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Years ago I asked the IRS what value should we put in Line 3b. We were told that you leave 3b blank. If that additional tax is going to be charged, the IRS will contact you on that topic. To be clear, using your numbers from above, the excise tax will be $7.50 which is listed on Line 3a. There will be no entry on Line 3b. I note that over many years this has been our practice, and we have never been contacted about a 4975(b) tax.

Exactly. To tell you the truth I think that if we could ever find a PEO that would let us do everything related to the admin for our plans, that would be the home run scenario for this stuff. Because if you're the PEO, you're already running the payroll, the data is yours, etc. And of course you're not a 316 you're the actual administrator. Anyway, obviously finding a PEO who would let me do that might be harder then finding the Lost Ark. And yes PEO's are expensive but there is a clear value proposition there, where I think this 3(16) stuff just does not add enough value to justify the extra fees that they charge. But that's just me.

After 2009, a Non-ERISA plan which depends on an ERISA plan for an allocation rule causes the "Non-ERISA" plan to become ERISA. I would argue that you have two ERISA plans (instead of an ERISA and a Non-ERISA) and therefore, perhaps, (see Peter's comment) problems with the PS allocation. If the auditor tracks with the theory I am referencing, you also have problems with not filing a 5500 for the plan you thought was Non-ERISA. PNJ