MrsMacias

We have a client that amended two previously timely 5500s in December of 2024 (we amended for a system error that caused the wrong plan number to appear on the filing (01 vs 02)). The original 5500s were both filed before their respective deadlines. The client has received letters on both filings with penalties totaling close to $150k. I'm am almost 100% sure that this is an error on the IRS/DOL side. Our solution is to give the clients the original confirm IDs and tell them to go back to the DOL/IRS and explain the situation. However, I wanted to confirm that an amended return is not considered "late" as long as the original filing was in good order and timely filed.

Thank you! Just wanted to make sure we were on the right track.

We are administering a PEP plan and one of the members wants to terminate. From our understanding, since only the plan sponsor has the authority to terminate a 401(k) plan and in PEPs the sponsor is the PPP, in order to terminate, the member must spin off their plan from the PEP and then terminate that plan. However, our PPP is insisting that this is not needed and that they can terminate this individual adopting employer without a spin-off. We are having a hard time finding actual guidance on this. Who is correct?

Thanks for all the advice and information. One more thing, the buying company, our client, already sponsors a 401(k) plan. They want to "spin-off" the division of Company B that was purchased into their existing plan. However, my understanding is that a spin-off creates a new plan entirely. As Cusefan indicated, they could spin-off then do a term/merger however, I do not believe this is the client's intention. The intention was to merge the 401(k) accounts of the purchased division into the existing plan. However, because this was an asset sale, if the sales contract did not specifically address this then I believe there is a distributable event for the employees of the division that was purchased. Am I missing something here?

We have a client (A) that purchased a division of another company (B) and wants the employees of that division to "merge" into A's existing 401(k) plan. B's TPA told our client (A) that they could do a spin-off. Our general understanding of a spin-off is that it results in a new company and a new 401(k) plan. Neither of those things are happening. Additionally, company (B) currently sponsors a 401(k) plan and since only one division was sold to our client they will not be terminating their plan. We don't see how this could be treated as a spin-off or a merger. Can anyone give insight as to when a spin-off is an appropriate measure and if there is anyway that this would not be a distributable event for the participants of Company (B)? Thank you!

They are legally able to however, the participants no longer have the funds to return.

A client provided a revised census for 2020 testing. When 2020 testing was rerun it was determined that the plan failed less than the original test. Corrective distributions had already been paid out and reported for 2021 taxes by the time the revised test was run. Participants are no longer able to return the excess corrective distributions to the plan. What is the correction? We are thinking that the client needs to submit the difference back to the plan but not the participant accounts. Is this correct?

Thank you so much Mike, this helped a lot!

I have been searching and searching the regs and IFR for this to no avail. I understand what data pieces need to be used to generate the lifetime income illustration but what is the formula to generate the monthly payments. I imagine it must be so easy that no one else is asking because I do not see it. If I get a question from a client on how the monthly payment was calculated I need to be able to provide that. I've reviewed the standard annuity formulas but those do not seem to be what I am looking for because they require you to know what the monthly payment will be.

A client sponsored a SEP during 2021 and started a 401(k) plan with new comp in 2021 as well. They made some deposits into the SEP already, I know that these contributions have to be combined for limitation purposes but am not clear if these contributions can be used to satisfy 401(a)(4) testing.

Background: Client purchased a plan with automatic enrollment and safe harbor match, with an effective date of 7/1/2021. The plan went live on our system, census was uploaded and participants were notified of their eligibility to participate, received all the required notices, and should have been automatically enrolled if they did not opt out. Client has now reached out (along with their financial advisor) saying that they never wanted automatic enrollment, didn't understand it, and now wants to "cancel" the plan. They have not done any withholding of ANY elective deferrals at this time, so the plan has not been funded. I am of the opinion that since notices have gone out, accounts have been set up, etc. they have a 401(k) plan, and they cannot just "cancel" it, i.e. pretend it never happened. I know how to correct the failure to automatically enroll participants so that is not the issue. Our main point of contention and one I am having difficulty finding any guidance on is; at what point can we say, "sorry, you officially have a 401(k) plan so you have to fund any required contributions and go through the normal termination process to close it"? I believe the plan is active, and that they need to go through the correction process for the automatic deferral failure and then they can terminate the plan. The client contends that since they have not funded, the plan is not active and we should be able to just "cancel" it. We've already told them that they can remove the automatic enrollment provision, so that is not the issue. If I anyone can point me to some guidance on this topic, it would be much appreciated.

I'm curious about this as well. We have 3 clients that recently received letters requesting their 2017 plan #002 filings. None of these plans have a #002 plan. However, all 3 were clients that had a plan name and EIN change in 2016 or 2017 that was reported on Line 4 of the 5500.