Paul I

@RatherBeGolfing raises some of the operational issues that the client must understand fully and be able to set the expectations of participants on how the SDBAs will work inside the plan. Ascensus and Schwab each have a lot of experience with SDBAs inside plans and they also have links to share data electronically. While that sounds wonderful, there remain complications for recordkeeping the plan. One of the bigger challenges stems from allowing multiple contribution sources to be invested in the SDBAs. There is potential for a contribution source to be pre-tax or Roth. Each source may have differing in-service withdrawal provisions, differing vesting, differing loan availability and other variances in features. When recordkeeping a plan that uses a menu of mutual funds, each transaction be it a contribution, distribution, exchange, dividend, new loan, loan repayment... can be labeled with a plan account (deferral, NEC, match, rollover, ...) and the mutual fund in which the transaction occurs. When there is what @RatherBeGolfing termed "shadow posting", the recordkeeping treats the SDBA as if it is a single investment. The identity of the mutual fund is lost. When recordkeeping with a menu of mutual funds, the price per share of each fund is known after market close and before market open. Depending upon the frequency in which the market value of the SDBA is sent to the recordkeeping system, the "price" of the SDBA investment may not be known within the menu of mutual fund's time frame. The plan should not allow participants to grant trading privileges to brokers or financial advisers that are not approved by the Plan Sponsor. Allowing participants to choose advisers of their choice is a recipe for chaos, and could lead to questions over who is controlling the investment of plan assets. The plan audit should not be dramatically impacted by the SDBAs. Schwab and the trustee both should be issuing reports that include all of the detail needed by an auditor with experience auditing SDBAs. The Plan Sponsor should vet the auditor to confirm that the auditor does have this experience of the cost of the audit could skyrocket. I share @RatherBeGolfing's concern about who is providing compliance services although my concern is driven more by the competence of who is providing the services rather than by having SDBAs as an investment option. Note that the proposed arrangement for the SDBAs is relatively simple compared to some of the plans I have recordkept. For example, this arrangement: uses only one brokerage firm and participants do not get to open an account at the brokerage of their choice' restricts investments to mutual funds and participants cannot invest in stocks, bonds, CDs, ETFs, ETNs, gold, annuities...; does not allow trading in options; does not allow investing in assets that do not have a readily determinable value such as real estate, LPs, private placements, art... The advice to the client is to know the details, prepare written policy (including dos and don'ts), and communicate clearly to participants. Some plans go so far as to have a participant sign a representation that the participant understands the policy.

This may help clarify things: "Announcement 2014–16 Issuance of Opinion and Advisory Letters for Pre-approved Defined Contribution Plans for the Second Six-Year Cycle, Deadline for Employer Adoption, and Opening of Determination Letter Program for Pre-approved Plan Adopters The Service will soon issue opinion and advisory letters for pre-approved (i.e., master and prototype (M&P) and volume submitter (VS)) defined contribution plans that were restated for changes in plan qualification requirements listed in Notice 2010–90, 2010–52 I.R.B. 909 (2010 Cumulative List) and that were filed with the Service during their second submission period under the remedial amendment cycle under Rev. Proc. 2007–44, 2007–2 C.B. 54. The Service expects to issue the letters on March 31, 2014, or, in some cases, as soon as possible thereafter."

What they can or cannot do and how much can be allocated to each member depends upon how the LLC is taxed. Is the LLC taxed as a partnership, S-corp, or C-corp? Since you mention guaranteed payments and did not mention W-2s, I would guess taxation as a partnership. On the other hand, distinguishing between compensation and profits suggests that taxation as a corporation is a possibility. Guessing and not knowing could be the reason there have been different answers.

@ScottCPFA there was a time when the loan interest on loan repayments to the plan was tax deductible (as was credit card interest paid and various other interest payments). For the most part, the only interest repayment that has remained even partly deductible is mortgage interest. If the current situation is a bur under your saddle, it would be a relatively simple calculation on a spreadsheet to show that the interest repayments are artificially high. The agency who most likely would be responsive to you would be the DOL since they would view it as a prohibited transaction. Good luck!

I am not an actuary but I do share several clients and have close working relationships with actuaries. One of the challenges is most companies who have a Defined Benefit Plan or a Cash Balance Plan also have a 401(k) Plan. One strength in all of the relationships is we work together with the actuaries to service the client. A big part of our role is educating the client about the differences between their DB/CB plan and their 401(k) plan. Clients struggle with the notion that a participant with an accrued benefit in a DB/CB plan does not have assets in the trust that essentially are earmarked for an individual participant and the participant cannot direct how the assets underlying the accrued benefits are funded. Clients also struggle with the concept of funding requirements ranging between a minimum and maximum funding level. They also struggle with the concept of a maximum deductible contribution. When working with the actuaries, we welcome their participation in discussions with the clients where we collectively explain the differences between types of plans. One task that we perform for the actuaries is collecting the data they need to do their magic. This includes collecting and validating census data, and confirming that the data the actuary needs to apply the service and compensation data is accurate. We gather and report to the actuaries asset information. We pay special attention to details that the actuary needs such as dates of deposits of contributions and dates of distributions. We will facilitate gathering participant elections concurrently for all plans. While we could say this work that we do is the actuary's job, not ours, we have found that having the client work with a single contact avoids a lot of confusion on the part of the client, payroll and their accountants. Yes, we do get paid for our efforts. To summarize at a higher level, we look at what it takes collectively for us and the actuaries to service the client's plans, we do the tasks that are well within our skill to do, and we defer to the actuaries on those services for which we are not qualified to do.

Yes. I have seen this scenario several times. I also have seen where the seller's plan was terminated after closing and participants received distributions. We filed a VCP and worked with the IRS to get the client what everyone agrees was a very reasonable solution.

@30Rock you can terminate the Company B plan before the sale but cannot distribute while the employees are still employed by the controlled group. After the closing, the Company B employees are no longer employed by the controlled group so you can distribute from the terminated Company B plan.

Start with a little housekeeping. Have you confirmed that the plan document restricts the hardships to the IRS Safe Harbors.? Keep in mind that preapproved plans had an Interim Amendment to update the plan to conform with final regulations, so look beyond the original Adoption Agreement to find what was elected in the Interim Amendment. (If the recordkeeper adopted the Interim Amendment on behalf of all of its clients, there should still be a copy of the amendment in the plan's document files.) Many of the Interim Amendments included some language like "for any other event that the IRS recognizes as a deemed immediate and heavy financial need Hardship distribution event under ruling, notice or other guidance of general applicability" which may provide so wiggle room for interpretation. Unless you are acting as the official Plan Administrator, it will be up to the Plan Administrator (who likely will value your input) to make the decision.

You are going to need additional information about Company B and the Company B plan. It sounds like the Buyer is buying the stock issued by Company B as a standalone entity within in its controlled group, and Company B is sponsoring a plan that covers only Company B employees, and no employees of any other company in the controlled group participate in the Company B plan. If all of the above are true, then Company B can terminate its plan before the closing date of the acquisition, Company B's employees would fully vest. On or after the closing date, the participants in the Company B terminated plan would be able to rollover their accounts to the place of their choosing including into the Buyer's plan. This would not be true if the Company B employees were participating in any way in the plan sponsored by another company within their controlled group. Also note that the Company B accounts could not be moved by an asset transfer or merger into the Buyer's plan, but would require the former Company B employees to choose to make a rollover into the Buyer's plan. It also is worth noting that a plan termination and the distribution of accounts are different events and it is the plan termination that must be done before the acquisition. The distributions will occur after all of the recordkeeping for the Company B plan is completed which will not happen until after the closing. This is one of those situations where one small slip up can turn into a widespread disaster. Given some of the nuances, the strategy for addressing the Company B plan should be worked out in detail before the closing date, and reviewed by legal counsel with experience with these situations.

SEP are excluded from calculating the $250K threshold because the SEP is considered an IRA. The 5500EZ instructions say to "You should use the total plan assets as listed as of the end of the plan year on line 6a(2) of this form to determine whether the plan(s) assets exceed $250,000. If an employer maintains one or more one-participant plans, the total assets of all one-participant plans combined must be counted towards the amount of $250,000." Since SEPs don't file a 5500 EZ, the SEP assets are not included in the determination.

You can get there. I suggest you start here https://www.efast.dol.gov/iFileLanding/Landing.html Be sure to read everything. There are a lot of steps which means there are lots of opportunities to get something not quite right. Unless there is a business reason for being in a rush, waiting for your reporting system to be available likely would be a better use of your time.

You left out the answer to the most fundamental question - is this a stock sale or an asset sale?

@30Rock there is set of administrative steps that a plan must take to administer the cash-outs properly. If the plan has in fact followed those administrative steps, that will help support a position that the plan was operating intentionally to apply the cash-out rules. You do not appear to have an issue with cash-outs for participants with vested balances of $1,000 or less. For cash-outs of vested balances that are over $1,000 and under the $5,000 (or $7,000 or some other lower limit), the plan should have sent a notice or letter to the participant and the 402(f) notice that the participant needed to take action before a specified deadline (typically at least 30 days). This should include an explicit statement that the balance will be rolled over to an IRA if the participant does not respond by that deadline. If these administrative steps are followed and everyone elects a direct distribution, there is no issue. If these administrative steps were not followed, then the plan has an operational issue regardless of what are the plan provisions. If nothing else, the plan should begin operating according to the cash-out rules. As far as any sort of correction, it is hard to overlook the fact that the participants received their vested account balance. These are not overpayments. It is hard to overlook that each participant had the opportunity on their own initiative to rollover the distribution to an IRA within 60 days. It is hard to overlook that participants who did not rollover paid taxes on the distribution. If any amounts were returned to the plan so the plan can make a rollover to an IRA, the participant would have to file an amended tax return to try to recoup the taxes they paid previously. It is hard to overlook that the amounts in question are relatively small. The plan should consider all of the above in formulating a "correction". None of this is intended to imply that the plan should brush aside the issue. The plan should acknowledge any operational error and take immediate steps to operate the plan correctly.

@Tom is your question coming solely from the standpoint of the plan document, or is it more from the standpoint of plan administration? From the standpoint of the plan document, I am not aware of any of the major Mass Submitter having issued a SECURE 2.0 amendment. From the standpoint of plan administration, several recordkeepers have notified their plan sponsor clients that they will apply default administrative decisions to the plans for which they provide recordkeeping services. The most common provision I have seen in increasing the cash-out threshold from $5000 to $7000. It remains up to the plan sponsor client to request an override of the default. If any clients have made affirmative, documented administrative elections of SECURE 2.0 choices, then these choices should have been clearly communicated to all employees. These communications technically are not SMMs given that an SMM discloses a modification to the plan documentation. Nevertheless, it is important that plan sponsors do communicate the changes to employees as if the plan was amended.

@metsfan026 your suggested approach of using a discretionary match is the simplest approach in terms of implementing and communicating to employees, and as you noted, assuming it passes necessary testing. There are many paths to getting to (or very close to) the desired result, and the more steps needed for a path to work, there is an increasing risk of introducing operational issues when defining eligibility for who gets the additional match or contribution, when they get it and how much they get. Part of the conversation should involve an assessment of the risks. For example, a match and a profit sharing contribution are tested separately for coverage (unless using ABT which has its own issues like the nondiscriminatory classification test). A starting point is to know (or have a very good estimate) of the number of HCEs that are in the new group. If there are none, use discretionary match approach and appreciate the simplicity. If there are very few HCEs in the group, consider the impact of excluding them from getting the one-time bump in the match rate. There may be ways to keep things calm with a bonus unrelated to the plan. If there are a lot of HCEs in the group, then get as complete a census as possible to be able to model the alternative paths. At this point, you need to let the client know of the potential complexity of the paths forward and that you will charge a fee for these services. Start with the discretionary match. If that isn't workable, try the profit-sharing formula (although if the match didn't work, this approach will likely have similar compliance issues). If neither the match or profit-sharing approaches aren't workable, likely it will be do to coverage, so consider the cost of adding in additional NHCEs who were in the new group but not deferring into the calculations. The worst case scenario is implementing an approach without considering the potential compliance risks and finding out after the fact that the plan fails a compliance test. The cost of correction will almost certainly exceed the cost of making an informed decision beforehand.

Here is a fact sheet that will give you details about how abandoned plans are handled. It includes information on how to contact the Abandoned Plan Program at the DOL. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/abandoned-individual-account-plan They determine if the plan is abandoned. If it is abandoned, they arrange for a QTA to wind down the plan.

Generally, there is nothing wrong with your memory! There some nuances, though, that are worth checking. For example, if there is a key employee in the union, then the union employees are included in the required aggregation group for determining if the plan is top heavy. Otherwise, the union employees may be permissively aggregated with the nonunion employees when determining if the plan is top heavy. (The permissively aggregated group would need to pass coverage and nondiscrimination tests.) If the union employees are included in the determination of whether the plan is top heavy and the plan is top heavy, the union employees do not have to receive a top heavy contribution. There are some other fun things to consider such as the union employees are not subject to the LTPT rules, or whether the plan as actually has been subject to good faith bargaining.

You may want to point them to this law suit where the Department of Labor stepped in to recover the Davis-Bacon contributions: https://www.planadviser.com/government-contractor-accused-of-missing-401k-payments/ If anyone were to bring your client's situation to the attention of the DOL, the DOL very likely would intervene. (Note that the suit later was dropped by the DOL after the past due contributions plus earnings were paid.)

Generally, I would say an electronic-only requirement would not be onerous for the vast majority of practitioners. Most already use EFTPS for transmitting taxes and Pay.Gov for other types of payments.

A very large portion of business-to-business transactions are electronic payments. This differs from plan participants we serve. The FDIC provides a survey of unbanked or underbanked households https://www.fdic.gov/household-survey which has some surprising numbers. For example, in Mississippi 9.4% of households are unbanked. It can be challenging to make payments to this segment of the population. Many within this segment use non-bank money orders, check cashing services or non-bank money transfer services. As an industry, we need to be mindful of the needs of the populations we serve.

I, too, am very conservative when it comes to using mistake-of-fact. This situation technically could be seen as not being an operational error since payroll ran on schedule, and the 360 file arrived on the usual day. Is there precedent where where a 360 file containing deferral elections was processed after payroll ran? If yes, were any adjustments made to payroll to recognize the order of processing was not post the 360 file elections before running payroll? The answers could color whether there was an operational error. If there is no precedent, is there documentation that payroll was instructed not to run until after the 360 file was posted? If yes, this would reinforce the point of view that an operational error occurred. Certainly, any communications to participants that explained the change/change back procedure for excluding the bonus would support the notion that an operational error occurred. This argument would be strengthened if the communication specified the dates by which the elections would need to be made in order for the elections to be in effect when the bonuses were payable. Notably, this is not a situation where there was a violation of a plan limit. A violation of a plan limit would allow the amounts to be considered excess allocations. Excess allocations are refundable (with earnings) and are not considered in compliance testing. If these are not excess allocations, then there is not a prescribed EPCRS list of steps to correct the problem other than to file a VCP with a proposed cure (old school). If there is no operational error, then the participants should live with the consequences. If there is an operational error and there is ambiguity about how to correct, then given the number of people involved it may make sense to file a VCP. But that takes time and payroll is going to run again and again before there is any response to the VCP. I agree that if payroll runs without adjusting the employees' YTD amounts, there will be additional layers of errors upon errors. Almost every payroll has a correction process to rerun payrolls to correct prior payrolls. The questions and concerns should be presented to the payroll company on how they would go about fixing the issue. So what would I consider doing in this situation? I would confirm there is an operational error (i.e., there is not a good argument it was not an operational error). I would calculate amounts that should not have been funded the plan, remove the amounts from the affected participants' accounts and hold the amounts in a separate account inside the trust to be used against the next deferral deposit(s) and forfeit any positive earnings or fund negative earnings , have payroll adjust their records to reflect what should have happened, have all related payroll taxes paid asap, monitor the next few payrolls especially for the affected participants' paychecks, and review the year-end payroll reports to confirm they report the corrected amounts, and file a VCP asking for a blessing after the fact. Hopefully this helps breakdown the many issues involved. There are a lot of moving parts, likely there are some weak points in this process, and this is not advice to anyone on how to proceed. Obviously, payroll has to cooperate or this will fail. If payroll refuses to be part of the solution, then they are part of the problem and that needs to be fixed, too.

Are you asking if the Employer chooses to have a discretionary match, then is the Employer able to specify the definition of Plan Compensation each year when instructing the discretionary match? If this is your question, and the plan is using a pre-approved plan document, the very likely the answer is no. Most pre-approved plans have a set of provisions applicable to the definition of Plan Compensation depending upon the type of contribution (elective deferrals, match, nonelective employer...). These provisions will control what compensation is considered in the calculation of the match, the time period for determining the compensation, if pre-participation compensation is included, and any other provisions related compensation.

From the standpoint of what a recordkeeper needs to know about a participant's gender for the recordkeeper to provide plan accounting services, they do not need to know. From the standpoint of interacting with the participant in delivering notices, sending out plan-related correspondence, emailing or having conversations with a participant, acknowledging the participant's gender identity helps build a rapport with the participant. Gender identity goes beyond the use of pronouns and includes things like Mr., Mrs., Miss, Ms. or Mx. as titles or honorifics typically intended to show respect for the individual.

It is likely @Bri 's boss was making the comment long before the EBSA started to be used. The name of the group at the time ERISA was enacted was the "Pension and Welfare Benefits Program". In January 1986, the group became the Pension and Welfare Benefits Administration and used the acronym PWBA. It was February 2003 when the group became the Employee Benefits Security Administration (EBSA). Did someone just whisper "OK Boomer"?

Short answer... Yes. Also note deferrals that exceed 6% of comp can be matched. There is a lot of flexibility in how to structure a match. The more creative the formula, the greater need to test for compliance. If you would like to see what could be called the ultimate match formula, type "triple stack match" in the search box at the top this BL page.