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Thanks, Brian

No. There no other contribution for key employees other than $7,500 of Deferral

so if I follow - the plan did not operate with an automatic enrollment provision - and because "the plan or contract is operated as if such plan or contract amendment were in effect" did not happen, it would not be a remedial amendment. The correction is still to amend retroactively - the various times I have submitted document issues to VCP that is always one of the requirements. Here, the plan would prefer SCP, so a corrective retroactive amendment still seems appropriate even if the plan decides not to utilize VCP. If that is the case - (and my apologies for citing the sunset provision and not the updated one) then I think it still follows that zero QNEC would be needed (assuming the plan satisfies the other requirements such as notice contents and timing). Where @Peter Gulia says "If that didn't happen, pursue corrections." corrections for which part? the document failure? the mandatory auto enrollment failure? the missed opportunity to defer/automatic enrollment? If the latter, the participants were given the opportunity to enroll, based on the plan's written provisions at the time. There was no operational failure, or failure to follow the plan document. So does a missed mandatory automatic enrollment provision in the document create an operational failure? I think I'm going a bit in circles. I do appreciate all the discussion and insight.

If they want us to do the final work, we will request the census for that short year, and then also the short year for the time they joined the PEP. We do not request an annual census.

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My observation was only about what tax law tolerates for when the § 414A-needed automatic-contribution provisions must be stated in what tax law imagines as “the” written plan. Among the conditions of the legal fiction of the remedial-amendment period is that “the plan or contract is operated as if such [delayed, but retroactive] plan or contract amendment were in effect[.]” SECURE 2022 § 501(b)(2)(A). So, a plan’s administrator must administer the plan according to the administrator’s prudent assumption about what the later-amended plan is deemed to have provided retroactively. If that didn’t happen, pursue corrections. For a convenient reference to C.B. Zeller’s pointer, my note above cites Notice 2024-2 and gives the particular hyperlink. (Because the IRS ended printing the weekly Internal Revenue Bulletins, https://www.irs.gov/irb is the official source.) This is not advice to anyone.

How did you do this? Was there some limit they exceeded?

This particular provision has actually expired: However, SECURE 2.0 sec. 350 codified essentially the same correction method into law at IRC sec. 414(cc). See also Notice 2024-02 section I, which gives further guidance, including how to apply 414(cc) to terminated participants.

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In the year the stand-alone plan joins the PEP, are you running two short plan year compliance tests, one for the final stand-alone plan and one for the period of time when they join the PEP through year end? In the year they join a PEP, are you collecting three census data from the employer - stand-alone period, PEP period, and annual data?

A client established a 401(k) plan as of January 1, 2020, for which it never obtained a fidelity bond. The plan administrator filed Forms 5500-SF 2020-2022 and 5500s for 2023 and 2024, and correctly check the "No" box for the question of whether during the plan year the plan was covered by a fidelity bond. The client recently obtained current and retroactive fidelity bonds for all years going back to 2020, and the question is, can, or should, the plan administrator file amended 5500s for plan years 2020-2024 to show that the plan was covered by a fidelity bond? Thanks for your time!

I wanted to make two other points so as to more fully inform this discussion: (1) To the extent that the plan document does not automatically cross-reference the Code and/or ERISA section so as to incorporate the current cash-out threshold by reference, the decision to increase the cash-out threshold from $5,000 (which was in effect until the SECURE 2.0 change became effective) to $7,000 is optional for the plan sponsor. The employer could simply leave the cash-out threshold at $5,000 and there is no issue. (2) The plan should adopt a procedure where it looks at whether participant account balances exceed the cash-out threshold once per year. If the account balance is below the threshold, then it should be automatically cashed out. This is a way to avoid the problem of missing participants. You should use it to the advantage of your client to avoid administrative hassles down the road. Turning to your initial question, the plan can allow a participant's account to atrophy to the point below the cash-out threshold and then cash it out. For that, see point (2). The other side of the coin is that the participant should be monitoring his or her account and either redirect investments from time to time, request distributions or rollovers. If it atrophies, it is the participant's responsibility to prevent that, not the plan sponsor's.

I agree with Peter that, from a plan document standpoint, an amendment to require mandatory automatic enrollment is likely within the remedial amendment period. However, because this is a mandatory requirement for plans that do not satisfy the grandfather rule or are church or government plans, there is an operational aspect to this that would require correction. Effective for the 2025 plan year, automatic enrollment should have been implemented for the plan's participants. For that, it would make sense to provide qualified nonelective contributions allocated to the accounts of participant who were not already making elective deferrals to the plan in the amount of the missed deferral opportunity, as per Rev. Proc. 2021-30.

Here's my take-- https://www.newfront.com/blog/the-550-carryover-vs-the-grace-period Important Note for Health FSAs Moving from the Grace Period to the Carryover: Employers generally should not amend a plan that offers the grace period mid-year to convert to the carryover for the current plan year. Employees may have made their elections intending to utilize their health FSA balance during the grace period by combining a year-one and year-two election for a high-cost procedure (e.g., laser eye surgery). IRS guidance suggests that this approach may be subject to non-Code legal restraints, such as an ERISA breach of fiduciary duty claim. Any such amendment to move from the grace period to the carryover should be made in a manner that ensures employees are aware of the change when making their health FSA elections at open enrollment.

Thank you guys!

Employer maintains an FSA plan that provides for a grace period. Calendar year plan. Regs state that if it has a grace period it cannot also provide for a carryover. The Regs state that it can be amended prior to end of year to change. So, under the Regs, a calendar year plan permitting a grace period in 2026 relating to 2025 could be amended to instead use a carryover to 2026 of unused 2025 health FSA amounts (as limited) if amended by December 31, 2025. I didn't think you could do it this late but the Regs state differently. However, Notice 2013-71 states "If a plan has provided for a grace period and is being amended to add a carryover provision, the plan must also be amended to eliminate the grace period provision by no later than the end of the plan year from which amounts may be carried over. The ability to eliminate a grace period provision previously adopted for the plan year in which the amendment is adopted may be subject to non-Code legal constraints." Can someone expand on what "subject to non-Code legal constraints" means? I have some thoughts but would like to hear from others.

As Bri suggests, Read The Fabulous Document; it might state provisions narrower than what might be provided without contravening ERISA or tax-disqualifying the plan. The IRS’s “LRM” guidance to sponsors of IRS-preapproved documents recognizes that an involuntary distribution might not be paid immediately after a participant’s severance-from-employment because the account then is more than the plan’s threshold, but might later be paid as an involuntary distribution because the account becomes less than the plan’s threshold. (I express no view about whether the IRS’s interpretation comports with applicable or relevant law.) Consider that a plan’s sponsor (or a plan’s administrator, or both) might prefer that the plan’s administrator lack discretion about when to direct an involuntary distribution. And consider that whatever provision is set, the plan’s administrator must obey the documents governing the plan (unless a provision is contrary to ERISA’s title I). This is not advice to anyone.

Many § 403(b) plans lack a service provider that’s obligated to inform the charity about a perception or suspicion that the plan’s elective-deferral arrangement does not meet § 414A.

you're providing the 3% Safe Harbor and the people with less than a year of service no longer get the THM (assuming you are going to make the "obvious" election here and adopt that new policy under S2.0). It is true that if you used the profit sharing piece anyone who has comp as a participant would need a small THM but I'd still opt for that scenario. Not sure if that helps.

The citation is likely in your plan document itself.

Why do I get the feeling this is happening for hundreds and hundreds of plans...

I just happened to be looking at this issue and my initial thoughts are: I doubt a plan provision can be made operative or inoperative, such as whether Catch up Contributions are allowed, based on the annual census data. That being said, I think you could accomplish the same, without violating the universal availability rule, by actually amending the plan each applicable year to add or eliminate the Catch-up Contribution feature (yes a PIA). I would think the same would apply in the S-Corp situation. Without looking into it too much, I think I agree with #3 as well. Spouse still an HCE, just not an HCI.

Because of differing ways of calculating COLAs, it looks like the 2026 SIMPLE IRA catch-up limit for plans with 25 or fewer employees (or bigger plans where the employer has elected the 1% extra employier contribution) is $3,850, while the catch-up limit where a bigger employer has not elected the extra 1% is $4,000. This is exactly the reverse of what Congress was trying to accomplish. Am I interpreting that correctly? Thank you!

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