Paul I

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!

If the client chooses to "take their chances" and ignore or fight the issue, It is worth letting the client know that the participant apparently can document that the issue was brought to the attention of the client. Failing to take action can be seen by the agencies as a wilful disregard of the Plan Administrator's responsibility to act in the interest of the participant. The DOL in particular can easily escalate the issue into a fiduciary issue. It may seem easy to ignore or bully the participant, but one call from the participant to the local DOL office could show how bad that decision would be.

As is often the case in our industry, a complete response to a simple question can be incredibly complex. There are general rules that help us focus. The employer's deductible limit is calculated based on sum of the compensations for all common law employees who receive a contribution made by the employer. Most commonly, this deduction is a business expense for the employer under section 162. There is no distinction by the type of employer contribution made when calculating the deduction limit. For DC plans, this includes match, PS, SHNEC, SHM, QNEC, QMAC, or whatever other labels may apply to the employer contribution. The deduction rules pre-date ERISA and certainly 401(k). To provider a flavor for the types of issues that come up, early on after ERISA there was a rule of thumb that if an employee was considered benefiting under 410(b), then that employee could be included in the deduction calculation. When the IRS took the position that elective deferrals were employer contributions and that anyone eligible to defer was participating, some took it to mean the compensation for anyone eligible to defer could be used in calculating the deduction limit. The IRS nixed the idea in PLR 201229012 basing their interpretation of the provision that said elective deferrals are not subject to the deduction limit.

Good point, Lou. If a participant is terminated, then they would have a distributable event. Otherwise, the plan should provide for a trustee-to-trustee transfer for participants with balances in the frozen plan who do not have distributable event and who are participating in the buyers plan (if that plan is willing to accept the transfer).

The new method of counting only participants with account balances is effective for 2023 Forms 5500. The plan will need an audit for 2022.

It would seem if you are paying a subscription for a service you should expect it to be up to date, particularly if the forms are coordinated with the plan document service. Taking the DIY approach is exceptionally time consuming. Beyond that, my Momma told me if I can't say something nice, then don't say anything.

When a plan is terminated, it must be brought up to date with all required amendments. Has that been done?

Pensions, are you asking about the 2022 Form 5500 filing due later this year or the 2023 Form 5500 due next year?

This situation typically comes up when the company does not want to give a PS contribution to an employee who terminated employment after the close of the plan year and before the contribution is funded. All too often, it is an emotional decision depending upon the company's relationship with the individual employees. If the employee is a long-term, loyal employee who terminates in January, they likely will want to give the employee a contribution. If the employee ran off with the petty cash box and was fired in January, they almost certainly do not want to give the employee a contribution. But we all know we have to follow the plan document. It likely is possible to craft allocation conditions that are definitely determinable that uses prior year compensation in the allocation basis. The contribution would still be a current year contribution but would not involve any current year true-up or end-of-year claw backs. If they skipped a year's contribution for 2022 because they got mad, it sounds like they follow the petulant child style of management. If you create a contorted plan design that accomplishes what they want, that design likely will disappoint them again in the future. Good luck!

DB VTs may not have gotten statements in the past for whatever reason, and no one including regulators did not seem interested. The explicit inclusion in SECURE 2.0 requiring a DB paper statement be sent at least every 3 years combined with the DOL's guidance on lost participants suggesting sending out statements helps prevent participants from going missing likely means documenting that statements were in fact sent to DB VTs will now be on agents compliance checklists.

You have covered a lot of rules but getting to the answer of each question seems to need some additional information. First, what are the plan provisions related to disability and disability distributions? Are they triggered by termination due to disability and/or by being determined disabled by the plan administrator (and the individual is not considered terminated)? Why are there concerns that the IRS may challenge his permanent and total disability diagnosis? If everything is done according to the plan provisions, what basis would the IRS have to make such a challenge? What does the plan say about the status of outstanding loans in the event of termination from employment? What does the plan say about the status of outstanding loans in the event of disability? Keep in mind that a loan offset and a deemed distribution are different things, and a withdrawal and a distribution also are different things each with different consequences.

In situations like this, in a discussion with the investment adviser, I would try to mention the word "jail".

Agreed. In scenarios like this, the phrase "just because we can does not mean we should" comes to mind.

The path forward will depend in part on the nature of the buyout. If it is a stock sale, then this business will cease to exist and the new owner automatically will become the plan sponsor. If it is an asset sale, then this business will continue to exist and can continue to be the plan sponsor until the business is formally shut down. The plan document says who is the Plan Administrator. If, as is common, the plan sponsor is designated as the Plan Administrator, then the path forward above will determine who is the PA (unless there is an amendment to the plan naming someone else as the PA). The PA will be responsible administering the plan until it terminates and all assets are distributed. The plan can be frozen pretty much anytime and can remain frozen through the plan termination.

History may not repeat itself exactly, but it can be analogous. The issues here are very similar to those faced by plans in the early 1980s when insurance companies offered 5-year or more GICs with guaranteed rates of return of 12% or more. Then the markets turned, new GIC rates dropped, some insurance companies failed, and MVAs were horrendous. This stable value fund likely is dealing with the impact of interest rate hikes on the value of the underlying fixed-rate investments. When addressing the issues, the starting point is the terms of the agreement with the stable value fund. As others have noted, is the fund benefit responsive as Lou asks above (can participants direct a transfer out of the stable value fund)? If so, typically there is no MVA applicable to the participant-directed transfer although some may have a trigger if transfers in the aggregate exceed a specified level such as the example truphao mentioned above. If the stable value is not benefit responsive and the plan is closing out the fund prematurely, then the MVA will apply. Sometimes this is a positive outcome for participants but this instance looks like it is a significant negative. In addressing the past GIC issue, some plan sponsors negotiated with the fund a buy-out of the MVA. Other plan sponsors, where participation in the GICs was very popular among participants, made a higher company contribution to help take the sting out of the MVA. Some plans that wanted to terminate but could not afford the MVA, froze the plan, allowed for distributions from the other investment options, and kept the GIC open to preserve the high guaranteed return (assuming the contract issuer did not go belly up). This had the overhead expense of running the plan for two or three years or until the markets shifted and the other strategies for addressing the MVA became affordable. Many plan sponsors' approach to the GIC issue was to acknowledge it was what it was, participants had a good ride on the upside, the choice of the investment at the time the choice was made followed the plan's investment policy, and everybody was happy until they were not happy. Good luck!

It is subject to a 5500 filing and the audit requirement. You basically have a profit sharing plan. The term "thrift" was in common usage many years ago and often meant a plan that had mandatory after-tax employee contributions (not salary deferrals). Thrift was used to suggest to employees that they needed to manage their money carefully. It was a popular plan design bargained for by unions because of the common match feature.

Totally out of curiosity, has the investment advisor provided any explanation for why this would be beneficial to the client?