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Should be able to. Note the rules cited cover changes to the vesting schedule. Under the proposal, with regard to terminated participants with account balances, the vesting schedule will not be changing. With regard to current participants the vesting schedule will be changing but as stated going from a 6-year vest to a 5-year vest provides better vesting each year. As far as providing an election to retain the old vesting, the regs state: "no election need be provided for any participant whose nonforfeitable percentage under the plan, as amended, at any time cannot be less than such percentage determined without regard to such amendment." Just my thoughts.

That helps! at least it keeps me motivated knowing there is something out there! Thanks @austin3515

Often, when there are late deferrals to a plan, TPAs are using the DOL VFCP calculator to determine lost earnings. I understand that's only allowable if the Sponsor is filing under VFCP. And if not submitting, they must use EPCRS to determine the earnings. The first and best option is to calculate actual earnings for everyone involved. Than can get hectic if there are more than a few participants involved, or multiple payrolls. Hectic and pricey--we charge by the hour, and the cost can easily overtake any benefit to the participants. We may have a way to calculate the Rate of Return (RoR) individually for each payroll, rather than exact earnings. My question is this: Is that enough? Using the RoR per participant (and if unavailable, the RoR for the during the same timeframe?) The DOL calculator determines not only lost interest, but the interest on the interest. Would I need to do TWO calculations? First determine lost interest from payroll date to deposit and then another from deposit until 'today'? How do you guys do it? Several colleagues at other firms jsut take the path of least resistance and still use the DoL calculator. I haven't heard anyone getting in trouble for doing it that way. Have you? (Is this a grand conspiracy between the DOL and the Ferenczy law firm to drum up revenue? lol)

if the two testing groups are in the same plan, yes overall gateway must be met if one is tested on an accrual basis. Answer might be different it it is actually two separate plans being permissively tested together, and each plan covers two different sets of people (not the same people). Like a plan for division or Company A, and a different plan for division or Company B, assuming A and B are a control group or some such. i don't know for sure the answer in that scenario.

Yes. both sub-plans still need to satisfy the overall gateway.

This client owns a business and is going to open another business (both in the financial arena). I can use the same plan document for both plans... using the joinder agreement option... it's a control group. IF the client wants to max out the ER, does it matter which business ponies up the money? OR... if the client earns $100K from company A then company A needs to pony up $25K (and so on with Company B) Thanks

Thanks Belgarath. Peter, this is a brand new corporation started 9/1/2025. The owner worked for an unrelated company prior to 9/1/2025 and started his own business 9/1/2025. He deferred the max into his prior employer's plan in 2025 which is why no 401k needed for 2025 in the new corp's plan. I was trying to see if there was a way to set up the plan so that proration was not needed. Based on Belgarath's comments it appears the plan is not the issue, but rather the short corporate tax year is the issue.

Consider: Did the corporation decide some of its employee’s compensation to be paid in the last four months of 2025 based on the now-employee’s before-incorporation work as an organizer? When does the employer pay its employee? If a corporation’s only employee also is the corporation’s shareholder, might the employer pay wages as infrequently as once a year? “No proration required for participation for less than a full plan year. Notwithstanding paragraph (b)(3)(iii)(A) of this section, a plan is not treated as using compensation for less than 12 months for a plan year merely because the plan formula provides that the allocation or accrual for each employee is based on compensation for the portion of the plan year during which the employee is a participant in the plan. In addition, no proration is required merely because an employee is covered under a plan for less than a full plan year, provided that allocations or benefit accruals are otherwise determined using compensation for a period of at least 12 months. Finally, notwithstanding paragraph (b)(3)(iii)(A) of this section, no proration is required merely because the amount of elective contributions (within the meaning of § 1.401(k)-6, matching contributions (within the meaning of § 1.401(m)-5, or employee contributions (within the meaning of § 1.401(m)-5 that is contributed for each pay period during a plan year is determined separately using compensation for that pay period.” 26 C.F.R. § 1.401(a)(17)-1(b)(3)(iii)(B) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(17)-1#p-1.401(a)(17)-1(b)(3)(iii)(B). This is not advice to anyone.

I had this scenario and had them set up a safe harbor match plan for this reason. There is a special rule about coverage testing for the match for 403bs and 401ks,. Someone else might be able to tell you the site, but there is something so make sure you find it!

Is this true? Often in component testing, one group (the one with the young HCE) is tested on a contributions basis and the other one(s) tested on accrual basis. Does the contributions basis 'plan' have to satisfy the gateway? It's its own 'plan' after all.... 'Tis been a few years since I last did one of these 'boutique' calculations as a former employer used to put it. (And I kind of remember that the combined sub-plans, if you will, must satisfy the ABT? I'd have to dredge up my notes....

I would add one thing to C.B. Zeller's comment. To be deemed not top-heavy, the plan must consist solely of deferrals and safe harbor contribution AND the eligibility requirements for both deferrals and the safe harbor contribution must be the same.

@justanotheradmin for the win! @Mleech this is excellent advice in each of those posts.

Arggh. Going from memory only, (so don't trust me) the problem is less about the plan year (if you subscribe to the theory that the plan year can begin prior to company being formed - we've done it, and upon audit IRS never questioned it) than it is the short taxable year. With a short taxable year, the 404(a)(3) limit is based on compensation for that short period, and the compensation limit is prorated to calculate the deduction limit. Hopefully someone with a sharper memory can point out corrections to the above...

Similar Question - Non profit and For profit are clearly a control group (Non profit owns the for profit). Non- Profit has a large 403(b) plan with several hundred participants. For profit does not have a plan but would like one, small employer. There are a few HCE. The for profit cannot participate in the 403(b), but if they start their own 401(k) plan, I think testing would fail? They do not want a 401(k) plan to cover both entities, the non profit likes their 403(b). My understanding is 403(b) and 401(k) plans cannot be aggregated for testing, but if I'm wrong, could someone tell me? Am I thinking of this clearly? Issues: 401(k) with a 403(b) in the same testing group Different entity types in the same testing group Anyone have suggestions? My apologies if this would be better in a separate post of its own, it just seemed like a good place to ask about a similar scenario.

A new company's inception is 9/1/2025. There is one employee, the S-Corp owner. First tax year runs 9/1/2025 to 12/31/2025. Owner wants to adopt a calendar year profit sharing only plan for 2025, adding 401(k) for 1/1/2026. W2 comp for the period 9/1/2025 to 12/31/2025 will exceed $350,000. In the EOB it seems to indicate that it is possible for the effective date of the plan to begin prior to the inception date of the company. The EOB indicates that the IRS informally expressed this view at benefit conferences. It also notes that the employer can highlight the issue in the plan's determination letter request which seems to indicate that this wording has been in the EOB for a long time. Is this an acceptable approach? If not, and the plan year must be a short plan year (9/1/2025 to 12/31/2025) to run as a calendar year plan, are we then prorating the compensation limit to $116,667 (4/12ths) and in turn using that pro-rated limit to determine the max deductible amount of $29,167 (25% of prorated limit). Thank you very much.

A plan which consists solely of deferrals and safe harbor contributions is deemed not top-heavy. As soon as a dollar of profit sharing goes in to the plan - regardless of whether it goes to a key or non-key employee - the exemption is lost. Now the plan must provide the top heavy minimum. First check the highest allocation rate to any key employee, including deferrals. If that's greater than 3%, then the top heavy minimum is 3%. Then look at each of the non-key employees, and see how much they received in safe harbor matching contributions. If they deferred at least 3% (or 5% if a QACA), then their safe harbor match would be at least 3% and they would not need any additional employer contribution. Then you have to give a profit sharing allocation to each of the other non-key employees who were employed on the last day of the year. If they received any match at all, then the profit sharing just has to be enough to get them to 3% match + profit sharing. If there are any non-key HCEs that received profit sharing, then you have to test the profit sharing allocation for coverage and non-discrimination. All of this is assuming that it agrees with your plan document. This is what the plan documents that I use say, but you have to read yours to make sure it's the same. For example, yours might give the top heavy minimum to all employees as opposed to just non-keys, or it might not have the last day requirement, or something else entirely.

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Thank you for clarifying

RBD is still 4-1-26 even if lump sum coming later in 2026.

Following up on this Same owner, turned 73 in 2025, terminated 12/31/2025 and will take distribution in 2026, when is the RMD due?

Those eligible participants who didn't defer, and didn't therefore receive the match, would be entitled to the Top Heavy Minimum. So have to ensure they get the PS allocation that meets the minimum.

I assume this is a DC plan? If so then 1.401(a)(9)-5 applies. So the default rule is that you use the entire balance, vested or not. However if the RMD exceeds the vested balance, then you only distribute the vested amount. If we're talking about someone who terminated during 2025, then also be sure to check the plan document's rules about when forfeitures occur. If they are deemed to have a forfeiture immediately upon termination (say because their vested account balance is less than $7,000) then their account balance as of 12/31/2025 (for the 2026 DCY) would only be the vested amount. For 12/31/2024 (used for the 2025 DCY, due by 4/1/2026) there couldn't have been a forfeiture by then so I think there's no question that the full account balance is used.

I did too

26 C.F.R. § 1.411(a)-8 https://www.ecfr.gov/current/title-26/section-1.411(a)-8 26 C.F.R. § 1.411(a)-8T https://www.ecfr.gov/current/title-26/section-1.411(a)-8T

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