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Scheduled to be published tomorrow. Looks like we can go back to using forfeitures to fund safe harbor contributions, as long as your plan allows it. Fortunately, our VS document has the phrase "unless provided otherwise under IRS guidance" at the end of the sentence about not using forfeitures towards SH contributions. https://www.federalregister.gov/documents/2017/01/18/2017-00876/definitions-of-qualified-matching-contributions-and-qualified-nonelective-contributions

From the 2000 Annual ASPPA Conference: 22. Company A has 11 nonexcludable employees; one HCE and 10 NHCs. Four of ten NHCs leave employment during year after working more than 500 hours. Plan requires end of year employment for allocation. Coverage ratio is therefore 60%, which meets the non-discriminatory safe harbor at 1.410(b)-4(c)(2). Plan also passes the average benefits percentage test of 1.410(b)-5 (e.g. on a cross-tested basis). Plan still must cover reasonable class per 1.410(b)-4(b) to pass the average benefits test of 410(b)(2). Question: is “those employed on the last day of the plan year” a “ reasonable classification” for purposes of 1.410(b)-4(b)? IRS: Yes. From the 2001 Annual ASPPA Conference: 46. The average benefits test for coverage testing consists of the nondiscriminatory classification test and the average benefits percentage test. To satisfy one part of the nondiscriminatory classification test, it is necessary to determine if the classifications are reasonable based on objective business criteria. Do participants employed at the end of the plan year constitute a “reasonable classification” under Treasury regulation 1.410(b)-4(b)? IRS: No. Our opinion is that it is not a reasonable classification.

A payroll administration error, but not a tax error. Employer owes employee money. If it is paid back in 2017, it will be subject to tax and associated withholding in 2017. It's no more complicated than that.

Why do you think that a plan termination forces a short plan year for this purpose?

ultimately, one of the problems trying to answer a question. you answer it one way and then realize later the question pertained to slightly different conditions. (missing the point everyone in their own group) the IRS has said that if everyone is in their own group you can't use avg ben test for coverage. And the proposed regs wanted to apply that to nondiscrim testing as well, but they rescinded that item. I think most agree excluding terminees is a reasonable classification (I think even the regs imply this when they say you can do this but if they work over 500 treat them as includablle and not benefiting i, but irrelevant once you have everyone in their own group.

Hurray! About time, but kudos to the IRS for finally taking a sensible approach on this.