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Now this statement sent chills down my spine. Do you know how hard it is to administer a plan that is held together with duct tape like this? It's an absolute nightmare. Since this new DL elimination came out, this is the number one thing I fear. A 75 page document with 12 amendments. Terrifying. Absolutely terrifying.

Generally agree with Luke that there is no practical reason for continuing to account for basis/earnings after an employee reaches age 59 1/2 and satisfies the 5 year holding period. (I'm also assuming there's no state tax reason for doing so.) But IRS guidance may technically require it. For example, the separate accounting regs, at (f)(3), state: (3) Separate accounting required. Under the separate accounting requirement of this paragraph (f)(3), contributions and withdrawals of designated Roth contributions must be credited and debited to a designated Roth account maintained for the employee and the plan must maintain a record of the employee's investment in the contract (that is, designated Roth contributions that have not been distributed) with respect to the employee's designated Roth account. In addition, gains, losses, and other credits or charges must be separately allocated on a reasonable and consistent basis to the designated Roth account and other accounts under the plan. However, forfeitures may not be allocated to the designated Roth account and no contributions other than designated Roth contributions and rollover contributions described in section 402A(c)(3)(B) may be allocated to such account. The separate accounting requirement applies at the time the designated Roth contribution is contributed to the plan and must continue to apply until the designated Roth account is completely distributed. A-13 of § 1.402A-1 for additional requirements for separate accounting. And the regs also contain this Q&A: Q-7. After a qualified distribution from a designated Roth account has been made, how is the remaining investment in the contract of the designated Roth account determined under section 72? A-7. (a) The portion of any qualified distribution that is treated as a recovery of investment in the contract is determined in the same manner as if the distribution were not a qualified distribution. (See A-3 of this section) Thus, the remaining investment in the contract in a designated Roth account after a qualified distribution is determined in the same manner after a qualified distribution as it would be determined if the distribution were not a qualified distribution. However, the example the IRS provides deals with a qualified distribution due to disability, and notes that "This determination of the remaining investment in the contract will be needed if C subsequently is no longer disabled and takes a nonqualified distribution from the designated Roth account."

There are attorneys who will review (for a fee of course) a document and give an opinion that the document complies with a Cumulative List - a pseudo determination letter. The key is that there is at least an initial or latest 5-year cycle determination letter secured.

While it is not substantial authority, here is the relevant Q&A from the IRS' SIMPLE IRA Plan FAQs - Contributions If an employee starts or stops salary reduction contributions in the middle of the year, can I make my 3% match based only on the compensation earned during the period they actually contributed? No, you must base your SIMPLE IRA plan employer matching contribution on the employee’s entire calendar-year compensation, regardless of when the employee starts or stops contributing during the year. The maximum matching contribution is always 3% of the employees’ compensation for the entire calendar year. Matching contributions may be made on a per-pay-period basis, or by the due date of the employer’s tax return (including extensions).

Thanks for all of the feedback. I do appreciate it. This is really the part I have a problem with: The safe harbor nonelective contributions are clearly not part of (2). Under a CODA, as defined in 401(k)(2), contributions are made pursuant to the employee's election to have the contribution made in lieu of cash. If a participant does not make such an election, they nonetheless receive the safe harbor nonelective contribution, therefore the safe harbor nonelective contributions are not part of a CODA, therefore they are not part of (1) either. Therefore the plan consists of contributions other than those specified in (1) or (2), therefore 416(g)(4)(H) does not apply. I think this is as good as I'm going to get - the 3% nonelective contribution is "described in" 401(k)(12)(C) and therefore it meets the requirements of 416(g)(4)(H). Chalk this one up to poorly written laws and lack of regulatory guidance, I suppose. Thanks again for all of the input.

If you want to see an excel implementation of an IRS example calculation, download the file below and use columns L and M to compare results. http://docs.wixstatic.com/ugd/fa3ca5_ec07f19859c940098c4be9cbdf18f0dd.xls?dn=Loan Maximum Calculator.xls