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Hi, Two corps are a controlled group. Therfore, one DB plan can be opened that will cover both entities. Can the following be done instead? For easier record keeping, etc. Open a DB for each entity and cover each entity separately. The owners (Hcs) are not getting above the 415 as they are covered only in one plan and the employees of each entity are all properly included. Thank you.

No one answered yet, so I'll give you my opinion. It sounds like the merging plan will merge after a complete plan year, but even if a partial plan year, the merging plan has to be tested on its own through August. Kind of like how it will have to file a final Form 5500 for that plan year. The remaining plan gets tested for the full plan year including the new participants for the part of the year they are in the plan (after August). Just like there will be a single 2026 Form 5500, but with an increase in the EOY participant counts to reflect the merged participants. Hopefully others on here can confirm.

Thank you as always CuseFan, David Rigby, and Calavera. I had given a "like" your responses when you had responded, however, I forgot to write this. It was a big help. Thank you

If an individual gets § 403(b) distributions while she remains subject to New Jersey’s income tax, there is some recovery for previously taxed amounts. But if an individual becomes a domiciliary or resident of another State and subject to its income tax, the other State may tax § 403(b) distributions, and need not provide any relief regarding amounts previously taxed by sister States. See 4 U.S.C. § 114 https://www.govinfo.gov/content/pkg/USCODE-2024-title4/pdf/USCODE-2024-title4-chap4-sec114.pdf. New Jersey is not alone in setting up a “double-taxation” risk for someone who retires elsewhere. A participant contribution—whether § 401(k), § 403(b), § 457(b), or something else—is not any exclusion from compensation for Pennsylvania’s income tax (and Philadelphia’s wage tax).

Well it really only makes a difference when it is an HCE because one person is a larger share of the total. I literally had a scenario where the only HCE had a signficant missed deferral and I was able to exclude him from the ACP test (it was a 403b plan). That felt weird to me! To your second question, that was the next paragraph (Again this book is really pretty neat) EPCRS does not directly address ADP calculations when an employee was improperly excluded for only part of the year. However, the whole-year correction methods in Appendix A apply to partial year corrections in Appendix B. [EPCRS App. B §2.02] Accordingly: The plan must correct ADP failures before dealing with improper exclusion, and The plan has the option to disregard participants with partial exclusion exclusions altogether from the ADP test. (Note that the same choice must be made for all participants subject to the improper exclusion. [¶6.2.2]) If the plan elects to count participants with partial year exclusions, logically it would count the deferrals the participant actually made and disregard corrective QNECs (which are determined after running the ADP test). Example 9.8.2 Dan should have entered his employer’s calendar year safe harbor 401(k) plan on January 1. However, he was improperly excluded until July 1, at which point he elected to defer 6% of his compensation. Dan’s total compensation for the year was $100,000. His actual deferrals for the balance of the year were $3,000. His ADR for the year was 3% ($3,000 / $100,000). The employer can choose to count Dan or exclude Dan in performing the ADP test. Assume the test passes and the NHCE ADP was 4%. Dan’s missed deferrals are $2,000, Dan’s compensation for half the year ($50,000) multiplied by 4%. The corrective QNEC is 25% of $2,000, or $500, using the two-year safe harbor. [¶9.6.5]

The plan administrator should decide how to administer ADP refunds and communicate the procedures clearly to participants in advance of the compliance testing. This would include whether the plan will apply deemed elections or will issue refunds if the participant does not make an affirmative election. The procedure could include making an election that is valid until affirmatively changed, or making an election each year (or more frequently) in advance of the compliance testing. Either way, there is an additional tracking requirement. The plan needs to know the participant's election or applicable default before the testing is done.

That doesn't sound so weird - but what if the exclusion was only part of the year? Would you use full year amounts or only those where the guy wasn't in an overlooked status? As a parallel to the original scenario, people who aren't eligible for a 401(k) plan at all because of their division or job category wouldn't show up as zeros in the ADP test. This is sort of inadvertently similar.

There has been some back and forth regarding the Deemed Roth Election and how it interacts with a participant’s affirmative election not to make Roth catch‑up contributions. Our understanding is that the Deemed Roth Election is an administrative option that can be applied when a participant has not made an active election, allowing the plan to automatically designate catch‑up contributions as Roth. If a plan fails ADP and a portion of the excess deferrals is recharacterized as catch‑up contributions, how should Roth treatment be determined? Specifically, does the participant’s prior affirmative election not to make Roth catch‑up contributions override the Deemed Roth Election? Or would the participant need to make an election at the time the catch‑up amount is calculated to determine whether it should be treated as Roth (assuming the contribution was originally pre‑tax and exceeds $250)? Ultimately, we are trying to understand whether this introduces an additional tracking requirement—namely, whether a participant has made an affirmative election—before a plan administrator can rely on the Deemed Roth Election.

Bazaarly the answer is no. From the ERISApedia Plan Corrections textbook (highly recommend!) The plan must perform ADP/ACP testing before correcting errors resulting from failure to implement or improper exclusion. If the plan fails either the ADP or the ACP test, it must first correct those tests before correcting Elective Deferral Failures. EPCRS adds: In order to determine whether the plan passed the ADP or ACP test, the plan may rely on a test performed with respect to those eligible employees who were provided with the opportunity to make elective deferrals or after-tax employee contributions and receive an allocation of employer matching contributions, in accordance with the terms of the plan, and may disregard the employees who were improperly excluded. [EPCRS App. A §.05(2)(g)]

If the employee met the eligibility and entry provisions before start her maternity leave, then she is will get an allocation at the end of the year. Some plans have a provision that an employee who would first meet the eligibility and entry requirements after starting maternity leave are excluded from receiving an allocation as of the plan year end allocation date, BUT upon return from maternity leave, the employee must be given an allocation as if she was active on the allocation date. If the employee in the OP started leave under these circumstances, then check the plan provisions applicable to leaves of absence and year-end allocations.

The employee can still contribute to the 403(b) plan, they just don't get the immediate tax benefit. For those of us in the business a long time, there was a time when 401(k) pre tax deferrals were not recognized for state tax purposes. I live in CA and they still don't recognize HSA contributions for income tax purposes.

If the absence is “(i) by reason of the pregnancy of the individual, (ii) by reason of the birth of a child of the individual, (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement,” ERISA §§ 202-203 set up mandated provisions for crediting service and not having a break in service. And the U.S. Family and Medical Leave Act might provide some benefit-continuation rights. These might bear on how a plan’s fiduciary reads and interprets a last-day condition.

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Thirded!

Agree - not a severance of employment.

Doesn't sound like a severance of employment to me.....

I'm 99% sure I know the answer, but I wanted to be 100% sure. If a participant is on maternity leave at the end of the year, are they still considered employed on the last day of the Plan Year in order to be eligible for a Profit Sharing contribution (the participant had worked over 1,000 hours prior to going out on leave)? Thanks in advance!

Ah, thank you!

Numbers789, when you asked other TPAs, did you make clear that your situation is not about a partner of a partnership or a member of a limited-liability company treated as a partnership, but rather about a shareholder of an S corporation? If your client (whichever person that is) asks you to perform services assuming the plan administrator’s reckoning of compensation, consider, with your lawyer’s advice, whether to ask your client to indemnify you against your losses and expenses from having followed your client’s instruction—if such a provision is not already in your service agreement. This is not advice to anyone.

That legislation is proposed does not mean it will be enacted. Before 1984, people complained about New Jersey law’s income tax treatment of § 403(b) participant contributions. Criticisms became more focused when New Jersey enacted an exclusion from income for § 401(k) deferrals, but not for § 403(b) or § 457(b). After 42 years’ asymmetry, one might wonder about the legislative prospects. If the NJ-burdened employee prefers non-Roth elective deferrals and the charity is amenable to helping her, the charity might consider establishing a plan with a § 401(k) arrangement. That plan might be available to an employee who is a resident of New Jersey. Conversely, a § 403(b) plan might exclude an employee who is eligible for the employer’s plan that includes a § 401(k) arrangement. An employee who is eligible to make a § 401(k) cash-or-deferred election under a plan of the employer may be excluded from § 403(b)(12)(A)(ii)’s universal-availability condition. 26 C.F.R. § 1.403(b)-5(b)(4)(ii)(B) https://www.ecfr.gov/current/title-26/part-1/section-1.403(b)-5#p-1.403(b)-5(b)(4)(ii)(B).

The doctors have historically paid themselves W2 wages above the compensation limit. Each doctor has a different CPA. One of the CPAs wants to lower their doctor's wages below the compensation limit but I told them that could negatively impact the retirement calculations. In turn, the plan administrator said they will include their K-1 income which makes the W2 amount moot for the calculations. I feel like I must be missing something as I've asked this same question to four different TPAs. Two said they only use W2 wages and two said they would include K1 income (including the plan administrator on the plan).

When the Internal Revenue Service had some humans who would read a few individuals’ income tax returns, one might look at an S corporation’s tax return information about the business and an individual’s description of her occupation to consider whether a shareholder-employee’s wages was reasonable compensation for her work. I imagine now many tax preparers, even some Certified Public Accountants and Enrolled Agents, no longer worry that the IRS might challenge the reasonableness of a shareholder-employee’s compensation. If a shareholder-employee is tempted to declare wages less than reasonable compensation, does it make sense to declare at least the amount that supports her desired retirement contributions?

OH, OH, OH!!! NY 3329 (February of 2026!) is a new bill which would extend the state (New Jersey) income tax exclusion to employees of non-profits with 403(b) deferrals! The Bill is in Committee in New Jersey. "Specifically, it excludes elective contributions made by these employees to their retirement plans from New Jersey's gross income tax. This includes contributions to plans authorized under section 401(k) of the federal Internal Revenue Code for private sector workers, and now extends similar tax deferrals to employees of governments and non-profits who contribute to elective deferred compensation systems allowed under federal law, such as those established under section 403(b) for charitable, educational, and religious organizations,"

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