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What does the document say? Eligibility is not a protected benefit but often documents will grandfather those who previously met the eligibility conditions. Though in practice it might be difficult to suspend his election when it's now determined he became an HCE based on look-back comp. To me this seems like an overly complicated provision designed to create unforseen problems.

Nah. It's an operational failure. Just correct under SCP.

I've never understood why people write weird provisions in the plan and then ignore them.

I think they are trying to ensure they have no HCEs in the otherwise excluible group so they don't have to run a 401(k) test and process potential refunds. It may be that the owners kids pop on the payroll that could cause testing issue with the less than a year of service group. And I have not seen that particular provision in practice.

As to #1 I don't think there is any time frame in the code. I believe it just says "Medical expenses (described in IRC §213) incurred by my spouse, dependents or me" of something similar. If the debt that's being paid off over time is medical in nature I don't see why that might not create a hardship down the road when the pariticpant may no longer be able to make the payments for one reason or another. As to #2, the Plan can have reasonable administrative procedures to determine which hardships they will approve and which they won't including a reasonable time frame on when expenses were occurred as long as the procedures are consistent and non-descriminatory.

No it is not safe to assume that.

That is my understanding as well. The reasoning behind making up the difference in a subsequent payroll is that the election and calculation is still valid based on the eligible comp. In theory ,contributing the remainder of the 1/1/XX 401k contribution on 1/15/XX is ok because 1/15/XX is when the cash is first available to be deferred (for the remainder). It isn't a late deferral issue since it was separated from employer assets as soon as reasonably possible. It was also contributed before it was received by the participant. Again, this is how it was described to me, I think at a seminar or session of some sort. The only restaurant plans I have either collect tips and pay them out with the wages or the establishment does not allow cash tips at all (members only club where everything is billed to the member at month end).

Yes, she just got a zero check. She had gotten her tips every time she closed out her shift she worked. So she got the tip cash. As a practical matter for the typical waitress the tips is the game. My daughter pretty much paid cash for nursing school via her tips.

What specifically are you looking for in this rev proc? Because 2017-56 does address both a change in the valuation date to the first day of the plan year (at any time), and a change in the valuation date for a terminating plan from the last day of the year to the termination date. If you look at the end of 2017-56, it states that it modifies rev proc 2000-40 and announcements 2010-3 and 2015-3. Are any of those what you were looking for?

Here is a workaround I have heard before: wages and tips are comp for plan purposes deferrals are calculated on wages and tips the actual contribution can only come from the wages portion if the deferral exceeds available wages in any payperiod, the difference is contributed with the following payroll

I'd advise against it. ESOP's are not for mom & pops usually so I'm surprised there was no trustee who oversaw the sale; no board in place or the new owners that feel this may be an overreach by the old owners. Who hired the valuation firm? If there was a discretionary trustee for the sale, that's the likely trustee who should be hired as the directed trustee. The sale is already suspicious if no trustee oversaw the sale, then to let the old owner act as trustee, you're asking for a lawsuit! Just negotiate a fee with a bona fide ESOP trustee, one who knows the ESOP community and the ESOP rules and can advise the board. The former seller (only if they have an installment note) should be on the board, chairman is okay, but that's it. You need formality formality and formality now or the DOL will be calling on you. In fact, the DOL will know when you don't have an outside trustee and will be calling. Be prepared for a real ESOP Trustee to walk away from taking you on if this was a suspicious sale. Then go to your banker and see if they'll do it. Good Luck!