Paul I

Suffice it to say that the more volatile investments that the fiduciaries ask to include as investment options, the more exposure they have to a participant who mismanages their account and claims that the fiduciaries shoulda, coulda have prevented the participant from harming themselves. When the fiduciaries really, really want to include these volatile investments, they try to create rules to keep participants from harming themselves. Here are some rules that I have seen fiduciaries apply: you can invest your deferrals as you like but you must invest match or employer contributions in prescribed set of funds. you cannot change your investments more frequently than once per week/month/quarter. you can trade covered call options in your SDBA only if you pass a test demonstrating you know how options work. you can invest no more than x% in sector funds/physical gold/REITs/commodities futures/private placements/limited partnerships. you can invest in any of the investment types listed above by providing a written note that you understand the associated risks of an investment. The biggest challenge for plans that permit these rules is dealing with investments that have limited liquidity. Participants expect that any investment available under the plan is fully liquid and they can sell anything overnight. The larger the plan, the more challenging it is to monitor and apply these types special rules. Hence most recordkeepers for large plans will not support these types of investments. The bottom line is there is nothing that prevents a plan from allowing some very creative investments as long as the plan provides a basic set of investments offering a conservative fund, a moderate blended fund and an equity funds. It is up to the fiduciaries to decide what is wise or unwise for the plan it participants.

Although technically a retirement topic, but nonetheless an important provision for individuals over age 65, "(Sec. 110204) This section expands eligibility to make tax-deductible HSA contributions to include individuals who are 65 years or older and are enrolled in Medicare Part A." This makes available a very tax-advantaged deferral opportunity that is in addition to 401(k) deferrals or IRA contributions. I have seen some discussion where the bill does not override the provisions of the Statutory Pay-As-You-Go Act of 2010 so the increased spending would trigger a 4% cut in Medicare payments starting in 2026. An HSA would help deal with the decreased Medicare payments.

This might be one of the very, very rare times I suggest using FAB 2025-01 and transfer the balance to a state unclaimed property fund. It's not a perfect solution, but the plan pretty much has exhausted available reasonable approaches and the individual may still be able to recoup the amount.

You do not indicate whether the service agreement with the RIA authorizes the RIA to provide individual financial advice to a participant. You also do not indicate whether the RIA is considered a fiduciary of the plan. It is possible the RIA was acting within the terms of the service agreement or in the capacity of a fiduciary. These should be bright line boundaries and if the RIA acts outside the scope of agreed-upon services or the RIAs assigned fiduciary duties, then the other plan fiduciaries should be informed and they should act accordingly.

By way of an analogy, $4 trillion is a stack of $1 bills that extends 32,564 miles beyond the moon. If you wish to count by weight, that would be 88,152,472 pounds of $1 bills.

@Peter Gulia I did not respond to the OP since, frankly, the conversations I have had with plan sponsors have been about how best to serve their participants, and conversation ends there. Should a plan sponsor pose the question about what responsibility and potential liability they might face because by deciding for a against using auto-portability, I would comment the topic of exposure to fiduciary liability is better answered by their legal counsel. Auto-portability is not a panacea, and "checking the box" to authorize the use of the service comes with some mandated administrative requirements and commitments, and legal counsel will need to be prepared to explain the pros and cons of the service because of the mandates and commitments (or risk exposure for the plan not doing something the plan agreed to do). Here is a comment from a PlanSponsor magazine article: "Auto-portability sounds simple enough. Plan participants change jobs; [Auto-portability provider] tracks them to their new employer and verifies their identities; employees consent to a balance transfer; and the funds from their previous plan are added to their new plan’s balance. From an operational and legal perspective, auto-portability “wraps around” a mandatory distribution provision[.] “In order to do auto-portability on a negative consent basis, you have to both force small balances out of a plan on a negative consent basis, as well as roll those balances into a plan on a negative consent basis.” These transfers require coordination among recordkeepers and sponsors, plus extensive data processing. Participating recordkeepers must be both sending and receiving recordkeepers. That means a recordkeeper and its plan sponsor-clients agree that terminated participants who are eligible for auto-portability because they meet the mandatory distribution provisions will be forced out of the plan and their data included in [auto-portability provider]’s systemwide queries. Also, each recordkeeper and plan sponsor must also accept roll-ins of new hires’ transferred balances to their plans." Note, there is a lot of baggage associated with auto-portability that is not affordable for smaller recordkeeping service providers.

The sole proprietor is in luck! SECURE 2.0 provides for retroactive first year elective deferrals for sole proprietors (sec. 317 of the Act and sec. 401(b) of the Code). Specifically, 401(b)(2) reads: If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year. In the case of an individual who owns the entire interest in an unincorporated trade or business, and who is the only employee of such trade or business, any elective deferrals (as defined in section 402(g)(3)) under a qualified cash or deferred arrangement to which the preceding sentence applies, which are made by such individual before the time for filing the return of such individual for the taxable year (determined without regard to any extensions) ending after or with the end of the plan's first plan year, shall be treated as having been made before the end of such first plan year. Just make sure the business is unincorporated, the sole proprietor owns the entire business, and there are no employees. Note that the ability to take advantage of this provision is limited, and the provision in the narrow set of circumstances supersedes prior provisions that required all deferral elections to be made before the end of the plan year. This easily could result in getting conflicting answers.

@TH 401k The compliance question is worded somewhat awkwardly which leads to overthinking how to respond. There really are three questions to ask yourself: Was the plan combined with another plan to pass coverage? Was the plan combined with another plan to pass nondiscrimination? Were any combinations done using the permissive aggregation rules? If you answer yes, yes and yes, check yes. Otherwise, check no. Note that a plan fails 401(a)(4) if it is subject to ADP or ACP testing and - uncorrected - fails either test. The IRS added this question to the 5500 to "improve tax oversight and compliance of tax-qualified retirement plans." They are collecting data about the use of permissive aggregation to see if this a topic to target in their compliance reviews.

You are dealing with a Correction of Overpayments (defined contribution plans and 403(b) Plans). The procedures are spelled out in EPCRS in section 6.06(4) and Appendix B, section 2.04. There are differing steps depending upon whether the participant is still active or has a balance in the plan or the participant has been paid out. There also are some alternatives based upon the amount of the overpayment. Basically for a participant who is still active, start with asking for the money back. The amount to be repaid includes the original distribution plus earnings using the plan's earnings rate. Basically for a participant who received a distribution that was rolled over to an IRA or another qualified plan, send a written notice to the participant that the overpayment was not eligible for rollover. Conceivably, if the plan permits in-service withdrawals after age 59 1/2 (for deferrals), then the excess could be considered an in-service withdrawal. If the amounts do not qualify as "small Overpayments" (6.02(5)(c)) of under $250, then discuss with legal counsel whether to attempt to recoup the overpayment from the participant. These are some of the highlights. Expect to have some further complications related to the participants having filed their personal tax returns based on the 1099-Rs they received in 2024. If any of the refunds also included Roth elective deferrals, that could add yet another layer of complexity. A QNEC essentially would be giving a group of HCEs an additional contribution and that would be frowned upon as discriminatory. In Lone Watie's immortal words in the movie Outlaw Josey Wales, endeavor to persevere! Good luck.

You may want to call Schwab and ask them on what tax form are they going to report the payment and who will be the payer, or just wait until next January to see what they send to you. You could then treat it on your tax return in a manner consistent with the Schwab information. In the meantime, have a wonderful lunch (or champagne brunch)!

Here is my take on the late deposits part of the question dealing with 4975 failure. Look at the instructions for Form 5330: https://www.irs.gov/pub/irs-pdf/i5330.pdf You will see on page 1 under Who Must File 10. A disqualified person liable for the tax under section 4975 for participating in a prohibited transaction (other than a fiduciary acting only as such), or an individual or the individual’s beneficiary who engages in a prohibited transaction with respect to the individual’s retirement account, On page 4 3. The association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan, if the plan is established or maintained jointly by one or more employers and one or more employee organizations, or by two or more employers. On page 8 under Disqualified Person 3. An employer, any of whose employees are covered by the plan. Put it all together, and the plan files the 5330. The individual employers are listed on page 5 as disqualified persons. As far as the excise tax on late deferrals, this would be taxed under 4979 and I don't see where the individual employer would be listed anywhere on the form 5330.

Assuming in the original post that the "employer" and the "they" who want to use a personal account are the same people, it also very likely is the "employer" is the Plan Sponsor and the responsible fiduciary for the plan. This responsibility requires to act in the interest of the participants and to make sure that the participants receive their vested benefits when the plan is terminated (and everyone would fully vest upon plan termination.) If the cash to cover the contributions was in the business checking account that was closed, it begs the question where is that cash now? If it remains under the control of the business, then the business needs to work out how to get the contributions into the plan. If it is outside the control of the business, then it is up to the plan fiduciaries to work out how to get the contributions into the plan. If the cash is formally not under the control of the business but is under the control of the plan fiduciaries, then there should be a very-well-documented trail of how the contributions get into the plan. The plan should be reviewed by ERISA counsel to confirm that, to the extent possible, cash was not yet deemed a plan asset, and that the contribution could be considered as tax-deductible to the employer. If this cannot be confirmed, then the plan fiduciaries should consider asking the IRS to bless the plan termination (including the contribution). Whether the contribution ultimately gets deducted somewhere by someone, it will be, as @Lou S. notes, up to the employer's tax accountant, and, if the company is dissolving, as @QDROphile notes, up to the terms of the dissolution/liquidation. The primary focus needs to be on keeping the participants whole, and having any adverse consequences fall on parties other than the non-fiduciary participants.

The SPD outlines the claims procedures which will place burden of approving the payment on the fiduciaries who are responsible for reviewing and approving claims. If that is not you or your company, consider informing the plan administrator that you require a death certificate (and a valid beneficiary election or identification of a default beneficiary) before you can approve a payment. If the plan administrator is unwilling to approve the payment (which tells you something about how they feel about the situation), then the plan administrator can inform the wife that she can file a claim. The fiduciaries can then follow the claims process which has its own built-in timing, but it will be on them if they wish or do not wish to expedite the approval. However this works out for the timing of the payment, this approach will put the spotlight on where it belongs - on the plan fiduciaries.

You may consider doing a little more research to clarify the situation. You mention that the plan has a pooled account. It is possible that the loans were treated as an investment of the plan and not treated as a loan earmarked from a participant's account. If a loan is treated solely as an investment, then it was a bad investment for the plan but not a distribution to the participant. It is unlikely this was the case, particularly since the CPA issued 1099Rs, but it could have been how the loans were issued. The terms and promissory note for the loans should help clarify this. What code did the CPA put on the 1099Rs? If it was code L, then the loans were reported as a deemed distribution and the loans continue until they are repaid or offset. If it was code M, then the loans were reported as offset and the loans ceased to exist. Keep in mind that for an offset to occur, the funds would have to be available for a payment from the plan either as a withdrawal, RMD or distribution at the time of the offset. You also may want to see if and how the loans were reported on the 5500. Were they included in or excluded from the assets? If they are included in the assets, that would support an argument that the loans continue to exist. If they are excluded, that doesn't support an argument that they do or do not exist. Consider the direction in which the preponderance of the evidence points (deemed or offset) before they deposit anything into the plan.

Dealing with per diem employees is challenging particularly when measuring service. By definition, per diem employees do not punch a time clock so a plan with per diem employees typically specifies an hours equivalency or uses elapsed time. In this case, since the plan uses hours to determine eligibility for regular employees, it would be seem reasonable to use the 10 hours per day worked as the equivalency for the per diem/"part time" employees. If this is specified in the plan, then a per diem employee would meet the eligibility hours requirement for regular employees after working 25 days per month for 3 consecutive months OR by working 100 days during the year. This close association between the designation of an employee as per diem and determination of hours under the plan makes it more challenging to argue that the per diem classification is not service based. It doesn't help that part time is defined as per diem. If per diem was defined as an employee whose compensation is a daily salary plus a fixed amount over and above the salary for expenses, then that could support an argument that it is the pay structure and not the hours that distinguish regular employees from per diem employees. It also would help to use per diem as the classification. Using part-time to define per diem employees is inviting scrutiny.

Just to confirm, does your reference to P.A. mean Professional Association? Professional Association are corporations and could either be a C or S corporation. In either event, their compensation is reported on a W-2. By definition a salary deferral must be made from compensation that is earned but not yet paid to the individual (hence "deferral"). Deferrals cannot be attributable to compensation that is not yet earned. Any pre-funding of deferrals in not allowed.

Here is some information from the DOL about retrieving forms earlier than 2009: If you are unable to find a filing that you believe has been submitted, please contact the EFAST2 Help Desk at 866-463-3278. Form 5500 Bulk Image service provides bulk downloading of filed Form 5500 Annual Returns in PDF Format. This service is intended to be used by developers who would write scripts to automate the downloading of files. For plan years 2008 and prior, this service includes the images (including forms, schedules, and any attachments) of the filing. For 2009 and later plan years, this service provides the images (attachments) and populated facsimiles (forms and schedules) of the filing. For access to the Form 5500 bulk image service, email foiarequest@dol.gov with the subject "EBSA Form 5500 image service request" and provide your contact information in the body of the email.

I am not an attorney, but I do have a recollection that the issue came up with a client many years ago of whether a former participant is entitled to plan disclosures. With a little research, I found the case - Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). Part of the results included (edited for relevance here) 2. A "participant" entitled to disclosure under § 1024(b)(4) and to damages for failure to disclose under § 1132(c)(1)(B) does not include a person who merely claims to be, but is not, entitled to a plan benefit. [The] definition of a "participant" as "any employee or former employee . . . who has a reasonable expectation of [having] a colorable claim to vested benefits. Moreover, a claimant must have a colorable claim that (1) he will prevail in a suit for benefits [.] This view attributes conventional meanings to the statutory language, since the "may become eligible" phrase clearly encompasses all employees in covered employment and former employees with a colorable claim to vested benefits, but simply does not apply to a former employee who has neither a reasonable expectation of returning to covered employment nor a colorable claim to vested benefits. Congress' purpose in enacting the ERISA disclosure provisions -- ensuring that the individual participant knows exactly where he stands -- will not be thwarted by this natural reading of "participant," since a rational plan administrator or fiduciary faced with the possibility of $100-a-day penalties under § 1132(c)(1)(B) for failure to disclose would likely opt to provide a claimant with the requested information if there were any doubt that he was a participant, especially since the claimant could be required to pay the reasonable costs of producing the information under § 1024(b)(4) and Department of Labor regulations. I leave up to our BL legal colleagues to provide input on whether or how this case may be applicable to this situation.

This does look like language from the ASC Adoption Agreement. @ratherbereading if you look in the Basic Plan Document on page 33, you will find there are 4 different methods to allocate a Targeted QNEC. The language gives a fair amount of details for how each method works.

The true-up is a contribution that results in the participant receiving the match promised under the plan using the match formula. If the participant has been given more match than due using the match formula, that is an excess amount and should be removed from the participant's account. There is no need to create a new term ("true down") to describe the situation.

When a loan is considered offset and the consequences of how the loan offset is treated can get complicated. I suggest reading through the examples in § 1.402(c)–2(g)(5) I believe that if the Loan Policy says the loan will be due and payable upon termination of service, the rules in § 1.402(c)–2(g)(4) will govern and the loan will be offset upon termination of employment. One complication to note is if the loan offset is within 12 months of the date of termination of employment, then it is a qualified loan offset which give the participant the ability to rollover the loan offset by the time the participant files their tax return for the year. If the loan offset is not a qualified loan offset, then the rollover must be done within 60 days. Warning - working straight through all 7 examples in the reg is hazardous to mental health.

@Peter Gulia your question highlights what many do not consider when hiring a search firm or launching a search for good addresses and for missing participants. A participant with a bad address or who is missing is still a participant with an interest in the plan. Plan fiduciaries are charged with acting in the interests of participants, and plan fiduciaries should have an understanding about the steps to be taken once an address or a missing participant is "found". I use quotes because, while the initial search results often are successful, a significant percentage of the initial search results are only the beginning of what can be an involved and tedious process. Notably, most search firms offer different levels of search services. The basic search scans publicly accessible databases. The next level of search scans databases where the search firm has privileges to access the data (and commonly the search must pass a level of scrutiny that they have adequate security in place for managing the search results and have made representations about how the search firm will use the data). The results are communicated to the plan sponsor or a plan service provider. Many of the search firms offer a service where they will send a generic letter to the individual's address that the search has found and provide information in that letter about who the individual should contact. This contact may be someone at the client, or possibly someone at a service provider for the plan (for a fee). If the individual initiates contact, the client or service provider should have sufficient information about the participant to be able to validate the contact. The plan fiduciaries should be mindful that the search firms are service providers to the plan. If the plan contracts with the search firm directly, then the plan should have service agreements in place that cover the scope of services and fees. Given that the expenses of resolving a bad address or finding a missing participant may be disproportionately greater than the value of the participant's benefit of the plan, some plan fiduciaries set parameters for adjusting the level of search services for different groups of participants. That being said, what happens next when these initial efforts do not reestablish contact with a participant and there is reason to continue to pursue the effort, often leads to much more complicated scenarios. For example, the search may reveal that the participant: is deceased and may or may not have designated beneficiaries, is incarcerated, may have legally changed names, has moved outside of the US, has been declared missing or deceased, or many other situations that are not limited by any stretch of the imagination. The larger the plan, the greater the likelihood of these circumstances coming up. These are topics that can take us far beyond the original post.

@Peter Gulia If it understand correctly, plan fiduciaries are considering removing funds from the plan's investment menu and implementing a brokerage window because some of the participants want to continue to own those funds. Removing a fund from a plan's investment menu typically is a result two situations. One situation is when very few participants choose to invest in a fund and the fiduciaries wish to replace the fund with a one that will be attractive to more of the participants. This may be a very good reason to put in the SDBA to allow these few participants to continue to invest in their favorite fund. The other situation is when a fund in removed for noncompliance with the plan's investment policy statement. This has the potential to draw a complaint from a participant that continues to hold the fund in the SDBA and then experiences extensive losses in their account. (I have seen this happen with mutual funds that focus on an industry sector.) This touches on the topic of what is the responsibility of the fiduciaries to inform participants if the fiduciaries have knowledge that something is amiss. Hopefully the fiduciaries at least would communicate to employees the reasons why funds are removed from the plan's investment menu and could counter the complaint with that communication.

My personal opinion is the tasks listed in your last 2 paragraphs are the minimal requirements for the plan fiduciaries and for plan reporting. There are certain participant behaviors within the SDBA that can be detrimental to the participant's accounts. For example, most mutual funds offer varying share classes of the same fund and each share class has a different fee structure. A participant may be able to invest in a share class of a fund available in the plan's mutual fund menu that has the lowest fees, but the participant invests in the same fund in the SDBA in a class with higher fees. A fiduciary may discern that this is happening by comparing the assets held in the SDBAs against the funds in the investment menu. If this reveals that participants are paying the higher fees, the fiduciary may want to provide at least some notice or educational material to participants pointing out how to evaluate fund expenses. Another example is when participants trade in funds that have fees for short-term trading. Typically, funds that have these fees apply them when shares held less than 30 days. Participants who behave like day traders can rack up fees solely based on their trading frequency. There should be reporting about these fees that could alert the fiduciary that trading frequency is an issue and, again, the fiduciary may wish to provide some education. While a plan fiduciary may not be held accountable for a participant's mishandling of their assets, some may argue that a fiduciary knowing these behaviors are occurring creates an obligation for the fiduciary to act. As a reaction to this notion, some plans ask participants to take a test about the fundamentals of investing before they are allowed to have an SDBA.

The original post dealt with 415 compensation and your post references 414(s). Not a big deal since 414(s) generally includes the 415 definitions and more. Note that there are multiple 415 definitions and this is an example where the treatment of fringe benefits get murky. One 415 definition includes "Medical or disability benefits as described in IRC Sections 104(a)(3), 105(a) and 105(h), but only to the extent that these amounts are includible in the gross income of the employee. Treas. Reg. 1.415-2(d)(2)(iii)". Another definition excludes "Medical or disability benefits as described in IRC Sections 104(a)(3), 105(a) and 105(h), but only to the extent that these amounts are includible in the gross income of the employee. Treas. Reg. 1.415-2(d)(2)(iii)" as long as taxable NQSO and moving expenses also are excluded. You may want to decide what you would like to see included or excluded and then browse the available definitions of compensation to see what comes closest to an acceptable definition.