waid10

He is actually not a terminated employee. Each year, a participant vests in the contributions from the prior three years. But I see your point about a processing fee.

Hi. We have a 457f Plan. A participant recently received distribution of the vested portion of his account. $0.02 was mistakenly not distributed. What are our options for this? Distributing would be cost prohibitive. Our plan document does not discuss de minimis amounts. The plan does have constant 3 year vesting cycles. So this participant will be due another distribution next year. But I don't see how we can add this to his account balance that will vest next year. Can we just forfeit this amount as a de minimis amount? I appreciate any thoughts.

I guess that is the same as transferring the balances to forfeitures and then paying plan expenses (like the TPA and record keeper distribution fees) out of the forfeiture account, correct?

What do you mean by distribution fee?

Hi. We are in the process of terminating our 401k plan. We have several participants with really small balances (many are under $1.00). Is there a de minimis amount ($1.00, $5.00, etc.) under which it is permissible to move those really small balances into forfeitures instead of forcing the participant to take action? Or are we required to send all of these small balances to IRAs? I thought that there was a rule where if the cost or burden to the plan sponsor exceeded the account balance, then the government allowed such a forfeiture. Thanks for any thoughts.

Forgive my questions. I thought that if, the transition to a single plan occurred a few months after the transaction (and passed testing) then that is fine. i.e., there wouldn't be any need to do testing immediately following the transaction when the employees were still on separate plans. Is that true?

Hi Chaz. What do you mean when you say there is no transition period? I thought that the testing would be done at the end of the plan year. So if the target plans stay separate for the whole year, each plan would be tested; but if the target employees join our health plan, say in November, then the testing is different. Correct or no?

Hi. We are acquiring multiple companies. They each have their own H&W benefits. If the employees of the target companies don't join our health plan immediately (but stay on their own health plans), how long can that transition period last? How does that impact nondiscrimination testing? In other words, does the length of the transition period matter when it comes to how the testing is performed? Thanks for any thoughts.

So it sounds like a Notice must be sent prior to the 5310 filing, correct? Also, what has been folks' experience with terminating a 401k plan without obtaining a determination letter?

When terminating a 401k plan, I confused about when a Notice to Interested Parties is required. Is a Notice required a certain number of days before Form 5310 filed? Or is a Notice required a certain number of days before the Plan is actually amended to terminate? We have adopted a Board Resolution to terminate later in the year. However, we want to file Form 5310 now. So I wasn't sure if a Notice needed to be sent to participants before the 5310 filing or if that Notice can be done in several months, which would be closer to the actual Plan termination date. Thanks.

Hi. Under our cash balance plan, a contribution doesn’t receive interest until February of the following plan year. For example, a 2023 contribution will start to receive interest credit in February of 2024. We would like to amend the plan to eliminate the 1 month delay and have contributions receive the interest credit starting on January 1 of the following plan year. Would it be permissible to make this amendment retroactively effective to January 1, 2024? Thanks.

Hi. We have a participant that wants to take multiple in-service distributions within a calendar year. In early 2023, he took an in-service distribution against his 2022 principal credit. He recently received his 2023 principal credit and now wants to take another in-service distribution. He is in his mid-60s and I can't find anything in the plan document that prohibits this (the document is silent on this topic other than to say in-service distributions are permitted). But it just doesn't feel right to me. Does anyone know if this is legal?

Thanks Peter. I saw that as well. Our eligibility provisions provide that an employee becomes eligible for the plan when he/she becomes a shareholder. My reading of the corrective amendment fix is that the amendment would have to alter the eligibility provisions to allow for some non-shareholders to participate (in order to get above the 50 threshold).

Yes. Our "lesser" number is the 50 participants. So we fail the test if we fall below that number.

We have a Cash Balance Plan. Under 401(a)(26), we must have 50 participants. We have a cycle where annual contributions are set for 3 years. Assume we have 51 participants in year 1, all receiving meaningful accruals. If we have 3 participants retire in year 2, putting us at 48 participants, how do we correct since we have fallen below the minimum participation threshold? Added fact: all participants are HCEs. Thanks.

My mistake - eligible employees elect whether to participate and how much they want to contribute annually for a 3-year cycle. The employer makes the contributions. This particular participant is an HCE.

Forgive my ignorance. All of the replies suggest that this is permissible if the Plan Document permits. However, I thought that the IRS preferred a minimum of a 3-year cycle for participant contributions. Doesn't this violate that rule if a participant can immediately take an in-service distribution so that he can control his investments in an IRA? All at the same time, he is continuing to actively participate in the cash balance plan and receive contributions?

Hi. We have a Cash Balance Plan. A participant has asked about in-service distribution (rollover). Specifically, he is asking if he makes a contribution in 2023, and reaches age 59 1/2 in 2024, can he rollover the funds into a traditional IRA as an in-service distribution and continue to participate in the plan. My understanding is that this is not permissible. This seems like it would directly go against the concept of a cash balance plan and almost treat it like a 401k. But my understanding of cash balance plans is definitely lacking. The participant says he has been told by others that this is allowed. Can anyone help?

Hi. I always struggle with issues related to controlled groups. A hospital wants to start a joint venture with another group. The hospital will own 51% of the JV. Does that level of ownership allow the hospital provide benefits (retirement, health, etc.) to the employees of the JV? Thanks.

Agreed. How do you recommend we do the allocation?

Hi. Client is terminating a 401k Plan. There is a sizable amount in the forfeiture account. Even after paying expenses, there will be a balance left over. The document says that forfeitures are allocated first to restore previously forfeited amounts to participant accounts. Thereafter, remaining forfeitures are used to: offset Plan expenses reduce future matching contributions reduce future nonelective contributions Since we are terminating, and thus there will not be any future contributions, how should we allocate the remaining forfeiture balance? Pro-rata to participants according to?? Thanks.

I guess I am trying to understand when/how this determination is made. All that I have found is the language below but not in any official IRS-issued guidance. I have not found any legislation or other official guidance. The IRS presumes that an employer has completely discontinued contributions when the employer fails to make substantial contributions for at least 3 years in a 5-year period. If this happens, the burden shifts to the employer to show that a complete discontinuance has not occurred

I am not sure of the rationale to freeze and not terminate. It is possible that it will be unfrozen at some point. But it is also possible that it will never be unfrozen and will be eventually terminated.

Hi. We had both a 403b and 401k plans. We decided to freeze our 401k plan (no contributions) a few years ago and use the 403b as our sole DC plan. The question is what does this plan freeze do to our vesting (3 year cliff)? I had thought we could just continue with applying our vesting schedule. But I read that the IRS may view a 401k freeze as a "complete discontinuation of contributions" and require full vesting of all participants. I couldn't find anything official, but did find the language below on an IRS website. I also found this: https://www.irs.gov/retirement-plans/no-contributions-to-your-profit-sharing-401-k-plan-for-a-while-complete-discontinuance-of-contributions-and-what-you-need-to-know Does anyone have experience with this? Any thoughts? Thanks. We haven’t made many contributions to our profit-sharing plan. How will this impact our plan termination? Although employers are not required to contribute every year to a profit-sharing plan, contributions must be recurring and substantial. If the amount is not significant enough to show an intention to continue the plan, the IRS will treat the contributions as discontinued. A plan is treated as terminated for vesting purposes if the employer completely discontinues contributions. The employees affected by the discontinuance must become 100% vested. Generally, you must vest all affected employees no later than the end of the taxable year following the taxable year in which you made your last substantial contribution (IRC Section 411(d)(3)). The IRS presumes that an employer has completely discontinued contributions when the employer fails to make substantial contributions for at least 3 years in a 5-year period. If this happens, the burden shifts to the employer to show that a complete discontinuance has not occurred (Announcement 94-101).

I thought that there was a program for fixing 457(f) and 409A plan errors but I can't seem to find anything with the IRS. We have an erroneous deferral in our non qualified deferred comp plan. A participant reached their vesting date and should have been paid out their balance in 2021. I am looking for guidance on how to correct. Thanks.