Paul I

An ESOP that owns 100% of the stock of the company is a good example. This arrangement is increasing in popularity for S-corps.

This type of situation is the part of the motivation for the SECURE 2.0 self-certification provision removing requirement to submit documentation. The SECURE 2.0 provision is optional and can be effective on or after 12/29/2022. The plan sponsor or administrator should at least be able to document the decision to use the new rules and communicate them to participants, and also inform the participants that they need to retain the documentation in case the IRS asks for it. Back to this situation, funeral expenses are a safe harbor reason, the immediacy is readily apparent, so the remaining issue is documenting the financial need that cannot be met by the participant from other sources. I wonder how tough the IRS would be under these circumstances.

FPGuy, my apologies for any confusion. A distribution paid today to someone currently age 70-1/2 would be an eligible rollover distribution, even though it otherwise may look like an RMD as if it was made following the rules of 401(a)(9). The particular plan referenced above does have a mandatory retirement at age 65. They do allow for company-approved exceptions, and anyone who is allowed to work past retirement age who gets an allocation also gets paid an immediate lump sum.

Like for many other scenarios, we don't yet have guidance. My take on this situation is the HEP will be in compliance with the new rule if, after the end of the plan year and after compliance testing is done, then any amount that the HEP contributed during that is above the 402(g) limit (or a plan limit) needs to be Roth. Another way to put this is "it won't matter how you get there, as long as you get there." Taking this approach would let the IRS punt on what payroll, the participant, the recordkeeper, or the plan sponsor needs to do to get to that result.

I believe there is a pandemic of INSECURE 2.0.

I have worked with a PA that immediately would approve the hardship under these circumstances, and I have worked with a PA that would not immediately approve this hardship. Part of the decision here is the court has ordered the participant to refinance or sell. If she doesn't refinance, she will have to sell and will no longer be able to live there (assuming she cannot cut a deal like Hugh Hefner did with the mansion). The tougher PA would ask about the immediate and heavy financial need, and would want to confirm that the funds are needed now to cover closing costs or an additional down payment required by the finance company for the participant to qualify for the refinanced mortgage. You may have guessed this PA is not a believer in self-certification.

It seems this plan wanted to avoid all of the RMD rules around the first RMD payable by April 1st following the Distribution Calendar Year or allowing active non-owners the opportunity to defer payments until severance from service. As Peter noted, the plan can provide for an involuntary distribution based on a reaching the plan's normal retirement age. I work with a 401(k) plan that requires lump sum distributions be made to the participant when the participant reaches age 65. Essentially, there are no RMDs payable from the plan due to reaching age 70-1/2, or 72, or 73, or 75, or any other age past age 65. The plan also pays lump sum death benefits which pretty much means no RMDs are paid from the plan. Does this ESOP condition the payment based on the calendar year in which a participant reaches age 70-1/2 regardless of whether the participant is active or terminated? If yes, and the account is paid on the value of the stock appraisal (assuming it is not publicly traded) received in that year for the end of the prior year, there should be no problem making the payment timely during the year in which the participant reaches age 70-1/2. If the ESOP is making payments using the RMD calculations as a minimum, then a payment made before the participant reaches the RMD age for a year will not be an RMD. It would be an eligible rollover distribution.

Also, remember to add lost earnings to the missed match.

Belgarath, the firm I mentioned is Employee Locator at... [drum roll]... https://employeelocator.com/

Some observations: cash or accrual is not relevant to the timing of the deposit. the designation of the tax year of deduction of a contribution made after year end is somewhat flexible, but there are explicit requirements to do so. filing before the original due date can impact the timing for the contribution to be deductible. Here are some cites worth noting: Rules for timing of deductions primarily are based on Revenue Ruling 76-28, and as illuminated further by PLRs 200311036 and 8336006. From the Rev Rul 76-28 "Whether a taxpayer is on the cash or accrual method of accounting, and whether or not the conditions for accrual otherwise generally required of accrual basis taxpayers have been met, a payment made after the close of an employer's taxable year to which amended section 404(a)(6) applies shall be considered to be on account of the preceding taxable year if (a) the payment is treated by the plan in the same manner that the plan would treat a payment actually received on the last day of such preceding taxable year of the employer, and (b) either of the following conditions is satisfied. (1) The employer designates the payment in writing to the plan administrator or trustee as a payment on account of the employer's preceding taxable year, or (2) The employer claims such payment as a deduction on his tax return for such preceding taxable year (or, in the case of a contribution by a partnership on behalf of a partner, the contribution is shown on schedule K of the partnership tax return for such year). For purposes of the above requirements, the [all of] following rules shall apply. First, a payment may be designated as a payment on account of the preceding taxable year in the manner provided above at any time on or before the due date of the employer's tax return for such year (including extensions thereof). Second, employers whose tax returns are due (including extensions thereof) on or before [original due date], may, at any time on or before [extended due date], either designate such payment in the manner provided above or file an amended return claiming such payment in the manner provided above. Third, once a payment has been designated or claimed on a return in the manner provided above as being on account of a preceding taxable year, the choice made shall be irrevocable and an employer may not retract or change such designation or claim." PLR 200311036 describes a situation where: The company filed for an extension of the 2001 corporate tax return before the original due date in 2002. In 2002, the company made a contribution in May designated in writing as a 2002 contribution. The actuary commented if the contribution was designated in writing as a 2001 contribution, it would be deductible in 2001. The company changed the designation of the contribution in June to 2001. The company filed 2001 corporate taxes in September not later than the filing due date (including extensions thereof) claiming the deduction for 2001. The deduction was allowed. PLR 8336006 describes a situation where: The company filed the corporate tax return prior to its original due date. An extension was filed after the return was filed but before the original due date of the return. (There was some question about whether the IRS received the extension but it turns out that was not relevant to the outcome. Just a little foreshadowing of the outcome.) The contributions were funded shortly after the original due date of the return. The ruling was the filing of the return started "starts the running of the period of limitations on assessment and collection and is considered as filed on the last day prescribed for its filing. This period is determined without regard to any extension of time for filing." so the contributions were late. Subsequent comments on this PLR note that if the contributions had been funded after the filing of the tax return but before the original due of the return, the contributions were deductible on the return.

The primary responsibility likely will be driven by circumstances. For example, if the plan procedure is to allow a catch-up eligible HPE to make an election to defer x% and to make an election to defer up to the deferral limit or the deferral limit plus the catch-up, then this should be fairly straightforward for payroll to administer. On other hand, if a catch-up eligible HPE elects to defer only up to the deferral limit and in the following year the TPA determines the plan fails the ADP test requiring a refund to the HPE, and the HPE wants the amount to stay in the plan as catch-up, then it is the TPA that will have the information needed to treat the catch-up as Roth. Payroll will not know about this until well afterwards. By then, the HPE's W-2 was prepared and filed with the IRS. Further, the HPE may no longer be an employee when the amount of the catch-up/Roth calculation is known. How will this be reported? I'm sure there are other circumstances that could be complications. If the payroll procedure for an HPE is to keep an election for elective deferrals separate from an election for catch-up contributions, then it would seem logical that payroll would treat the catch-up amounts as Roth. If the HPE terminates before reaching a plan limit triggering the availability of catch-up contributions, then the question would need to be addressed if payroll's treatment was consistent with the plan provisions. Can't wait for some IRS guidance to be released. One third of this year has passed and the clock is ticking!

Being asked for a solution to uncashed checks, particularly for small balances, is like being asked for directions for walking through a minefield - blindfolded. Let's break it down. Is the participant "missing" or "unresponsive"? By missing, what has been done to confirm the participant's contact information? I suggest confirming the participant can be contacted before writing any checks. Free internet searches are notoriously not helpful because they return too many unverified hits. There is a low-cost, publicly available, no contract search service that charges $10 per search if you can provide the participant's ssn (be sure to follow the plan's PII policies), and claims something like a 99% success rate when you do. They have been 100% successful when I have seen it used, and results were returned within 48 hours. The $10 can be charged against the participant's account balance. If you can confirm the participant's contact information and either speak to them or get a response to a mailed or emailed notification there is money available, then the participant is no longer missing. If the attempts to locate the participant are unsuccessful, then the participant remains missing and the conundrum is what to do next. Addressing missing participants is a related but different topic commented further below. Let's move on to addressing the participant who is unresponsive. By now, we should know how to contact them, so send them an election form explaining they can make a distribution election if they respond within 30 days (recommend providing an explicit response date). Include an explanation of what happens if they do not respond which would be making a taxable distribution or moving to a default IRA depending upon the plan provisions and as directed by the Plan Administrator (recommend specifying applicable fees that will be charged). If the default is moving to a default IRA, make the move and consider the distribution as completed. If the default is making a taxable distribution, write the check, withhold the appropriate taxes, and send a notice with an explanation of what happens if they do not cash the check timely (most plans seem to issue checks that are valid for 180 days from the date of the check). The notice may say the check will be reissued, or the amount will be moved to an bank or similar account in the name of the participant (assuming you can find a financial institution amenable to hold this account). Depending upon the plan's policies and procedures, the notice can explain whether the amount potentially could be contingently forfeited under the IRS rules, or the amount could be charged administrative fees that will diminish it over time, or the amount could be escheated to the state, or some other fate that conveys the message "cash it or lose it". It also is worth disclosing that the amount will be reported on the Form 1099R, that the participant already paid taxes they should report on their personal tax return, and the IRS could ask about the distribution if the participant's personal tax return is reviewed or audited. Circling back to a missing participant. The PBGC said they will help, but only for terminating plans. The IRS lets a plan make a "contingent forfeiture" (distinguished from a "forfeiture"). The DOL has been the most inconsistent in providing guidance on what to do with a missing participant. Generally, the DOL seems to lean towards keeping the amounts in the plan until the plan terminates (which would then make it the PBGC's problem). I have had a conversation with a senior DOL investigator who did not recognize contingent forfeitures and was adamantly against the practice. Anecdotally, other DOL investigators have accepted contingent forfeitures if they are explicitly in the plan documents, significant efforts were made to locate the missing participant, and the policy has been applied uniformly. Did I mention navigating a minefield? DOL's karma is the SECURE 2.0 mandate for the DOL to create a national, online lost and found database no later than January 1, 2025. I suspect that this will look like a flavor of the PBGC service and will require plan's to go through a series of steps and even a commercial search service before the DOL will accept a missing participant's balance. We will see. Can't wait for the comment period to open up.

Lou81, I am agreeing with Riley that the individual did not meet eligibility prior to termination. My apologies for the lack of clarity by not thoroughly proofreading my comment.

Is the service provision the election in the FTW document B.7.g? "g. Completion of ___ consecutive month(s) of continuous service (not to exceed 12; hours of service failsafe applies)" If yes, note that this election has a condition for entry that is earlier than the statutory 12-month eligibility computation period/1000 hour requirement, and if the early entry is not met, then the statutory eligibility conditions apply. This is not an elapsed time election. In this case employment from 10/7 - 11/17 is not a period of continuous service so there was no early entry. There was no subsequent employment in the individual's initial ECP so there are no rolling periods to consider. The individual certainly did not work 1000 hours in the initial ECP. Since the individual meet the plan's eligibility requirements before termination, there is no basis for allowing immediate entry upon rehire. Check the termination and rehire provisions in the Basic Plan Document. There would be no recognition of the original service because is was not continuous, there was insufficient hours worked, and the rehire was after the initial ECP. There likely are other related issue to address like will the individual's ECP shift to the plan year? Could the plan allow a rehire to start over and use the earlier entry requirements? BTW, the FTW folks are pretty responsive in pointing out where you can find applicable provisions within their documents. Once this particular individual's case is decided, you may want to document and preserve the policy to be applied uniformly and consistently in future cases.

We can remove delays, shutdowns, slowdowns... from the conversation. We already are in a situation where many providers will not be ready to administer recent legislative changes by the effective dates of those changes.

Short version - if a participant gets any employer contribution (profit sharing, NEC, match, QNEC, QMAC...) their compensation is included in calculating the deductible limit.

Undoubtedly, a shutdown would be bad news. Currently, there already are too many unanswered questions from the agencies. This is impacting the ability of software developers across the industry to design, code, implement and test modifications to support changes that are already effective. Implementation of changes effective in 2024 and beyond are in the queue but also in limbo pending guidance. Keep in mind that software changes are the tip of the iceberg of fully implementing operational changes. We can hope that the agencies are anticipating that everything the needs to be done to implement will not be completed in time and that they are developing strategies or policies that will protect plans from being considered not in compliance. An example is how the audit opinion changes on the Form 5500 were made optional for one year. There were the pandemic rules around terminations versus layoffs, temporary availability of higher limits on loans, relaxing rules on notarization of spousal consent, and more. If the probability of a government shutdown continues to increase over the next several weeks, I think the industry should be proactive in offering to the agencies suggestions and recommendations on steps that agencies can take in advance of a shutdown that will carry us through a shutdown and through a reasonable the time period afterwards. The industry did a good job helping the government in crafting and in lobbying for many of the recent legislative changes, and the industry should use its detailed operational knowledge and creativity to help design and lobby for steps to protect plans in the event of a shutdown.

The situation went on for too long and involved the owner who very likely has multiple fiduciary roles. There also some additional potential complicating factors such as how were the personal contributions treated on the owner's personal tax return, and what are the total annual contributions made to the plan by or for the owner. It sounds like a VCP is in order.

I have seen a situation where the plan had employer securities available as an investment option. A division was sold to an unrelated company and many of the spun off employees did not want to sell and wanted to remain in the plan and the lead employer did not want to have large sales of employer securities impacting its share price (the stock was publicly traded).

Here are sample notices used to notify participants about a payroll issue. Note that there are 2 notices - one for continuing actives and one for terminated employees. The client was able to take advantage of the brief exclusion rule for the actives. Sample notices - payroll issue.docx

We relatively recently took a 60-participant DB plan through a plan termination. All benefits were paid out by 9/30/2022 and excess assets remained in the plan. This was anticipated and expenses payable from the trust were then paid. That still left the trust with some excess assets. The company decided to take the reversion and pay the taxes. The excess assets sent to the company on 12/1/2022. The PBGC selected the plan for an audit and sent a information collection list in January. They commented in the cover letter that they audit about 35% of all terminating plans. The cover letter also noted that the agency was backlogged and the audit likely would begin until several months later - but they still wanted the information sent in within a few weeks of the letter. The audit has not yet started. The information requested included the date and the amount of the asset reversion, along with proof of who was paid, and a copy of the financial statement from the trust showing the reversion and documenting a zero balance in the trust. This would have been a Catch-22 if the trust held assets to pay for the work on the PBGC audit, and the audit wanted evidence the assets went to zero. Also FYI, the PBGC requested bank statements proving all of the benefit checks were cashed, and copies of participant benefit election forms for a sampling of participants. Hope this sheds some light for you on what may be ahead.

I suggest that the definition of Professional Services is limiting. The definition is limited to "a retirement or other employee benefit plan". Arguably, "rendering of advice, recommendations, findings, or opinions" further limits the definition that involves the personal exercise of professional judgement. Consider a Member who two jobs. One is working as a call center rep for a lawn care company and the other is as a call center rep for a recordkeeper. The recordkeeper requires all call center reps to get QKA credentials. Both jobs require the Member to stick to the script, and any freelancing or going off script is grounds for dismissal, the Member meticulously has stuck to the script and has not exercised professional judgement. Is this Member providing Professional Services when performing either job? If the Member goes off script with a lawn care client and offers advice, is this a violation of the Code of Conduct? If the Member goes off script with the recordkeeper client and offers advice on a topic the Member knows about from the Member's QKA studies, and the Member meets the other standards in the Code of Conduct, is this a violation of the Code? Again, I suggest at some level the definition of Professional Services is limiting which means it creates boundaries. The conundrum often is the interpretation of where are those boundaries.

Peter, your questions so very often require taking another look at what is taken for granted and makes us question what is the real intent. One thing stands out with the Code - the definition of Principal says nothing about former clients or employer's of the Member. Also, the definitions speak to the Member providing to the Principal "retirement plan services" but this term is not defined in the Code of Conduct. You suggest assuming the work is Professional Services. The Code does define "Professional Services: services provided to a Principal by a Member, including the rendering of advice, recommendations, findings, or opinions related to a retirement or other employee benefit plan." Professional services as defined in the Code are vastly different from the services provided by many employees of a recordkeeper where the employee's job is to follow a fixed set of administrative steps with no rendering of advice, recommendations, findings, or opinions related to a retirement or other employee benefit plan is involved. The Code also notes that "A Member shall render opinions or advice, or perform Professional Services, only when qualified to do so based on education, training and experience." People in our industry more often than not try to help out a participant that is struggling with understanding plan provisions and available options. To quote Dirty Harry, "a man has got to know his limitations."

The time to raise a compliance concern with a new plan on the part of the recordkeeper is well before the document is signed. Out of curiosity, are you the 401(k) document provider or did the recordkeeper provide the document? All too often, some providers design their plan document or policies for their administrative convenience. I would ask for an explanation in writing from the compliance department in chapter and verse explaining their comment.

The number of profit sharing only plans we serve has dropped dramatically over time with the widespread popularity of 401(k)s and daily valuations. We do have a handful of clients that are valued annually and that manage their own trust accounts. Only one files a full 5500. The other situations where a trust accounting skill set is needed is for plans that are audited with SDBAs where individuals can pick their own brokerage firm. The expanded capabilities for investment houses and brokerage firms to provide data has made this task easier. Also, the ability to extract data electronically from pdfs of statements has reduced the effort. Dealing with asset transfers is particularly painful because of the time delays between the positions leaving one account and the positions arriving in the receiving account. The financial institutions of either side of the transaction dig in their heels that the FMV is strictly determined as of the date the transaction posts creating a gain/loss not accounted on their statements. Also, all too often, the financial institutions also do not properly record the cost basis in the security. The challenge for you is apparently you have been providing this service and not charging for the effort. The client likely does not appreciate that they have benefited from your largesse. Check your service agreement and the description of any services related to the this particular service. If you are increasing fees, you will have to follow the process for providing notice anyway. I suspect that you are not the Trustee, and whoever is the Trustee has the responsibility to do the reporting on the assets. If this happens to be individual trustees at the client and they rely on your work product, then you have been providing a trust accounting compilation service which is not in the scope of recordkeeping services. You may have an idea what the auditor is charging. It would be interesting to see if the plan has been subject to a full scope audit. You likely are not in a position to provide certified financial statements. Getting a corporate trustee and having them prepare certified financial statements actually may save the client some money and also reduce the effort you need to provide TPA services. Keep in mind that losing money year over year on a client that does not pay enough to cover your costs is detrimental to your business as a going concern. It ties up resources that otherwise could be used to build new relationships with clients that pay you a fair fee. Good luck!