Artie M

I really am not following everything in the facts in OP (I don't understand the facts in the second paragraph of the OP so won't be addressing anything related to that paragraph) but your client could have an operational failure that would need to be corrected under IRS EPCRS (need to determine if the plan documents require the amounts to be contributed by a certain time period) and your client definitely has a failure to timely deposit the contributions that would need to be corrected under DOL VFCP. Under EPCRS, normally corrections are limited to contributions that could be made without exceeding an IRS. Thus, under that reading, if an operational failure occurred, the correction appears to be limited to $4,000. However, for VFCO failures, I don't recall any language in the VFCP that would limit the contribution. In fact, the DOL's general view is once the amounts are withheld from the participant's pay, the withheld amounts are plan assets. So, conservatively speaking, it appears the correction under VFCP would include the full $5,000. If you have both an operational failure and an failure to timely deposit, a conservative approach would correct by contributing the full $5,000 as there is also a method by which to correct the excess deferral (and if done prior to April 15, there should be no downside to correct the excess deferral). Also, normally, under the corrections principles for both, employers do not adjust the Forms W-2 for the corrections. So the employee's W-2 would not be adjusted. A 1099-R would be issued for the return of the excess deferral in the following year by April 15 with the amount of the excess deferral and earning contained in Box 2 and using a Code P. Again, I don't fully understand what happened with the $1,000 but if not put in plan and paid to employee, normally that would go on the Form W-2 so a W-2C might be needed (employees typically do not receive a 1099 and it wasnt from plan so no 1099R)' Flying by the seat of my pants here so absolutely not advising you... just spitballing

I believe it would be Code 7. Under the applicable regulations, excess designated Roth contributions are taxed twice if not timely corrected. Treas. Reg. § 1.402(g)-1(e)(8)(iv) provides, if not corrected by April 15 of the following year, the distribution from a Roth account of the excess Roth contribution and the attributable earnings are taxable no matter when they are later distributed, subject to the normal limitations on distribution of elective deferrals, despite the fact that the distribution is from a Roth account. Treas. Reg. § 1.402(g)-1(e)(8)(iv) regarding distributions after the correction period states: So it seems that while a normal distribution from a Roth 401(k) is not taxed at distribution at all, an over contribution is taxed in the year received.

The answer is yes. The issue is under the DOL rules. The no-later-than-30-days deadline really doesn't apply in the eyes of the DOL, the key phrase is "as soon as they can be reasonably segregated." You should review the rules under the DOL Voluntary Fiduciary Compliance Program (VFCP). The DOL VCFP website states: The latest iteration under the DOL rules can be accessed at Federal Register :: Voluntary Fiduciary Correction Program. For older versions see https://www.federalregister.gov/citation/67-FR-15062; https://www.federalregister.gov/citation/70-FR-17516; https://www.federalregister.gov/citation/71-FR-20262. The VFCP general website can be accessed at Voluntary Fiduciary Correction Program | U.S. Department of Labor. The correction might be fairly complex if as your post states this issue has been occurring for perhaps every payroll period in the last 6 years. Also, though there is a 7-day safe harbor, when correcting under VFCP, earnings are to be calculated from the date the deferrals were actually withheld from the affected employees' wages (not the end of the 7-day safe-harbor period).

Just thoughts. Generally speaking, group health plans are not federally required to cover weight loss meds. Most of the plans I deal with would not cover them if simply for weight loss but might cover them if for some other medical issue, e.g., to control Type 2 diabetes or high blood pressure. Most of those plans would require preapproval. Employers, especially those with self-insured plans, have discretion to dermine their drug formulary. Since self-insured (and possibly one day with fully insured) offering the meds to one group versus another would be permitted if not discriminatory under §105(h). If different between plans, do the separate plans satisfy 410(b) coverage testing? If different for different groups within a plan, is the approach structured to meet 105(h)? how does the employer classify the employee groups? etc....

This amount should just be earnings that goes into the participant's account. These lost earnings are technically interest paid on a loan the employer is considered to have taken from the participant's account during the period of time the loan payment was being held by the employer before being sent to the trust. The participant did not pay this interest, the employer did. It is considered like the employer took a separate loan from the participant's account and must pay interest on that separate loan. It is the earnings that were lost (should have been earned in the participant's account( because the payment of the loan repayment was not sent to the trust on time Accordingly, the payment of these lost earnings should not affect the amortization schedule of the original loan. Again, due to it being an untimely deposit of the loan payment, it is not an amount owed by the participant on the participant's loan but an amount owed to the participant by the employer due to its prohibited transaction loan. Make sense?

Terminating a SH Plan mid-year generally requires amending the plan to stop contributions, giving participants at least 30 days' notice to adjust deferrals, making final SH contributions through the termination date, and then applying ADP/ACP testing for the short year unless (i) the plan termination is in connection with a 410(b)(6)(C) transaction or (ii) the employer incurs a substantial business hardship. See Treas. Reg. § 1.401(k)-3(e)(4). It seems the transaction might be able to meet the 410(b)(6)(C) rule. The practical question I have is that the small firm is taking a risk terminating the plan that far in advance of the closing. No matter how sure they are that the deal will close, it may never close or the closing may be delayed. In these situations, we normally advise terminating the plan "effective as of, and subject to and contingent upon" the closing and include language that if the closing doesn't occur, the plan is not terminated. Of course, this is business call and up to the parties.

@khn perhaps provide the specific language of the purchase agreement. The word "removed" is not a term that I have ever seen in a purchase agreement (as it is ambiguous at best) and, from the responses above, it appears the responders are struggling with this concept. Being removed could simply mean that no one will have any obligations to make further contributions to these employees under the plan effective as of closing. I mean your client would want some form of a withdrawal of participation agreement that says this at a minimum (along with all the other required provisions...whatever they may be).

I assume that if the former employee does not elect COBRA, they would not get paid or provided any type of subsidy. If that is the case, then there would be no taxable income. Also, even if the COBRA subsidy is provided, the subsidy may not have to be included in income. Generally, when an employer pays COBRA premiums or subsidies directly to a terminated employee and does not control or verify that they actual use the payment for COBRA, the payment be includable as W2 wages. However, if the employer pays the premium or subsidy directly to the carrier or requires the employee to provide proof for reimbursement premiums or subsidies for COBRA coverage that has actually been elected, the payment generally would not need to be included in W2 wages.

From DOL website https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/efast2-form-5500-processing

Hmmmmm..... The DOL Online calculator is only used for determining earnings on untimely payment of deferrals to the plan trust that violate the DOL rules on when contributions must be made to the ERISA-governed plan. It can be used for full VFCP and must be used if self-corrected under VFCP. Right or wrong, many employers will correct the untimely payment of deferrals to the plan trust, calculating earnings using the DOL Online calculator, and not file anything under VFCP (but still file a 5330 paying the excise tax). We advise clients to do the self-correction notice or file the VFCP if self-correction is not available. Note though there is no requirement to file through VFCP (the "V" stands for "voluntary"). However, even if not using VFCP, plan sponsors still need to correct the late deposits with earnings and file the Form 5330 to pay applicable excise taxes (though they don’t need to file under VFCP). But like you state, without a VFCP filing, the plan has no authority permitting the use of the DOL Online Calculator to determine the lost earnings. Therefore, earnings should be calculated through an alternative method. Also, like you state, most practitioners advise using the IRS earnings method from EPCRS instead. That said, we have also assisted clients with DOL audits where they self-corrected using the DOL Online Calculator without filing under the VFCP and the DOL did not, after some discussions, have an issue with the corrections (even though there was no VFCP filing). We do NOT recommend using this alternative. At the onset, your post assumes there is an operational failure under the plan. We have found that most of the time there is no operational failure for untimely payment of deferrals to a plan trust because most of the plans we work on do not have any language in the plan stating when the contribution is due (other than they must be paid to the plan by the deadline required for the contributions to be deductible). If a plan does not contain the DOL timing rule or an equivalent, there is no operational failure (i.e., there is a DOL failure but not an IRS failure). If there is no operational failure, then no earnings are required for EPCRS. Assuming your plan has an operational failure, then the DOL Online Calculator might be able to be used for EPCRS corrections but only in certain circumstances. Under EPCRS the options for calculating earnings for late contributions are in order of priority (1) apply the actual earnings. This may be impractical or impossible, so EPCRS permits reasonable estimates which leads to .. (2) use the ROR for the best-performing fund in the plan. The IRS permits this because everybody wins using ROR… except perhaps the plan sponsor--using the highest ROR for the entire period (not separately for each plan year) of failure could prove to be very costly… so it may be more reasonable to…. (3) use the weighted average ROR for the plan as a whole. As reasonable estimates go, the plan’s ROR can be a justifiable approach. In other cases, if you must, you come full circle to ….lastly (4) use the DOL’s Online Calculator. EPCRS will allow the use of the DOL’s Online Calculator if the probable difference between the actual earnings and the DOL Online Calculator earnings is insignificant, and the administrative cost of the actual calculation would significantly exceed the probable difference. This sounds counterintuitive since being able to determine that there is an insignificant difference implies that actual earnings can be calculated. Yet EPCRS allows the use of the DOL Calculator, acknowledging that paying the service provider for a precise computation could outweigh the benefit of a small difference. This could happen when a) plans have self-directed brokerage accounts; b) 403(b) plans having participants with separate individual accounts; c) documents/info is unavailable, e.g., plan sponsor is bankrupt or out of business, natural disasters; and/or d) there are changes in service providers, which can all render it impossible to compute actual returns or even ascertain the best-performing fund. If you get to this point, the plan may use the DOL’s Online Calculator. In every other case which is usually the norm, the plan should use one of the other alternatives for determining earnings.

Should be able to. Note the rules cited cover changes to the vesting schedule. Under the proposal, with regard to terminated participants with account balances, the vesting schedule will not be changing. With regard to current participants the vesting schedule will be changing but as stated going from a 6-year vest to a 5-year vest provides better vesting each year. As far as providing an election to retain the old vesting, the regs state: "no election need be provided for any participant whose nonforfeitable percentage under the plan, as amended, at any time cannot be less than such percentage determined without regard to such amendment." Just my thoughts.

Not entirely. I have seen that ... see below from DOL website... this is just part of the notice. Based on her response, she could simply be looking for "lost" retirement benefits.

Yeah, I don't know of any plan sponsors that do this on their own. I know Fidelity does it and I know some other recordkeepers that use third-party vendors such as BenefitEd, Highway Benefits, SoFi at Work, and Candidly to verify student loan payments, etc. for qualified plans.

ERISA §101 Duty of disclosure and reporting states: (a) Summary plan description and information to be furnished to participants and beneficiaries. The administrator of each employee benefit plan shall cause to be furnished in accordance with section 104(b) [29 USC §1024(b) ] to each participant covered under the plan and to each beneficiary who is receiving benefits under the plan Section 3(7) of ERISA, "participant" means “any employee or former employee of an employer, …., who is or may become eligible to receive a benefit … or whose beneficiaries may be eligible to receive any such benefit” ERISA Reg. 2510.3-3(d) provides: (1)(ii) An individual becomes a participant covered under an employee pension plan-- (A) In the case of a plan which provides for employee contributions or defines participation to include employees who have not yet retired, on the earlier of-- (1) The date on which the individual makes a contribution, whether voluntary or mandatory, or (2) The date designated by the plan as the date on which the individual has satisfied the plan's age and service requirements for participation. My understanding of these rules are that once an employee contributes money to the plan they are a participant. Once their funds are distributed from the plan, then they are no longer participants (assuming they are not still eligible to contribute to the plan) and they would not have any beneficiaries eligible for a benefit under the plan. Here, you state they are a “former” employee who has taken a full distribution. Presumably that means they are no longer eligible to contribute to the plan. At the point they take the distribution (and are not eligible) they are no longer required to receive an SPD. However, to the extent they can still make a viable claim for benefits under the plan, it seems an SPD should be provided to a former participant as an SPD almost by definition is a document that would be relevant to their claim. Assuming the applicable plan does not have a statute of limitations provision, I have no knowledge of a state that would provide a statute of limitations that would permit a claim for benefits 20 years after the benefit distribution has been made… but I guess there could be one.... That said, like @Peter Gulia states… you should likely lawyer up

@Connor https://www.federalregister.gov/documents/2025/09/16/2025-17865/catch-up-contributions