Paul I

Check the plan document, and in particular, check its definition of spouse. Some documents say the couple has to be married for one year before the newly-wedded spouse is recognized by the plan. Some documents are explicit in saying the date of the marriage automatically considers the spouse as the default beneficiary overriding any other existing elections.

We ask for a completed application for benefits from the spouse as beneficiary as part of the documentation of the closing out of the deceased participant's account. As has been alluded to in the replies above, the age difference between the deceased participant and the beneficiary/current employee, and the difference in the size of the account balance in the deceased participant's account versus the beneficiary/current employee's account factor into the decision to keep the accounts separate of combine them. We have seen beneficiaries who request the accounts be merged (akin to a distribution rollover the deceased participant's account into the beneficiary's account), and beneficiaries who keep the accounts separate where each account has its own RMD calculation. One of the more interesting circumstances was when the beneficiary/current employee was older than the deceased participant and the employee already was taking their RMD. The employee determined that due to the deceased participant's account balance and the RMD factors, the employee would have a lower total RMD amount each year.

Keep in mind that the LTPT rules were designed by the Legislative Branch and not by the IRS. Part of the design was to provide LTPT employees access to salary deferrals without disrupting existing rules for qualified plans. One of the features of the LTPT rules is the employees who are LTPTers are excluded from all of the testing applicable to existing qualified plans and most importantly from coverage testing. We have not yet heard from the IRS about how classification exclusions (other than bargaining and NRAs with no US income) will operate with respect to LTPT employees. It does not make sense that a classification such as job title or geographic location is overridden by LTPT as long as that classification is not discriminatory. If a plan covers employees in Oklahoma and excludes employees in Florida, why should an LTPT in Florida be allowed to defer? The fear in Congress is the potential situation in this example is where most of the Florida employees are LTPT employees and the classification provides a way of not allowing them to defer. But, Congress wants LTPT employees to be able to defer. If everyone in the classification is excluded from participation, that sets up an issue where the LTPT employees would be considered Excludable in coverage testing even if they defer, but the FT employees who are otherwise eligible for the plan except for the classification would be considered Non-Excludable, Not Benefiting. This could be an incentive to use the LTPT rules. Let's see how imaginative the IRS will be when providing guidance on this topic.

Note SECURE 2.0 section 338 effective for plan years starting in 2016: Annual Paper Statement Requirement Requires the provision of a paper benefit statement at least once annually for a DC plan and at least once every three years for a DB plan, unless the participant is covered by the 2002 e-delivery safe harbor or otherwise affirmatively consents. The DOL is directed to amend the 2002 e-delivery rule to require a one-time paper notice before any disclosure may be sent electronically after the effective date. This gives the DOL almost 2-1/2 years to amend the rules. Maybe they will let generative AI take a turn at coming up with the new rules.

No need to speculate. The IRS says starting in 2024 you no longer have to take RMDs from designated Roth accounts. https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs "Designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2022 and 2023. However, for 2024 and later years, RMDs are no longer required from designated Roth accounts. You must still take RMDs from designated Roth accounts for 2023, including those with a required beginning date of April 1, 2024."

Unless there is explicit language in the plan document, SPD or other formal plan communication saying the request is valid when put in the mail (which I highly doubt there is), then the Plan Administrator could reject the distribution based on the status of the participant when the paperwork arrived. I suggest you discuss the situation with the Plan Administrator (unless you are a 3(16) provider with authority to make this decision) and discuss options. This situation has occurred a handful of times among our clients and most of them decided to reject the distribution request. Very few have approved the payment. In all cases, it was not our decision.

jsample, that's the tip of the iceberg. No one reconciled W2s to deferrals. No one reconciled match to deposits. No one noticed current contribution amounts to a deceased participant. The tax return for the business likely is messed up with invalid deductions. Where was the recordkeeper? the bookkeeper? the tax preparer?

Catch-up contributions are not mandatory. Roth is not mandatory. So, yes, it could be done. The definition of feasible is "possible to do easily or conveniently". If removing these features has the participants showing up on your doorstep with pitchforks and torches, then it certainly is not feasible. A Roth feature within a 401(k) plan is a much better deal than a Roth IRA. The Roth IRA has much lower limits that, based on income, phase out to zero.

We have several clients that like to fund the SHNEC more frequently and some even every pay period. Given the contribution is fully vested and there is no last day rules, it makes it easier to distribute the entire vested balance all at once and avoid making a residual payment afterwards. Note that having an accrued SHNEC for a terminated participant as of the beginning of the next plan year could affect the count of participants with account balances used to determine if the plan needs an audit. The 2023 form instructions say " line 6g(2) should be the number of participants counted on line 6f who have made a contribution, or for whom a contribution has been made, to the plan for this plan year or any prior plan year." It is not clear if the phrase in bold is intended to be applied.

The provision in the act specifies that a High Paid person is an individual whose 3121(a) wages in the prior year were over $145,000. That specific reference does not describe compensation earned by self-employed individuals such as sole proprietors and partners. Since the statute specified 3121(a) wages, it is not clear if the IRS has a path to extend the definition of High Paid to self-employed individuals without literally without an act of Congress.

Are you concerned that the plan did not file 5500's for the year's between 1988 and 1998? Was the plan in fact started in 1998 and this was a typo? Was there a change in service provider around 1/1/1998? (I have seen service providers complete a 5500 using the effective date the provider began working with the plan because they were too lazy to look up the correct date.) In any event, point out the discrepancy to the client and ask if they can provide any clues that my help solve the mystery. Note that the DOL edits check to see if this date is missing, not a valid date, a date before 1800/1/1, or is after the plan year end. If you can establish the correct date, then make the change prospectively.

In order to treat the HCE's an amount as a cash bonus, it would have to be included in the plan's definition of compensation and already eligible for a deferral. The HCE would still get the 7% profit sharing on top of that unless the HCE was excluded from the allocation of that particular contribution source. It will be interesting to get a clearer picture of how this plan is set up.

There are some financial firms that sponsor a prototype SEP IRA that do not prohibit having other plan like the prohibition when adopting a Form 5305-SEP plan. Note that the IRS in 2022 temporarily suspended its program for issuing opinion letters for these prototype SEP IRA, but allow firms that sponsor plans with opinion letters to continue to rely on their letters to create new plans.

Short answer - the client is opening themselves up to an issue as soon as they adopt this design. Just curious - you refer to "the HCE" which leads me to believe there is only 1 HCE. Does this also happen to be the owner of this business? You comment that "if the employee has already deferred", so can we assume that the plan already is a 401(k) plan? You note the "they also allocate the 3% to all participants" which is addition to the "7% profit sharing to all participants". Is the 3% a Safe Harbor Nonelective Employer Contribution? And, is the 7% a discretionary profit sharing contribution allocated pro-rata on compensation to all participants who meet the allocation conditions? You note the plan is cross-tested. Is there a reason the plan is cross-tested? The answers to all of these questions will help describe the plan's situation. Fundamentally, giving employees the right to make a cash-or-deferred election on the 7% contribution makes this a 401(k) election as you seem to acknowledge. Giving only the HCE that right makes it discriminatory.

The IRS issued opinion letters for protoype SEPs, but I have not been able to find a published list. FYI, the IRS has temporarily suspended is prototype IRA opinion letter program. https://www.irs.gov/pub/irs-drop/a-22-06.pdf If you do a search for the "name of a financial institution" + "SEP" + "5305" you will get a fair amount of information about their offerings. For example: "merrill" "sep" "5305" brings up a link to https://olui2.fs.ml.com/publish/content/application/pdf/GWMOL/SEPandSEPPlusAgreement.pdf

Electronic filing allegedly is coming soon. We don't know all of the details. Some speculate that each plan may need to sign in to EFAST2 to file the request. (Batch processing by service providers would be much more efficient.) There also is some speculation about what documentation will be available to the plan to confirm the extension was accepted. Again some speculate that an AckID will be provided and that would be sufficient. There are others who think the IRS will send out letters to each plan notifying that the extension was approved (and no letter means no extension). May logic and reason prevail. (Cue the scene where Lucy assures Charlies Brown that she will not pull the football away when he tries to kick it.)

Lines c(9) through c(12) on Schedule are used to report the value of each type of DFE ( MTIA, CCT, PSA, or 103-12 IE) as of the beginning and ending of the plan year. A plan has to report on Schedule D if the plan had investments in a DFE at any time during the year. The implication is you cannot rely solely on having a zero beginning and ending balance on these lines to determine if the plan needs to file Schedule D. DFEs are supposed to provide reporting relief to plans. They do, unless they don't. The DOL publishes a user guide and notes: "Private pension plans participating in DFEs do not have to fully report investment amounts on the Schedule H if the DFE in which the plan is investing files a Form 5500 Annual Return/Report along with all required schedules. In that case, the participating plans need only complete Part I c(9) through c(12) describing the value of their interests in the DFEs. All MTIAs are required to file Form 5500, while CCTs, PSAs, and 103-12 IEs may choose to file in order to provide the investing pension plans the reporting relief described above. All DFEs that file the Form 5500 are required to file a Schedule H. Pension plans investing in filing DFEs are afforded reporting relief through decreased reporting on Schedules A, C, and H; however, they must file a Schedule D, outlining the specific investments in each filing DFE. Plans investing in DFEs will enter the value of their investment in all DFEs of a certain type (MTIAs, CCTs, PSAs, or 103-12 IEs) on the corresponding Schedule H line item." This is great except only MTIAs are required to file 5500s. The other types of DFEs can choose to file or not file a 5500. Most do, but some don't. The plan may be investing in a DFE that does not file a Schedule H. In this case, the plan has to apportion the funds assets into the other categories listed on the Schedule H. Not all a fun job. The investment fund is required to notify each plan each that invests in the fund whether the investment fund will file a 5500 as a DFE. If the plan sponsor did not save the notification, then the plan sponsor or financial advisor (or you if you are so inclined) can contact the fund and ask. The filings are public so there is no reason for a fund not to respond.

I am not aware of any state that would treat a federal-tax-free rollover as state-taxable. A nuance to consider is a rollover distribution from non-Roth sources to a Roth source or Roth IRA could have a taxable amount reported in Box 2a on a 1099R with a rollover code. I expect that if there is an amount reported as taxable, many if not all states would also consider it taxable. I think - but haven't confirmed - that if this occurs in Pennsylvania and the individual is not over 59 1/2, PA will tax it.

The policy can be distributed to the participant. The value of policy can be determined by using one of the methods available as defined in Rev. Proc. 2005-25. (They are a little complicated to go into detail here, but the insurance company that issued the policy likely can do the calculation.) For purposes of determining the taxable value of the policy distribution, 1.72-16(b)(4) does not permit owner-employees to exclude an basis attributable to PS 58 costs previously taxes while the policy was held within the plan.

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.