Paul I

Part of the challenge is the remaining 3/4 of the purchase likely is going towards an income-producing investment. The individual will not be able to treat the entire building as a residence when preparing the individual's income taxes. The personal income tax reporting rules may be illustrative in how to determine what is a personal residence and what is an investment property.

I suggest working with a selection service providers to balance cost and effort to finding missing participants. For example, EmployeeLocator.com has a very high success rate at a very low cost if you have and are willing to provide the SSN. (Check you PII policies.) At the other end of the spectrum are private investigators which often charge an hourly rate. They tend to be more successful working within the likely geographic area of the last know whereabouts of the participant, and are much more expensive. I have found using a combination of search sources - BeenVerified, TruthFinder, Google... - helps build a dossier which then can lead to a more focused search. For example, one participant died in a car accident. Having found an individual with a very similar name and with the same birth date lead to a news article about the accident which then lead to finding next of kin. Typically, if you can find the county in which a death occurred, the coroner will readily work with a plan but is less likely to work with an individual seeking information. In another example, it turned out that a former co-worker of the participant was named as a beneficiary on an insurance policy. The company had enough information about the former co-worker and when contacted, the co-worker provided enough information to be able to find the participant. The stories that emerge from some of the searches are amazing!

Notice 2010-84 Q&A 7 was modified by Notice 2013-74 Q&A 9.

We do not yet have guidance related to ADP corrections and Roth catch-up contributions. The answer to your question will hinge on whether we will look at the plan year for which the deferrals were made into the plan, or the calendar year in which the ADP refund is classified as a catch-up. The former would seem to the be practical way to go, and any ADP refund from a 2023 plan year test that could be left in the plan as a catch-up for a person who is High Paid in 2024 would not have to be Roth.

Jsample, it sounds like they will accept Roth catch-up contributions if the plan allow catch-contributions but does not have Roth. Generally, a payroll service provider will be sending in the contributions so I suspect they are saying they will accept them if they receive them. This seems to be a slick way of avoiding the issues and leaving it up to the plan sponsor and payroll to figure out what to do. Thanks for the information!

See IRS Notice 2013-74: "Q-9. Is an in-plan Roth rollover treated as a distribution for purposes of determining eligibility for the special tax rules on net unrealized appreciation (“NUA”) in employer securities paid in the form of a lump sum distribution under § 402(e)(4)(B)? A-9. Yes. An in-plan Roth rollover is treated as a distribution for purposes of determining eligibility for the special tax rules on NUA, whether the rollover is made by an in-plan Roth direct rollover or by an in-plan Roth 60-day rollover. See also Q&A-7 of Notice 2010-84." This goes to determining the amount that is taxable related to the conversion and the basis in the Roth account. If circumstances are such that a distribution in employer securities is made from the Roth account before the account has aged 5 years, then the basis will factor into taxation of the NUA on the securities at the time of distribution. This will be very complicated if there are other assets distributed concurrently with the stock, or if there have been multiple in-plan Roth rollovers involving employer securities. These transactions have their own pro-ration rules between the ordinary income on the other assets and the NUA related to the employer securities. Definitely seek knowledgeable, professional expertise for those calculations.

The OP notes that the "safe harbor match amounts were not calculated based upon a specific time period or earmarked for any specific participant". This implies there was no linkage between the deferrals and the amount funded for the match. We don't know how the amount of the match deposits was determined. The easiest thing to check is whether the accumulated funding for the match without regard to earnings exceeded the calculated match at year. If no, then probably there is no problem. If yes, then there is a problem. If the match funding was front-loaded during the year, then there is greater potential for a problem. Whether the match funding was made to a pooled account or to self-directed accounts is not relevant.

The conundrum for rule-making is companies have used classifications to keep part-timers out of their plans. The intent of the LTPT provisions is to force companies to offer the opportunity to defer to part-timers. Unfortunately, the definition of a LTPT employee is heavily service-based and ignores how non-service-based exclusions may apply. Let's hope the rules will not add too much of a work load to determine compliance. Something simple may be to allow non-service-based exclusions for LTPTs such as geographic location where all other employees are subject to the same exclusion. The IRS likes to use testing formulas and hopefully they resist the urge to create mathematical LTPT coverage tests. I can imagine a nightmare like identifying excludable and nonexcludable LTPTs in a plan for a group of LTPTs that represents more than the safe harbor percentage using the nondiscriminatory classification test, and then applying a percentage coverage threshold. 😱

See 1.401(m)-1(a)(2)(iii)(A). "(A) General rule. Employer contributions are not matching contributions made on account of elective deferrals if they are contributed before the cash or deferred election is made or before the employees' performance of services with respect to which the elective deferrals are made (or when the cash that is subject to the cash or deferred elections would be currently available, if earlier). In addition, an employer contribution is not a matching contribution made on account of an employee contribution if it is contributed before the employee contribution." A deposit for a matching contribution made before elective deferrals on which the match is based are deposited is not a matching contribution. You may want to review the timing of the "match" deposits versus the timing of the associated salary deferrals to see if any amounts intended to be a match were pre-funded. Similarly, funding match amounts before it is known that the deferrals will be eligible for a match is not allowed. This should not be an issue for a SHM but could be for plans that have allocation requirements like a last day rule or 1000 hours. As a corollary, if the match is always funded after the deferrals are funded, there is no need to keep the match contributions in a separate account earning income. The match should go into the participants' accounts and earn income in those accounts like any other allocated contribution. On a separate note, if this plan has been using any earnings to satisfy part of their matching obligation, they have underfunded the match and this should be corrected. In a similar vein, any such earnings would not be annual additions, not includable in ACP testing, or, as others have noted, deductible.

The first thing that came to mind while reading this thread is "let {whoever] is without sin cast the first stone." We are in a service business. Our business has grown exponentially over the years. It has attracted a very large and diverse array of service providers that today are delivering innovative services that where unimaginable not too long ago. Our business is unique in its focus on retirement plans. Our business is not unique as service providers within the financial services industry. The financial services industry in general wrestles with rapidly evolving technology, less-than-sophisticated users, cost pressures, consolidation of service providers, less-than-knowledgeable support, protecting clients' assets and PII, and more. This is not to excuse the frustration we all have experienced at one time or another while trying to help a client solve a problem. We hope our clients value our services and our expertise plus our ability ultimately to help them. Industry consolidation will continue, and as fewer and fewer service providers get bigger and bigger, and as it does it will be more likely we will have war stories of our experience with these providers. Imagine our world (and as some in our government have contemplated) if there is only one retirement plan service provider. Let's keep in positive and do our best for our clients.

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.