Including this statement will help ensure that the plan sponsor will not violate the prohibition on midyear amendments if it finds it must amend the plan sometime during 2022 to reduce or suspend contributions.Beginning for plan years after December 31, 2019, under the SECURE Act, safe harbor plans that provide a safe harbor contribution equal to a minimum 3% nonelective contribution are no longer required to provide a safe harbor notice in order to avoid the ADP nondiscrimination test. However, a traditional safe harbor plan meeting the criteria of IRC Section 401(k)(12) must still provide the notice in order to avoid the ACP nondiscrimination test for any non–safe harbor matching contributions under the plan that are structured to meet the safe harbor provision under IRC Section 401(m)(11). (IRC Section 401(m)(11) provides that non–safe harbor matching contributions will be treated as meeting the ACP test if (1) the non–safe harbor match does not exceed 6% of an employee’s compensation, (2) the rate of the matching contribution does not increase as the rate of the employee’s contribution/elective deferral increases, and (3) the matching contribution for any highly compensated employee at any given rate of employee contribution/deferral does not exceed the matching contribution for any non-highly compensated employee.)

The “base amount” is equal to the employee’s taxable wages (Box 1 of Form W-2) averaged over the last five tax years. While IRC §401(a), §403(b), and §457(b) retirement benefits would not be included in the calculation, this could apply to any other payments triggered or accelerated by a termination of employment, including severance and retirement benefits under nonqualified plans. Like the excise tax on compensation above $1 million, the severance payment excise tax would apply to nonprofits as well as state and local governments, and the excise tax would be payable by the organization.

IRS pre-approval would provide hospitals, schools, and other eligible employers adopting the plan assurance that the plan's written terms comply with IRC section 403(b) and the final 403(b) regulations issued in 2007 (403(b) requirements), which added a written plan document requirement.[2] The new procedures for 403(b) plans are similar in many respects to the procedures described in Revenue Procedure 2011-49[3] for qualified plans under IRC section 401(a). However, unlike the pre-approved plan program for 401(a) qualified plans, an employer that adopts a pre-approved 403(b) plan will not be able to apply for an individual determination letter for the plan.

An Advisory Opinion is issued at the request of a taxpayer. It is limited to the facts set forth in the opinion and is binding on the Department of Taxation only with respect to the taxpayer to whom it is issued, and only if the taxpayer fully and accurately described all relevant facts to the Dept. IRC Sec. 401(a). IRC Sections 401(a)(17), 401(k), 401(m), 402(g) and 415.

BackgroundIn 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act (Pub. L. 116-94), which extended the required beginning date for RMDs under section 401(a)(9) to April 1 of the calendar year following the year an individual turns 72 (for those born on or after July 1, 1949).RMDs were further altered by Section 2203 of the CARES Act, providing a 2020 waiver of RMDs for defined contribution plans and IRAs in light of COVID-19 and the resulting market volatility. IRC § 401(a)(9)(l).The recently issued Notice provides important transition relief for implementation of the SECURE and CARES Act changes.

[12] While the specifics are outside the scope of this article, organizations are at great risk if they provide severance arrangements with a value approaching three times an employee’s standard annual compensation.[13]How Retirement Plans Can HelpSince it appears that additions to and distributions from retirement plans intending to satisfy the requirements of IRC Sections 401(a), 403(b) and 457(b) — hereafter referred to as retirement plans — are not included in the calculation, “converting” taxable compensation into retirement plan contributions should alleviate the risk of triggering the excise tax or reduce the excise tax if it is triggered.The most common way to convert taxable income to retirement plan contributions is through salary deferrals. This method is most likely to be agreeable to higher paid employees who tend to defer salary at higher rates.

However, while there is no guarantee a waiver will be granted, with an excise tax of 50 percent looming, it is,at the least, worth a try. [1] IRC Section 401(a)(9)(A). [2] IRC Section 401(a)(9)(C).

SDCERS is a qualified public pension plan under Internal Revenue Code section 401(a). In 2007, the IRS issued a compliance statement under a voluntary audit of SDCERS which stated that two aspects of SDCERS did not comply with IRC section 401(a).First, by a 2002 resolution, as well as a separate agreement with an employee, the City agreed to an “incumbent president program” which allowed three incumbent union presidents’ retirement allowances to be based on the highest one-year combined salaries from both City employment and union employment. The IRS held this was not permitted under a qualified plan and that the retirement allowance may only be based on salary from City employment.Second, the City had entered into a memorandum of understanding (“MOU”) in 2002 with the City’s fire fighters union which permitted employees to convert their annual leave cash equivalent to retirement service credit on a pre-tax basis.

the time the contribution is allocated to his or her account to be eligible to designate matching contributions as Roth.A participant must be fully vested in nonelective contributions at the time the contribution is allocated to his or her account to be eligible to designate nonelective contributions as Roth.For example, assume a plan provides for both employer match and nonelective contributions. Matching contributions are always fully vested, but nonelective contributions are subject to a 6-year graded-vesting schedule.A participant may designate matching contributions as Roth immediately, but must wait until he or she is 100% fully vested after 6-years in order to be eligible to make a Roth designation with respect to nonelective contributions.What about nondiscrimination testing?If you’re a benefits geek like us, the vesting clarification described above raises a follow-up question.Doesn’t this create potential concerns from a nondiscrimination testing perspective?Generally, under Section 401(a)(4) of the Internal Revenue Code, a plan must pass certain tests if a benefit, right or feature is offered to some, but not all participants.In the Notice, the IRS confirms that “other right or feature” would include an employee’s right to designate employer matching and/or nonelective contribution as a Roth contribution, and that an exception does not currently exist. Thankfully, however, the IRS goes on to say that pursuant to its authority under the regulations, a plan will not be treated as failing to satisfy Section 401(a)(4) just because it provides that an employee may designate employer contributions as Roth only if the employee is fully vested in the contribution type at the time it is allocated to the participant’s account.When are designated Roth employer contributions included in a participant’s gross income?The Notice clarifies that designated Roth employer contributions are included in a participant’s gross income for the tax year in which the contribution is allocated to the participant’s account, even

available for correction of errors occurring under SEP and SIMPLE plans. Under the expanded EPCRS, plan sponsors of SEP and SIMPLE plans will have options for correcting Eligible Inadvertent Failures under those plans.Extension of Simplified Correction of Errors for Plans with Automatic Enrollment: As discussed in our August SECURE 2.0 article, a current ECPRS provision allowing for simplified correction of certain employee contribution errors in automatic enrollment plans that was due to expire on December 31, 2023 is now permanently extended.Interim Procedures: In Notice 2023-43, the IRS indicated that while we are waiting for the IRS to publish an updated EPCRS, plan sponsors can self-correct all Eligible Inadvertent Failures except for the following, which will still require a VCP filing for correction: A failure to adopt a written plan document at the creation of a new plan;A significant failure in a terminated plan;Failures to satisfy the nondiscrimination requirements found in Internal Revenue Code Sections 401(a)(4), 401(a)(26) and 410(b), unless it is a failure that can specifically be corrected by a retroactive plan amendment under Treasury Regulation Section 1.401(a)(4)-11(g);An operation failure corrected by a retroactive plan amendment that is not favorable to participants.We see two key takeaways for plan sponsors at this point:Consider correcting retirement plan errors whenever possible. The IRS’s expansion of EPCRS over the past decade or so coupled with Congress’s action with SECURE 2.0 make one thing clear: The government wants plan sponsors to correct retirement plan errors and has tried to make it less painful for plan sponsors to correct errors as they discover them than it will be if the IRS discovers the same error during a plan audit.Do not assume that correction will be the same as it has been in the past.If you discover a plan error that is the same or similar to one you’ve dealt with in the past, take the time to determine whether there are new options for correcting that error