Leaderboard

You could amend the plan so that part-time employees are eligible for employer-sponsored insurance.

(iii) Timing of self-employed individual's cash or deferred election. For purposes of paragraph (a)(3)(iv) of this section, a partner's compensation is deemed currently available on the last day of the partnership taxable year and a sole proprietor's compensation is deemed currently available on the last day of the individual's taxable year. Accordingly, a self-employed individual may not make a cash or deferred election with respect to compensation for a partnership or sole proprietorship taxable year after the last day of that year. See §1.401(k)-2(a)(4)(ii) for the rules regarding when these contributions are treated as allocated. (iv) Special rule for certain payments to self-employed individuals. For purposes of sections 401(k) and 401(m), the earned income of a self-employed individual for a taxable year constitutes payment for services during that year. Thus, for example, if a partnership provides for cash advance payments during the taxable year to be made to a partner based on the value of the partner's services prior to the date of payment (and which do not exceed a reasonable estimate of the partner's earned income for the taxable year), a contribution of a portion of these payments to a profit sharing plan in accordance with an election to defer the portion of the advance payments does not fail to be made pursuant to a cash or deferred election within the meaning of paragraph (a)(3)(iii) of this section merely because the contribution is made before the amount of the partner's earned income is finally determined and reported. However, see §1.401(k)-2(a)(4)(ii) for rules on when earned income is treated as received. https://www.ecfr.gov/cgi-bin/text-idx?SID=93bab6d03bb9386c1be48ee7b5de8cce&mc=true&node=se26.6.1_1401_2k_3_61&rgn=div8

I think we've all stated that they have to sign the deferral election by 12/31 of the year in which they are deferring because that's the date the income is deemed to be "earned." I don't think this changes that.

Life insurance is NOT a 411(d)6 protected benefit; it can be eliminated. However, in this merge situation, they can also elect to keep the pre-existing insurance and just not allow any more purchases. So the first thing to confirm is that there is no desire to keep the existing insurance in the merged plan. Assuming that to be the case, then the contracts will be removed from the plan. This can happen in several ways: First, the participants should be offered the option to BUY the insurance from the plan for the net cash surrender value. If they can't afford that payment, then the policies can be first "maximum loaned" by the plan so that a big chunk of the cash value is moved out of the contract and into the investment fund. Now, the contract can be offered to the participant to buy for a much lower cost (the remaining cash value, most likely less than 10% of the total cash value prior to the loan). Of course, the contract that is now transferred has the outstanding loan against it. Lastly, if the participant doesn't want to continue the contracts outside of the plan, then they should just be surrendered.