Paul I

In this case, the amount of the top heavy contribution for the non-key employees is 1.6% of compensation (since there are no other employer NEC or match contributions, and non-key deferrals don't count toward the TH contribution). Employee deferrals for key employees do count, the there is no additional contribution for the non-key that made deferrals. See 1.416-1 Q&A M-20. The two key employees who did not defer would get a TH contribution.

@Bri good point. Since this is a violation of the plan limit it could be considered an excess allocation. EPCRS 6.06(2) says to distribute the excess allocation to the participant along with related earnings, and the amount is not considered in testing. Specifically: "For qualification purposes, an Excess Allocation that is corrected pursuant to this paragraph is disregarded for purposes of 402(g) and 415, the ADP test of 401(k)(3), and the ACP test of 401(m)(2)." Looks like @Dougsbpc is all good.

These would be considered excess deferrals and generally they are included in testing if the participant is an HCE and excluded if the participant is an NHCE.

That will take care of submitting the 1099s. You haven't mentioned the 945, so I take it that either there was no FWT or it was filed by February 10th.

Basically, this is a situation where the participant's annual income was about $1,333 and there is a distribution fee (commonly up to $100) that is charged per payment by the service provider. Nobody "wins". The plan sponsor contributed $40, the service provider either gets only the $40 for a fee (or charges the plan sponsor for the other $60), and the participant does not get their $40 of additional vested benefit. Everybody involved should have known that there was an additional amount that would be credited to the participant at the end of the year. This is how the SHNEC works. Everybody should have known that each check issued was going to incur a fee. This should have been disclosed explicitly in the 404a-5 notice, and possibly as part of the request for distribution. I have seen plan administrators take different perspectives on how this would be handled. Some say the participant did not have to take a distribution until after the SHNEC was allocated, so the it was the participant's choice. Some say the participant paid for a distribution and the payment of the remedial amount was part of that distribution, so the plan sponsor picks up the tab. Definitely check the service agreement with the service provider(s). This service agreement may say explicitly how the distribution fee will be handled in the event the participant's account balance was insufficient to pay the fee. In this case, best practice is: what if anything the plan document may say about payment of expenses, what the plan sponsor and service provider have agreed upon, what has been standard operating procedure for the plan in other similar instances (i.e., administrative policy and procedures), and what has been clearly communicated to all parties.

Was the plan required to file electronically? The threshold for mandatory electronic filing dropped to 10 forms for 2024 (count includes W-2s, any 1099s among others) so it was very easy to cross the new threshold. Were there other distributions made to other participants due to the plan closing? If yes, who was listed as the payee? Who transmitted the forms to the IRS? Was any tax withholding taken from the taxable distributions (e.g., RMD)? If yes, was a 945 filed? Basically, the filing for the delinquent forms should be done by whoever filed the other forms. This is particularly crucial for the 945 (which can be signed by a paid preparer but the paid preparer must have a copy of the form signed by the plan administrator). FYI, the penalties for late filings of information returns can be found here: https://www.irs.gov/payments/information-return-penalties Hopefully, you have a very simple situation where these were the only forms that needed to be filed for the plan. Whatever needs to be done, you must inform the plan sponsor/client/plan administrator of the issue even if you offer to cover the penalties.

@Bill Presson is asking about the type of acquisition since, in a stock acquisition, the employees of the acquired company became employees of the employer/plan sponsor and the plan would recognize any work history of an employee that worked for the prior company. Similarly, it the acquisition was an asset acquisition, the employees of the prior company were considered terminated from employment by the prior company and then hired as new employees by the employer/plan sponsor, so the work history in the prior company is not recognized. Regardless of the type of acquisition, if the current plan document recognizes the service with the acquired company, then that service with the prior company will count. Look for provisions in the plan document regarding predecessor service. The provisions may be in one place in the plan document and indicate if the predecessor service is recognized for eligibility, vesting or allocations, or the provisions may appear separately in the section for each of the types of service. Assuming that the circumstances of the acquisition or the provisions of the plan document require consideration of the employee's prior service, the employer/plan sponsor cannot disregard the employee's assertion that the employee worked for the prior company because it would be an inconvenience to try to find it. The employer/plan sponsor would be best served by working with the employee to find the documentation. For example, the employee could provide details about when they worked, in what location where they worked, who they worked with/for and what was their title/job description. This information could reinforce the employee's case and also help locate documentation. If the employee has kept old tax returns, they may have W-2s issued from the prior employer. If the employee does not, the employee can ask the IRS for copies of their past W-2s (or at least a transcript of their tax information) by follow the steps on the IRS website: https://www.irs.gov/faqs/irs-procedures/copies-transcripts/transcript-or-copy-of-form-w-2 If the employee had participated in a prior employer's plan, the prior employer's plan service provider may have retained information about the employee. If the employer/plan sponsor has copies of compliance tests that were performed for the prior employer's plan, the employee's information likely is available in the details of those tests. What the employer/plan sponsor should want to avoid is the employee filing a claim for benefits that is rejected and then having the employee involve the DOL.

@RatherBeGolfing is correct that if you are eligible for the penalty relief and pay the fee, you don't have to provide a reason. I appreciate the clarification.

You will find process on Page 4 of the instructions for the Form 5500-EZ in the section Late Filer Penalty Relief Program. It also includes a link to the IRS website. Short version, you have to file on the form on paper using the Form 5500-EZ for the plan year of the missing filing, attach it to Form 14704 which includes providing a reason the form(s) is late, and mail it to the IRS. There is a fee depending upon the number of years. The IRS then decides if there was a valid reason and whether they will assess a penalty for the late filing. My experience is they are very forgiving if the filing is voluntary.

When drafting plan provisions related to changes to exclusion by classification, be sure to address what happens in situations such as: a participant is hired into a covered classification and then at a future point in time the participant starts working in an excluded classification. a participant is hired into an excluded classification and then at a future point in time the participant starts working in a covered classification. if a participant worked in a classification that was covered, and the plan grandfathers participants who worked in that classification before the effective date of the new provisions excluding that classification, and the participant terminated employment prior to the effective date of the new provisions, and the participant is rehired after the effective of the new provisions, will this participant be grandfathered or excluded. consider the impact of the change should these situations occur during the time period between when the an employee meets the eligibility requirements for a type of contribution and an employee's entry date which may be months later. if the plan uses rules of parity for eligibility, consider how these rules can complicate these situations particularly if the plan requires a one year wait to re-enter the plan. When considering situations like this, be sure to consider how the plan will apply to each of the three types of contribution sources: elective deferrals, match, and nonelective employer contributions, particularly when applying any allocation conditions for the match and NEC. The most important consideration that @Lou S. pointed out above is that the plan will need to consider employees in the coverage testing for each of the three contribution sources who met the plan's eligibility requirements but are excluded by classification.

Every payroll company we work with or that our clients use will only issue tax forms for payments instructed by the payroll company.

We have had very good results (at a reasonable cost) from searches done by EmployeeLocator.com

With the obvious? assumption this is an owner-only plan, technically it is not an ERISA plan (and is not subject to all typical ERISA and DOL requrements like filing a 5500, keeping in mind that the 5500-EZ is solely an IRS form). It is worth noting that it is relatively easy for an owner-only plan to become an ERISA plan by having an employee become eligible to participate, particularly with the new LTPT rules in place now. It may be worth posing the question "Why are you asking this question?" to see what are the implications for this investment if the plan's status is an ERISA plan or is not an ERISA plan.

All of the various ways the agencies have proposed procedures or made suggestions about finding a missing participant, no one explicitly tells us what to do when, for a plan that is not terminating, we try everything in good faith and cannot locate the missing participant - with some exceptions that are not considered acceptable by all of the agencies. The IRS says we can forfeit the benefits and pay it if the participant is found. The DOL doesn't like this. The IRS at least acknowledges in the 5500 instructions to the compliance question about benefit due but not paid that some participants will not be found by saying: "Note: In the absence of other guidance, filers do not need to report on this line unpaid required minimum distribution (RMD) amounts for participants who have retired or separated from service, or their beneficiaries, who cannot be located after reasonable efforts or where the plan is in the process of engaging in such reasonable efforts at the end of the plan year reporting period." There does seem to be some grudging, temporary acceptance by the DOL of the notion to write the check and let it escheat to the state. The IRS doesn't seem to mind as long as they get default withholding. The IRS and DOL want us to report to them people due benefits, but neither agency wants to let a plan cease to have the responsibility to find a missing participant (unless the plan can pass off that responsibility to a business that will take the participant's account where it slowly disappears into the abyss of administrative fees). The PBGC is willing to help, but not for DC plans unless the plan is terminated. Hopefully, sometime, we will have clarity across all agencies about what a plan can do with benefits due to participants who remain missing despite everyone's best efforts to locate them. This has about the same chance as there being universal peace, love and happiness.

It is permissible, it is not required, and there are pros and cons. Some companies fund the SHNEC with each payroll because the contribution is 100% vested and not subject to other allocation conditions (like a last day rule). They do this as a convenience and feel it helps them manage their finances. The TPA should know better than to say there is no "true-up". The SHNEC is not like a match. A plan can specify a time period for funding the match that is more frequent than annually. The SHNEC requires each participant receives must the the SHNEC percent of annual plan compensation. Payroll is notorious for having adjustments from pay period to pay period, and for having challenges reporting plan compensation should the definition of plan compensation be something other than 3401(a) W-2 compensation. The prudent plan administrator, payroll and TPA all would double check after year-end that everyone received the SHNEC they were due.

It is not protected. We went through the same scenario with a physician group with brokerage accounts spread across a dozen brokerage firms and following a merger into the practice of another physician group that used different brokerage accounts. There was a Committee that was the designated Plan Administrator and Trustees that presented the idea to discontinue SDBAs to the Board (which basically was all of the physicians). The Board adopted a resolution to eliminate the SDBAs. We communicated with each physician with an SDBA about the transition process and set a hard deadline (4 months away) by which time all accounts had to be transferred into the plan's investment menu. The deadline allowed time for individual's to unwind any investments or trading schemes (for example, one individual was trading covered calls). A couple of individuals had some favorite assets and were eligible to withdraw their accounts, and so they arranged to move those assets out of the plan. It was tedious, but mission accomplished.

It seems that the answer will hinge on how the last day rule is written in each plan. There would be no separation from service as long as the employee is working for a participating employer. Consider if the last day rule may be written to say that the employee must be actively employed on the last day by Employer A to get an allocation from Employer A, with a similar provision for Employer B.

There is no pre-funding issue as long as there are no other plan provisions (other than vesting) that could cause the participant to give up the pre-funded match. The task remains for the plan to have explicit provisions about when the gets incremented. This should be done in the definition of the match formula. Take care in drafting the provision since it will impact the calculation of the true-up at plan year end for participants who on the threshold of getting to the next incremental rate. I suggest modeling some numbers illustrating for the client how this would work in practice so they understand clearly how to operate the plan.

If the match is an annual match, technically it is accrued at plan year end as of the end of the benefit (allocation) computation period. The tier is determined at the end of the year when the match is allocated to the participants' accounts. You could write language into the plan the explicitly adjusts the tiers when an employee has worked 1000 year-to-date, but that would be creating the problem that you want not to have and don't have with the current design. Again, there is nothing inherently wrong with the plan design. The issues arise because of the funding frequency of the match.

@30Rock from your comments, it sounds like the plan design is: The initial eligibility computation period (ECP) is the first 12 months of employment and an employee must work at least 1000 hours in the first ECP to be eligible to make deferrals into the plan. In your example, the employee's first ECP ended June 26, 2024. If the employee meets this requirement, the employee begins participant as of the next entry date (which sounds like this plan uses the next payroll date). The employee entered the plan on June 28, 2024 and starts deferring. At the end of the plan year on December 31st, employees who have deferred during the year receive a match if they have completed at least 1000 hours during the year. As of 12/31/2025, this employee has 2 years of service and has more than met the requirement to get a match for 2025. It seems the conundrum is the company is funding the match during the year, but the match really is an annual match. Since the funding occurs more frequently than the match period, the plan must make a true-up match. This plan has an issue if an employee was deferring and getting a concurrent match, but then terminated employment before working 1000 hours during the year. There would be a match in the employee's account that the employee is not entitled to have. The issue could be exacerbated if the match funding also was anticipating an employee working 1000 hours in a year where the match percentage was going to increase to the next level. There is nothing inherently wrong with the plan design. The issues arise because of the funding frequency of the match.

Were it that straightforward. I would say most big recordkeepers have a default set of benchmarks that they use for the the 404a-5 disclosure, and may allow a plan's financial advisor or the plan's investment committee an option to pick their own benchmarks. Some mutual fund companies (Vanguard being one) built their own benchmarks for their funds which can vary from Morningstar or S&P benchmarks. As illogical as it may seem, it also is worth noting that some 404a-5 disclosures use a single benchmark for all of the target date funds in the investment menu regardless of the target year. Given the mix of categories of assets vary as the calendar approaches a target date, we would expect to see a difference in the benchmark.

The first thing that comes to mind are the SPD and SMM. ERISA does not require that these disclosures must be made in languages other that English, but DOL 2520.102-2(c) does have the rules that do.

The FY2025 Lapsed Appropriations Contingency Plan was released in July 2024 to have an orderly plan for coping with the ploy of letting government funding lapse in an effort to further a political agenda. The plan anticipated that this ploy will become very much commonplace and the plan codifies steps to take for an orderly shutdown and then an orderly restoration of activities. Effectively, the plan anticipates that funding ultimately will be restored, paychecks will be issued covering lost pay, staff will return and pick up where they left off. Oversimplifying things, the plan basically puts the agency into hibernation. We are now in 2025 and are in the midst of an aggressive Reduction in Force initiative to permanently eliminate certain staff, to permanently stop funding certain initiatives, and to impose permanent limitations on staff and budgets for those who choose to continue working. In complete contrast to the Contingency Plan, a goal of the current actions are not to restore staff and budgets. Aspects of our business that will be impacted the most by these reductions is unknown. Our industry works with our professional counterparts in the IRS who have in depth knowledge of our shared interests and concerns. The RIF is being conducted almost solely based on headcount without regard to each individual's role or knowledge base, and without regard to funding of certain initiatives. Depending of what we may need as feedback from the IRS or what we may wish to provide as input to the IRS, the interaction could range from business as usual where our contacts remain in place and in their roles, to a complete shut down as our contacts are no longer employed and as the IRS stops funding certain initiatives. All of this makes the Contingency Plan seem like marvelous fantasy.

Welcome to the twilight zone! If you are working with a preapproved plan document (Cycle 3), your plan provide may provide an amendment that includes this so you should pose the question to the preapproved plan document provider. Note that the Cycle 4 restatement cycle that should open 10/1/2026 (yes, folks, that is 19 months away) and this particular feature is not on the list of provisions that are required in the Cycle 4 documents. Here is where the fun really begins! amendment for SECURE 2.0 have to be amended by December 31, 2026, which is 4 months after opening of Cycle 4. The proposed regulations say the mandatory Roth catch-up rules will be effective for the first day of the plan year starting 6 months after the rules are published in the Federal Register. Given the timing of the comment, review and approval process (and several thousand IRS employees laid off), the earliest effective date will be January 1, 2027. BUT, in the meantime, the plan must operate in accordance with a good-faith interpretation of the proposed rues. The least complicated action to take right now is to adopt an administrative policy about how the mandatory Roth catch-ups will be administered, communicate this policy to the plan participants, and share it across all service providers working with the plan.

Here is a little bit of background to start: I assume you are referring to filing the Form 5500-EZ and that you (and maybe your spouse) are the only individuals to participate in the plan. The rule is you must file for a plan year when the total assets (adding in the assets you may have in other qualified plans like this one) reaches the $250K threshold. Note that each plan needs to file even if a plan by itself is below threshold. You look at the total assets that will be reported on the Form 5500-EZ on line 6a(2) of the form which is total assets of the plan for the plan year. Note that this line does not take into consideration any outstanding liabilities that the plan may have as of the end of the plan year. To answer your question, you do not have to file for a year if your total assets go below the $250,000. That being said, going forward you may want to file anyway if your asset dip below the threshold since the IRS may send you a letter noting you filed in the previous year but not for this year. Worse, they may send you a penalty letter for a delinquent filing. The effort to complete a Form 5500-EZ can be much less than the effort to respond to the IRS letters. Since you appear already to have delinquent filings, you should file under the Form 5500-EZ Delinquent Filer Penalty Relief Program using Form 14704 to transmit all of the filings. One quirk with this process is you have to file on paper Form 5500-EZ for each year using the Form 5500-EZ for that year. You can download previous year forms and instructions going back to 1990 here: Prior year forms and instructions | Internal Revenue Service Good luck!