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Just a small addition to this discussion: Both of the Pre-Approved document providers we use at our firm offer this option in the Adoption Agreement. Our administrators prefer it (if there is Non-Elective) because if the flexibility.

Yes, top heavy minimum is subject to coverage. If an allocation only to the non-keys employed on the last day fails coverage then you will need to make additional contributions to NHCEs to pass. Don't forget about the average benefits test.

Yep. Chart at https://benefitsattorney.com/charts/maximums/, showing limits from 1996 through 2021, has been updated.

Catch22PGM, take a look at Treas. Reg. 1.415(c)-2(c)(1), last sentence. Even under the general definition of 415(c) comp, deferred comp from an unfunded plan can be comp for qualified plan purposes when it is distributed, if the plan so provides. If the plan uses the W-2 or withholding safe harbor, it probably does so "provide," but you'll need to check the plan document carefully to make sure there is no applicable exclusion. Under Section 414(s), a plan can use a narrower definition than what is permissible under Section 415.

You might have a partial plan termination under these circumstances. If so it would require the terminated employees to become 100% vested.

The force out threshold is based on the vested balance. Check your plan document for "deemed cash out" or similar language. What it usually says is that when a participant terminates with a $0 vested account balance they are deemed to have received a distribution of their vested account, and the unvested amount is immediately forfeited. From a practical standpoint, this means the sponsor would contribute the amount to the participant's account and then immediately forfeit it. Note that if the correction was done with a retroactive amendment, a.k.a. an -11(g) amendment, then this goes out the window. The -11(g) rules require that the benefits granted by the amendment "have substance" which means an allocation to a 0% vested terminated participant does not count. You have to grant them some vesting, not necessarily 100%, in order for it to count. After applying the vesting, if their vested balance is less than the applicable limit then they can be forced out. You didn't specify the nature of the coverage failure. If this is a correction of a coverage failure on profit sharing, maybe there were non-key HCEs who received the top heavy minimum, then this is fine, but $5k as a 3% contribution for an NHCE seems like a lot. However if this is a correction of a 401(k) coverage failure which you are correcting with a QNEC then disregard what I said, since a QNEC must be 100% vested. In that case you have a participant with a vested balance over the involuntary distribution threshold, just like anyone else. They can not be required to take a distribution until age 72 (or plan termination). As always, more facts are better.

@Ponderer33 Any individual covered by an HRA that is not specially designed to preserve HSA eligibility will have disqualifying coverage for HSA eligibility purposes. That means the individual will not be able to make or receive HSA contributions. The individual can still be covered by the HDHP. The same is true for a retiree HRA. If the HRA is not post-deductible, limited purpose, or suspended, the retiree and any covered dependents (i.e., any dependents whose health expenses are eligible for reimbursement through the HRA) will not be HSA-eligible. This is essentially the same issue as posed by an employee's health FSA enrollment. Overview here: https://www.theabdteam.com/blog/hsa-interaction-health-fsa-2/ In your situation, ideally there would be a plan feature in place permitting the retiree to elect to opt-out of/suspend coverage for any otherwise covered dependents if they want those dependents to maintain HSA eligibility. Otherwise, the retiree would have to opt-out of/suspend the HRA entirely to preserve HSA eligibility for covered dependents. Keep in mind that enrollment in any part of Medicare will also block HSA eligibility. Overview here: https://www.theabdteam.com/blog/how-medicare-affects-hsa-eligibility/ Here are a couple useful pieces of IRS guidance: IRS Rev. Rul. 2004-45: https://benefitslink.com/src/irs/revrul2004-45.pdf Under section 223, an eligible individual cannot be covered by a health plan that is not an HDHP unless that health plan provides permitted insurance, permitted coverage or preventive care. A health FSA and an HRA are health plans and constitute other coverage under section 223(c)(1)(A)(ii). Consequently, an individual who is covered by an HDHP and a health FSA or HRA that pays or reimburses section 213(d) medical expenses is generally not an eligible individual for the purpose of making contributions to an HSA. ... Retirement HRA. A retirement HRA that pays or reimburses only those medical expenses incurred after retirement (and no expenses incurred before retirement). In this case, the individual is an eligible individual for the purpose of making contributions to the HSA before retirement but loses eligibility for coverage periods when the retirement HRA may pay or reimburse section 213(d) medical expenses. Thus, after retirement, the individual is no longer an eligible individual for the purpose of the HSA. IRS Notice 2008-59: https://www.irs.gov/irb/2008-29_IRB#NOT-2008-59 Q-8. Is an individual with family HDHP coverage who is also covered by a post-deductible HRA or post-deductible health FSA an eligible individual under § 223(c)(1) if the post-deductible HRA or post-deductible health FSA reimburses § 213(d) medical expenses of a spouse or dependent incurred before the minimum family HDHP deductible under § 223(c)(2)(A)(i)(II) has been satisfied? A-8. No. If an individual with family HDHP coverage is covered by a post-deductible HRA or post-deductible health FSA that reimburses the § 213(d) medical expenses of any covered individual before the minimum family HDHP deductible under § 223(c)(2)(A)(i)(II) has been satisfied, that individual is not an eligible individual under § 223(c)(1). Example 1. Employee C has family HDHP coverage. Employee C’s spouse and children (but not Employee C) are also covered by non-HDHP family coverage provided by the spouse’s employer. Employee C and Employee C’s spouse and children are also covered by a post-deductible health FSA. The health FSA pays for unreimbursed medical expenses of the spouse and child without regard to the satisfaction of the deductible of the family HDHP. Because the health FSA covering Employee C reimburses medical expenses before the minimum family HDHP deductible is satisfied, Employee C is not an eligible individual. Example 2. Same facts as Example 1, except the health FSA does not cover Employee C. Employee C is an eligible individual.

It sounds like your client, the purchasing entity, is purchasing certain assets (division) of an unrelated company. The good news in an asset deal is that your client can pick and chose which assets/liabilities it wants. If you have serious concerns about the seller's operational compliance with the terms of its 401(k) plan, the easiest answer is to have your client not assume the plan and its potential liabilities. The employees that are transferring over along with the sale of assets may enroll in your 401(k) plan. The seller can chose what it wants to do with its own 401(k) plan.

@ERISA-Bubs A COBRA qualifying event occurs where a COBRA-prescribed triggering event causes a loss of coverage. Amendment of the plan to eliminate coverage for certain employees who were previously eligible is not one of those triggering events. See Treas. Reg. §54.4980B-4, Q/A-1. I think the point of @B. PARVARANDEH is that the deferred loss of coverage rule should apply. In other words, that COBRA should be triggered on a delayed basis because the loss of coverage was constructively caused by the reduction in hours (i.e., the disability). This would apply as long as the loss of coverage occurs within the 18-month period following the triggering event (reduction in hours). The deferred loss of coverage rule would provide that the additional period of coverage continued after the triggering event (I'm assuming reduction of hours) would apply toward the COBRA maximum coverage period to reduce the period that the qualified beneficiary could continue coverage through COBRA. See Treas. Reg. Sec. 54.4980B-4, Q/A-1(c). That would mean the COBRA maximum coverage period would be 18 months reduced by the period in which active coverage continued prior to this amended to eliminate active coverage eligibility for LTD participants. This example from the regs seems to be on point for that position: Treas. Reg. Sec. 54.4980B-4, Q/A-1(g), Example 5: Example (5). (i) An employer maintains a group health plan for both active employees and retired employees (and their families). The coverage for active employees and retired employees is identical, and the employer does not require retirees to pay more for coverage than active employees. The plan does not make COBRA continuation coverage available when an employee retires (and is not required to because the retired employee has not lost coverage under the plan). The employer amends the plan to eliminate coverage for retired employees effective January 1, 2002. On that date, several retired employees (and their spouses and dependent children) have been covered under the plan since their retirement for less than the maximum coverage period that would apply to them in connection with their retirement. (ii) The elimination of retiree coverage under these circumstances is a deferred loss of coverage for those retirees (and their spouses and dependent children) under paragraph (c) of this Q&A-1 and, thus, the retirement is a qualifying event. The plan must make COBRA continuation coverage available to them for the balance of the maximum coverage period that applies to them in connection with the retirement. I suggest confirming with your carriers (fully insured) and/or stop-loss providers (self-insured), but that is the position I would take.

Actually, IRS limits are based on CPI-U while Social Security increases are based on CPI-W.