Paul I

Here is part of the section from Relius that follows with some requirements the plan sponsor may not embrace: "What conditions must an 11(g) retroactive corrective amendment satisfy? An 11(g) amendment must satisfy the following conditions: The amendment may not reduce benefits (including any benefits, rights and features), determined on the basis of the plan terms in effect immediately prior to the amendment. However, see 5.b. below. The amendment must be effective as if the amendment had been made on the first day of the plan year being corrected. The amendment must be adopted by the 15th day of the tenth month after the close of the plan year being corrected. If the plan sponsor applies for a determination letter before the end of the 9½ month period, the retroactive correction period is extended in the same manner as the remedial amendment period. The additional allocations or accruals must separately satisfy the nondiscrimination requirements and the group of employees benefited by the amendment must separately satisfy the coverage requirements using the same rules that apply in determining whether a component plan separately satisfies coverage. A plan does not need to satisfy this requirement if the plan sponsor is amending the plan to conform to one of the nondiscrimination safe harbors. The amendment cannot be of a pattern of amendments being used to correct repeated failures with respect to benefits, rights and features. The relevant provisions of the plan immediately after the amendment with respect to benefits, rights and features remain in effect until the end of the first plan year beginning after the date of the corrective amendment. The corrective amendment either expands the group of employees to whom the benefit, right or feature is currently available, or eliminates the benefit, right or feature to the extent permitted under the anticutback rule.

The 410(b) failsafe provisions in the FTW document appear in section D.6 of the adoption agreement and section 4.02(d) in the BPD. Note that the last sentence in section 4.02 in the BPD says "Notwithstanding the foregoing, the Plan Administrator always retains the option to meet the minimum coverage requirements of Code section 410(b) by using the average benefits test of Code section 410(b)(2)." I would try using ABT before using the provisions to adding in more participants. If you are going to add in participants, section 4.02(d) has specific rules for who gets added in based on the election in the AA.

Belgarath, don't give up on your memory. The instructions to Form 1099-R say: Losses. If a corrective distribution of an excess deferral is made in a year after the year of deferral and a net loss has been allocated to the excess deferral, report the corrective distribution amount in boxes 1 and 2a of Form 1099-R for the year of the distribution with the appropriate distribution code in box 7. If the excess deferrals consist of designated Roth contributions, report the corrective distribution amount in box 1, 0 (zero) in box 2a, and the appropriate distribution code in box 7. However, taxpayers must include the total amount of the excess deferral (unadjusted for loss) in income in the year of deferral, and they may report a loss on the tax return for the year the corrective distribution is made.

Currently, Reg 1.401(k)-1(f)(1) says: (f) Special rules for designated Roth contributions (1) In general. The term designated Roth contribution means an elective contribution under a qualified cash or deferred arrangement that, to the extent permitted under the plan, is - (i) Designated irrevocably by the employee at the time of the cash or deferred election as a designated Roth contribution that is being made in lieu of all or a portion of the pre-tax elective contributions the employee is otherwise eligible to make under the plan; This is the problem with the drafting error in SECURE 2.0 requiring high-paid individuals to make all catch-up contributions as Roth contributions. Existing rules say the you need to be able to make pre-tax deferrals in order to be able to make Roth contributions. Hopefully this will be fixed before 2024 arrives (and may divine providence help the software programmers for payroll and recordkeeping systems).

All of the cash balance plans that I have seen provided for default beneficiaries if for some reason there are no spousal benefits payable, with the estate being the ultimate default beneficiary. Further, all of the defined benefit plans I have seen also provided for additional, non-spouse default beneficiaries. That being said, this article published by the Pension Rights Center in November 2020 https://www.pensionrights.org/resource/understanding-survivor-benefits-in-private-retirement-plans/ comments that "Pensions are another common type of employer-sponsored retirement plan. The formal industry term for a pension plan is a Defined Benefit Plan. Survivor benefits in defined benefit pension plans are very different from survivor benefits in defined contribution plans. Spouses of participants in defined benefit plans are better protected, but defined benefit plans typically only pay survivor benefits to a spouse. If an unmarried plan participant dies but has children, those children will most likely not receive a survivor benefit." Unfortunately, they do not list a source for this comment. I am surprised at the use of "typically only" and "most likely" in the highlighted sentence. I imagine any pension plan that did not pay benefits where there is no spouse and no participant-designated would say "that's what mortality tables are for".

Let's keep it simple. If the plan says it is a REA safe harbor and includes the required language needed, then no spousal consent is needed. If the plan doesn't say it is a REA safe harbor (explicitly or not) or does not include the required language, then spousal consent is needed for amounts over an applicable force out. If the plan, regardless of what is says about a REA safe harbor, says a transaction (loan, withdrawal, distribution, amounts under $5000, ...) requires spousal consent, then spousal consent is needed. Or, as Peter and CuseFan commented, RTFD.

It looks like the plan allocation formula defines groups of employees versus a rate group for each participant. I don't see how you can modify the allocation formula after the close of the plan year disguised in an 11(g) amendment to add a new rate group for one HCE and a new rate group for 2 NHCEs.

It sounds like you need to confirm (with backup documentation) exactly what was done and when it was done. Was the soloK actually terminated? Were there common law employees in the other company eligible for the soloK at any time in the existence of the plan? Does the other company still exist? Were the soloK plan eligibility provisions drafted in a way that would extend eligibility to the current company employees? What did the owner think was the distributable event that allowed for a rollover? ... There may be a problem because of the successor plan rule. There may be a problem because there is a controlled group. There may be a problem because there are eligible employees who are due benefits. There may be a problem because there are missed deferral opportunities (assuming these are 401(k)s)... In almost all of these scenarios, consider involving an ERISA attorney at least to review all of the facts and proposed remedial actions. This is the kind of surprise with a new client that we all dread. Stick to the facts and follow them to where they lead, and consider asking the questions about other plans to your due diligence process for accepting new clients. Good luck!

Assuming there are not complicating factors such as the plan contains amounts transferred from another plan that was subject to REA, then a distribution from a REA safe harbor plan does not need spousal consent for a distribution (or in-service withdrawal, or a loan). Any amounts transferred in that are subject to REA continue to be subject to spousal consent. Keep in mind that a REA safe harbor plan like all other plans does need to get spousal consent for a designation of a non-spouse beneficiary.

My understanding is you use line 34 from Schedule F to report your net farm profit or loss. This is carried forward as net income from self-employment and is used for pension purposes. This is analogous for non-farm net earnings from self-employment from Schedule C. Note that line 23 on Schedule F is where you would report contributions the farm business made for common law employees, but not contributions for the farm owner.

I see "corrective distribution" more like a generic term for anything that must be paid out of the plan as a result of an correction or remedial action. It would include you list plus things like QNECs credited to terminated participants, income of late deposits... A corrective contribution due to an active participant or a former participant with an account balance must be credited with the corrective contribution regardless of the size of the amount. If a corrective contribution is due to a participant who is paid out and the cost of paying is out is less than $75, then my understanding is the corrective contribution does not have to be paid. Be careful using this exception. There are some situations where these amounts must be reallocated to the other participants who are receiving the corrective contributions. (For example, if I recall, lost earnings allocations may fit this situation.) Similarly, with some corrections that require allocating additional contributions to participants, the allocation must be "meaningful" so, for example, it cannot be allocated to a terminated, non-vested participant and immediately forfeited. I do find it interesting that the rules do not actually prevent writing very small checks. For example, if a former participant gets a $76 corrective contribution and the cost of processing the distribution is $75, the net check to the participant is $1. The recordkeeper may get $75, the participant laughs at the check and doesn't cash it, the plan deals with uncashed checks, and the auditors get to make a management comment. Bottom line, follow the rules and live with the results.

The IRS weighed in on plans that were not timely amended for Cycle 3 (assuming we are talking about a DC plan). At a high level, have them adopt your document with a current effective date. The Plan Sponsor can name the Trustees. The restatement will concurrently change the Plan Sponsor and Plan name. Highlight this in the resolution to adopt the restatement. Keep in mind that you don't know what you don't know. With all of the recent legislation particularly around the pandemic, a plan could make decisions on various provisions which they could apply in practice but would not need to be included in the document until later. It sounds like those who would have known about any such decisions are no longer around. This may require looking at available participant records including statements to see if there was activity that would have been driven by some of these provisions (particularly payments and loans). You should take an inventory of items that should have been done but were not. This would include compliance testing, 5500s, disclosures, timing of funding... If this inventory is long or contains operational failures, the you need to consider which may rise to the level of a VCP, VFCP, or DFVCP. They likely will, so the plan restatement should be done in the context of an overall cure for plan deficiencies. It can be challenging to know the full scope of this type of work. You should get a signed engagement letter setting out how you will get paid.

Here is a link to several posts from a few years ago discussing splitting a plan to avoid an audit: Splitting Plans to avoid audit It includes comments from those who have done this. Note that all of the comments focus on how to split the plan prospectively including steps to take to mitigate possible challenges to the process. There are several comments about the DOL and IRS perspective on how to count participants as of the beginning of the year. Basically, they will look at facts on the first day of the plan year and a plan cannot alter those facts. My take is the plan will not succeed in trying to alter, with a retroactive amendment, the participant counts as they stood on 1/1/2022. It will be interesting to see if anyone has had any more recent experience on the topic.

In this case, for the 11(g) amendment we get to decide who will be allowed to get covered and be considered benefiting for coverage. We know each individual's service history and compensation, and the consequences if we extend coverage to include each of them. We then expand the existing ACP test population to model the inclusion of a prospective selection of individuals for coverage on the ACP test. Using this population, we model ACP testing strategies to optimize the outcome. (Depending on the plan sponsor, optimizing may be purely cost or may include some consideration on who gets included and who does not.) Once we have modeled a desired result, write and adopt the 11(g) amendment. The amendment is predetermined to result in passing coverage and curing the ACP. Short version, when we can control all of the variables, we can predict the outcome. If you try this with canned testing software, it can be terribly inefficient. Excel can be used to build the model then use its data management features and what-if analytical capabilities to find a solution.

The solution to the coverage issue is going to require increasing the count of NHCEs benefiting from the match. What happens next can depend on some additional details and take different paths forward. For example, is the plan (hopefully) using current year or (hopefully not) using prior year testing? Did the plan pass the ADP test and the ACP can benefit from borrowing? Will disaggregation help? Will a QMAC help? If you're taking the 11(g) route, work out the coverage solution and the ACP end game beforehand.

Thanks for the fun fact. Do we now have an example for when someone who was performing services in the employ of certain organizations was not employed? Sounds like a riddle: When is someone who is employed not employed?

Manage the timing and the effective dates of any plan amendments very carefully. A significant change in a plan's provisions will end the transition period immediately.

I searched 3121(a) and other referenced subsections for "self", "self-employed", "sole", "sole proprietor", "partner" and pretty much came up empty. There is a reference to "individual" but the context is when someone else pays you a wage to do work for them like a housekeeper. The section focuses on withholding and remitting Social Security taxes from wages. A self-employed individual is not subject to this requirement (they can take a draw without specifically withholding Social Security taxes). The nuance comes in when the self-employed individual files a Form 1040 and files a Schedule SE to pay both the employee and employer Social Security taxes. The individual pays the tax but is not required to withhold it from payments made during the year. If I had to place a bet on it, I would bet on the a self-employed individual with net earnings from self-employment of $145,000 or more will have to make Roth catch-up contributions. But it remains an interesting question on the path that could be taken to lead to that conclusion.

I agree with Bill that we likely will see guidance that uses in-plan Roth conversion rules to re-characterize amounts as Roth catch-up. I think this logic also will be used as guidance for administering an employee election to have non-elective contributions or match treated as Roth. There is a convenience to having one set of rules apply in at least 3 different situations (in-plan Roth conversions, test recharacterizations, NEC/match elections). If so, then tax event would occur in the year the conversion occurred. It will be interesting to see where the IRS comes out on these topics.

Interesting question. Technically, a self-employed individuals do not pay themselves wages. The fact that net income from self-employment is taxed using income tax rates used by workers who receive a wage, and the self-employed individual must pay payroll taxes on self-employment income certainly clouds the issue. Words do matter, as we all know when trying to nail down the various definitions of compensation that we find within retirement plans.

Employee benefits for unions are collectively bargained and timing of the effective dates of changes to the union plan are tied to effective date of the bargaining agreement. That often differs from the effective dates of changes in the nonunion plan.

I have had clients comment that it seemed unfair for terminated participants to benefit from future increases in share value since the terminated participants were not adding value to the company. Almost all of them put in place a mechanism to replace the shares of terminated participants with cash. The rest have gone the route of replacing the shares with a secured note. I have not heard anyone just freezing the price. Keeping shares in the accounts of terminated participants but not allowing the share value to fluctuate is treating these shares differently from the shares held in other participants' accounts. This sounds to me like a problem. Assuming the shares are not publicly traded, it would be interesting to see if the independent appraiser has commented on this policy.

I assume the 2022 filing also did not check the box that it was the final filing. If final filing is checked and there is an ending balance on the financial schedule, it could trigger an edit and possibly an inquiry. There should be no issue answering no to the "all assets distributed" question if the final filing box is not checked and a balance is reported. Plans essentially have a year to get all of the assets paid out, so it is not uncommon for a plan to have assets at the end of the year in which the termination occurred.

Is there something magical about 2025 that the plan was going to be terminated at that time? If the doctors are contemplating selling the practice or pursuing some other exit strategy and if revenues are low and declining, then there is very little time between now and early 2025 to fund the minimum from revenue, to experience asset growth, or to pay off loans to the business. If the plan was to sell the practice, they may want to consider accelerating their plan and use part of the proceeds to make up the funding (at least for the employees and a possible haircut for themselves). I agree with CuseFan that they should involve an accountant or lawyer in formulating a strategy. They also should give some serious thought to working with a financial adviser who can help them manage their investment risk with such a short time horizon.

The changes in the draft instructions for the 2023 5500-SF say: IV. Changes to 2023 Instructions for Form 5500-SF Short Form Annual Return/Report of Employee Benefit Plan 1. Instructions for Form 5500-SF, “General Instructions,” “Who May File Form 5500-SF,” numbered paragraph 1 is revised to add two new sentences at the end to read as follows. 1. The plan (a) covered fewer than 100 participants at the beginning of the plan year 2023, or (b) under 29 CFR 2520.103-1(d) was eligible to and filed as a small plan for plan year 2022 and did not cover more than 120 participants at the beginning of plan year 2023 (see instructions for line 5 on counting the number of participants). To determine the number of participants covered by defined benefit pension plans and welfare plans, use the number described on Form 5500-SF, line 5a. Defined contribution pension plans use the number described on the Form 5500-SF, line 5c(1), except use the number described on line 5c(2) for defined contribution pension plans that check the “first return/report” box on Part I, line B; Similar wording appears in the Form 5500 instructions. Short version, if you check the box that says this is the first filing, the count to determine if the plan is a small plan or a large plan is based on the end of year count that is reported on line 5c(2).