Paul I

Technically, the form should be amended. Did the change in the count have an impact on the filing (like triggering the audit requirement)? If yes, we would amend the filing. If no, we likely would carry the prior year count forward and use the correct year end numbers (assuming that the client doesn't repeat sending inaccurate information). Since the issue involved a termination date, don't overlook the individual when filing the Form 8955-SSA for the current. The SSA form is very lenient about who and when someone is reported.

Have you tried searching for the filing using the 5500 search feature https://www.efast.dol.gov/5500Search/ ? If the filings were accepted and cleared all edits, they should appear in the search results. I recommend searching for the EIN (no hyphen).

Having contemporaneous documentation of the change in trustee is a good idea for those uncommon times when a financial institution digs in their heels and refuses to do something until the name of the trustee on the account is changed formally. This is particularly true when there is only one named trustee on the account. I have had financial institutions refuse to close an account when assets were moving to another institution simply because the name of a former trustee was on the account and the financial institution insisted on getting signatures from all of the named trustees. This type of demand disrupted an otherwise well-planned transition of assets.

My understanding is there is no statute of limitations for non-filers. Also, you will need to navigate the IRS and DOL rules separately since the IRS commonly defers to plans who use the DOL DFVCP program, the IRS is not required to do so and can impose its own penalties and required corrections. DO NOT ATTEMPT TO CORRECT THIS WITHOUT INVOLVING LEGAL COUNSEL WITH EXPERIENCE IN WORKING WITH BOTH THE DOL AND THE IRS. Since the data are not available, any correction will require negotiating with each agency, and this is more an art than it is a step-by-step procedure. A starting point will be confirming the years for which 5500s were required. This itself can be tricky for 403(b) plans when looking going back at many years past. May you be well-compensated for the journey you are about to undertake. Good luck!

@jsample, out of curiosity, is the language you note in the prototype document a comment or notation in the adoption agreement, or is it a provision in the Basic Plan Document (or both)? I have never seen this in a BPD, but have seen some AA's where attempts at explaining a provision are off the mark.

Keep in mind that by the time a recordkeeper sees a deferral, that deferral already has been processed by payroll. A recordkeeper can only react to whether payroll has applied the catch-up rule correctly. Generally, payroll for self-employed individuals is run separately from payroll for common law employees. The self-employed payroll commonly pays a draw and processes some deductions for fringe benefits or insurance, but does not apply payroll taxes. The self-employed individuals are responsible for making estimated tax payments directly with the IRS or through their tax accountants. It is not uncommon for a payroll interface file sent to the recordkeeper to combine the two separate payroll runs into a single file. If either payroll or the recordkeeper keeps an indicator for self-employed individuals, the indicator will need to be able more sophisticated than just a "yes/no" indicator. For example, the recordkeeper will need to be able to discern when an employee changed between being a common law employee and a self-employed employee in the prior year, or need to know how much compensation in the prior was FICA wages and how much was self-employment income. Maintenance of an indicator likely will fall on the employer, regardless whether the indicator is in the payroll system or the recordkeeping system. I expect when these provisions go live, a full-contact game of hot potato will break out between payroll and the recordkeeper with each side saying "it's your job, not mine."

Most of the pre-approved plans I have seen during the Cycle 3 restatements moved away from giving participants full discretion to designate the order of withdrawal from the available sources. There does remain a fair amount of flexibility with many offering a plan sponsor choice between pre-tax and Roth accounts as: pro-rata, pre-tax before Roth, or Roth before pre-tax. There also is the variability in the sources the plan sponsor wishes to make available for withdrawals. A common order of withdrawal is first to take rollover and voluntary after-tax, then elective deferrals to the extent they participant is eligible to do so, followed by employer sources (match or NEC). The thought process is first in line are accounts that are the employee's money so they should have access at will, then it is the employee's money but may be restricted because this after all is a retirement plan, and lastly it's the company's contribution for retirement and not a bonus plan. Most plans have been around for many years and often do not change this type of plan provision as the years and restatement cycles roll along. For new plans, the service provider is likely to push and get approval for their preferred approach.

If there is a payment from an account in which the participant has basis, there is no election available that to consider the first dollars distributed to be all basis. It is worth noting that some plans use the ability to specify order of accounts from which payments are made to preserve basis in the plan, particularly for amounts paid from Roth accounts. Note that plans that allow participants to designate the order of accounts from which payments are made often find that participants have an expectation that they can request a payment that has the least associated taxes. This can be a nightmare, and also possibly crosses the line of the plan offering tax advice. Under certain circumstances (for example, after there has been a deemed distribution from a pre-tax account and subsequently loan repayments resumed) where there could be basis in that pre-tax account.

The EBSA loves the DOL Online Calculator. I would bet they would say that is an approved approach for calculating earnings for a reinstated forfeiture. One of the big issues with handling missing participants is none of the agencies want to let the plan fiduciaries off the hook for trying to find a missing participant, no matter how hard the fiduciaries try to find the participant. Several times when the EBSA has been asked when the plan can stop searching, the answer effectively has been "Never". With that in mind, the only way the fiduciaries get off the hook is when the plan terminates, they do one last search, and then deliver transfer the funds and any available demographic information to the PBGC under their program for terminating defined contribution plans. It is interesting to note that the PBGC will not credit any earnings in the event they locate the participant. If you are a fiduciary and have a handful of missing participants, until you terminate the plan, life is not fair.

I share the opinion that allowing separate elections in payroll for elective deferrals and for catch-up contributions is a bad idea, but there are companies that use this approach and collect separate elections. It is a reality, and as I noted, it can cause problems with compliance (which - thankfully - is not done by payroll). It is worth exploring why a company would use the approach to make separate elections. The scenario I have seen most often involves the plan having a relatively low maximum elective deferral percentage (more commonly applicable only to HCEs). Catch-up contributions have universal availability and the company takes the position that a participant who defers at the maximum percentage must have the opportunity to make catch-up contributions, and so they allow a separate catch-up election. The other scenario is where the payroll cannot or will not support tracking the annual deferral limit and automatically change from elective deferrals to catch-up contributions once the annual deferral is reached. This seems to be more prevalent when payroll is run in-house, but there are payroll companies that say this is not their responsibility. Not my recommendation, not my circus, not my clowns, but it happens.

I have seen plan provisions that explicitly say that if the benefit for a lost participant is forfeited and the participant subsequently is found, then the forfeited amount is reinstated and not adjusted for earnings. This language usually appears today in several of the individually designed plans and in Basic Plan Documents associated with pre-approved plans. The DOL does not think the benefit could be forfeited in the first place, so they expect that if a plan did forfeit the benefit, then the plan should reinstate the forfeited amount and make the participant whole (i.e., adjust for earnings). I have spoken with both agencies and this was the feedback I received, but each agency said it was not the responsibility of the other agency and they would have to confirm it in writing (neither did).

From the perspective of the recordkeeper, the recordkeeper needs to track what is sent to them by payroll. If payroll says pre-tax or Roth, and elective deferral or catch-up, that's what it is. (For compliance test, there may be some amounts that get treated other than as designated by payroll, but that is not the question.) If payroll is run where an employee only can specify one elective deferral % for pre-tax and one elective deferral for Roth, then payroll will have to track YTD deferrals and stop the pre-tax when the accumulated total elective deferrals reach the deferral limit. If payroll is run where a High Paid employee can specify a pre-tax elective deferral, and also a Roth elective deferral and a Roth catch up, then payroll again will have to track all the separate accumulated totals and stop the pre-tax contributions once the total elective deferrals reach the deferral limit. There are other permutations of elections and they each have their downsides. Administering the new provisions will be significantly more prone to errors. The takeaway is, if there is firing squad to shoot whoever screws it up, payroll will not stand next to the recordkeeper, rather payroll will stand in front of the recordkeeper.

I, too, agree with @david rigby and @Bill Presson. It is worth noting that in a stock acquisition, the seller effectively "disappears" upon closing and is replaced by the buyer as the Plan Sponsor. In effect the ownership of the assets happens on the merger date. In an asset acquisition where the seller continues to exist after closing - and particularly if the seller's plan continues to exist after closing with the seller as Plan Sponsor - then it is good practice to document who owns what and when do they own it, and settlement of plan assets will occur as soon as administratively practical.

To borrow a phrase from Derrin Watson about this type of question "You're looking for a sleeping black cat in a dark room ... except there isn't really a black cat there. There's no real guidance."

There should be no problem with electronic elections as long as the plan follows all of the IRS and DOL rules for electronic delivery. These rules do require an interaction with the participant to document that the participant either elected to receive electronic communications. There are a lot of rules surrounding electronic delivery, and it is not advisable for an employer to take a DIY approach to implementing collection of participant elections.

Auto-enrollment doesn't mandate (in the context of an employee cannot elect out of) a specific deferral amount, or mandate a specific match formula, or mandate a specific NEC. AE also doesn't mandate a specific eligibility, vesting or benefit accrual. AE mandates a specific process for enrolling new entrants. There doesn't look like there is anything that requires BRF testing. You don't say if this was a stock or asset sale, and do seem to imply that the purchase has been consummated and the seller's plan was terminated prior to the sale. If any of this is not true, then there are other issues (such as successor plan rules, continuity of the plan sponsor...) that could factor into the decision-making.

They can end the SHM, but will have to make any match on YTD deferrals. Since there are no HCEs deferring, there should be no testing issues by breaking the safe harbor. As always, read the plan document and any employee communications to form an action plan before doing anything. The employer may be able to plead a financial hardship with the IRS, but expect the IRS to want documentation that the employer pretty much is penniless.

If the loan to the participant is an investment held by the trust (i.e., not an investment earmarked as being held specifically in the participant's account), then the loan's promissory note will specify what happens should the participant terminate employment or otherwise default on the loan. The worst case scenario is if there is no recourse by the trust in the event of a default of the loan, in which case everyone in the plan shares in the loss due to the default and the participant gets their entire vested account balance. Be careful when a pooled trust is "investing" in loans to participants.

Good question. There is a lot of flexibility in how plan compensation (think what is used to calculate contributions and deferrals) and tips and overtime would be included unless explicitly excluded (and tested for nondiscrimination). So no real change. There is a fair amount of flexibility in definitions of compensation for compliance purposes, but all would include tips and overtime (I agree that tips and overtime are not fringe benefits). So no real change. The question does raise an interesting point. I haven't done the math, but for an employee who has a substantial percentage of income from tips, is there a point where it does not make sense to defer non-taxable income that will be taxable when it ultimately will become taxable when distributed? Continuing in this vein, does it make sense for an employee who has a substantial percentage of income from tips to make Roth elective deferrals?

Since both plans will have the same plan sponsor, each plan will have to consider in its coverage testing non-excludable employees (particularly employees who meet the eligibility and participation requirements for a benefit, but who are excluded based on classification). It doesn't make any difference from a testing standpoint whether there is one plan or two. It may make a difference if the one plan approach would require an audit, but each of the two plans will not. It also may make a difference if the employer does not want to communicate to all employees all of the benefit provisions that it want to provide to the different classifications of employees. Keep in mind that coverage testing using the ratio test is done by type of contribution (elective deferrals, match, and non-elective employer contributions), and coverage testing using the average benefits tests is done based on benefits (assuming the plan passes a reasonable classification test or nondiscriminatory classification test). These additional testing steps can complicate the best of intentions. Keep in mind the complexity of administration and of testing in any design. If the plan sponsor must be able to administer the plan or plans, or they could pay a steep price to correct operational errors. One of the most error prone situations is when employees change classifications during a plan year. This leads to some benefit accruals under each plan and the plan needs to have tight definitions for plan compensation and for eligibility service, vesting service and benefit accrual/allocation conditions.

There are a lot of moving parts to that can spill over into other areas of noncompliance. Your best shot at getting an IRS blessing would rest on the clarity of the documentation that the contribution was designated as a 2025 employer contribution to be allocated to participants within the 2025 plan year, and clear documentation that the contribution was not deducted on the company's 2024 tax return. Your legal and tax counsel can offer guidance about seeking some sort of IRS approval not to treat this contribution as a nondeductible contribution in 2024 (which carries a 10% excise tax and would not be allocated to participants for the 2024 plan year). The following IRS information may help shed some light on the issues although it does not explicitly discuss your situation: https://www.irs.gov/pub/irs-tege/epche903.pdf You may want to explore the impact of considering the contribution as a 2024 contribution and taking a deduction for it on the company's 2024 tax return. You would have to check the deductible limit for 2024 (to avoid having a nondeductible contribution), allocate the contribution to participants as of a date in 2024, and confirm that this doesn't cause any 415 problems. In many ways, the available paths forward are not excessively punitive, but the consequences of moving forward with just assuming the contribution intended for 2025 is okay could become excessively punitive. This is just a fancy way of saying you should have your legal counsel involved.

Here is a link to the IRS comprehensive list of reporting and disclosure requirements: https://www.irs.gov/pub/irs-pdf/p5411.pdf Look in the "To Whom" column for disclosures to participants. The publication also has a link to the DOL's reporting and disclosure guide" https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/reporting-annual-disclosure.pdf This is way more information than you need, but I keep a downloaded copies for quick reference. The timing of deliverables to the client or to the participants depends on client relationship, whether we service only a DB or DC plan or both for the client, and associated service agreements. Generally, we try to bundle communications where practical.

Peter, I can only say never underestimate the persuasiveness of investment salespersons.

Early withdrawal penalties on GICs, early redemption fees on mutual funds, and all flavors of contingent deferred sales charges, redemption fees and back-end loads come to mind. If your note about non-qualifying assets was meant to exclude responses about investments that would be non-qualifying assets unless they can be treated as qualifying assets under certain circumstances, then I agree that almost all such assets cannot be valued timely and do cause delays.

I don't see how a amending the plan prospectively is going to help an NHCE who already entered the plan too early. Doing it retroactively only complicates matters. Keep in mind that all employees have a right to ask for a copy of the plan document and all amendments, and also should get a Summary of Material Modifications for any plan amendments. Any employee who asks for a copy will know who was let in early in the NHCE is named in the amendment. The company cannot keep this a secret. You do not indicate if there is a an associated match that the NHCE could receive that would need to be addressed. The company should keep in mind that typically there are fees associated with amending the plan. They should be relatively minimal, but the company should consider the cost in their decision-making. Frankly, the best approach is to give a refund of the deferrals to the NHCE. They can save the refund and when they do become eligible, they can contribute a higher amount to make up for lost time. Then everybody plays by the same rules. Accommodating an early entrant generally is not a good reason for complicating the plan document, payroll, and plan recordkeeping. The company needs to own having made a mistake and should tighten its procedures to not let in early entrants.