Paul I

The concept of Roth-only catch-up contributions for High Paid participants is a pure revenue gimmick that is inconsistent with the original concepts of a catch-contribution, a Roth deferral and treatment of participants with higher incomes. The original of a catch-up contribution is to allow participants age 50 or older to make up for lost opportunities to defer earlier in their careers. Think child care, college expenses, and big mortgages. Forcing the catch-up contribution to be Roth for a participant forces the participant to spend more out of their current paycheck. A $500 pre-tax salary deferral reduces current net pay by $500 and increases current net pay by the income tax savings. A $500 Roth deferral reduces current net pay by $500 but there is no current tax savings. It costs a participant more out-of-pocket using Roth while trying to make up for earlier lost opportunities. The longer a Roth contribution is in the plan, the greater the value of the tax break at retirement, so waiting to age 50 to start Roth is a less valuable tax strategy than (if the participant can afford to) making Roth deferrals at younger ages. Setting the High Paid threshold at $145,000 versus using the HCE threshold was acknowledged to be a pure revenue-driven decision. This provision did not even wink at nondiscrimination as a consideration. The end result is a whole new layer of compliance that needs to be monitored every year , and this new layer of compliance interacts with existing nondiscrimination compliance. Think who is or is not High Paid versus HCE, or treating ADP refunds as Roth catch-up for HCE but not High Paid NHCEs. Further, the High Paid threshold will impact a subset of the NHCEs. A common scenario is where the children finally are financially off the parents budget and both parents now are working and trying to save more for retirement. This provision works against them because combined household income makes them High Paid. Since this is a revenue gimmick, it almost certainly will not go away and its future is destined to see the High Paid threshold be adjusted lower and lower (at least relative to the HCE threshold). SECURE 2.0 made major changes, and as is often said of major changes in tax laws, it is a "[pick your profession - accountant, actuary, attorney, consultant, TPA]'s Full Employment Act"

The 5500 instructions does not link the two check boxes. "Line B –Box for Amended Return/Report. Check this box if you have already filed for the 2022 plan year and are now filing an amended return/report to correct errors and/or omissions on the previously filed return/report. See instructions on page 6. Check the line B box for an “amended return/report” if you filed a previous 2022 annual return/report that was given a “Filing_Received,” “Filing_Error,” or “Filing_Stopped” status by EFAST2. Do not check the line B box for an “amended return/report” if your previous submission attempts were not successfully received by EFAST2 because of problems with the transmission of your return/report. " "Line D –Box for Extension and DFVC Program. Check the appropriate box here if: ... • You are filing under DOL’s Delinquent Filer Voluntary Compliance (DFVC) Program." It seems almost certain that some of the information for the filing for the plan year ended 6/30/2021 was changed and hence the filing is an amended filing. If that filing was incomplete, then it technically was not valid anyway and would not necessarily have stopped penalties from accruing. It makes sense to include it in the DFVCP and get the bargain rates for multiple filings.

Every company in a group of companies will be in a QSLOB if any company is in a QSLOB, and a company must be in only one QSLOB. In this case, you will have a QSLOB for Company A and a QSLOB for Company B. Note that QSLOBs (Qualified Separate Line of Business) are all about the companies and not about the plans. You cannot have Company A's 401(k) plan tested on a QSLOB basis and have the DB excluded from than QSLOB. Once all companies meet the conditions to be a QSLOB, you can then pretty much separately look at each QSLOB and its plans without regard to the other QSLOBs and their plans. This is an oversimplification but may help suggest a path forward for you.

Roycal, good point about the money purchase plans. The window for in-service distributions is very narrow for them. https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits

Keep in mind that Starter 401(k) primarily are designed primarily for small companies that do not have plans. They will not start out with a pot of accumulated assets and likely will not grow quickly. There are a lot of financial advisers that will shun the plans until the AUM grows. On the other hand, there is a fair amount of interest among some financial advisers that would like to team up with a fintech company or PEP with view that a lot of plans with small AUM collectively add up, and the FA would have an inside track for spinning off a plan that does outgrow the Starter 401(k) into full fledged 401(k). Time will tell if this is visionary.

I believe that the preferred model will be a PEP which would cover most if not all plan administration tasks.

The Starter 401(k) very likely is going to be the darling of fintech. The narrow focus of the design will allow them to create a simplified administrative structure from document signing through recordkeeping, investment, and ultimately distributions with very low overhead. Existing recordkeeping systems are designed to be all things to all plans and have an enormous amount of overhead to anticipate the myriad of ways plans can go off the rails. Take things like employer contributions, allocations, vesting and forfeitures off the table and the technology infrastructure shrinks dramatically. Expect the cost of set up and recurring services to be exceptionally low, and any tax benefits to the employer for starting and operating a plan are an added selling point. The biggest difference with using IRAs for an employer is the Starter 401(k) will have a single payroll feed to a single provider, and will plan level reporting available. Starter 401(k)'s will be available nationwide versus state plans. Starter 401(k)'s will have a much broader market available to them over state plans. Keep in mind that almost half of all businesses (and almost of of them are small businesses) do not have a retirement plan. There's more, and there were advocates who are prepared to implement Starter 401(k)'s that lobbied Congress to make them available.

There are a lot of ways for a defined contribution plan to allow in-service withdrawals of vested amounts before retirement, death, disability or other termination of employment. For example, a lot of 401(k) plans allow for in-service withdrawals (including elective deferrals) upon reaching age 59 1/2. Most plans allow in-service withdrawal of rollovers at any time. Vested non-elective employer contributions may be made available for withdrawal of amount that have been in the plan at least 2 years. Plans may make all vested NECs available once a participant has at least 5 years of participation. Most pre-approved plan documents provide a checklist of available in-service withdrawal options. Check your document - you may be pleasantly surprised by the choices.

See Section 2A in Notice 2020-50 Guidance for Coronavirus-Related Distributions and Loans from Retirement Plans Under the CARES Act. The gist is the plan could expand the amounts that could be distributed if the plan permitted the distributions, but you cannot pay out amounts that are not permitted to be paid (which I read is like non-vested amounts). The vendor may have gotten creative and allowed payments of a vested portion of an account that was only partially vested (e.g. a partially vested NEC account). That would then require them to use the funky formula to add into the current calculation of a vested amount an add-back of the previously distributed amount. The auditors should look to the vendor to 'splain what they did.

If need be, you can include in the termination amendment an allocation formula that cleans up the forfeitures.

The issue has been out there. I personally raised it when I did the 5500 presentation in May for the ASPPA Spring National. There was no reaction from the attendees. The issue also was highlighted this week in ERISApedia's 5500 webinars. Other than that, I have not heard of anyone expressing a concern about it. The draft form was available for comment and apparently there were no objections. The form was released in June to 5500 software developers and the final official release will occur likely this December. I understand that the plan Opinion Letter numbers will be a data element included in the downloadable data files from EFAST2. The IRS already publishes a list of plans they have approved for each TPA. Together, that should make it almost a trivial exercise to prepare a national TPA client list by type of plan.

Jumping into EPCRS for missed deferrals for the first time can be like jumping into the deep end of the swimming pool when you don't know how to swim. There are a lot of rules that cover many differing fact patterns. It sounds as if you have a situation where there is one issue that started in 2018 that has continued through 2022 (and maybe even into 2023). Don't get too distracted by the EPCRS steps using brief exclusion rules, or exceptions for auto-enrollment unless applicable, or for difference between actives and terminated employees, all of which have some tantalizing, lower-cost cures associated with them. You will need to calculate the missed deferrals by payroll. If there is an associated match, check the plan document to confirm the match frequency and whether there are any match true-ups. This will determine how to calculate the match associated with any missed deferrals. Once you have all of the missed deferrals and associated match amounts, you will need to calculate lost earnings associates due on these amounts. There are some choices available under EPCRS that do not require applying investment elections to each amount. This can be a time-saver. Remember to look at compliance tests for each year to see if the correction will impact the results. Make sure everyone involved in on board with the plan for correction. The calculations can be labor intensive and you will not want to redo should someone (like the CEO, CFO, Plan Administrator...) challenge the result. May your lawyers and consultants [figuratively] be experienced lifeguards!

Take a look at the IRS "401(k) Plan Fix-It Guide - The plan was top-heavy and required minimum contributions were not made to the plan." It suggests that the correction for a failure to make a top-heavy contribution for a plan year is to make the top-heavy contribution to non-key employees. https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-the-plan-was-top-heavy-and-required-minimum-contributions-were-not-made-to-the-plan

As always, read the plan document! Many documents specify exactly how forfeitures must be used. For example, a document may say forfeitures will first be used to restore previously forfeited amounts for rehires, then used to pay plan expenses and then to reallocate anything left over. That being said, no plan document will have a provision that allows forfeitures to be returned to the plan sponsor. Failure to follow the plan provisions related to forfeitures is an operational failure. Absent other guidance, this suggests a possible need for a VCP. NOTE: The IRS published a proposed rule on 2/27/2023 on "Use of Forfeitures in Qualified Retirement Plans". The proposed rules are effective for plan years starting on or after 1/1/2024, and a plan can choose to apply the proposed rule earlier. Any build up of forfeitures from prior years can be treated as if the forfeitures occurred in 2024. Within the proposed rule, the IRS give the following example: "Although nothing in the proposed regulations would preclude a plan document from specifying only one use for forfeitures, the plan may fail operationally if forfeitures in a given year exceed the amount that may be used for that one purpose. For example, if (1) a plan provides that forfeitures may be used solely to offset plan administrative expenses, (2) plan participants incur $25,000 of forfeitures in a plan year, and (3) the plan incurs only $10,000 in plan administrative expenses before the end of the 12-month period following the end of that plan year, there will be $15,000 of forfeitures that remain unused after the deadline established in these proposed regulations. Thus, the plan would incur an operational qualification failure because forfeitures remain unused at the end of the 12-month period following the end of that plan year. The plan could avoid this failure if it were amended to permit forfeitures to be used for more than one purpose." The proposed rule also points to a possible need for a VCP. One of the advantages of a VCP is the ability to propose a solution that is not otherwise available under the plan provisions. That being said, I would be surprised if giving everything to the owner was acceptable. Good luck! Use of Forfeitures 2023-03778.pdf

If I understand the situation correctly, your client needs to file either Form 5500 or Form 5500-SF for several years using DOL's Delinquent Filer Voluntary Compliance Program (DFVCP). You cannot use DFVCP to file late Form 5500-EZs. The condensed version is a 5500 must be prepared for each year with the box checked indicating in Part I D that each filing is being made under the DFVCP. The FAQs are very helpful filling in the details https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/efast2-form-5500-processing.pdf You will use the Form Selector https://www.askebsa.dol.gov/FormSelector/ that will inform you which forms and schedules must be submitted for each plan year. You will then go to the DFVCP penalty calculator https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/dfvcp to identify the filings that are being submitted under the DFVCP and pay the penalties. They take bank draws, credit cards and debit cards and don't care who pays. The IRS will waive late penalties for filing made under DFVCP https://www.irs.gov/retirement-plans/irs-penalty-relief-for-dol-dfvc-filers-of-late-annual-reports . You do not need to file the 5500s with the IRS. If there were participants reportable on Form 8955-SSA for any year, you will have to file a Form 8955-SSA directly with the IRS for each year the form was required to be filed. If you do not file the Form 8955-SSA with the IRS, the IRS may not waive the penalties. The DOL website for the DFVCP filings is more user-friendly than most other agency websites. I suggest reading through all of the FAQs first and then follow the instructions as they lead you through the process. It is tedious and it is best to have all of the forms completed before starting the filing process.

In a overly simplistic summary, the required ERISA fidelity bond is coverage for any plan official who receives, handles, disburses, or otherwise exercises custody or control over plan funds. This can include employees who handle payroll-based deferrals, pay expenses out of the plan, or process other similar transactions. The purpose of the ERISA fidelity bond is to protect the plan against fraud or dishonesty. Fiduciary Liability coverage is not required. It provides coverage for individuals who are fiduciaries of the plan, and as fiduciaries are personally liable for their actions or inaction. Cyber Security coverage is not required. It provides coverage to the plan or to the plan sponsor for losses attributable breaches in cyber security. This coverage often requires that the covered entity has implemented and actively manages cyber security controls. The ERISA fidelity bond is cheap relatively speaking and often is used as a foot in the door to offer the other coverages. The cost for each of the other two coverages is increasing as losses continue to mount, and it pays to shop this coverage together with similar coverage for executives and for company cyber security coverage. CB Zeller is on target - ask questions before you buy. If this is all new to you, shop around, and talk to at least three providers. Buy with eyes wide open.

Could you provide some additional details about what the client or you is trying to accomplish? The DFVC is a DOL program and the question is about IRS E-File.

Here is the relevant text from the February 23, 2017 IRS memo: "(iv) If the summary of information reviewed in Step 2(ii) is complete and consistent but you find employees who have received more than 2 hardship distributions in a plan year, then, in the absence of an adequate explanation for the multiple distributions and with managerial approval, you may ask for source documents from the employer or third-party administrator to substantiate the distributions. Examples of an adequate explanation include follow-up medical or funeral expenses or tuition on a quarterly school calendar." In this case, again it sounds like an overreach where the author takes a suggested review step (that requires IRS managerial approval to take) and presented it as a requirement. We already have enough actual requirements to consider without making up more.

Given the circumstances and the correction reference from Belgarath, it sounds like the participant cannot catch-up the missed payments by making a lump sum payment which leaves them with re-amortizing the loan over the remaining term of the loan. This is consistent with the requirement that loans need to be paid using a level amortization. I think you have sufficient information to tell the recordkeeper that the part of their proposed correction to make interest-only payments is not appropriate. I don't think there is an issue of the loan exceeding the $50,000 limit. The limit is applicable only to the principal amount. The additional amount is due to interest which will be factored into each repayment as part of the re-amortization.

Check the plan definition of disability. Some allow the Plan Administrator some leeway on the decision whether the participant is considered disabled.

I will leave up to the lawyers to fill in the details because there seems to be a lot of wiggle room to extend the time frames. Generally, "29 U.S. Code § 1113 - Limitation of actions No action may be commenced under this subchapter with respect to a fiduciary’s breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, after the earlier of— (1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation; except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation." (The "actual knowledge" phrase baffles me.) Part of the decision for how much insurance to have and for how long is assessing the risk. Since this is a plan termination, making sure that everyone who has an accrued benefit is paid in full and keeping getting documentation proof that the checks were cashed goes a long way towards having some peace of mind.

The notice is to publish the NPRM on "12/00/2023" for public comment starting in December. So kinda sorta the IRS is going to put out there their best guess on what to do and it will be a while before anything becomes hard guidance. That is going to leave us all to gamble on an interpretation. The drafting and reviewing attorneys' contact information is available on the reginfo.gov if anyone wants to get a head start on comments: https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202304&RIN=1545-BQ70

There is a firm that offers a 401(k) product and they restrict the number of hardships that can be taken in any year to no more than two. On their web site, they state: "You can receive no more than two hardship distributions during a plan year (calendar year for all [of our] 401(k) plans)." This seems to be a restriction on their service model and maybe it is in their plan document. This seems to be a good example for not treating internet search results as gospel truth.

The link between the businesses is the owner. If he wants to separate the 2, he needs to reduce the common ownership. The ice cream sundae business is the likely candidate for passing off a majority of the ownership to family members or trusted colleagues whose ownership is not required to be attributed to him and aggregated with his ownership. He should talk with his accountant or business lawyer about what it would take.

I haven't seen the FIS/Relius IDP VS document. It is surprising that Roth language is not part of the base package. Adding a Roth feature to a plan that does not already have all of the various Roth provisions would be a major effort (e.g., Roth conversions, sequencing of distribution or loan sources, sequencing of test refunds...) I agree with CB Zeller that adding Roth is not a remedial issue since Roth is an optional feature. Note, too, that apart from SECURE 2.0, Roth contributions currently can only begin after the effective date on or after the date of the adoption of the Roth feature for the feature. The answer/path of least resistance for you likely will be to restate now onto a document that has the Roth language.