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I think you understood it. My motivation I did not state explicitly. Let say someone has gains of 10% in 2019, but then a loss of 5% in 2020. If I'm the participant I'd be like "hey, I'm refunded all of these gains for 2019, but some of those gains don't exist today, so why aren't you updating the gains through the date of the distrbuition?" If my answer is "based on the law it is impossible to adjust for gap period earnings" then that makes it real easy for me.

First, there is no transition. You are either under the old rules or the new rules. If you turned 70 1/2 in 2019 (or earlier), you are under the old rules. If not, you are under the new rules. Example 1: old rules. Example 2: old rules. Neither of these have access to the change in rules. There are NO transition rules; it's black and white (if that's still politically acceptable).

I will take door number 2, Monty! Yes, I'm sure!

And remember, with prior years testing, you know how much the HCEs can put away AS A GROUP. So if the NHCE % was 1.5% last year, the top group can put away 3% on average. That's great if everyone is on board. However, say, all the HCEs decide to put away 3% for the year, then one of them decides to spot for whatever reason halfway through the year. The the other HCEs can have the % raised a little. But nobody is going to really know that. The plan administrator cannot say, "hey guys, Erica decided to stop deferring for now, so you can go a little higher on your contributions." I like to reiterate to the clients that if the plan fails testing it's not a red flag with the IRS or anything; and no one is going to turn them into the DOL. It's a fact of life. And again, if the HCEs did the absolute maximum under the testing rules, hit the numbers exactly, then whatever above that is going to be taxed in their paycheck anyway. (And, if the funds go up during the year, they get the earnings in the refund, too. Sure, they pay tax on it, but it's still extra money. It's like saying "here's an extra hundred bucks, but I have to keep $35 for taxes, so I'm just gonna give you $65. For doing nothing, really." I'd take that.

The exclusions are permissibly applied to eligibility for elective deferrals, as the law says, but they must be written into the document. $10 per week is less than "annual contributions ....of $200;" and 10 hours a week is less than 20 hours a week (the exclusion itself says that a lower number of hours can be selected). This seems pretty straight forward to me so I am concerned that I am missing the point of your question. The option of using such exclusions would be in a pre-approved 403(b) document (which this plan sponsor has to have by March 31 of this year... next month). They are old in their origin and application. They both were used more when individual annuities were the/ a dominate funding vehicle for 403(b) plans. I also discourage their use because plan sponsors err in application and that can create other problems. Please remind the client that these exclusions MUST be written into the document if they are to be used. Let me know if I missed the point here! PNJ

Traditionally, DB participants could not commence pension payments until retirement. For those who remained employed beyond NRA, many plans provided an actuarial increase for the entire period until payment commencement, ensuring that the economic value earned as of the NRA wouldn’t be lost — but many others provided no actuarial increase. Without an actuarial adjustment the decrease in the economic value from delaying retirement could be very significant, especially where the benefit amount was frozen. In the late-1980s Congress started requiring in-service distributions once a participant reached the April 1 following the age 70½ calendar year. For a DB plan with an age 65 NRA that didn’t provided a late commencement adjustment, this requirement limited the potential loss in value from working past NRA to about six or seven years’ worth of pension payments. The requirement was repealed for non-5% owners in the early 2000s. But if a DB plan took advantage of the repeal it would have to actuarially increase the accrued benefit at least for the period after in-service distributions would have had to begin under the prior law — the period after the April 1 following the age 70½ calendar year. In other words, Congress didn’t want this repeal to remove the limit it had placed on the potential loss in pension value from working past NRA. From this perspective, it would be surprising if the current change from 70½ to 72 that applies to former employees and 5% owners was intended to also increase the allowed loss in value for non-owner participants still working past their NRA by another 18 months’ worth of pension payments.

Since a rabbi trust is optional, there shouldn't be any issues with establishing now.

If the plan is unfunded and the employer did not set aside its property under a rabbi trust, it seems likely the property remains the employer’s property. If the employer owns the property, the employer can volunteer to subject its property to a little restraint. If the participants want tax-deferred treatment, they would want a rabbi trust that does not result in the deferred compensation obligation becoming funded or secured, and does not result in a current economic benefit.

And just in case it isn't clear from the brevity of my comment, thanks for the extremely well written post. I know the answer isn't what you want.

You are paid in February; it doesn't matter for what period you are paid, but you ARE paid in February. 30 days AFTER that month end is the end of March. You are wrong and your employer is right. BUT, see my next comment. Unless you are being paid in advance for a month (which, from your posting, you are being paid IN ARREARS for the prior month), most states do not allow payment if money owed to you only once a month. Most states require no less than semi-monthly (twice a month) in arrears. You should check with a labor lawyer in your state as to whether your employer is violating labor laws in how you are being paid!

There isn't one. For governmental plans, section 457(b)(6) permits them to correct at any time before the first day of the first plan year beginning more than 180 days after the date of notification by the IRS that there is a problem. There is limited ability to use VCP-like procedures for nongovernmental plans. See Rev. Proc. 2019-19. However, aside from that, there is no formal statement of when deadlines might be, or procedure for retroactive amendment.