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All affected participants become fully vested in their account balances on the date of the full or partial plan termination, regardless of the plan’s vesting schedule. Affected participants are current or former employees who haven’t received full payment of their vested interest by the plan termination date, unless they’ve incurred at least 5 consecutive 1-year breaks in service. Retirement Plans FAQs regarding Plan Terminations | Internal Revenue Service (irs.gov)

Without knowing or remarking on the particular situation you describe: The Internal Revenue Service allows a method for a claimant to self-certify her hardship without submitting source documents as a part of the claim. Instead, a plan’s administrator or claims administrator relies on the participant’s written statement (made under penalties of perjury). A claimant must pledge to keep her source documents, and to furnish them if asked. But a participant’s breach of that promise won’t tax-disqualify the plan if the plan’s procedure is correctly designed and administered. Internal Revenue Manual 4.72.2.7.5.1 (08-26-2020) https://www.irs.gov/irm/part4/irm_04-072-002#idm140377115475856 The IRS’s without-source-documents method can work if the plan’s administrator and its service providers carefully meet all conditions of the regulations and that method. Under that method, an IRS examiner must not ask for source documents unless: (1) the notice to participants or the claim “is incomplete or inconsistent on its face”; or (2) some participants received at least three hardship distributions in a plan year, there is no “adequate explanation for the multiple distributions”, and the examiner’s manager approves the request for further information. If a plan’s administrator and its service provider design the software correctly, #1 would never happen (except for a paper claim, and then only if the claims administrator is careless). About #2, a plan might limit hardship distributions to no more than two in a year, making #2 not happen. Even if the plan does not limit the number of hardship distributions, #2 might not happen unless abuses are bad enough that the examiner is motivated to do the extra work of getting her manager’s approval. Yet, there is a divergence of opinions about whether it’s wise to use what the IRS calls the summary-substantiation method described in the Internal Revenue Manual. A search in these BenefitsLink forums will turn up a few discussions that air different views.

And even if it passes now it is easy to envision the right combination of turnover in one company and not the other to start making things not pass. Also, what has happened is in effect the benefits of the safe harbor plan have been made null and void by the existence of the other plan. I have seen this plenty of times over the years. Someone sells a person on a safe harbor plan. The person selling the safe harbor plan doesn't do the right due diligence about the situations and doesn't uncover the controlled group and basically undoes the benefits of the safe harbor plan.

Just, The Mega Roth's, also called Back Door Roth, success is extremely dependent on the employee demographics of the plan. This scenario you asked about won't work. You already pointed out that 4.5% deferrals (plus some catch-up) is about all the HCE can get through the ADP test. So why bother maxing out deferrals to only get it refunded. The match side is only worse because the ACP will include the EE after-tax. Most of the match will be refunded. So the HCE is right back where he started, about 4.5% deferral and 2% match. Your best bet would be to get the plan in some form of Safe Harbor and HCE could defer the 26,000 and get 3% or 4% employer money. So to answer your question... O yeah, there will be an impact on the rollover in your scenario. It would not be available for rollover, and then let the fun begin.

It was, they are.

Actually, most of the proceeds will be tax-free to the beneficiary if the participant dies. But still, it's only a good idea if the individual needs life insurance for his/her family more than retirement savings and can't afford the premiums without using retirement plan contributions. If you can do both your retirement plan contributions and the premiums, outside the plan, that's the better way to go, I think. But you are not going to turn tax-free death proceeds into taxable by putting in plan.

Anybody up for creating a collaboratively-written questionnaire to send to the plan sponsor each year along with the employee census form, including questions to find any demographic changes in attributed ownership (e.g., the plan sponsor's owner got married to an employee during the plan year)? I haven't done such a collaborative document before, but I've always wanted to give it a go, as an employee benefits community project. Use Google Docs? Anybody used anything better for such a project?

Need more information. It will depend on the eligibility of each, the HCE/NHCE makeup of each, etc. There's nothing that says they can't have separate plans, just that they need to be tested together. And if they're large enough, they might even qualify for QSLOB treatment.

I agree with this 100%. I have never seen a spreadsheet, flowchart, etc. that can adequately account for the ownership attribution rules. There are just too many variables. My gut is these rules get overlooked more often than not, especially once you get beyond the easy ones like spouses and wholly owned entities.

About your question on nondiscrimination: Internal Revenue Code of 1986 (26 U.S.C.) § 403(b)(1)(D) sets § 403(b)(12) as a condition for § 403(b) tax treatment “except in the case of a contract purchased by a church[.]” https://uscode.house.gov/view.xhtml?req=(title:26%20section:403%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section403)&f=treesort&edition=prelim&num=0&jumpTo=true The rule follows the statute. 26 C.F.R. § 1.403(b)-5(d): Church plans exception. This section [26 C.F.R. § 1.403(b)-5] does not apply to a section 403(b) contract purchased by a church (as defined in § 1.403(b)-2). https://ecfr.federalregister.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.403(b)-5

Please flag PeterN, Suzanne85, and Aaron_Co as spammers.

This was not the question you asked, but it bears pointing out that the earnings calculated by the VFCP calculator are only acceptable if you actually correct the prohibited transaction under VFCP. If you are merely self-correcting then you must calculate earnings as provided under EPCRS, which usually means the actual rate of return.

I've often listed "same for all" on Page 5 if they corrected everything at once. And yes, you list the sponsor there, specifically in the role as the disqualified person. Item 1 is NOT discrete, because it's a loan between the plan and the plan sponsor. The date of the transaction is the date it became a prohibited transaction, so either the payroll date or some day almost immediately thereafter such as when they SHOULD have made the payroll deposit but didn't. So you might have various dates for each of the prohibited transactions but the same correction date (scenario 2)

You would pay the beneficiaries from the participant account right? One participant account. EZ.

I agree with shERPA, but they might be able to achieve the same, or mostly the same, result if they do it right. You said these people are on payroll during their probationary period, presumably that means they are employees during that period. If that is the case then you absolutely cannot disregard their service during the probationary period when determining eligibility. What you can do, if they are willing to open up to more than semi-annual entry dates, is rely on the actual maximum entry conditions under 410(a), which says that you have to become a participant no later than the earlier of the 1st day of the plan year or 6 months following the date that you meet 1 year of service and age 21. For example, they could write their plan document to say that you enter the plan on the first day of the month coincident with or next following the 1 year anniversary of the end of your probation period, or the beginning of the next plan year, if sooner. An employee hired in June 2020 would complete their probationary period in September 2020 and enter the plan October 1, 2021. That is fine, because it is less than 6 months from the day they actually completed 1 year of service, which was June 2021. However if you have someone who is hired late in the year it doesn't work right. Say you have an employee hired in November 2020, they complete their probationary period in February 2021, so you would want them to enter March 1, 2022, but they have to enter on January 1, 2022 instead, because it's the first day of the plan year.

Simple question, unforgiving answer...but you may be able to allocate some of the money deposited in 2021 for 2020 - if you have deductibility and 415 limit room. That could reduce the owners allocation for 2021 and lessen the contribution required to the employee.

Now that we have Roth and in-plan Roth conversions, both options have become almost useless and irrelevant. As Bill states, Owner only is the only pace this tends to work but ask the owner this question, would you rather make deferrals of compensation and pay wage taxes or just make a PS contribution and not pay wage taxes? If the owner's comp is low - e.g. $30k and they want to be able to put most of it in a plan, then the deferral part will be needed. If the comp is high enough the deferral part can be ignored. Make the PS and do an in-plan roth transfer if you just have to pay taxes now. BTW, every month or 3 some yahoo writes an article touting the benefits of post-tax contributions in plans, gives it some marketable fancy name (e.g. Mega Back Door in Morningstar recently!) as if they have just discovered penicillin. They always ignore the practical issues - ACP testing. Then a new crop of advisors read it and think they have just found a magic elixer of eternal life. Those of us in the pension community have the honor of breaking the bad news to them. It's a conversation that has gotten very old. Interestingly, I did talk to an advisor the other day who claims that Google uses the post tax feature. I can see where they would have many people in the higher (but not HCE high) salary range who many want to defer more than the 19k/25k limit. I can also see where they have the resources to throw $ at the plan in the form of additional matches for NHCE's to support the program and pass the testing. It's always nice to have a client where money is no object.