Paul I

Is the business a corporation, are the husband and wife considered self-employed (sole proprietor, partnership)? If they are self-employed, is their $67,000 in compensation before or after taking into account contributions to the plan? The answer could add yet another layer of complications. If the stick with the basics of deferrals and a safe harbor match, then the employees and owners would only get the 6% SHM. If there are no other eligible employees and the owner wants to give the employees more, then use the discretionary NEC you built in to provide the extra contributions. It won't come out exactly like giving everyone a 100% match, and the owners won't get a 100% on all of their deferrals, but it is clean and they can close out 2022. They can play with plan design for 2023. Frankly, the owners may wind up better off under this scenario after factoring in all of the corrective actions that will be needed to pass ACP testing on the additional match for 2022, trying to stay within the deduction limits, flowing all of this through business and personal tax returns, and paying the associated administrative fees.

You may to look at the Dentist #1 Profit Sharing Plan financials to see if in fact the payment that was made to buy the asset came from that trust account. If it did not, then the LP is not an asset of the plan that was registered incorrectly, but is an asset of whoever paid for it.

It is tempting to offer an opinion because as a TPA we try to be helpful, but we do not advise clients on whether holding a particular asset is allowed or is prohibited. We do not have the expertise to make that assessment. Providing such an opinion very likely would be not be covered within the scope of our E&O coverage should the investment be found to be prohibited or it is a total bust and the investment adviser starts looking for deep pockets to recoup the taxes and penalties or to cover the loss. If an investment adviser is asking, then likely the question also is beyond his areas of expertise. Consider pointing out to the adviser a need for competent legal advice.

I work with a large plan based in CA and they had a concern about how deeply involved the plan should get involved, if at all, in alternative means of paying out a death benefit to an estate. All of this was triggered by their processes for tracking down missing participants and for resolving uncashed checks. The plan document says the payee of last resort is the estate. After looking at possibly making payments using small claims affidavits, they decided that plan will continue to pay the benefit to the estate. Once paid, the plan is no longer involved with what may happen afterwards.

The majority of plans use pre-approved plan documents and most of those pre-approved plan documents are structured with a pairing of an adoption agreement and a basic plan document. You are correct to note that often the adoption agreement only asks whether loans are or are not permitted. If they are permitted, then additional questions are gathered in a loan section of the AA or in a separate administrative procedures section or appendix of the AA. Take extra care is using the SPD as the sole source of documentation of the choices available. Too often, the SPD leaves out details that come up operationally but infrequently. Note that all of the optional loan provisions available that typically are authorized explicitly in the pre-approved document are in the basic plan document, and there are some provisions that are not optional that do not appear in the typical loan checklist. For example, there can be an interplay between loans and spousal consent rules, or in the calculation of a spousal beneficiary's benefit. The request for a percentage is fairly common. In a daily environment, most recordkeepers can accept the percentage election, update the account balances overnight, calculate the maximum loan amount available, apply the elected percentage, and generate the promissory note and amortization schedule. As EPCRSGuru noted, this is a common request when a participant has upcoming a large expense.

My experience with FTW is they will point out where in the documents there are relevant provisions but will not provide an interpretation of a plan's choices made in the adoption agreement.

The easiest place to look is in the instructions for Schedule I for the 2022 Form 5500 page 49 Line 4k. The instructions include examples which use a limited partnership to illustrate how the rules apply. The example also discuss how you may qualify for the audit waiver if the plan has an adequate amount of fidelity bond coverage. 2022-instructions.pdf

The participant must also certify that they "did not have sexual relations with that woman".

In the FTW document, B7g looks at continuous employment (B7f looks at hours within months). There also is an election available in B7L for what happens if an employee does not meet the eligibility requirement in the first consecutive month period. The example in the note in the adoption agreement only refers to calendar months and does not indicate elapsed time rules apply (note the B7g requires continuous employment). The Plan Administrator needs to make a decision here. The first work day in April of 2023 was April 3. The PA can decide that the employee was continuously employed for April, May and June and allow the employee to participate as of July 1. The PA can decide that the employee was not continuously employed throughout April and would look to applicable plan provisions in B7L for what to do next. The PA can apply rolling successive consecutive 3 month periods or rolling consecutive 3 month periods starting from the beginning of each month. If nothing is checked, the PA needs to decide how to interpret the plan, including looking at continuous employment for a 3 month period starting on the employee's hire date and continuing up to the 3 month anniversary of the employee's hire date. In short, if the PA counts April as a full month of continuous employment, the employee enters on July 1, 2023. Under all other scenarios, the employee enters on the January 1, 2024. The PA must apply the decision made here on a uniform and consistent basis for all other determinations of employee eligibility and entry dates.

There is no doubt that creating a records retention policy and conforming to the policy can be a major effort. For small TPAs, the common approach seems to be to get a reasonable amount of E&O coverage from an insurance company with a reputation that they understand the business, fulfill the obligations in the contract for records retention and for notifying the insurer of possible claims, keep within the boundaries of personal professional knowledge, strive to do the best job for the client, and hope and pray not to have to swim with hungry sharks.

Pammie, here are some links to the IRS website that you can send to the participant: The first describes hardship withdrawal rules and mentions the possibility of paying a 10% excise tax: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-hardship-distributions The second is a detailed table of exceptions to the 10% excise tax on early distributions and references to the tax code: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions You may want to point out the line that for Homebuyers. There is no exception to the tax for distributions from a 401(k) plan for a Homebuyer, but there is an exception for distributions from IRAs for up to $10,000 for qualified first-time buyers (with a lot of rules is 72(t) defining a qualified first-time buyer). I suggest everyone should at least bookmark or print the table of exceptions as a handy reference for when the 10% penalty is not applicable.

Basically, the plan administrator must make a good-faith effort to send out blackout notices unless circumstances are such that they are beyond the control of the plan administrator. It sounds in this case that all but one participant received the notice. See DOL 2520.101-3(b)(2)(iii) says "In any case in which paragraph (b)(2)(ii) of this section applies, the administrator shall furnish the [blackout] notice described in paragraph (a) of this section to all affected participants and beneficiaries as soon as reasonably possible under the circumstances, unless such notice in advance of the termination of the blackout period is impracticable." The current penalty for a failure to provide a blackout notice is $164 per person per day and to my knowledge there are no published correction procedures. It doesn't sound like the beneficiary was prevented from taking an action during the blackout period, and if so, there was no harm to the beneficiary. It does sound like there were reasons the beneficiary was not included. I suggest documenting those reasons. If you are very concerned about the situation, then send the beneficiary an informational copy of the blackout notice along with an explanation of what happened and that it no longer is applicable. I can't speak for the DOL, but I have not heard of any situation like this where a plan was penalized for not sending a blackout notice to one participant.

One related item of interest... one of the larger pre-approved plan providers has begun purging historical copies of plan documents from their system. Essentially, they are keeping the current restatement cycle documents and the immediate prior restatement cycle documents, and purging the rest. If you want to keep historical documents, then you have to print them or preferably have saved the original signed documents. The rationale likely syncs up with an IRS agent supposedly not being allowed ask for more than the current and immediate prior documents. On the other hand, I had an agent ask for every document since the original effective date of the plan.

There is a calculator that shows up on various websites such as: https://www.annuityexpertadvice.com/calculator/401k-withdrawal-calculator/#taxes-on-401k-withdrawal-calculator https://www.mortgagecalculator.org/calcs/early-retirement-withdrawal.php You could ask the participant to use a calculator and then provide the number a copy of the report supporting the amount of withholding they wish to have added onto the hardship amount. This would be a balanced approach between a one-size-fits-all calculation and a more realistic tax estimate that does not have the employee coming back later for a request for a withdrawal to cover the taxes. If nothing else, the calculators are fun to play with.

It would be great to get hear from the attorneys in the room, particularly those who have been involved in ERISA litigation. I have heard comments made at conferences on the topic of records retention. The sense I have is TPAs are inclined to save everything and attorneys are inclined to endorse having a records retention policy and follow it closely. I also get a the sense that TPAs literally keep everything including notes, draft copies, emails, regular mail, research, calculations, holiday greeting cards, and all data files both hard copy and electronic, whereas attorneys are inclined to endorse only saving what is needed to document the actual deliverables to the client.

The easiest place to start is the instructions for Schedule I in the instructions for the 2022 Form 5500 page 49 Line 4k. The instructions include examples which use a limited partnership to illustrate how the rules apply. The example also discuss how you may qualify for the audit waiver if the plan has an adequate amount of fidelity bond coverage. 2022-instructions.pdf

Many payroll systems set up records for each employee at the beginning of a new calendar year. Within those records is a field which is the catch-up limit for the year. Payroll then tests the limit when each payroll is run by comparing the YTD catch-up amount plus the current payroll period catch-up amount against the limit in the employee's record. It the YTD number exceeds the limit in the employee's, the current period catch-up amount is reduced to stay within the limit. To populate the field, the logic to setup the catch-up has been, as Peter notes, to look at the employee's year of birth. If the employee will not attain 50 during the calendar year, then the catch-up limit is set to zero. If the employee will attain age 50 during the calendar year, the set up limit will be set to the catch-limit for the calendar that the IRS has published before the start of the new calendar year. I expect that the IRS will publish a set of catch-up limits for each of the new age groups, and payroll will go through a similar process of determining the catch-up limit for each employee. The reason many payroll systems use this approach is the current year limit only needs to be determined once at the beginning of the year, and the logic of testing YTD amounts against the limit is the same for all employees. To summarize, a catch-up limit field for each employee already exists many payroll systems. To illustrate Peter's stages, the process to update the catch-up limit for each employee as of the beginning of the calendar year needs to have a programming statement that looks something like: If (Calendar_Year-Birth_Year)>=64,IRS_Limit_Age_64 <---this should be the same as the age 50 limit ElseIf (Calendar_Year-Birth_Year)>=60,IRA_Limit_Age_60 ElseIf (Calendar_Year-Birth_Year)>=50,IRA_Limit_Age_50 Else 0 endif

Use the previous year balance and check the box that this is the initial filing.

My comments more than anything else go more towards staying focused on informing clients and then helping them run their plans the way they want to run their plans. My comments also focus on the fact the methods and skills needed to administer LTPT employees are not new to the industry. Recordkeepers who have data stores structured to hold and make accessible historical data see the LTPT data as analogous to maintaining historical data for plan participants to be available in the event there rehires. Recordkeepers who summarize and purge historical data (commonly as part of an annual "roll forward" process) will not have a place to put historical data. They will have to create indicators within participant records to track LTPT data. For example, keeping a counter of the number of years of LTPT eligibility service. These recordkeepers will have a greater challenge to collect historical data from a client, map it into the recordkeeping system, and then integrate the logic to use the mapped data to determine eligibility. In this case, the recordkeepers will rely primarily on the client and payroll to provide the historical data. Note the plans that have a relatively small number of part-timers can accommodate the LTPT eligibility tracking on their own relatively easily by with simple tools. This can be done as simply as keeping a spreadsheet with each year's compliance data on a tab. If a part-time employee is on track to work 500 hours, a simple search across the entire workbook for the employee will likely reveal whether the part-time employee has prior service. The biggest factor contributing to the success or failure of implementing the LTPT rules is the willingness of service providers (recordkeeper and payroll) and the client to work cooperatively. At the end of the day, the service provider that takes a hard line that everything must be done the way they want it done and they take a hard line creates unnecessary work for the client or other service providers, then that service provider will lose the business. Clients do not have to wait for the recordkeeper to announce what they are going to need to support LTPT employees. Clients can anticipate the data requirements for LTPT employees (pretty much the same as for other employees), and can take an inventory of what is available from the clients' files or from payroll files. Payroll systems similarly are in the same boat as recordkeepers. If a client's routine payroll reports do not include the data needed, then the client should take steps now to expand or modify the routine reports. I am an optimist. Open communication, teamwork and cooperation has seen our industry undergo several transformations - emergence of 401(k)s, voice systems, daily valuations, the internet - and there are even more in our future. We have met every challenge, and we will meet this one.

I am a TPA and provide recordkeeping, compliance and reporting services to 125 clients ranging from about 200 participants down to solo plans. I also curently provide plan administration and consulting services to a dozen clients that range in size from 5,000 to over 400,000 participants. I personally have built recordkeeping systems from the ground up, have consulted on recordkeeping system design for several of the major recordkeeping providers, and have consulted with payroll departments on data structures, coding specifications, and data schemes. I programmed the recordkeeping system for and ran the system for the 3rd 401(k) plan that came into existence in 1982 for a Fortune 100 company with approximately 10,000 participants. I regularly work with C-suite members. Your outline of revised steps is good. Note that the logic is very similar to what needs to be tracked now for dealing with rehires. In discussions with clients, we talk about the rules and the data requirements, the implications for adding to participant counts, data maintenance and retention, system interfaces, relative effort and costs - and alternative plan designs. We stick to the facts. We inform. The client makes the decision.

I agree that alternative plan designs should always be part of the conversation because often the acceptable solution to administrative complexity is a change in design. I disagree that this is more that most clients can handle. Most clients that work with plans that have dual eligibility between full-time and part-time, and use age 21 and 1 year of service with 1000 hours, plus periodic entry dates have the skill set needed to implement LTPT rules. They speak the language. They understand initial eligibility computation periods. They understand vesting service. They track classifications of employees. They also have access to relatively recent historical data. If a client does not have a plan with these characteristics, they still are capturing data at the level needed to implement by the fact that the most common pay practice for part-time employees is pay for hours worked. Yes, it is change. Yes, it is not simple. No, the sky is not falling.

Generally, administrative expenses paid from the plan are for routine administrative services like recordkeeping, compliance, 5500s, investment monitoring, and plan audit. This does not sound like an administrative service, and if the plan sponsor had engaged search company to retrieve the unclaimed assets, that would seem to be more of a settlor expense (basically CYA for not being a diligent fiduciary). Just an opinion. Did the search firm provide any information about the potential source of the unclaimed funds? Were they attributable to a dormant account in the name of the plan? Or, possibly were they in a bank account that was used to pay distributions and amounts from uncashed checks were redeposited? Were they attributable to a litigation settlement and put into an account that was otherwise ignored? When the assets were returned to the plan sponsor, what was deposited into the plan's trust - full amount of what was missing, the net amount after the search company fee, or nothing (the plan sponsor kept it)? The answers likely will lead to a host of other questions.

This discussion brings back memories of when the computation periods, hours and service regulations in CFR 2530.200b-1,2 & 3 were first released soon after ERISA was enacted. There was a lot of complaining that the rules are impossible to administer, that companies would not adopt plans or would terminate plans rather than deal with the rules, that the expense of administration would be prohibitive, and more. Somehow we have lived with those rules for almost 50 years now and retirement plans are thriving. Yes, LTPT rules are challenging and recent legislation is not perfect. Let's inform plan sponsors of the rules, provide unbiased alternatives, listen to their feedback, respect their decisions, help guide them through implementation and monitor compliance. Regardless of how sane or insane these rules may seem, retirement plans will continue to thrive.

Metsfan, out of curiousity, is the Trustee an individual or group of individuals, or it the Trustee a service provider apart from the client like a bank? Similarly, are the "investment people" a financial advisory group, a custodian, a mutual fund group or other similar third party provider? I ask because 408(b)(2) is about documenting and managing fees, and has become deeply ingrained in the normal course of a service provider doing business with a plan. I have not seen any recent instances of a service provider not automatically making the disclosure. It sounds here as if a disclosure is required at some level and it is not clear that the service provider(s) or possibly the plan fiduciaries are on top of things. The service agreements underlying the disclosure are made between the service provider and a Responsible Plan Fiduciary. The RPF is a named individual who represents the plan in the agreement, so hopefully that individual knows they are the RPF and understands the duties and responsibilities associated with that role.

At the ASPPA Spring National last week, the session on LTPT included a point that "SECURE 2.0 provides that Safe Harbor Top Heavy exemption is not lost because otherwise excludible employees do not get it, so no Top Heavy contributions needed" The presenter seemed to have more positive than negative comments for plan designs with 401(k) eligibility of 6 months with 500 hours (effectively eliminating LTPTs), and continuing to apply 12 months with 1000 hours for match and employer contributions. The participants in 6 to 12 months range would be otherwise excludible.