Artie M

ummmm.. I thought to be eligible to sponsor a SIMPLE it had to be the exclusive plan of the employer. That means the controlled group employer can only have a SIMPLE and no other qualified plan. Am I missing something? So, they can't contribute to both in the same year... the contributions to the SIMPLE should have stopped when the 401(k) was adopted by the other controlled group member. Covered under EPCRS VCP.

Right or wrong, here, I look to the general rules regarding employee status, i.e., the common law test, and with regard to the termination of that relationship, whether the employee or former employee had a bona fide termination of employment (that term is not stated in 422 but it equates to EBECatty's non-"sham" termination). As with most of these determinations, the IRS will look at all the facts and circumstances. Note also that under 409A dipping below 20% does not automatically cause a separation from service (unless the terms of the 409A agreement actually provides that it does) but it only provides a "presumption" of a separation. This means that under 409A if the facts and circumstances show that a person is still a service provider--though providing less than 20% of their last 36-month average--the IRS could rule that that person did not have a separation from service for 409A purposes.

See... Section 104 of the Bipartisan American Miners Act, part of the Secure Act, lowered the minimum age for in-service distributions in qualified pension and governmental 457(b) plans from age 62 to age 59-1/2. Notice 2020-68 provides FAQs on this topic also (n-20-68.pdf). The changes are optional.

Agree. Look to the service agreement provisions regarding its termination. Usually there will be something like 30 days' written notice. Also, depending on the relationship between the advisor and the recordkeeper, there may be a provision that says that it terminates upon termination of the recordkeeper agreement. So if you terminate the recordkeeper agreement that might be sufficient to terminate the 3(21) advisors agreement. (Implicit here is that you may need to terminate the service agreement with the recordkeeper also).

I agree with the response regarding your first two questions about IRAs (assuming the funds were transferred to the IRA prior to the DRO begin submitted). With regard to you second question, a QDRO can give an AP any part or all of the retirement benefits payable to a participant under a DB (or DC) plan. The QDRO simply cannot require the plan to provide increased benefits (determined on the basis of actuarial value) or provide a type or form of benefit, or any option, not otherwise provided under the plan (except, to receive payment at the participant’s “earliest retirement age”). Plus, the QDRO can't require the payment of benefits to an AP that are to be paid to another AP under another QDRO already recognized by the plan. Thus, though most DB QDROs utilize the marital portion fraction formula to divide benefits, an AP is not limited to (or entitled to) using a formula based on the marital portion when determining the amount of benefits to be assigned. If a QDRO is submitted clearly and unambiguously awarding 100% (or 0%) of the DB benefit to an AP, it can be qualified. The QDRO administrator has no idea of what other negotiations have occurred between the participant and AP. Perhaps in this case, the participant received 100% of the DC plan benefit. (0% -- participant wants to make it clear that the former spouse is not to receive anything and not be treated as surviving spouse). Save the limitations noted above, the QDRO can give the AP the right to elect any form of payment under the plan that the participant could have elected. (This is of course assuming payments haven't begun yet, i.e.,the QDRO is a separate interest award). The actuary would use the same actuarial assumption that would be used under the plan substituting the APs age, etc. for the participant (again, no increase in benefit and all determined on an actuarial basis). There is no need to have the QDRO spell out the actuarial assumptions that will be used, and it would likely be problematic if it did (because it could differ from what the plan uses and be bounced because arguably it might increase the benefit. I think the DOL website has a fairly long booklet ...Dividing Retirement Benefits through QDROs... or something like that.

The Form 5500 is merely an information reporting document. It seems that if the amount is in the trust on 12/31 it would have to be reported as an asset. Work with the auditor to determine the proper characterization (presumably, you are not the auditor). The deduction issue is a Form 1120 issue (if sponsor is a corporation). As noted above, this does appear to be a nondeductible contribution for 2024. I mean how can it be deductible in 2024 when you say it is a 2025 contribution as "all events" would not have occurred by the end of 2024 to "fix" or lock in the obligation for the deduction in 2024. Alternatively, perhaps consider returning the amount to the employer in 2025 so that it is not considered a nondeductible contribution. Most plans contain the standard provision that allows for a return to the employer of amounts due to a mistake of fact or, more importantly in this case, the amount will not be deductible. See ERISA §403(c)(2)(A) (no parallel provision in IRC but often cited in PLRs and RevRuls); also see IRC §4980(c)(2)(B) ("employer reversion" shall not include ...any distribution to the employer allowable under section 401 (a)(2) ... by reason of mistake of fact, or ... failure of the contributions to be deductible.") The amount must be returned within the year (seems it should be done prior to filing this year's tax return) to not be characterized as a nondeductible contribution. Then recontribute the amount for 2025 as intended. If effective, this could address the issue of the 10% excise tax. Someone should look at EPCRS to see if there are corrective procedures that may apply to this set of facts. Not sure how any return of the funds in 2025 affects the 5500 reporting...again talk to the auditor. Again just thoughts

This may not be what you are asking for but plan can also have restrictions due to "day trading" or too many "roundtrips" (buy and sell in the same trading day) within a specified period. Trading funds in and out of a 401(k) every day does not violate the Code. However, plan administrators can place rules that can restrict the frequency of in-plan trades. Some fund sponsors frown on the practice. For example, excessive trading in and out of funds in a commission-free account without paying any sales loads on the funds may cause the sponsor or fund to absorb the cost of the frequent trading. Many have a rule like three roundtrips in the same fund within any rolling 90-day period or 10 roundtrips in the same fund within any 365-day period would be considered frequent trading and will result in the enforcement of the excessive trading policy causing the employee not to be able to trade that fund for a while. Some sponsors simply don't like it because they don't want their employees trading all day and not working. Not a charge but you asked about restrictions.

Not sure what you mean by "co-sponsor". It is more likely that they both participate in the same plan with one of them being the actual sponsor. Two entities, whether "related" or not, can participate in the same 401(k) plan. If they are not related (i.e., not in the same controlled group or affiliated service group), it would simply mean that the plan would be a multiple employer plan, which is really not a big deal. As you are describing, currently the Company that maintains the ESOP would, at least, initially be owned by individual shareholder(s) and the ESOP but at some point be 100% owned by the ESOP. There is no issue with a Company maintaining both a 401k and an ESOP. There should be no issue with the ESOP company participating in a 401(k) with multiple employers. There however may be an issue with multiple companies participating in an ESOP (so you wouldn't want this to be a KSOP). Note the definition of employer securities. The ESOP has to be invested in employer securities which are basically shares of the company that employs the participants. You generally cannot give employer securities to non-employees. However, depending on the structure you might. For instance, if the two entities form a parent company that owns 100% of the two separate companies, then employees of the subsidiaries could participate in the ESOP if the stock of the parent company is used under the ESOP.

Of course this involves a doctor. I have seen doctors do this or similar with profit sharing plan funds (that primarily cover themselves) but using 401(k) deferrals (of others) really shows someone working with clogged stethoscope. (Lawyers do this too but doctors are in a class of their own) The exit on this can likely be structured to work from an IRS perspective, which might end up having to pay out the illiquid assets with participants entering shareholders' agreements (f permitted under company articles, etc.), delaying payments due to the illiquid nature of the assets or even terminating the plan and distributing funds to a liquidating trust in a nonqualified plan. That said, no matter how it is structured, one of these participants is going to end up calling the DOL. I mean if you try to value the stock at $2/share (idiotic) the hit the participants will take when they see their plan statements may cause them to call the DOL immediately. All this scenario bring up is questions with few answers. The DOL likely is going to look first at whether there was a prohibited transaction when the stock was initially purchased. That is, was the stock purchased from a related party/disqualified person/party in interest? What is the relationship of the doctor with the company and/or the prior owners of the company? How much of the company is now owned by the "plan"? etc. etc. Then, they will look at this valuation issue. Depending on the answer to the prior questions, was the $2/share valuation accurate. And as noted above, he can't simply say it is now worth $2/share. He needs a valuation, preferably from an independent third party, to rely on. Where did the $17 valuation come from? Was it an independent appraisal or was it determined by the board, or something like that? What was the purpose of that valuation (if to get a loan... likely high... if for taxes... likely low). So, it could have been too low even. Using $2/share at this time is just an arbitrary decision (let's get a second x-ray, I liked what the first one showed and the MRI costs too much... (oh yeah, I own the x-ray machine but not the MRI so someone else will get the MRI fees). Even upon the sale you have to worry about a PT. They may have to look into the voluntary fiduciary correction program when the sale comes up.. there are some illiquid asset provisions in there depending on if there is a PT or not. Yeah, protect yourself, get paid, and warn the doctor that there are serious fiduciary/DOL issues here and that he may end up having to fund these participants' retirements.

What does the plan say as to when a prior designation become void or ineffective? Just because there was a marriage doesn't necessarily mean the prior designation is void. If the participant died during the marriage, the designation would automatically be void because the participant's spouse at the time of his death didn't consent to the designation. Under the terms of many plans, upon a divorce or, here, an annulment, the old designation might "spring" back in place.

As a governmental plan, it would be subject to state law. You might want to look at the authorizing statute for the specific plan you are working on to see if it provides any help. For example, here in Texas, Texas Government Code Title 8, Chapters 851-855 provide the rules for pension plans adopted by certain Texas municipalities. Under these provisions, “'Beneficiary' means a person designated by a member, annuitant, or by statute to receive a benefit payable under this subtitle as a result of the death of a member or annuitant." There is no specific provision under these Chapters that states that a member may designate multiple beneficiaries but it is implied as Section 844.405, which states that a member may designate multiple trusts as a beneficiary "in the same manner and with the same limitations that apply to the designation of multiple beneficiaries.” In addition, there is no designation of beneficiary provision in the general rules for governmental pension plans. However, there is a specific rule in Chapter 824 that applies to the Texas Teachers Retirement System, providing that “any member [may] designate one or more beneficiaries to receive benefits ….” I have not looked at Texas case law in this area, but it seems like the Texas courts would permit multiple beneficiaries under all the Texas governmental pension plans covered by Title 8. So… you may have to hunt down the statutory language that applies to your plan and even case law interpreting that language. Unless there is a statutory provision against permitting the designation of multiple beneficiaries under the plan at issue (and as you say there does not seem to be restrictive language in the plan) and there has not been a prohibition in place for others in the past (so no past practices), it seems it would be easiest to adopt an interpretive rule allowing it. Just my thoughts as usual…

Presumably, it would be an actuarial equivalent benefit with some kind of contingent annuity option that has some form of age restrictions, though it is technically possible to have a joint and survivor annuity with a non-spousal beneficiary but those are rare except in like union or governmental type plans (including firefighter and police officer plans). Unless it is a governmental or church plan, it would be governed by ERISA. If so, it's what the plan document says and not what state law says regarding the beneficiaries. (I am assuming it is a regular qualified defined benefit plan.... If governmental or church (if non-electing), then look at state...) What exactly does the plan document state? Does it have a plan administrator provision permitting the administrator to interpret the plan's provisions? You might be able to rely on that. What has it done in the past.... I mean, Is this the first time under this plan someone has had an issue of multiple beneficiaries?

You are not going to get any specific authority as the determination of "reasonable compensation" is based on ALL the facts and circumstances surrounding the specific inquiry. You may find a few court cases holding whether the payments in those cases were reasonable but unless your set of facts line up exactly with the facts of those specific cases, they likely would not provide sufficient authority for whatever you are trying to determine. For instances, there are several recent excessive fee cases that have been dismissed because the plaintiffs merely alleged that the service providers in their cases were paid more than other providers providing similar services because the court stated that they didn't show how the services in their cases were the same as the services provided in the cases cited.

Yes, you always have to do earnings on lost earnings, if a correction was made in part but not fully corrected until a later date (full correction meaning the contribution plus all earnings required being contributed) Just to make sure though. you state this was a missed "nonelective" contribution. Are you certain it is late? Most plans do not have a time by which nonelective contributions must be made except maybe for the timing to ensure tax deductibility or to be allocated to qualify as an annual addition.

Right. This is the correction under the facts of Ex. 9 of Section 2.02(1)(b) of Appendix B of Rev. Proc. 2021-30, which are the same as these facts.

Not sure you will find much, if any, authority on this topic. Under your facts, the two benefits appear to be under one arrangement so they appear to be under one "plan". If they provide the same benefit, neither would provide "excess" benefits. If the disability/death benefits pay differing amounts, theoretically there could be an "excess" benefit but that would only be helpful for a portion of the benefit. As you have indicated, the determination of whether these benefits are excluded under 409A is determined under 3121 regs. My concern is that the 3121 regs do aggregate plans to a certain degree, though it uses a pre-409A definition of "plan", which takes into account the form, history and documents to determine what constitutes the "plan", but does not specifically use plan aggregation like 409A. Because of your statement of this being an odd result (which I do not disagree with), I presume there is no other agreement under which this employee could receive amounts that might insinuate the application of 409A (e.g., employment agreement with severance pay). However, if there is another such agreement, the existence of that agreement could provide another fact that would preclude these as outside 409A (though I know some would not aggregate the separate agreement with this one, a conservative viewpoint may be to aggregate them). I am asking this because you state this disability/death benefit will only be paid if prior to a change in control. This sounds like this person could be covered under a change in control agreement/program. If an individual agreement, those benefits might be aggregated with the disability/death benefit plan. Also, CIC agreements also indicate other severance arrangements. If this person is covered under a broad-based CIC/severance program(s), those programs probably wouldn't be aggregated with the death/disability plan but, if they are under an individual agreement, they might be. I know this doesn't really help on your precise question but just some thoughts....

Not that this helps but I looked at the I-9 instructions earlier this year and unless they have changed, employers are not required to make copies of the Acceptable Documents provided to them. They just have to complete the appropriate sections of the I-9 using the info garnered from the Acceptable Document. The instructions said the "employer may" make copies. It did say if you retained the copy that you have to provide it to a littany of agencies, but interestingly enough (at least I thought so) the instructions didn't list the IRS in that list of agencies.

I don't know anything specific about this fund but Fidelity has been offering Zero funds for a while now. Essentially, they are loss leaders intended to get participants in the door. So, I am guessing that is what Empower is doing. As noted, participants have to buy it off the Empower platform, and if they do buy into it, they are likely stuck with Empower.

Based on your description of the facts, it seems that the off cycle funding may not be occurring "as soon as administratively feasible". My experience is that the DOL will not view HR's concerns "this will mess up payroll and require manual posting" as a feasibility issue. Unless your client fits into the safe harbor that rocknrolls2 describes, there is an issue. Here's an anecdote from my experience dealing with HR determining administrative ease.... very large client has payroll every other Friday. It normally electronically transfers 401k contributions and FIT/FICA withholding and payments the day before the payroll is actually disbursed (e.g., transmits 401k funds to trust and FIT/FICA to IRS on Thursday, then disburses payroll the next day on Friday). On DOL audit last year, 3 instances were "discovered" in 2020 where those amounts were instead transferred 3 days after the payroll was disbursed. Each of these instances occurred when there was a holiday where employees were off that Thursday and/or Friday, but payroll still went out on the normal Friday (Thanksgiving, Christmas, and Good Friday), but it appeared that someone in payroll decided to make the 401(k) remittances on the following Monday when returning to work. The DOL found that those Monday remittances were delinquent and required payment of earnings calculated based on the delay being 4 days (based on normal payment timing, and not 3 days based on when the deferral "withheld"). The DOL almost let it go because for Thanksgiving and Christmas the offices were closed on Thursday and Friday (though for Good Friday the office was open on the Thursday). However, upon closer inspection, they noted that payroll remitted the FIT/FICA as usual on the Thursday so....

Right @david rigby I have slow down sometimes... Thx!

One other thing... Excess assets from the DB Plan is a reversion, but the excise tax is waived if 25% of the excess assets is "transferred" to a QRP and then not treated as a reversion. Though amounts are "transferred" to the QRP, a Form 5310-A is not required (even though that form applies to plan to plan transfers) because the view is that the amounts are first reverted to the employer who then contributes it to the QRP (I believe there is an IRS ruling somewhere that supports this conclusion). We never file a 5310-A in QRP situations. The first time this occurred we were confused so for each QRP we have done since we include language in the IRS determination letter filing materials stating no 5310-A will be filed and the IRS has always agreed. just more ramblings

I agree with buyer's counsel. Also, I agree on requiring a determination letter filing on the terminating plan. As buyer in a stock sale, it assumes all the obligations of the seller corporation. Presumably the plan is being terminated pre closing and the buyer is going to handle post-termination administration. Even if the DB plan was spun off and terminated, if there is an issue under that DB plan, there is a potential that liability could still fall back on the buyer if the IRS/PBGC thought that the spin off was a sone type of subterfuge to escape liability. Normally, in the case of a terminating DB plan, you would seek a letter and no distributions would occur until after the letter is received. I also agree that a QRP cannot be used if the plan terms simply state "any excess should be allocated among participants" without anything else. You conveniently left out language in IRS 7.12.1.17.1.2 (11-10-2022) @sobrienTPS states that provision from the manual correctly "a plan could provide a direct transfer to a qualified plan or choose to allocate the excess assets to participants (as IRC 415 allows) in the event the reversion language is absent or not in existence long enough to allow a reversion." The conditions of if the reversion is not allowed or not in place for 5 years modifies the allocation of excess asset to participants... the conditions do not modify the use of a QRP. I have always read this language to mean you either can (1) use a QRP or (2) allocate if you can't use a QRP. But youhave the perfect scenario to let the IRS decide. Amend the plan to permit the QRP, with the amendment laying out exactly how much of the excess assets will be transferred to the QRP, and how those amounts will be allocated in the QRP, CLEARLY indicating the effective date of the termination of the DB plan and the effective date of the change to the reversionary language. If the IRS blesses it, then all is well. If not, you are back where you are at now. If they don't permit the QRP, it should not be a problem because most plans would not permit distributions prior to the issuance of the IRS determination letter, and all that will be required is to work out is how to allocate the excess assets to the participants. If there is more than can be allocated, the IRS will be there to let you know what to do with the rest. Either way, as buyer's counsel, I would not be letting the seller walk off with any of the potential reversion. At most, we could escrow the amounts until resolved. And, yes, we always amend a plan for the QRP provisions (usually these provisions will contain language that is also going to be used in the QRP plan document) along with always requiring a letter on the termination of the plan. You should tell the seller/buyer, you are a TPA... not a lawyer. They can ask you your thoughts but no matter what you say, it should always be followed up with... but you should really ask your lawyer. As always, just my thoughts with absolutely no research...

@fmsinc I have several clients who do not permit loans for any reason and three who do not permit loans except for hardship circumstances. These clients are very paternalistic and believe that the 401(k) funds are for retirement and should not be used like their bank accounts. All of these clients provide generous matches and profit sharing contributions. At least two of the three who permit the loans would be seriously upset at someone who would take a loan under false pretenses. Both of these clients would have no issue causing a participant (especially if the participant was one of their union employees) "financial grief" because they would worry that the participant who took the loan under false pretenses would tell others "how easy it is" to do.

Not sure what all recordkeepers do but I have dealt with two recordkeepers, large ones, recently on issues that involved loans and can pass on this information. All loan participants who take a loan under the plans that they recordkeeper receive a promissory note that they do not have to sign nor do they have to return. It is part of the loan confirmation notice that they receive after taking the loan. We reviewed the promissory notes and they contained all the information required under the §72 regs (and the state laws that were applicable under our facts) for a valid promissory note, and we (and the recordkeepers) believe that they were legally enforceable. Of course, those were our circumstances and I have no idea if all the requisites will be met in your instance.

In my opinion, I don't care what the loan documents say. This loan was not permitted under the Plan. The Plan terms were violated and there is an operational failure. Tell the participant he needs to pay the loan back in full because this is a distribution when no distribution was permitted and we handle like a Refund of Excess Amounts under EPCRS. I mean, this Plan has a hardship loan provision. This is similar to asking for a hardship withdrawal, receiving it, but there was no hardship. So what if there's a loan promissory note. That note is a contract and is voidable ... contracts that are entered into under fraud or misrepresentation are unenforceable. Let him take us to court if he wants to enforce it. He has to tell the court that even though he lied to get the loan, we have to let him pay back installments... no we want the entire amount back because he lied. While he is talking to a lawyer (who won't take this) or going to small claims court (where it is preempted), we notify him to return the entire amount to the Plan plus earnings, no rollover. Assuming he doesn't return the full amount (so plan stopped taking loan payments), Plan issues a 1099-R with loan proceeds as taxable, indicating no rollover eligibility. Let him worry about early withdrawal penalty. If he has a problem, tell him to argue with the IRS. We have a reasonable position, misrepresentation, violation of plan terms, self-correction per EPCRS. Just my opinion..... oh, and I am having just a really peachy day....