Paul I

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.

From the standpoint of technology, I agree. There are brokerage houses that take the position that the participant is the owner of the account even if the account is titled "Trustees of Plan FBO Participant". The brokerage house then takes the position participant's privacy supersedes the trustees right and need to monitor the information in the account and will not grant the trustees access.

The fee has to be reasonable, and if the QDRO is complex or if the parties engage in extended negotiations that yield multiple draft DROs for review, then hourly fees are appropriate. Having a fixed fee makes sense for a "standard" QDRO where there is one DRO presented that is drafted properly and divides the assets between the participant and one alternate payee using reasonable time frames. If the practitioner wishes to avoid using hourly fees, consider having a fixed fee for the various parts of the process - a fee for each DRO reviewed, a fee for each additional alternate payee, and a fee for each year of data history needed. If there was a way to do it, I would add an incompetence fee. I am amazed at the number of DROs have the wrong plan name because the drafter used a DRO for a different client as a model and did not proof read the DRO before submitting it for review.

A brokerage house who understands the retirement plan industry will apply restrictions on type of securities that can be purchased. The capability is already baked into the validation of a trade instruction. Some go so far as to accept a modest list of specific investment such as mutual funds that are held in the plan's list of core mutual funds. This keeps a participant from investing in higher cost share classes or from paying trading frequency penalties when the participant can use the core fund menu. If an employer wishes to have visibility into participants' SDBAs, then the employer should do the due diligence on the capabilities of the broker or brokers that participants are permitted to use within the plan. We worked with one client with around 20 different brokers handling accounts for about 60 participants. We set up a list of requirements and if the broker did not agree to restrict the account to permissible assets and to provide electronic access to the trustees, participants were not allowed to use that broker. When the requirements were implemented, there were a handful of participants and their brokers who objected. The company made no exceptions and participants who wanted to continue having an SDBA acquiesced.

Having a default that automatically begins Roth catch-up contributions when a High Paid individual reaches the 402(g) limit could be a problem for that individual. The problem stems from the fact that payroll will withhold federal and state taxes on the Roth amount. The dollar amount of the deferral will not change and will be contributed to the plan (and likely be unavailable for in-service withdrawal). The individual's net pay will be less by the amount of additional income taxes withheld. One can reasonably assume that an individual who chose not to make an affirmative election on the whether to make catch-up contributions is less likely to consider the impact of taxes on net pay. It is not uncommon for plans - particularly smaller plans - to allow changes in deferral elections including catch-up contributions less frequently than every pay period. The net tax issue will be amplified if the individual wants to make a change to restore net pay and then learns the individual has to wait until the change can be implemented under the plan. In most plans, the only option then available would be to suspend deferrals until the change can be implemented.

Pretty much every brokerage house provides online access to the account holder. There is a minority of brokerage houses that provide trustee or PA access to a group of accounts even though each account is titled in the name of the trustees FBO a participant. Exceptionally frustrating to work with. We work with some plans where the brokerage house is of the opinion that the participant must authorize online access to the account and must authorize mailing a hard copy of the account statement to the trustee, PA or TPA. There is a minority of brokerage houses that enforce investment restrictions in a participant's brokerage account. These accounts most commonly are restricted to securities tradable on major stock exchanges. Trustees and PAs do need to monitor investments held brokerage accounts because without the brokerage house enforcing restrictions, the plan winds up with assets like limited partnership, private placements, naked put and call options, real estate, gold bullion and other nontraditional or high-risk investments. We have seen all of these turn up in accounts. Larger plans tend to require all participants who wish to use a SDBA to use the brokerage house chosen by the Plan Sponsor or PA. Small plans are more likely to allow individual participants to pick their own brokerage house and broker. (Enter into the picture here the owner's recently-graduated children, or Uncle Bob, or Joe at work who knows all about investing...) Unfortunately, working with a plan that uses a brokerage house that does not provide to the trustee or PA at a transaction and asset level can be a very labor-intensive effort, particularly when a plan is subject to an audit. Further, the plan fiduciaries are not aware when a broker who knows all about IRAs and squat about 401(k)s advises the participant about RMDs or suggests taking a payment and rolling it back into the account within 60 days. SDBAs definitely can add value to a plan's investment menu. It is important to work with a brokerage house that knows about and provides information needed by plan fiduciaries for the fiduciaries to fulfill their responsibilities.

I suggest keeping a copy of the Department of Labor's publication QDROs The Division of Retirement Benefits Through Qualified Domestic Relations Orders readily available. A DRO can be rejected by the plan administrator if the DRO places an undue administrative burden on the plan. For example, we have successfully had DROs redrafted to specify dates that are consistent with the plan's valuation frequency where the plan was or is not daily valued.

Peter raises some interesting points regarding the changes in RMD provisions by recent legislation including CARES, SECURE 1.0 and SECURE 2.0. The industry seems to operating under the consensus that plans can pick and choose how they want to operate and can wait until later to make formal amendments to the plan documents. Let's all sing kumbaya. With CARES, major recordkeepers generally chose between two approaches. One approach was to tell clients how the recordkeeper was going to administer the plan unless the plan opted out. The other approach was to tell clients that the recordkeeper was not going to allow for optional changes unless the plan opted into those changes. What is interesting with respect to the RMD changes is IRS Notice 2020-51 Guidance on Waiver of 2020 Required Minimum Distributions included a paragraph that said: "Under section 2203(c) of the CARES Act, any plan amendment pursuant to section 2203 must be adopted no later than the last day of the first plan year beginning on or after January 1, 2022 (January 1, 2024, for governmental plans), and must reflect the operation of the plan beginning with the effective date of the plan amendment. The timely adoption of the amendment must be evidenced by a written document that is signed and dated by the employer (including an adopting employer of a pre-approved plan)." This called for an affirmative action by the employer to adopt an amendment even if the plan document was a pre-approved and even though the pre-approved plan provider often has the privilege to amend the plan on behalf of all employers. This suggests that the IRS views RMD plan amendments should be treated differently from other plan amendments. This discussion gives rise to another question. If a plan document defines the Required Beginning Date explicitly as 70 1/2 (or 72 or 73 or 65 for that matter) and the amount is determined using the RMD formula based on factors for that age, does that make the distribution not eligible for rollover? Or, does the participant have the right to say the payment is not an RMD and roll it over until the participant reaches the latest permissible RMD age? Analogously, because a plan does not have to allow an active participant to defer RMDS until separation from service, it would seem participant discretion on how characterize a payment is not available.

Based on the circumstances in OP where there are a few salaried employees, a lot of hourly employees that work more than 1000 hours and the desire is to exclude the hourly employees using a classification, this would seem that the plan will struggle to pass coverage. Once the plan adds the classification for a reason other than one year with 1000 hours, these hourly employees are going to wind up in the denominators in coverage testing. It seems counter-intuitive that the ABPT would pass by a very comfortable margin. As far as basing the classification on hours scheduled to work, this definition seems to give the employer too much discretion to pick who is in or out, and there does not seem to be a valid business reason for the classification.

In the OP, and then the discussion has been all about match formulas. A match is an enticement to encourage employees to contribute to the plan. If the goal truly is to entice people to work for him, then a juiced up match is not likely going to achieve that result. Consider having a conversation to confirm the objective, and if it truly is to provide a work incentive then explore a profit-sharing contribution. If the work force is generally lower paid, giving everyone who is eligible a small, flat-dollar amount initial contribution and an allocation of a percentage of profits gets them into the plan and focuses on the message that work pays off. The allocation period can be more frequently than annual if the company really wants to push the message. The profit sharing contribution can have a vesting schedule to hold down cost if there is high turnover. The company can still add a basic safe harbor match for those who wish to defer.