Artie M

I think it includes both. In the enrolled text, the phrase 'good faith reliance' appears in the adequate consideration definition: an ESOP fiduciary may rely in good faith on an independent expert’s valuation using RR 59-60 principles. The next clause expressly states that this rule does “[not] modify any fiduciary obligation under ERISA 404." So, on its face, the law is intended to preserve both the exclusive-purpose duty in 404(a)(1)(A) and the prudence duty in 404(a)(1)(B). I think "plausible method" perhaps understates what the text is trying to do (I don't profess to know what Congress is trying to do). Here, an ESOP fiduciary will be able to rely in good faith on an independent appraiser’s valuation when the appraiser uses 59-60 principles and methodologies. That's more than saying 59-60 is one acceptable reference--but it addresses the fiduciary’s reliance on the resulting valuation. I don't think it deems every valuation produced under the 59-60 "framework" to be adequate consideration, as it expressly preserves 404 duties. Also, you hit the central limitation of the bill on its head because, said another way, even a sound framework cannot cure unsound inputs. I think the law, if enacted, would authorize good-faith reliance on an independent valuation prepared under 59-60, but the fiduciary must still have a prudent basis for relying on that particular valuation, which includes its material information and assumptions (its "inputs"). It wouldn't make the appraisal self-validating.

To me, the Act does not modify a fiduciary's obligations under ERISA Section 404, including the duties of prudence and loyalty. An ESOP trustee could not simply obtain an appraisal and consider the fiduciary inquiry complete. The trustee would still need a sound process for evaluating the transaction and the supporting valuation, including projections, assumptions, financing terms and other relevant information. The Act purports to protect good-faith reliance on an independent valuation—not blind reliance on one.

Unless you have A and B backwards, your facts differ materially from the usual situation. I understand terminating the target’s plan (B's plan) before closing. But here the Buyer A terminated its own plan, survived, and then adopted the target’s plan. Doesn’t that mean the same employer identified at termination is maintaining an alternative plan during the restricted period?” (assuming the 2%, 24 month exception doesn't apply). Said another way. A is the employer at plan termination, A survives, and A then adopts B's plan during the restricted period. on those facts, B's plan seems like an alternative defined contribution plan barring distributions of restricted amounts solely on account of A's plan termination. Pre-closing execution or effectiveness doesn't resolve that problem.

Ha. @Peter Gulia always asks the most important question first... Have you gotten paid? Rev. Proc. 2021-30 §4.07 expressly permits VCP or Audit CAP correction for a terminated plan even when its trust no longer exists. Thus, at least the IRS believes you can still have a plan even if no assets (my view is no trust = no assets). If the employer has no resources, perhaps consider a VCP proposal documenting the insolvency and available recovery; but of course don't assume the IRS will waive funding. From a DOL fiduciary standpoint, the unpaid employer contributions generally differ from withheld employee deferrals: the employer’s unpaid cash is not automatically a plan asset. However, the plan’s contractual right to collect contributions can be an asset. Did the responsible fiduciaries consider and preserve a claim to those contributions in bankruptcy, including any filing deadline and realistic recovery. Owners or committee members do not automatically become personally responsible merely because the company cannot pay; their conduct and the governing documents matter. Yes, the uncorrected disqualification could affect prior distributions and rollovers. However, that is a potential consequence, and not up to you do determine that every rollover is already invalid. Distributions from a disqualified plan are not eligible rollover distributions—one reason to address qualification despite the empty trust. However, it its the IRS that disqualifies the plan. Here, the consequences though would really harm the participants. You should at a minimum coordinate with bankruptcy counsel...they and the court would have to guide you as far as VCP and recovery, etc. This is a definite CF.

So, counting 10 days from October 5 and excluding Sunday, the apparent deadline is October 16, subject to the constitutional rule concerning an adjournment that prevents return of the bill.

I guess the new rules seem to say you don’t have to put in the additional earnings, though under the old rules you would Here are my thoughts: The erroneous portion of the distribution constitutes an inadvertent benefit overpayment within the meaning of 414(aa) and Notice 2024-77. 414(aa), added by SECURE 2.0(?), generally provides that a qualified plan will not fail to satisfy 401(a) merely because the Plan does not obtain repayment of an inadvertent benefit overpayment. 2024-77 provides that the corrective-payment requirements otherwise contained in Rev. Proc. 2021-30 §6.06 generally no longer apply to an inadvertent benefit overpayment. Although recovery now is not required to preserve the Plan's qualified status, the HCE has voluntarily agreed to return the overpayment. So, under these rules it seems the HCE would return to the Plan the $5,000 overpayment and the earnings attributable to the $5,000. 2024-77 says that no additional payment by the employer is required solely because of the inadvertent benefit overpayment. Note under the 2021-30 §6.06 the employer may have had to return the overpayment plus earnings. I looked at 2024-77 again and Q&A-2 is unusually strong, providing that, subject to the specified exceptions, “any requirement described in section 6.06 of Rev. Proc. 2021-30 that a corrective payment be made to a plan … no longer applies.” That means to me that post-distribution earnings are no longer mandatory, just like a potential employer-make-up. One item… to not do earnings though, note that 2024-77's definition excludes an overpayment to a §4975 disqualified person or §401(c) owner-employee. You said this HCE is not an owner, so that exclusion does not appear to be a problem—but you should confirm they aren’t otherwise a §4975 disqualified person (officer, 10% shareholder, etc.). I don’t think it’s a big deal because they’re returning the overpayment. However, if they don’t meet this definition, then I think you go back to including earnings as you go back to 2021-30. Some could say just include earnings to be sure, but note that if you aren’t required to provide earnings an argument could be made that you are favoring the HCE and permitting them additional deferrals… . haven't thought that through.

In my experience, a cp220 for a retirement plan includes the late filing penalty and not just corrections or changes to the form 5500. The notice should state the tax period to which it relates. It is my understanding the IRS processes account adjustments on a per-year basis meaning they don't combine multiple calendar years into a single notice cp220. Bottom line... if your client received only one cp220 it should be tied to one specific year. Look at the tax period on the top right. This likely won't make your client feel better because if the first two years were late, the client should expect to receive another notice cp220. First thing I would do is call the IRS to get the facts. Usually there is a number in the right hand corner of the cp220. If you're a CPA, enrolled agent (I think that is the term) or attorney with a signed 2848 on file for this client, call the practitioner priority service (if you do this, have your 2848/8821 ready and say you are calling about an employee plans master file Form 5500 penalty assessment and they will route you to the right person). Otherwise, call the IRS Employee Plans customer account services line. Sorry, I have the numbers somewhere in my emails but I am not finding them. As far as DFVC... I would argue that the client is still eligible for the DFVC. Eligibility is only cut off if the DOL sends a written notice of intent to assess a penalty. Receiving a penalty notice or letter from the IRS (such as a cp220) does not disqualify the plan from using the DFVC. We did this recently. Note that strictly speaking the DFVC was designed for unfiled forms. To retroactively apply DFVC protection to a return the IRS already has, you must submit an amended filing through EFAST2. When you prepare the amended Form 5500-SF to correct the situation, you actually have to deal with two different dates: The Plan Year Dates (Part I, Box A): These should be exactly the same as the original late filings (e.g., May 1, 2021 – December 31, 2021). This tells the system exactly which historical period you are correcting. The Transmission / Execution Date: When you electronically sign and submit the amended form via EFAST2, the system automatically stamps it with today's current date. Then, when you log on to the online DFVC Penalty Calculator, it will ask for the Date Filed. Here, you must enter the date you are submitting the amended DFVC return, NOT the original late filing date from years ago. Entering the original date will confuse the system because it calculates the late fees based on the day you are actually submitting the correction and paying the fee. By submitting the amended return with Box B (Amended Return) and Box D (DFVC Program) checked, you are effectively telling both the DOL and IRS: "We know we filed this late before, but we are now retroactively pushing it through the amnesty program and paying the proper capped fine." Once EFAST2 accepts the new, current-dated amended transmission, you will get a new electronic filing receipt. Use that brand-new receipt as your primary evidence to send to the IRS to request they wipe out the cp220 notice.

Yes, that is not uncommon from our experience. Most/many correct the election prospectively but hold off on determining/funding the MDO QNEC until after year-end, then determine the total actual elective deferrals. If reached max, no missed deferral and no MDO QNEC. If there was an improper exclusion instead of failure to implement election, have to wait to year end anyways before know HCE's ADP. Caveat--though likely got their match... determine whether the failure cause them to miss a match. Per pay period, etc. might cause a quirk.

you don't provide enough facts but have you looked at utilizing SCC for some of the delinquencies. Not sure if others agree, but we have looked at those rules and their history and we do not see where it states that only violations post 3/2025 are eligible. The SCC rules focus on how promptly the employer corrected the underlying delinquency and not when the SCC filing occurs. The effective date language of the final rules don't change that and there is no grandfather/transition rule. If some of the 2023 deferrals were corrected within 180-days of the error then they might be able to fall under SCC. As far as your question, the final rules state that you can (should?) treat each pay period separately: "Generally, the Department has considered each pay period as a separate transaction; however, the Department has permitted more than one pay period to be treated as one transaction under the VFC Program if the pay periods are close together in time and the delinquencies are related to the same cause." https://thefederalregister.org/documents/2025-00327/voluntary-fiduciary-correction-program?

If the plan covers only a 100% owner (or owner and spouse), it is generally not a Title I ERISA plan because the owner/spouse are not treated as employees for this purpose. DOL has expressly taken that position. Consequently, the DOL plan-asset rule in §2510.3-102—earliest date reasonably segregable and the 7-business-day small-plan safe harbor—is not the governing rule for that owner-only plan. Also, like @Peter Gulia says subject to state law because you don't have 514 pre-emption. Not sure though if look at State fiduciary law or simply State wage payment rules. It's a wage deduction. In Texas, where I am, I wouldn't be too concerned under wage payment law because there doesn't appear to be a DOL analogue for when the payment has to be transferred. Also, presumably, they get a regular paycheck..... and, presumably, the amounts were withheld and never paid to the owner. Then under the federal tax code they would get until 9/15 to fund and arguably not delinquent. But as always... what does the plan say?

Seems like it, assuming the payments represent compensation for the doctor's services performed while he was still employed rather than some separate payment triggered by retirement. Treas. Reg. §1.415(c)-2(e)(3) expressly includes “commissions, bonuses, or other similar payments” that would have been paid to the employee if employment had continued. The fact that his compensation is calculated by reference to A/R actually collected after retirement doesn't appear to prevent it from qualifying. The underlying question is what the payment is for. If, for example, his employment agreement says that he receives X% of collections attributable to medical services he performed while employed, those payments look like deferred payment of compensation for pre-severance services—quite analogous to a commission that isn't determinable/payable until the customer pays. Section 415 compensation itself includes compensation based on a percentage of profits and commissions, and §3401(a) wages broadly include remuneration for employee services regardless of the basis on which it is calculated. So if he “retires,” September 30, 2026, and the plan has a calendar-year limitation year then A/R payments through December 31, 2026: potentially includible, because December 31 is later than December 15 (2½ months after September 30) and A/R payments January–March 2027: not §415 compensation, notwithstanding that they remain W-2 wages and notwithstanding that they relate to services performed before retirement. That said, look at the A/R compensation provision to confirm that the payments are attributable to services performed before retirement and would have been payable under the same compensation arrangement had he remained employed.

Yep, need to read the rules... do they need to make sure the amendment explicitly states they are taking advantage of this rule? I worry when it says "may be excluded".

agree with above. In your facts, the new employee presumably is an NHCE for 2026 and sounds like the only person in the early-entry component. If properly drafted, that component should have no meaningful ADP problem because there is no HCE in it. So you should be able to let them defer immediately without giving them the 3% NESH, but only if the amendment deliberately creates that otherwise-excludable/separate-testing structure. see @CuseFan I haven't scrutinized the TH rules recently but not sure there isn't an issue if the plan is already TH. I thought that if an OEX is actually made a participant in the TH plan then they are not excludable. one of the Reg 416 Q&As says that every non key who is a participant in the TH plan must receive the minimum. I remember one that says something to the effect that if employed at year end they get it even if fail to complete 1,000 hrs. I think there is a distinction... if don't admit early, no DC TH minimum... if amend the plan to let them defer immediately, they become a participant even though not age 21/1year. Agree that they can separately test for ADP but not sure that gets them out of TH. If in TH then, also its 3% of full year comp and not just the part year comp. This then gets you to economically no difference in excluding them. also combined DB/DC safe haven minimum should apply since they don't participate in DC plan... I think.... I point you to the 416 regs... I definitely could be wrong but always look at the source authorities.

it is also common in a stock sale that a buyer will want the seller to terminate its 401k plan immediately prior to closing. See 401(k)(10)(A); Reg. 1.401(k)-1(d)(4)(i).... a 401(k) plan termination does not permit distribution of elective deferrals if the employer (determined on a controlled-group basis) maintains or establishes an alternative defined contribution plan, subject to the regulatory exceptions. So after closing, if the 401k is not terminated, it generally would nave to be merged into the buyer's 401k (assuming they have one). Also almost everyone vests, the contributions have already been made and the loss is just the forfeitures that may be generated in the future (SH plan so the matches are already 100% vested).

Agree with @WCC, especially the caveat "unless the plan document says otherwise." 401(a)(17) does not itself provide that the first dollars paid during the year eat up the annual comp limit. If the plan defines comp for matching purposes as salary excluding bonuses, the excluded January bonus ordinarily doesn't eat up the limit. However, the plan document controls, including whether compensation is determined annually or by payroll period and the order in which the bonus exclusion and §401(a)(17) limitation apply. See Code §401(a)(17) and Treas. Reg. §1.401(a)(17)-1(b). That is, what if the plan stated Compensation means the first $360,000 of W-2 compensation paid during the year. Bonuses are then excluded from compensation used for matching contributions. plus, if the plan expressly calculates the match separately for each payroll period, the document and administrative procedures become especially important. Treas. Reg. §1.401(a)(17)-1(b)(3)(iii) recognizes formulas that determine comp and accruals for periods shorter than 12 months and generally requires a prorated comp limit. That said, merely depositing the match each payroll period doesn't make each payroll period a separate determination period. Many plans fund matches per payroll but calculate matches on annual comp, sometimes with an annual true-up. Presumably, the bonus exclusion satisfies the applicable 414s, 401a4, and 401m requirements.