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I'll put the question back to you - what are you (or anyone else) gonna do to enforce an election of 100%? You can't. So I think it's ok to interpret that with a caveat of "to the extent administratively feasible." I get it - we can all obsess over details. But this isn't an issue.

This one might win the weirdest of 2016 award!.

This didn't happen at that well-known financial company that has been in the news so much lately, did it?

I think it's funny that they determined he had the authority to open the illegal account and deposit the illegal money but doesn't have the authority to distribute the illegal money because that would be illegal.

Sounds like a "how many things are wrong with this picture" puzzle. 1. Trustee of the plan (and assuming that the money is held in trust may be assuming too much!) violated the law by not issuing a 1099 for the withdrawal. 2. Just checking - did the owner declare the $70,000 when he filed his personal 2015 taxes? If not, sounds like tax evasion (certainly a substantial underpayment). 3. He was paid notwithstanding the plan not allowing in-service distributions. Probably more. Sounds to me like plan disqualification as a minimum. If they are lucky, no jail time. Whether it's a prohibited transaction or not is a distant 3rd in importance. Owners need to clearly understand that "It's my money" is a metaphor, not the truth.

If there is no valid company (of which he purports to be sole prop), then there is no valid employer. Hence, no valid plan.

Random guy off street - Can I haz 401k? Broker - Sure deposit money here Random guy off street - Can I haz my money back Broker - No Have you asked the brokerage company for a copy of the plan document they used to open the account?

I think you first carve out FICA/Medicare taxes, state and local income taxes (if applicable) and other authorized payroll deductions (e.g., deductions for voluntary life insurance, United Way contributions, etc.), and THEN you apply the 100% salary reduction. No IRS agent is going to blink at that.

Of course. That's what you're doing, in effect. You're deferring 100% of the cash that the participant would've otherwise received had they not elected to defer it to the plan. FICA is coming out anyway. When you defer pretax, this will reduce your Federal Income Tax withholding and [state Income Tax withholding (in most instances)]. So, that is a non-issue (you're overthinking it ). Good Luck!

Agree with David. This strikes me as more of a question for the labor and employment attorney than the ERISA attorney.

...and check to verify whether any proposed action is subject to collective bargaining in advance.

From what I've read, 7% would be considered a discriminatory factor in favor of the highly compensated. It could be interpreted as being too large a hurdle for lower paid employees and, therefore, a barrier to participation. Now, if it's a company where everyone makes tons of money, it's probably not an issue.

ETA, I'd go down a slightly different path. I'd see if the existing plans don't already have language in their trust provisions that allow the investments to be combined while keeping the plans separate. Seems much easier to me.

Belgarath: Would you rather be shot and die quickly, or die slowly from poisoning? Having an IPS and not following it (without a really good reason) is "fatal" quickly - as you have provided the standard of conduct against which you will be judged. Not having an IPS and "winging it" means you leave it to the judge (never, ever a good idea) to determine the standard by which you will be judged and held to before he or she strings you up based on what they think would be prudent.... Speaking of which, I'm not aware of anything that "specifically" says an IPS is required EXCEPT that one must be a "prudent expert" (with the care, skill, etc.) as a fiduciary, and I can't think of a "prudent" investment manager who would do without one....