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how does it satisfy 401(a)(4)? you would have to run the testing. I imagine on an allocation basis you would fail testing as HCEs general have larger account balance so would receive a larger % of pay by the time you divide contribution by compensation. so now you test on an accrual basis, but that also requires you pass the gateway minimum as for the document, is it possible to allocate a contribution based on balances? if each employee is in there own rate group, then there is certainly nothing to prevent you from allocating a contribution which, for all practicality is based on account balances, but again, you will be doing crosstesting, gateway minimums, etc.

A quick look at the regulatory agenda http://www.reginfo.gov/public/do/eAgendaMain;jsessionid=3CE3C61A96992CC5E2D3540CE845BF1B?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPub=true&agencyCode=&showStage=active&agencyCd=1500 suggests there is no project open.

Every day this week is a palindrome.

Looking at it from both sides, maybe this means it's "cloud illusions" week.

since the leased employees have met eligibility you fail coverage since they are not in the plan. this would require a corrective amendment to give them a QNEC to pass coverage. so you give them all 3% which is the same effect as a 3% safe harbor (except that you would have to run an ADP test but could include the 3% in the test. without knowing actually numbers - how much HCE deferred and his comp and if the children are in the plan and not deferring you are probably no off worse than a safe harbor. actually you said the plan started in 2016 so amend to immediate eligbiility. everyone is in owner defers 18000 and has max comp so ADP% is 6.9 2 children in the plan not deferring so the avg is only 2.3% so to pass testing they only need 1.15% to the NHCE (not 3% as required with a safe harbor) first year of plan, so top heavy determined at end of year. so give NHCEs 1.15% of pay or just enough more so plan is not top heavy. to be safe, make deposit by 12/31 (regs say you really shouldn't use contributions deposited after 12/31 in determining top heavy. but this sounds like it might not be as expensive as a safe harbor - and would never be if the owners children don't defer and the ADP avg is less than 5%.

My understanding the intent of the rule was to solve the problem of the money never making it to the trust. You have to remember the rule was made back when many 401(k) (especially small 401(k)s) were balance forward. So what you had was people being reported balance of X in the plan when the assets weren't in the plan. What made up a large part of X was a receivable from the sponsor. I had a client back then where it wasn't uncommon for the receivable to be 8 or 9 quarters of deferrals that hadn't been put into the plan. The amount of cash in the plan was much lower then what the sum of the statements said everyone's balance was. What happened a few times is the sponsor (not my client but others) went bankrupt and the the receivables were never paid. That is when people found out the money coming from their pay checks wasn't in the 401(k). In fact my brother had this happen to him. He lost over $30k when his employer went bankrupt. It turned out towards the end the company was staying afloat with the employees' money. So the DOL made the rules you had to get the money into the plan ASAP.

Sure, the rest of us have never encountered that! You could always amend last year's filing!

Way back at the beginning it was stated that "he was the only other beneficiary" (presumable of the estate). I would definitely ask what he is trying to accomplish by having it paid to the estate as opposed to him directly. Odds are he's just confused and paying it to him directly saves everyone some hassles. I don't see it as improperly offering legal advice. If he comes back and says "I know what I'm doing" then fine, do it that way.

The 1099-R will be issued directly to the estate. I have no idea how estate taxes work however I think generally administrator responsibility is only to know who to issue the report to not offer tax advice. As MoJo so aptly puts it, for that it's attorney time. David is right, but in the interest of general learning here's a bit more info. For tax purposes the estate is considered to be a separate entity (much like a plan is separate from the employer). If the income payable to the estate is distributed to one or more beneficiaries, it is taxed to the receiving beneficiary. However, if the income remains in the estate, it is taxed to the estate. Back in the 80's the income tax rates for trusts and estates that did not distribute all income were particularly high (presumably to encourage distribution of the income). However there have been enough tax law changes since then that I have no idea if that is still the case.