Paul I

I agree with @Peter Gulia. It takes far more time to file on paper than to file electronically. This is the practical business reason to file electronically. The biggest exposure is a plan that is eligible to file on paper can choose to file electronically, but a plan that is not eligible to file on paper but does file on paper is considered by the IRS not to have filed. Why risk being subject to penalties, particularly if the plan sponsor cannot accurately count all of the forms that they filed with the IRS during the year? This is the practical penalty avoidance reason to file electronically. Can the IRS count the number of forms a filer submitted during the year? Yes, they can. The IRS has Entity Control Units in Kansas City, MO and Ogden, UT that manage EINs across all filings. Betting that the IRS cannot easily get a count of forms is not a good bet. Just some thoughts.

Your scenario certainly presents a trap, and potentially and especially for the plan administrator. Extending the scenario, assume the plan engages a financial advisor as a 3(21) or 3(38) fiduciary, and the financial advisor prepares or reviews and approves the content of the 404a-5 disclosure. Assume further that the lawyer is asked by the plan administrator to review the appropriateness of the benchmarks in the disclosure and the lawyer's comments that the benchmarks are questionable or maybe even inappropriate. Where does this leave the plan administrator, the financial advisor and the lawyer?

Frankly, the vast majority of recordkeepers pick a data source (like Morningstar) and use whatever the data source provides. Recordkeepers take the path of least resistance to assemble the disclosure just to be able to say it was done. In today's markets, the investment information in the disclosure is ancient history by the time it is made available to the participant. The vast majority of printed 404a-5 disclosures make the long trip from the recordkeeper's mail room to the participant's trash bin. Any 404a-5 disclosure available online likely only gets opened by accident. There are far better formats for communicating investment information having greater value to participants.

The lack of explicit guidance makes this subject to individual interpretation. Here are some approaches I have seen used where the benchmark is one of these: identified in each Fund Fact Sheet (readily retrieved with an online search using the fund symbol) published by Morningstar published on the mutual fund family's web site available from an investment analysis that a financial advisor made available Notably for target date funds, it is not uncommon for a mutual fund to provide a benchmark that is a blend of other benchmarks (e.g., 60% S&P 500 + 40% Russell 2000). It also is not uncommon for a mutual fund family to define its own benchmarks (which somehow happen to wind up presenting the fund performance in a better light than other published indices).

The terminology we use sometimes invites interpretations that are logical but can be misleading. For instance, the title of the Form 5500-EZ is "Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan" which starts out indicating it is for one participant, but then lists several instances when there will be more than one participant - owner's spouse, multiple owners and partners, or a foreign plan. The title doesn't mention that more-than-2% owners of an S-corp are treated as partners. On a different topic, the instructions say the Form 5500-EZ must be filed on EFAST2 (unless the filer files less that 10 forms with the IRS) and then says "Information filed on Form 5500-EZ is required to be made available to the public." It follows this statement with "However, the information for a one-participant plan or a foreign plan, whether filed electronically with EFAST2 or filed on paper, will not be published on the internet." It doesn't say where the information is available to the public, but does say that won't be on the internet. While elsewhere, the IRS has expressed a concern that reporting a plan that has only one participant could reveal private information, the IRS does not prohibit it. (It does prohibit reporting an individual's SSN as a plan number.) For example, when a plan that files a 5500 or 5500-SF has only one remaining participant terminates, it still must file the form. As @Peter Gulia noted, the instructions do not say what to do if there was a common law employee other than the owner-employees at the start, during or end of the plan year. One place to consider looking to for guidance is - drum roll - the plan document. Some pre-approved plan documents designed specifically as an owners-only plan have a provision that says as soon as a common law employee other than an owner employee meets the entry requirements, all elective deferrals and employer contributions will cease immediately and the plan sponsor will need to a plan that will cover the common law employee. This language support the concept that Form 5500-EZ reports only when the plan had no common law employees. Should another plan be adopted that covers the common law employee, this newly adopted plan will file a Form-SF for the part of the plan year it was in existence.

It is possible that you are clicking on something and getting an error message because of how the software vendor is editing your entries. Are you using EFAST2-approved vendor software or IFILE? If you are using a vendor, then I suggest calling their support group. They may have implemented edits beyond what is required by EFAST2 that are giving you the error message, and your issue may have to do with their edits and have nothing to do with the form or instructions. I've worked with multiple vendors and marvel at how well their systems handle the complexities of 5500s. but they, like us, are not perfect.

You remember correctly. The Form 5500 Preparer's Manual says: "Enter Code 4Q. If an ERISA welfare benefit is provided that does not have a specific code—for example, employer-provided Medicare supplements, longterm care, accidental death and dismemberment, an employee assistance program (EAP), or health reimbursement arrangements (HRA)—enter code 4Q and explain the benefit as a footnote at the bottom of the page. The DOL states that an EAP is a welfare plan, whether or not it is part of a medical or disability plan. [DOL Adv. Ops. 88-04A, 92-12A] However, if the EAP only provides referrals for counseling, it is not a welfare plan. [DOL Adv. Op. 91-26A] Wellness plans can fall into the same category as EAPs."

Consider working out the steps that will be taken to correct the issue including what needs to be corrected, how will it be corrected and who will calculate the correction. With a work plan in place, have a discussion with the current auditor about to add getting the audit or audits done. They may suggest some paths forward such as they will expand the 2024 audit engagement to include 2023. They also can discuss whether they will issue a report with a disclaimer (which almost certainly will trigger a call from the DOL). Having a plan, or having an active engagement to make corrections and restate the audit will go a long way to getting some time to clean things up. This will not be cheap, but the goal is to make a good faith effort to do what is right.

It would seem that the withdrawal could be considered an overpayment from the plan, and the rules of EPCRS procedures for overpayments would allow plan administrator to ask for the return of the withdrawal. A hardship withdrawal cannot be rolled over, so the withdrawal when originally paid would have been treated as a taxable distribution reported on a 1099R with a code that indicates if it was subject to an early distribution penalty. If the 1099R was not yet sent out, it would take communicating with the 1099R preparer on what gets reported. If the 1099R was sent or if the preparer refuses to cooperate, then the participant will have to file a request with the IRS to recoup the taxes and penalty. If the funds aren't paid back, the plan administrator can choose not to recoup the amount. The plan administrator should work with the recordkeeper/TPA to take steps to prevent this participant from taking a hardship withdrawal with out an approval from the plan administrator. The employer also may wish to have a discussion with the participant about possible disciplinary action for lying and taking money out of the plan under false pretense. Just some thoughts.

@MD-Benefits Guy , note that the link in your post to the IRS page also includes: The IRS is pointing out your plan document could specify that deferrals and match would stop when someone reaches the comp maximum, but the IRS is not saying that the plan document must stop deferrals and match when someone reaches the comp limit. The example in your post illustrates that for a plan year, a participant cannot make deferrals or receive an associated match that exceeds the terms of the plan. The IRS noted early on in the life of 401(k)s that high paid individuals who were not eligible to participate until later in the year would be disadvantaged by putting a hard stop on deferrals and match based on a plan year-to-date comp limit.

The issue of reimbursing participants affected by a Market Value Adjustment (MVA) triggered by an early termination of an insurance contract was address in Private Letter Ruling 200404050. The conclusion was the MVA reimbursement is not a contribution and is not considered 401(a)(4) or 415. This interpretation also is consistent with Revenue Ruling 2002-45 which addressed "restorative payments" and concludes these are not contributions or considered for 401(a)(4) or 415. Whether or not forfeitures can be used top reimburse participants depends upon the terms of the plan document regarding the use of forfeitures. The plan's ability to use of forfeitures increasingly has come under scrutiny, and we have seen an increasing need for the plan to specify possible uses of forfeitures. In other words, since the MVA reimbursement is not a contribution, having a plan provision that says it can be used as a contribution likely will not permit the use of forfeitures here. None of the pre-approved documents that I have seen do not have language that explicitly says forfeitures can be used to make corrective allocations. I suggest consulting ERISA legal counsel for advice before the plan moves forward with using forfeitures to cover the MVA.

There is a distinction between late deposits and crediting contributions to the wrong participant. Late deposits are tied to the company not timely transferring participant money to the trust. When looking at the payroll-by-payroll funding, if at anytime there was a shortfall, then that is a late deposit. If there were crediting of contributions to participants so that at times some participants were underfunded and and at times some participants were overfunded, then not only should the correct total contributions be credited correctly, but also that related investment earnings should be credited correctly. This may require funding if there is a net shortfall. Don't forget to look at participants who were affected by this mess and who have taken distributions from the plan. This definitely is not a trivial exercise and consider having the client sign an engagement letter prior to starting work.

I, too, was wondering about Overnight Expert's credentials. Not only was the "A Year in the Life of a TPA: Retirement planning fundamentals for people getting started in a TPA role" - 48 pages - released on September 8th (yes, less than 3 weeks ago), but also Overnight Expert released "Retirement Plan Fundamentals: A Practical Guide for Aspiring TPAs, Compliance Professionals, and Exam Candidates" - 75 pages - on September 10th. The paperback versions are relatively expensive. The sample available in the Retirement Plan Fundamentals is on point, avoids jargon and is readable by a novice. I would not be surprised if the author is someone with a depth of experience who saw a need for a layman's version of "how do you describe to your relatives at Thanksgiving dinner what you do for a living", and then used AI to bring it all together.

The reason for my suggestion to use the current limits along with a comment that the limits will be adjusted when the updated limits are available is to decrease the possibility of operational errors. None of the limits are going down without some legislative action. All of the limits currently announced late in each year are effective in the next year. Almost every participant will have an effective opportunity in that next year to take advantage of any increase in limits. If, in the very unlikely event an estimated limit is used and it turns out that limit is not adjusted upwards, then there is the possibility for having excess amounts/benefits in the plan which would require a correction. There is a distinction between predicting the limits in communications (which is fine if they are labeled as estimates) and using predicted limits in operating the plan (which can cause problems).

There is a lot of information in the annual notices going out to calendar year plans by December 1 that needs to be communicated to participants, so those will go out as scheduled. If a communication typically includes the annual limits, we will use the current limits with a comment that the limits will be adjusted when the updated limits are available. Probably the bigger headache will be if there is a change in the High Paid Individual compensation level that does not get released until very late in December or later. This would be an issue particularly for a plan that gathers separate affirmative elections for Catch-Up Contributions. Granted, it won't affect the vast majority of participants, but it will affect enough to consume precious time.

The Federal Register is scheduled tomorrow to publish the IRS notice of PTIN user fees for 2026. It will say the "amount of the user fee as $10 per application or application for renewal, plus an $8.75 fee per application or application for renewal payable directly to a third-party contractor." There are 14 pages of history and legislation disclosing how the IRS arrived at the new number. The "big" news is a reduction in the PTIN user fee to $10 from $11. (Start planning now on how to use this windfall. 😀)

As the saying goes: "Better late and right, than first and wrong." Maybe we need to tweak it a little bit: "Better confirmed late and right, than AI first and wrong."

This is one of those questions where you are looking for references to an explicit negative which likely doesn't exist. Use of NUA is a taxation issue related to a distribution, and continuing to participate in the plan is a participation issue. The NUA is not related to participation but is related to other distributions from the account to the extent of the NUA rules @fmsinc describes.

This looks like a creative attempt to incorporate the original Long Term Part Time rules into the document. Hopefully, they did not get too creative elsewhere in the document and create rights to benefits for part timers that the plan sponsor didn't want. In my experience, long entries in the blank lines in the Adoption Agreement available when "Other" is checked or "Describe" is available all to often have lead to operational errors. Assuming you are replacing the document, use the opportunity to clean it up.

We all have our war stories of skirmishes with the IRS and EBSA. We had a plan that went from a one-participant only plan with assets under $250,000 and no EZ filing to a plan that required a 5500. The 5500-SF showed it was an initial filing and had a beginning balance, and the client received a love letter from the IRS. We called the IRS and spoke with an agent who took down the information, submitted it for review, and the issue was closed. All in, we spent more time on hold waiting for an available agent when making the initial call than the time we spent speaking with the agent.

Here is the link to model VFCP Application Form: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/vfcp/model-application-form Note the item 6 says: "6. Specific calculations demonstrating how Principal Amount and Lost Earnings or Restoration of Profits was calculated: (if the Online Calculator was used, you only need to indicate this and attach a copy of the “Printable Results” page, attach separate sheets if necessary) Online Calculator (“Printable Results” page attached) Manual calculation (see attached calculations)" You can try submitting just the results, but you likely will be asked to provide more details. In particular, reporting any negative earnings for any participant very likely is going to attract additional scrutiny.

Over the history of 5500s, the IRS has added (and removed) questions about compliance tests. Typically, this foreshadows their launching a project once the data are in for 2 or 3 years to study if there is a need to investigate plans or to see if additional regulations may be needed. This type of analysis is part of the reason 5500 was created starting in 1975.

There appears to be some nuanced interpretation of when the participant notice is required. Backing up a little bit, the IRS was concerned about 2 issues going into Cycle 3 about the match needing to be definitely determinable. The first issue was the total amount of the match to be funded had to be communicated by the employer to the Plan Administrator or Trustee before the contribution was deposited into the trust. This is a simple formality and parallels the documentation required for specifying a discretionary profit sharing contribution. The second issue was whether the match is definitely determinable meaning do participants know who gets the match, what is the frequency the match is made, and how is each participant's match calculated. The elements needed to determine the match include specifying: matching period (e.g., annual, each payroll, quarterly...) allocation formula (e.g., fixed percent, percent by tiers, flat dollar...) eligibility (e.g., varying allocations by business unit) If all of these elements are explicitly defined in the document (some plan say "fixed", "rigid" or similar adjectives implying could only be changed by plan amendment), then there is no need to send a notice to participants. In this instance then the SPD effectively communicates to participants about a definitely determinable match in the same manner in which a discretionary profit sharing contribution is communicated to participants. If any of these elements are not explicitly defined in the document (the plan sponsor can has discretion), then a notice is required to be sent to participants within 60 days after the last match is funded for the plan year. This timing requirement could vary considerably from year to year. One interesting note is the notice is an IRS notice (subject to the IRS rules for electronic delivery), why the SPD generally is a DOL disclosure. Another interesting note is that the notice requirement seems to apply to only to pre-approved documents. Apparently an individually designed plan possibly may not be subject to the notice requirement.

Before doing any 5500 filings, follow @RatherBeGolfing's suggestion to involve an ERISA attorney. Given the long period of time the plan was operating out of compliance, the attorney and TPA together can work with the client to determine if all of the information is available to complete the forms accurately, and is available to apply remedial actions to bring plan into compliance. If the information is incomplete, then the path forward likely will ultimately involve negotiating a resolution with the IRS and DOL. Sometimes in situations where plans have been out of compliance for many years, the cost and effort try to to reconstruct exactly what should have happened versus what did happen, and then trying to apply the prescribed remedies can be economically fatal to the company. A knowledgeable ERISA attorney may be able to propose another strategy that could be painful but not fatal. Having a strategy for remediation can help determine when the 5500 filings should be submitted.

For a plan participant in dire straits, it was not uncommon for them to take a loan and then a few days later take a hardship withdrawal (plan provisions permitting). This got the participant the maximum dollars out of the plan.