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For the calculation, no. For understanding the calculation and not screwing it up that one year the w-2 IS lower? Yes.

You would also want to review the plan loan policy in place. Most loan policies that i see say that if a participant defaults on a loan, that participant cannot take another loan.

In that case it does not, but unfortunately many accountants are against paying Self Employment Tax or payroll taxes on wages, so we often see a client incorporate as an S Corp and pay little to no wages and seriously reduce or eliminate their ability to make pension contributions.

That's actually not true, there is no notice required. There are tw rules relating to 3 months or less. You guys are referring to the newer 3 month rule, but there is an old ancient 3 month rule called the "Brief Exclusion" rule that has been on the books since the early days of EPCRS (well I just know it predates all the 45 day notice stuff). This one is found in Appendix B of EPCRS and says there is no MDO correction if the participant can contribute for the LAST 9 MONHTS of the plan year. So the failure has to be limited to the first 3 months of the plan year. Still of course 100% of missed match is due. Appendix B, Section 2.02, in this (F). I could not figure out the precise citation because of how the formatting shows up. But this text is there. (F) Special Rule for Brief Exclusion from Elective Deferrals and After-Tax Employee Contributions. An Plan Sponsor is not required to make a corrective contribution with respect to elective deferrals (including designated Roth contributions) or after-tax employee contributions, as provided in sections 2.02(1)(a)(ii)(B) and (C), but is required to make a corrective contribution with respect to any matching contributions, as provided in section 2.02(1)(a)(ii)(D), for an employee for a plan year if the employee has been provided the opportunity to make elective deferrals or after-tax employee contributions under the plan for a period of at least the last 9 months in that plan year and during that period the employee had the opportunity to make elective deferrals or after-tax employee contributions in an amount not less than the maximum amount that would have been permitted if no failure had occurred. (See Examples 6 and 7.

Beyond tax law, consider whether a suggested plan provision would result in participant loans that “[a]re available to all . . . participants and beneficiaries on a reasonably equivalent basis[.]” 29 C.F.R. § 2550.408b-1(a)(1)(i) https://www.ecfr.gov/current/title-29/section-2550.408b-1. That’s a condition of the statutory prohibited-transaction exemption.

If an S corporation pays its shareholder employee wages no less than $360,000, does it matter whether another element of income is or isn’t countable?

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Assuming your post is accurate, the w-2 comp from the s corp is the only earned income for the docs and the person saying otherwise is wrong and needs to start over in pension school.

I've been receiving mixed opinions on this topic. Working with a medical practice. The practice is a partnership where the employees are paid. The partners of the practice are each of the doctors' S Corps. The S Corps are adopting employers of the plan. The doctors don't receive any W2 income from the partnership. K1s are issued to each S Corp. In turn, each S Corp issues a W2 and K1 to the owner. The plan administrator is stating that they will consider both the W2 and K1 issued by the S Corps as compensation for retirement plan calculations. I was under the impression that you can only use W2 compensation when looking at a S Corp but apparently the partnership overrides that rule? Thoughts?

Since you do not have HCEs this should be doable. The Plan docs would have to be amended to provide for this. Usually, this would be a BRF as loans should be available to all participants on a reasonably equivalent basis and, as such, offering one to some and two to others would need to be tested. But if NO HCEs this difference would satisfy BRF testing (not sure "if no HCEs in that situation" means something else). Just have this rule set forth as an objective rule. The outstanding loan is still count for maximum loan purposes. (Just note that some commentators have stated that any loans after a deemed distributed defaulted loan is also considered a deemed distribution, but I have never seen authority for that statement. Plus that never made sense to me... just say if have deemed distributed defaults loan can't give another loan... but that isn't said anywhere either.)

Just to be sure, any reduced correction requires a notice (0% or 25%)

Right, this is not an advice column. I responded once above and have not read all the various posts since (I am confident the responses contain a wealth of good information but I am not reading through all of them) because this appears to be a situation of one spouse being taken advantage of (or fearful of being taken advantage of) by another spouse. I did read the OPs posts for the facts and lingering questions. Staying in the lines (addressing QDRO question), the key facts seem to be Divorced May 2021, 50% split with valuation date in May 2021, daily valuation, assets not segregated (yet... I think... only quick read of facts). The only real questions you need answered are what was the value of the account on May __, 2021, the date of the divorce (presumably the date the 50% is assigned). So, you want a copy of the P's account statement for that month to ensure that the value you have been given is in the ballpark and you want Ascensus to give you something stating that the amount assigned to you is the amount in the account on May __, 2021, the daily valuation amount. Ascensus is not going to collude with the P and give you bad info. They have no stake in this and are too big to worry about the ex-spouse. Then since this was almost 5 years ago hopefully the QDRO contains language that the assigned value should include earnings and losses from the date of assignment to the date of actual segregation (i.e., the funds are put into an account in AP's name). AP wants the earnings clause since the market has experienced substantial growth since May 2021 (even with recent dips). Otherwise, AP doesn't get those earnings. It sounds like the amounts have never been segregated which may be good because AP has not been able to direct the investments, etc. If the QDRO contains all this language, then seems like AP's next questions should be why hasn't the amount been segregated and why haven't the distribution and/or investment forms been provided? Wanting the language from the Plan, etc. is just window dressing ... AP: just get your 50% and move on. The Plan is not going to have any language that affects your split. The Procedures will just lay out what ERISA requires, etc. Daily valuation is daily valuation. Move on with life....

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I'd be treating this as a short-term impermissible loan and expect the appropriate interest returned to the plan as well to fully correct it as a prohibited transaction.

403b Plan D was at Recordkeeper R about ten years ago. They had about 20 participants with defaulted loans. Recordkeeper R is an insurance company, so they treat the loans as loans from the vendor. The plan converted to a new recordkeeper, but R said that they have to maintain the defaulted loans. We came into the picture a couple of years later and weren't successful at getting them to change their mind. Now participants who have these old defaulted loans are looking to take a new loan - they call the new recordkeeper who of course has no information on these old defaulted loans and are told that they can certainly take a loan. Then all sorts of headaches ensue. Let's say that repaying the defaulted loans with accrued interest is not an option - almost all of them are for workers just above minimum wage. They're basically taking a loan to get access to the profit sharing while still employed. The plan currently doesn't allow age 59.5 ISW, but most are under that age anyway. Can we amend the plan to allow for a second loan ONLY to participants who have a defaulted loan at Recordkeeper R? There are no HCEs in that situation, so from a purely mathematical standpoint, it should be fine. Note that this is not what I'm suggesting they do. I'm just looking for options... and will gladly take any others. Thanks!

I have sent you a direct message. I look forward to your thoughts.

Hi! I have a PBGC covered plan where the owner took an impermissible withdrawal of $250k from the plan in June 2025. To correct, he returned the funds to the plan in February 2026 but with no earnings adjustment. Are earnings required? He wants to self correct and include a memo in the plan's files.

To allow a $0 correction, then the employer should provide the 45-day special notice after the correction begins. If the employer wants to give the 50% QNEC as part of the correction, then no notice is necessary. Look at Rev Proc 2021-30.

I've been finding contradictory info about whether or not such a notice is needed in my situation. An employee's date of entry was 1/1/26, but he was not informed that he could start deferring at that time. The employee has yet to complain to the employer about this - it was the employer who caught this error. The employee will be permitted to begin deferring with the first payroll period ending after 4/1/26. This should suffice for reducing the QNEC for the MDO to 0%. The plan does not have any autoenrollment features. Some sources say an MDO notice is still needed, some say it is not. I'm leaning more to the 'not needed' side, especially since the employee has not brought up the discrepancy - is this the way to go? Any help is appreciated.

To correct the ACP Test Failure remove an amount equal to the excess contributions from the person's account. The correction does not need to use the exact dollars being deposited. It just needs to come out of the right account of the person. There was one funding platform that always gave us trouble with this every year. At that time I sent them a copy of regulations that showed monies just need to come out of the right person's account and proper contribution source, and we have not had any problems since. I note that we have even had plans audited and this approach was deemed correct. That was many years ago, but if you look you should be able to find it.

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Sorry for the slow response... THANKS!

401(k) plan acquired in a stock acquisition in mid-2025 is merging into Buyer's 401(k) plan in August. Without 410(b)(6) transition relief, how is this tested for coverage and nondiscrimination? The merging plan would not have a short plan year, so are the plans simply aggregated for the 2026 plan year for testing purposes?

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