Artie M

Why don't they sign the participation agreements? What's the downside of just requesting it so there is no issue. As to @Paul I, based on the facts presented this would not be a conventional controlled group but likely is an affiliated service group with each PSC as an A Org and the Physic Corp the FSO under 414m. Otherwise, this could be a multiple employer plan, in which case, confirmation that the document permits non-controlled group/affiliated service group members to participate.

That's 9 years ago...so this might not work. In this situation on two occasions I can recall, we had an officer who was around at the time of the amendment sign an affidavit attesting that they knew that the amendment was signed timely and also certify that the board had approved the amendment and that they knew of no reason why the board approval would no longer be effective. The Service accepted the affidavit.

I mean under the new rules 8868 extends only the time to file, not the time to pay. If underestimate, probably results in interest, maybe late-payment penalty, though can argue reasonable cause, while overestimate maybe results in a credit or refund. no authority for this but seems like I would estimate the excise tax conservatively (generally erring high), remit estimated amount, and maybe a short explanation. That’s assuming can estimate something. If you truly cannot estimate, seems you can only complete the Form 5330 as quickly as possible and explain why late. Again likely interest and penalties but again also RC argument.

Presumably deal hasn't closed so you can still address this in the SPA. Also, presumably, you want Company L's current employees to be able to participate in a 401k for the transition period (9/1/26 - 12/31/26). If that's the case, they have a lot of options depending on what the Buyer and Seller will agree to and what the facts are. Who are you advising/working with? Best is buyer has a plan and they adopt it but it seems like Buyer doesn't or you probably aren't asking this question. Do they? Is there going to be a TSA.. transition services agreement? what is happening with other benefits? Sorry all I have is questions... There is no issue with Company L adopting the Seller's plan now assumed by the old controlled group member... it would just make it a multiple employer for the transition period, which isn't usually that much of a problem. Then when the transition period ends, withdraw as an adopting employer, at which time they could do a plan to plan transfer... assuming buyer now has a plan for them... or simply take their distributions/rollover as separated from service with the employer maintaining the plan. speaking in generalities unless have some facts but that is one possible....

Yea, a true POP-only plan can use a broad §125 nondiscrimination safe harbor by passing the eligibility safe-harbor percentage test. But, it seems that this plan doesn’t pass that test. Under those proposed §125 regs, a POP-only plan is deemed to satisfy the remaining §125 nondiscrimination rules if it satisfies the safe-harbor percentage test for eligibility. It has to be POP-only, so verify that. The way I am reading your facts 500 W-2s mean there are 500 unique, nonexcludable common-law employees who worked during the plan year; The 40 eligible employees include the 1 HCI; and There are no other HCIs. The 500-person annual census, rather than the approximately 190 employees on payroll at a particular moment, is likely the relevant starting point. Som the plan’s ratio percentage would be: (39/499) / (1/1) =7.82% Because 99% of the workforce consists of NHCIs, the §1.410(b)-4 safe-harbor percentage is 20.75%. The unsafe-harbor percentage is 20%. A ratio below the unsafe-harbor percentage is considered discriminatory rather than merely subject to a facts-and-circumstances inquiry. So, the actual ratio percentage of approximately 7.82% fails by a substantial margin. Even if the “40 eligible” meant 40 NHCIs plus the HCI, the ratio would be only about 8%--same result. The uniform measurement-period rule doesn’t solve the issue. The one-year measurement period and identical 30-hour rule may satisfy the second requirement of 125(g)(3) and may constitute a reasonable business classification—but they do not establish that the resulting group passes the numerical coverage test. In particular, employees are not excluded from §125 testing merely because they are in an initial ACA measurement period or an ongoing measurement period; variable-hour, part-time, or short-term employees; or terminated before year-end. The facts that everyone eligible receives identical benefits, pricing and election terms are helpful for the benefits-and-contributions component of §125 testing but they don’t cure a failure of the eligibility percentage test. Similarly, actual enrollment generally is not the issue for the POP safe harbor. The proposed-regulation example expressly contemplates all HCIs enrolling while only 20% of NHCIs enroll; the POP still passes because the employees were eligible on nondiscriminatory terms. Here, the problem isn’t that the HCI enrolled—it’s that 100% of the HCI group is eligible, while only about 8% of the NHCI group is eligible. Given the high turnover, perhaps permissive disaggregation might help… not sure it will but the proposed regs permit disaggregating the plan into: Employees with at least 1 day but less than 3 years of employment; and Employees with at least 3 years of employment. Each group is then tested separately.

not sure how to respond... at the top you say "Company L is being purchased in a stock sale" and then later you say "since it's an asset sale with...". Those are two different scenarios.

SECURE Act expanded who could correct it didn't expand how a §72(p) loan may be corrected once the statutory five-year repayment period has expired. See §305 of SECURE 2.0 implemented on an interim basis by Notice 2023-43. Rev. Proc. 2021-30 expressly says that its tax-free correction methods for §72(p) failures are not available once the maximum repayment period under §72(p)(2)(B) has expired. §72(p)(2) and Reb. §1.72(p)-1, Q&AQ-10, for cure period. See also the loan snapshot at https://www.irs.gov/retirement-plans/issue-snapshot-plan-loan-cure-period The authority for paying back the loan is that the loan is still live though deemed distribution. This is stated in Reg. §1.72(p)-1, Q&A21 that specifically asks "Is a participant’s tax basis under the plan increased if the participant repays the loan after a deemed distribution?” and responds yes. NOte the deemed distribution is a distribution only for certain tax purposes. It does not extinguish the note or the loan obligation. Paying off the loan satisfies the contractual debt owed to the plan. See also Q&A19. Interest keeps running on the loan until paid.

If an ERISA-covered qualified plan, it must have a written trust instrument somewhere unless an exception to ERISA’s trust requirement applies. As noted by @Susan Labove, I believe the only exception is through the use of qualifying insurance contracts or other arrangements exempted under ERISA §403(b) The trust provisions do not have to be in a separate stand-alone document, but generally they must be in writing—either integrated into the plan document, in a separate trust agreement, or in another written instrument incorporated into the plan arrangement. DOL Reg. § 2550.403a-1(a) states plan assets must be held by trustees “pursuant to a written trust instrument.” Like above the only authorities I see from the IRS on this point is the Reg that @Peter Gulia points out. This is reiterated in IRS Publication 560. For a preapproved plan, the written trust terms may be buried in the basic plan document, an adoption agreement attachment, or the provider’s trust/custodial document. Also I note some other less than spectacular authority but nonetheless a statement by the IRS at https://www.irs.gov/retirement-plans/preapproved-retirement-plans-adopting-employer? telling adopting employers of pre-approved plans to retain the signed adoption agreement, main plan document, and trust, which implies or reflects the expected written-document structure. But if you have reviewed all governing documents and there are no trust provisions and no incorporated trust instrument, seems to be a document problem.

Dont believe SECURE 2.0 permits the plan to disregard the expiration of the five-year statutory repayment period. Under your facts, the loan should ber a deemed distribution after the applicable cure period as stated above. And finally the participant may still repay the debt, but repayment does not erase the deemed distribution.

Agree if (i) the plan document states a plan year match with true-up rather than a per pay period match with true up and (ii) this occurred with all participants. It appears that this happened with all participants, but if instead it involved just a portion of the eligible participants arguably that match would need to be contributed at the same time the participants who received the match received their match. Otherwise, the plan sponsor could be administering the plan differently for one group of participants than another similarly (identically?) situated group of participants. Treating the participants differently could raise fiduciary duty issues.

I think that yes is generally the better answer if, as you state, the spin-off is intended to be a continuation of the portion of the existing plan attributable to those entities, rather than the establishment of a brand-new plan. So, for the first year Form 5500: In Part I For … fiscal plan year beginning “spin off date (whatever that is)” and ending “end of plan year (whatever that is) Part IB mark “first return/report”, Part II 1b likely “001” 1c “original effective date (whatever that is). Nothing in line 4 That coincides with your facts: • 401(k) plan has existed for years. • The two entities participated in that plan for years. • Assets and liabilities attributable to those subsidiaries are being spun off into a separate plan under IRC §414(l). • The intent is for the new plan to be a continuation of the benefits previously maintained for those employees, not a newly established retirement program. I mean the Form 5500 instructions ask for the plan's effective date, not the date the plan first filed a Form 5500 or the date of the spin-off. Legally, speaking, a §414(l) spin-off is generally treated as a continuation of the transferred portion of the original plan. Participants' accrued benefits, vesting service, distribution restrictions, and other plan rights continue uninterrupted. The spin-off itself is a transfer of assets and liabilities, not the creation of new retirement benefits. The legal substance (a continuation through a §414(l) spin-off) should drive the reporting, rather than simply using the date on which the separate trust or separate Form 5500 first comes into existence. That said, make sure the plan documents are drafted consistently. E.g., the AA says: Effective Date: January 1, 2026 while the Form 5500 reports: Original Effective Date: January 1, 2012 (or whatever the date is), that inconsistency could create unnecessary questions. So, make sure ALL plan documents and communications are consistent (AA or individual plan doc, first 5500, new SPD, resos, etc. If an IRS agent or DOL investigator were to ask: "Your Form 5500 says the plan's original effective date was ___ Why is this the first Form 5500 filed on ____?" the answer is straightforward: "Because, this is the first annual return filed for the XYZ 401(k) Plan as a separately maintained plan following a spin-off from the ABC Corporation 401(k) Plan effective January 1, 2026. Prior to the spin-off, the transferred participants and assets were reported as part of the ABC Plan on Forms 5500 filed for plan years 20__ through 2025. The XYZ Plan is just a continuation of the prior ABC Plan"… or something like that. That's a perfectly logical explanation. Perhaps memorialize this statement to put in the administrative file (for those folks who work on this 5 years from now when everyone has forgotten the transaction). No authority for anything said above except maybe the Form 5500 instructions.... so caveat emptor

As reflected in @Peter Gulia posts, whether a plan can or should accept a POA is not at all clear. There is definitely no requirement under ERISA to accept a POA and there is split views on what can be permitted even if the POA is accepted. The conservative view (which I usually adhere to) is that unless the plan's governing documents state that a POA will be accepted, it won't be... and most, if not all, of the plans we deal with do not address them. We do, however, often suggest and include in plans we work provisions that may permit benefits to be paid on behalf of physically or mentally incapacitated participant. Perhaps look to see if your plan has a provision of that type. For example, we recently assisted with payments under a POA, not due to the POA itself, but because that person qualified as a person who could receive that benefit under the plan's incapacity provision. Here is their provision: Even in this case, there is essentially totally in the Committee's discretion to provide benefits. In the instance, we concluded that "it would be reasonable for the Committee to determine" this paragraph fits we insisted on the POA providing quite a bit of documentation including driver's licenses or official ID of participant and agent, electric, sewage, utility bills showing residence address, the POA, signed letter from physician supporting disability claim, any SSA determination, any LTD determination, affidavits from POA, children of POA, release/hold harmless/indemnity from POA and children of POA, affidavits from supervising manager of participant. Also, we requested and received a HIPAA Privacy Authorization because we called the physician to confirm the facts i their letter. Like your case, part of the affiants' and the doctor's statements stated that the participant was in some type or nursing home. Even after the Committee determined that it would make payments under this provision, the recordkeeper was directed that the agent could not change the beneficiary and distributions could be made only an account held solely in the participant's name, an IRA fbo participant, or another qualified plan account in the participant's name. I believe the account was transferred in part to the participant's bank account and the remainder an IRA fbo participant. Our view was that if the POA is valid (it met all of the requirements of the state in which they resided..PA, which was amended sometime in the 2000s to add the requirements of specific direction), the agent would have access to the bank account (which they did). There was a little less fear here since the agent was the spousal primary beneficiary. However, we had the children, the contingent beneficiaries, sign releases in the event the spouse primary beneficiary died before the participant (the participant was 71 and the spouse was 74). Alot of time was spent on this but the participant did have around $4M in the account. Last but not least, a substantial file was built on this process and is being retained by the plan just in case.

I guess I failed to respond to this but it seems like full vesting should just be given. Why wouldn't the employer want to vest them? Seems like their issue would be the ongoing contributions not partial term.

Assuming this person is an employee... why not just leave them an employee and add a 1,000 hour allocation condition prospectively? or excludable employee classification.... but would have to pass 410(b), nondiscriminatory classification rules (wouldn't pass ratio so probably have to look at average benefits testing)? These by pass the contractor classification issue. also assuming no gateway or cross-tested allocation issues (think not but just in case)

Seems that this should be corrected as an operational failure and an amended 1099R issued showing a $0 distribution. I mean the participant remained continuously employed and was in compliance with the loan repayment schedule until the TPA or payroll screwed up the coding. Then, payroll deductions stopped and the loan was incorrectly processed as a default with a QPLO solely because of the TPA's or payroll's error. Sure, the participant has some responsibility in this but they simply missed the opportunit(ies) to correct the error at an earlier date; but, not picking up the error doesn't mean the error didn't occur. Seems that the error was an operational failure in plan administration, not a participant default. Look at Rev. Proc. 2021-30 §6.07(3) which let's you restore the loan to the status it would be in absent the administrative error through reamortization, etc. Since the participant didn't terminate or have any other distributable event (at least not under your facts), issuing Form 1099-R and reporting a QPLO (Code M) was wrong and should be corrected. A Code L wouldn't be appropriate either because there should never have been a distribution at all. The cure period issue concerns me but arguably there really was never a "failure to repay" under 72p legally speaking. The cure period exists because a participant fails to make a scheduled payment. Your facts seem different as the participant didn't stop the payments, the error caused it. The Plan (through the TPA or payroll) unilaterally made the participant's performance impossible. If just looking at the regs, this argument might not float (doesn't matter what reason the payments stopped) but this should be looked at under EPCRS. There go back to 6.07(3). IIRC there is an example in there about not starting payroll payments when a participant enters into a loan, the cure period runs out, and EPCRS still stated to correct by reamortization, make-ups, etc. I think that what happens..... sorry no time to check. If so, you should be able to fix after cure period. Experientially we have no support for this as we've never submitted a VCP or Audit Cap on that, nor have we ever taken part in an audit where SCP was used after the cure period. So,, again just thoughts....