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Rules are in Treas. Reg. Sections 1.401(m)-3(j)(2), 1.401(m)-3(j)(6), 1.401(m)-2(a)(5)(iv) and 1.401(m)-2(a)(6)(vi). You are correct that an ACP test is required for a safe harbor plan what allows traditional (non-Roth) employee after-tax contributions. The match may be included or excluded from that ACP test. If the plan meets the 401(k) but not the 401(m) safe harbor rules, one can also include just part of the match in the ACP test -- see the regulation for details. If a SHNEC is used to satisfy the 401(k) safe harbor rules, one can't also use those dollars in the ACP test.

4%

Thanks John - that's what I was getting out of 2020-86, but I was afraid I was missing something...

No. They are aggregated for 415 limit purposes however.

If someone does not get an employer contribution (other than match), then there is no gateway needed. And I think you mean "highest HCE %." Also, you only include contributions that appear in the general test for the highest HCE %. So no match. Only Safe Harbor nonelective and profit sharing.

Figured this out. I know they why, just not the reason. For plan years filed 2018 or earlier, they are using current plan year form (2020) but for whatever reason, because of this they simply won't show up on efast2. Yes there is an ACKID.

An exclusion about collective bargaining might apply in fitting circumstances. I.R.C. § 408(k)(2) Participation Requirements — This paragraph is satisfied with respect to a simplified employee pension for a year only if for such year the employer contributes to the simplified employee pension of each employee who— I.R.C. § 408(k)(2)(A) — has attained age 21, I.R.C. § 408(k)(2)(B) — has performed service for the employer during at least 3 of the immediately preceding 5 years, and I.R.C. § 408(k)(2)(C) — received at least $450 in compensation (within the meaning of section 414(q)(4)) from the employer for the year. For purposes of this paragraph, there shall be excluded from consideration employees described in subparagraph (A) or (C) of section 410(b)(3). For purposes of any arrangement described in subsection (k)(6), any employee who is eligible to have employer contributions made on the employee's behalf under such arrangement shall be treated as if such a contribution was made. I.R.C. § 410(b)(3) Exclusion Of Certain Employees — For purposes of this subsection, there shall be excluded from consideration— I.R.C. § 410(b)(3)(A) — employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers[.] To write a plan’s (or several plans’) provisions to sort employees by each collective-bargaining unit and those who are unrepresented, don’t use Form 5305-SEP; instead, use an employee-benefits lawyer coordinating with a labor-relations lawyer. But why use a SEP?

Is(n't) the primary risk of the substantial and recurring issue that contributions would be DQ'd, and/or that immediate vesting is required? Also I think if that remains a concern that the sponsor could find some source of earned income. I think it's an interesting idea but would not undertake it with standard "one-man plan" pricing.

The following is the full paragraph in which the "substantial and recurring contributions" requirement is found. That sentence (the second-to-last) applies only to PS plans, but I read the remainder as applying to all forms of "plans" under 401(a). Although the fact pattern doesn't fit neatly into the permanency or other explicit rules in this paragraph, this would give me some concern, especially with no intent to ever have eligible compensation paid, 0% fixed contributions, and no other employees or employee contributions aside from the owner's rollover. In other words, can something ever be a permanent plan intended to receive contributions and benefit employees if it's explicitly set up to ensure neither of those things ever happens? 1.401-1(b)(2): The term “plan” implies a permanent as distinguished from a temporary program. Thus, although the employer may reserve the right to change or terminate the plan, and to discontinue contributions thereunder, the abandonment of the plan for any reason other than business necessity within a few years after it has taken effect will be evidence that the plan from its inception was not a bona fide program for the exclusive benefit of employees in general. Especially will this be true if, for example, a pension plan is abandoned soon after pensions have been fully funded for persons in favor of whom discrimination is prohibited under section 401(a). The permanency of the plan will be indicated by all of the surrounding facts and circumstances, including the likelihood of the employer's ability to continue contributions as provided under the plan. In the case of a profit-sharing plan, other than a profit-sharing plan which covers employees and owner- employees (see section 401(d)(2)(B)), it is not necessary that the employer contribute every year or that he contribute the same amount or contribute in accordance with the same ratio every year. However, merely making a single or occasional contribution out of profits for employees does not establish a plan of profit-sharing. To be a profit-sharing plan, there must be recurring and substantial contributions out of profits for the employees. In the event a plan is abandoned, the employer should promptly notify the district director, stating the circumstances which led to the discontinuance of the plan.

Are we sure that there is no exception to the substantial and recurring requirement in the case where the plan sponsor has no pensionable earnings?

Contributions to a profit sharing plan have to be "substantial and recurring." A 401(k) plan is a profit sharing plan, but a MPP is not, which is presumably why shERPA recommended it.

Assuming there is an employer to sponsor a plan, use a 0% money purchase plan.

I am going to start with one of your last questions/issues. I work for an ESOP TPA firm and our installment forms are very clear if you do not return a form in the future years you will get sent an installment sent to the same address and in paid the same way as the prior year. On the last part it means if you asked for your installment to be sent to xyz IRA and never return a form after the first one all the installments after that will be sent to xyz IRA. You, or someone at the company, is the Plan Administrator not the recordkeeper/TPA. I recommend you speak to your ERISA attorney. if they agree the plan can have the forms say all future installments will be paid as the previously returned form demand it changes. You drive how the plan works not the TPA/recordkeeper. If the person's balance is over $5,000 you can't force them out of the plan. it is just how the law works. You can force them out of the company stock while their balance stays in the plan. This is called segregation in this business. If your plan allows for it, and if it doesn't talk to your ERISA attorney to get it amended, you can set up a method that allows you to sell the people out of their stock and into cash based investments. They key here is to give the plan flexibility. See if your attorney will allow the plan to be written such the company decides who much cash it wants to put into the ESOP to segregate the accounts and describe the method to do so. Pro rate is the most common method. For example, if there is $100,000 of shares in terminated employees accounts that can be segregated and the company is only prepared to put $50,000 in cash to fund segregation using a pro rata method all the terminated employees would be forced to sell 50% of the shares in their account. You can use other methods than pro rata. We have clients that sell 100% of the stock from the person with the oldest termination date for example. You go from oldest to newest until the cash runs out. You just have to make sure the method isn't discriminatory. A good ESOP TPA can guide you through this. You will find many of the people start taking their payments if they know they are going into a cash based investment vs the company stock. After all they can invest in mutual funds and so forth in an IRA with more control if they do so. There are a number of issues you need to investigate before you do this that is too long to write here. For example. by making them sell the shares and putting them into some kind of cash investment your company has made an investment election for these people. That means there is a fiduciary liability regarding the investment choice. Not saying that is a deal breaker as segregation is common in ESOPs. I am just saying you need to be aware of the risk when making the choice of investment and pick one that helps mitigate the risk. Search the NCEO and ESOP Association's websites for the word "segregation". You will get a large number of hits for information . This is the closest I will do to a "sales job" on this board as that is frowned upon here. Is your TPA/recordkeeper one that is known to specialize in ESOPs? I am a little surprised that they haven't brought up segregation. If not, I recommend you get one that is an ESOP shop. They can do other types of plans- the company I work for does. But ESOPs have enough unique situations I think you need an ESOP specialist to help guide you through these kinds of situation/planning opportunities. Lastly, I would recommend you attend your local ESOP Association chapter meetings- when we are allowed to have conferences and meetings again! Also, NCEO has weekly webinars. The NCEO also has a large conference in April. There will be breakout sessions on segregation at most conferences. You can learn a lot and speak to other ESOP companies that have done segregation. If you aren't a member of the NCEO and ESOP Association you should think about joining to access these benefits and learning opportunities. There will be a wealth of other sessions on ownership culture, repurchase obligations. what to do if you find a mistake...... Sorry if this was a little long.