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It seems clear that the IRS does not care which type of contribution you distribute. The LRMs specifically allow you to have Roth first or pre-tax first, as I recall. In theory you could have plan language that would give participant a choice, or, better, have plan language that says employer will adopt a policy, and then have the policy give the participant a choice, but in plans that we have advised where plan sponsor wanted to provide participant-by-participant choice, we have had pushback from bank or mutual fund company recordkeeping plan saying that it was not administrable (e.g., you would need to determine which participants had Roth and get them to make election by 3/15), so we have usually put "pre-tax first" in policy. It's tricky, because on the one hand you could assume most participants would rather get back the money they were taxed on, so that their personal income tax planning for year is not upset, but on the other hand someone who made decision to do part of deferrals as Roth probably viewed that portion of their deferral as having higher future value.

Pay attention to applicable HSA contribution limits. No comment on the essential compliance question.

Below Ground, thank you for your thoughtful and thorough response, and especially your explanation about ways to set a default allocation.

An illegal alien is entitled to their account balance unless your plan some how excluded them. I have never seen that provision and you would have had to factor the exclusion into the coverage test. The is the law. An illegal alien can get an ITIN for tax purposes. They don't tend to do so as they fear the IRS is going to tell other parts of the government about them. You can search on this board there have been other threads on this board regarding this topic. before. https://www.irs.gov/individuals/individual-taxpayer-identification-number

My understanding is the invalid SSN is a completely distinct issue from the right to the plan accounts. Just because someone does not have a valid social doesn't mean they don't have a right to compensation or wages. There are lot of intertwining issues, but especially if there are deferrals (but even if only employer contributions), the money belongs to person the same as any other plan participant. Now if the IRS were to get awarded the accounts because of tax fraud and a court judgment, that would be entirely different. Similarly, if I find out someone's SSN isn't valid and I fire them, it doesn't mean I can withhold their final paycheck. If they worked and earned the money, it is theirs. As for what to use on a 1099-R, I would suggest getting a taxpayer ID from their home country if they do not have a SSN. And don't forget the higher possible tax withholding, and W-8BEN.

When this issue is left as an open administrative function, we typically ask the contact at the firm to have the affected HCE call us for discussion. In that discussion we outline options and expected impact, directing that person call their tax advisor for counsel and then get back to us with a decision. Of course, a deadline is set for response, and a follow-up email is sent immediately after the call, covering what was discussed. If this approach is not allowed by time, or the person fails to get back to us, we discuss the issue with the Plan Administrator and make a decision on default application. Prorata is probably the safest way in the absence of a decision from the participant. Another method is in proportion to the contribution division of that person. We also have plans that are expected to fail send out a "warning notice" to the HCE, asking for them to define their preference.

Some Sponsors will balk at any fees so yes a restatement charge at termination might get some blow back on fees.

Restatements are not required. Taking an unnecessary risk is not prohibited. Here is my understanding: 1. If you want to maintain an ongoing pre-approved plan you must restate by the end of the IRS restatement window to maintain document compliance (e.g. 4/30/2020 for a pre-approved DB plan). 2. If your plan's official date of termination is on or before the end of the restatement window, you do not have to restate. Be sure to get everyone paid out within 12 months as the IRS may consider the plan to be ongoing otherwise, and you'd have missed a restatement deadline. Any amendments that were not covered by the plan's most recent Opinion/Advisory/Determination Letter are at risk - they have not been approved by the IRS. The plan sponsor should consider that risk and weigh the cost/benefit of restating. 3. If you have an individually designed plan and you are eligible to submit your plan to the IRS for a Form 5300 determination letter, not the initial one, but one of the "other business reasons" that the IRS has yet to define, then you likely need to restate. Lastly, if you are terminating the plan before the end of the restatement window and you intend to file a Form 5310, no restatement is required, but be sure to submit each amendment that was not covered by the plan's last Opinion/Advisory/Determination Letter (whichever applies). Edited to add: And yes, when a plan terminates, it's written terms must be up-to-date for any changes in laws/regs/etc. to be compliant. Also, if the plan is submitting Form 5310, the document does not have to be updated by its date of plan termination like other plans. Instead, the IRS agent reviewing the Form 5310 will explain what language is missing/incorrect, ask for that proposed language, and the plan sponsor can adopt it within 91 days after the date on the IRS Determination Letter (the 401(b) period).