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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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ReallyChill, in my experience, an attachment posted in a BenefitsLink discussion is not available until one has signed in with one's username and password.

It is a difficult issue. I remember talking to Robert Richter about this many years ago. The gist of his advice was, "If you use it, you'll live to regret it."

We administer a calendar year 20 participant 401(k) plan with salary deferral, match and profit sharing. They failed the ADP/ACP test for 2025 so refunds will need to be done this week to HCEs. We spoke to them about making safe harbor contributions, QNEC etc. but they just want to go ahead with refunds. And the refunds are not so bad (around few thousand for each of the three HCEs). In this case they have a discretionary match. Question: they have a discretionary match and have been happy doing it that way. Also, they usually fund the match around early May when they fund profit sharing contributions (corporation goes on extension). How do we correct discretionary match contributions when they will not be funded until early May? So suppose we have the following: a discretionary match of $40,000 will be funded for the 2025 year. Suppose the 3 HCEs would each be entitled to a $5,000 match and match contributions of $700 each would need to be forfeited to pass the test. I would think these forfeitures would need to happen for the 2025 year but would not be available to use until the 2026 year (plan uses forfeitures to reduce subsequent year contributions). I don't think we could just have them fund $37,900 ($40,000 - $2,100) for the 2025 year. So I would think we would show full match contributions on the 2025 benefit statements for the three HCEs. Then in 2026 show $700 each being forfeited from their match accounts. Does anyone agree / disagree? Thanks.

I do not have a link, I just googled it to try and find it. Odd. not sure if others can download? I can download, which I don't think is related to the fact that I posed it (,my browser wouldn't know that). I really think this is the most important text: So, the IRS went on to provide that IRC Section 415(c)(3) compensation can, but is not required, include "deemed Section 125 compensation." "Deemed 125 compensation" is defined as an excludable amount that is not available to an employee in cash in lieu of group health coverage under an IRC Section 125 arrangement because that employee is not able to certify that he or she has other health coverage. An amount is only "deemed 125 compensation" if the employer does not otherwise request or collect information regarding the employee's other health coverage as part of the enrollment process for the health plan.

I have another explanation, based on pure speculation that is less likely than the scenario offered by justanotheradmin, but it also is only a story of botched paper handling by an unsophisticated plan administrator and not anything untoward or that adversely affects anyone's plan interests. And I still see nothing to worry about in the description about how the formal qualification of the order was handled on behalf of the plan. I remind you that this forum is mostly for professionals to discuss technical matters. It is not designed to help individuals with their problems or questions about their individual circumstances. Some of us try to be more helpful than others, and none of us are offering advice on the boards that can be relied on in individual circumstances. We have been dismissive or reassuring (? depends on your point of view) about some of the concerns you raised and have offered some thoughts about where our concerns would be based on inadequate information (not meant as an insult -- you have done well for a nonprofessional in what appears to be a messy situation fraught with suspicions -- divorce is not pretty). I hope that there has been some clarification that helps the affected persons get the professional advice that that will resolve issues that may affect whether or not the plan benefits were divided as they "should" have been.

sounds like the DRO was forwarded to Ascensus for processing before the plan sent the letter to the alternate payee. Maybe they didn't want to sit on it or though Ascensus would take some time getting the information out. Its perhaps like giving someone who is leaving a job a distribution form for their 401(k) account before they leave, even though they can't take the money out until after their last day. If Person B took out the money from Ascensus before all the other things occurred, that might be an issue. and doing things out of order isn't ideal. but in this case, sounds like Person B hasn't actually filled out any Ascensus forms or moved the money out. Ascensus probably didn't look at the QDRO. The employer probably just filled out a form saying there is one, here's the benefit formula, here's the Alternate Payees information etc. They are going to take direction from the Plan Administrator( in this case sounds like the employer) If a step gets missed - the main corrective action is generally to then do that step. and improve plan procedures so the error doesn't happen again. So if the Alt payee wasn't notified BEFORE ascensus, well, they were notified after. Failure to follow the terms of the plan is a common error, but unless person B was harmed, such as not getting the full benefit awarded by the QDRO, I'm not sure what else you want the plan to do. Forwarding the forms - that can be standard procedure depending on the particular service arrangement with the financial institution.

The attachment is "unavailable." I don't suppose you have a link for it instead?

Thank you both for your responses. So the steps SHOULD be: 1. Write DRO 2. Submit to court, judge signs off 3. Plan Qualifies or does not Qualify DRO 4. If Qualified, plan sends information to alternate payee about what they can do with their share of the money However, steps 3 and 4 aren't in order in this case. At least based on the dates of the files/forms Person B has been given: 1. Letter from Ascensus with distribution forms is dated END of April 2022 2. Letter from The Plan, signed by the Plan Administrator, indicating Person B will get information from Ascensus is dated the DAY AFTER the letter from Ascensus is dated 3. File signed and dated by the Plan Administrator qualifying the DRO in MID MAY 2022, almost two weeks after the dated letter and forms from Ascensus. Q: How can the Ascensus' letter claim Person B is entitled benefits, based on the information Person B has, from a DRO qualified after their letter was sent? One piece of information I received today is that the letter addressed to Person B from Ascensus with the distribution forms was sent to Person A/The Plan and then forwarded to Person B (not sure if this is standard procedure either). Person B already reached out to EBSA since they have never been given the QDRO procedure document (this document is mentioned in the file signed by the Plan Administrator in MID MAY 2022 qualifying the DRO so it must exist). Person B has also reached out directly to Ascensus for all documents they have on record concerning the QDRO, since all their communication with them has been through or with Person A attached.

Following up on the original question, would folks agree that the 1099-R reporting a distribution of Profit Sharing (or otherwise non-Roth) monies to a Roth IRA would be completed as follows: Box 1 - Gross Amount of rollover Box 2 - Taxable Amount = Gross Amount Box 4 - Federal withholding = $0 (because no federal income tax was withheld & deposited) Box 7 - Distribution Code = G (that's how I read the 1099-R instructions for distribution codes) Thanks in advance for your reply!

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The most important thing to no about deemed 125 compensation is that it is not any kind of "real" Compensation. It is not taxable. It is not cash. That is where the term "DEEMED" comes in. Really no one would ever want to include it. So many people think it has to do with pre-tax health insurance payments, or with cash payments in lieu of benefits. It is neither of those things. Relius put together this write-up a long long time ago and its the best explanation I have seen from a trusted source (it was 24 years ago) 🙄 I have attached it below. I see document providers included Deemed 125 all the time based on this misunderstanding. I think it is dangerous because, as I mentioned, it is not cash, and it is not taxable - meaning it is never captured on payroll. Meaning it will never be taken into account. Based on the description in this pdf, I have a feeling it is also exceedingly rare. Comp - Deemed 125 Explanation.pdf

Why would there be? DRO gets written, submitted to the court, then someone forwards to the plan, plan determines if it is actually qualified or not (just having the word qualified on it doesn't make it qualified), If it is qualified - plan sends the alternate payee information about what they can do with their money that is in the plan. Which sounds like occurred when Ascensus sent the distribution forms. Nothing gets sent to the court again for QDROs. If there are issues about dates and representation - such as a posted dated item being filed with the court - that is something to take up with the court. As @QDROphile mentions, the things that you seem to take contention with, are not things the plan can resolve. A and B and their counsel need to work it out.

Thank you to all for the great replies.

A plan can allow the use of any definition of compensation defined under 1.414(s)-1 Definition of Compensation to perform the ADP test. Assuming that the plan document does not restrict the definition of compensation, you can use any of the available definitions in this section regardless of the definition of compensation used to calculate elective deferrals or for other plan purposes.

Got it - thx again

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I continue to be drawn to the divorce proceeding, including the domestic relations order (NOT the qualification of the order by the plan), in which B does not seem to have participated in the identification, valuation, or terms of division of the plan interest in the context of the larger division of property between A and B in the divorce proceeding. That is a state court matter in which there may have been ignorance, inattention, unfairness, deception, omission, or other skulduggery, or not. There is nothing* about federal QDRO rules that relates to what B “should” or could get from the plan in consequence of divorce. In fact, the plan is generally not supposed to have any concern for what happened in the state court and may/should look only at whether the proposed QDRO appears to be an actual domestic relations order. The alarm about A’s position and behavior relating to the plan (other than refusal to provide (1) benefit information necessary for fairly adjudicating or settling rights in the state court divorce proceeding, and (2) information about plan procedures) seems misguided, despite the bad optics relating to A. The bad things that may have happened — or things that should have happened and did not — probably happened (or not) in the state court. Which brings me back to, “What does B think B should be getting from the plan by way of benefits that B is not getting under the terms of the QDRO?” The answer probably relates to the terms of the domestic relation order — the product of the state court — not the qualification of the domestic relations order by the plan. *Well, almost nothing.

It’s not safe harbor meaning it eliminates ADP testing. Just means no a4 testing on the profit sharing allocations. The deferrals have no impact on the PS allocation. It will be something like: 1. everyone gets equal percent up to 5.7% on all compensation 2. Then anyone with compensation in excess of the TWB gets 5.7% of that comp that doesn’t exceed the max limit. 3. then any remaining PS money gets allocated pro rata for everyone. this assumes all eligibility and allocation requirements had already been applied.

Thank you for your response, Bill. I now realize maybe I wasn't specific enough. I was concerned about how you would take the elective deferrals into account - if the HCEs defer maximum amounts while no NHCEs are deferring (it's a small plan), no testing is needed as long as the PS contribution is allocated on an integrated basis - is that correct?