGC. This seems ridiculous, but it pretty much covers what each agency says should be done.

You should report a Schedule A for each contract year ending with or within the plan year.

A lot of people have wondered about how to count participants for purposes of determining whether an audit is needed, and applying the rules to the first plan year has always been, shall we say, counterintuitive. First, we should understand that these counting rules are not IRS rules. They are DOL rules appearing in 2510.3-3(d)(1)(ii): (ii) An individual becomes a participant covered under an employee pension plan— (A) In the case of a plan which provides for employee contributions or defines participation to include employees who have not yet retired, on the earlier of— (1) The date on which the individual makes a contribution, whether voluntary or mandatory, or (2) The date designated by the plan as the date on which the individual has satisfied the plan's age and service requirements for participation For a new plan, look at the employees who satisfied these eligibility requirement on the effective date of the plan to do the count and note that this has nothing to do with whether an employee gets an allocation of a contribution later in the year.

Unfortunately, the LTPT vesting service rules have no such restriction.

Since the issue has to do with plan documents, it should be reported to the IRS. The IRS has forms (of course they do, and are we surprised?) for reporting improper activities. One such form is Form 3949-A Information Referral where you might check the box for False/Altered Documents. Another is Form 14157 Return Preparer Complaint where you might check the box for False Items/Documents (False expenses, deductions, credits, exemptions or dependents; false or altered documents; false or overstated Form W-2 or 1099; incorrect filing status). Copies of these forms are attached. f3949a.pdf f14157.pdf

A quick and easy first step is to Google the name of the participant and "obituary". Obituaries often disclose names of spouses or former spouses, and surviving family members. If you are lucky, the surviving spouse lives at the address of the former employee. Otherwise, you can ask your locator service to search for the surviving spouse. If the spouse passed away before the former employee and the plan identifies beneficiaries that are next in line, then you can have the service look for the surviving family members.

It sounds as if this attorney is going to wind up "working for the man" breaking rocks in the hot sun!

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.