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Ever the optimist.

Presumably this was something elected by the participant, and paid for from the participant's money, so...no.

The OP said there are currently no employees. Would you have the doctor and spouse establish the plan then have to wait to participate?

Sorry pet peeve but it comes up on this board all the time. There is no such thing as a 1099 employee. An employee is reported on a W-2. An independent contractor is reported on a 1099. I would add this isn't something that can just be decided. Either a person is an employee per the rules (they are vague rules but there are rules) or they are an independent contractor. I also can't help but note that the last time I checks (which was many years ago) most bookkeeping software for small businesses have the ability to compute a paycheck, withholding.... and a W-2 at year end. I just can't imagine this is the reason that stops the spouse from being made an employee.

If it's an ACA, not EACA or QACA, yes.

Well once you make any employer contribution to the DC plan that is out side safe harbor rules you blow your "get out of top-heavy free card" so he needs to get a top-heavy minimum since you are clearly going to have to make an employer contribution to make the CB plan work. Though you can probably limit the HCE to a 3% Th minimum in the DC plan if you exclude him from the CB plan and your TH coordinating language is right. If they are trying to go with lowest cost they might consider switching from SH match to SH non-elective next for next year.

They CAN, but in all likelihood, they WON'T. They will tell you it is CSV, over and over again. Even if you send them RP 2005-25. If only TPAs could bill the true value of their time spent messing around with this stuff...

If you search the threads on this board you will get all kinds of conversations how this can go wrong beside the PT.

In addition to a slim chance for your desired outcome, you're likely waiting 18-24 months to find out.

Is this an individually directed Plan or Pooled? Assuming it's an individually directed plan and the life insurance policy is part of his account, then if he purchaces the policy from the Plan, the funds would go to his individual account just like if the policy was surrendered for Cash Value.

"only"? I don't disagree but isn't that going to be the common, in fact contemplated, scenario?

It only becomes discriminatory if they hire an NHCE during the new 1 year waiting period where you've effectively allowed immediate eligibility HCEs and a 1 year wait for NHCEs.

If anyone is still interested in this one, I posted some more thoughts here: https://www.theabdteam.com/blog/fsa-experience-gains-from-forfeitures/

Thank you both. I agree. Was just hoping there was an out since it was MY mistake, not the client's. This has never happened before to me, I will say 😂

I guess you are suggesting that this would be a conversion to Roth upon rollover; it's clearly not Roth money to begin with. The answer is that it is not eligible for rollover at all. As Luke Bailey notes, the citations might be tough to run down and connect the dots but I don't think there is any doubt about this.

Agree with Cuse. $750 is cheap compared to the alternative. You'll make up some of the fee by charging for the 5500. And you'll "Rest Assured".

I'm sure your software permits you to do that but doesn't it give you pause as far as being discriminatory? I may be in the minority but I think that comes under the catchall "pattern of amendments" language that effectively results in discrimination.

My experience has been in line with MoJo's when "invited", but declined if not prompted by agency action of some sort. The only exception would be cases where it was bad enough that we said "we either fix it all the way or you need to find another service provider"

Ananda, it would take me a while to run down the citations, but I'm pretty sure that the death benefit in excess of cash value is treated as if it were a direct payment from the life insurance company to the beneficiary, not as a qualified plan investment. So in your case that's 100% of the death proceeds, since term. Therefore, except for any post-death interest or earnings on the proceeds while in the plan, the distribution is not really a distribution from the plan that can be rolled over to any IRA. Again, I'm just throwin' this out there because I think that is what you will find if you research it. Maybe others can confirm or deny, or you can research further and tell us what you find.

Yes they have a service level that includes payroll.

If the 2020 5500 has been filed I would be very scared that the 2019 late letter would be imminent and suggest biting the bullet to incur the cost and file DFVC ASAP. Otherwise you risk a much larger penalty, which you've already copped to, that no manufactured excuse is likely to abate.

Heck, years ago when I was church treasurer I generated "payroll" for 2-3 employees on a spreadsheet, sent the w/h in quarterly, then generates W-2s and 941 at year-end using Social Security Business on-line. It was very easy, no cost, and did not take a lot of time. Add it to the spouse's job responsibilities and do things the right way.

First - just another example of why using a payroll company as your 401(k) provider is a BAD IDEA. Second - although not clearly stated, it sounds as if the plan document was drafted with the incorrect undesired provisions and then would have to have been signed by the plan sponsor, so they have culpability as well if that is indeed the case. If so, there is only correction going forward. There is no operational defect following plan provisions, only poor judgment and poor service from all the responsible parties in not executing the intended plan. If the document was not followed, then making corrections by returning improper withholdings and forfeiting unentitled employer contributions is a proper correction.

Isn't there a simple payroll software program out there that can do this? I bet there's even an app. Something like Intuit? Does Quickbooks do that? Even if the cost was $1,000 for the year, wouldn't it be worth it if the spouse could get $10,000 into the 401(k) piece of the plan?

These situations often involve an awkward dance or standoff about whether the inquirer engages the lawyer. An inquirer is reluctant to engage the lawyer unless the inquirer believes the lawyer will render the conclusion the inquirer desires. But a lawyer is reluctant to accept a client unless the lawyer is confident the client will pay, even if the advice is not what the client wanted to hear. (Some of us would require an advance-retainer payment in an amount the lawyer estimates as more than enough to pay the likely full fee. And that security to aid collection is not, by itself, enough to overcome other burdens and risks about accepting a new client.) I no longer waste a half-hour consultation unless the inquirer is introduced by a lawyer or other professional who gives me comfort that the prospective client is a good fit (or who gets my professional courtesy). On the later side of these situations, I get plenty of clients who want me to guide the undo of a nonexempt prohibited transaction. I never have any trouble with those clients. And they usually remain continuing clients who bring a stream of good work.

Surely the doc has a CPA, right? Most of them can handle this and that's where I would send them.

The language about prohibited mid-year changes applies to plans that are already safe harbor plans. It does not apply to a plan that does not have a safe harbor provision in place. The "(or add)" that you bolded is referring to modifying or adding a match formula to an existing safe harbor plan, not turning a non-safe harbor plan into a safe harbor match plan mid-year. On your second comment, a plan that suspends safe harbor contributions mid-year is not a safe harbor plan for that year. They cannot re-add a safe harbor match mid-year to become a safe harbor plan again for the year.

Break it down into bites: 1) what does the document say? Probably that with no bene, the default is spouse, otherwise children...but you need to do that research. An Ex-wife is not a spouse so it probably effectively mean children. 2) were the step-children adopted? If so then they are his children and share. If not then they are not his children and don't share. If anyone sees any room for fuzziness here please advise.