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Recordkeeping software often uses an indicator to mark a fact or condition that might call for preventing or delaying a transaction that otherwise would be processed or handled routinely. For example, an indicator might flag a participant’s account as one affected by a bankruptcy proceeding or a to-be-evaluated domestic-relations order. Or an indicator might mark an account as one for which the participant’s investment direction requires a delay, special handling, or even an administrator’s pre-clearance approval. Or an indicator might mark an account as one that is a subject of beyond-routine information reports. 16b refers to Securities Exchange Act of 1934 § 16(b) [15 U.S.C. § 78p(b)]. Among other provisions, section 16 requires a securities issuer’s director, officer, or 10%-owner to file (electronically) a Form 4 Statement of Changes of Beneficial Ownership of Securities with the Securities and Exchange Commission by the second business day after nearly any transaction (including under a retirement plan) involving a security of the issuer. Although the reporting requirement applies to the insider, an issuer might facilitate its officers’ reports. Some recordkeepers offer a service of convenience reporting on an individual’s directions or claims that involve employer securities if the employer/administrator marked the individual as the employer’s director, officer, 10%-owner, or other “16b” insider.

PS, if you are an employee of a recordkeeper, third-party administrator, or trust company, you would not alter a 16b indicator (if your company ever touches it all) except as directed under your company’s procedures, which I don’t know. Some never touch a 16b indicator because the customer employer sets that indicator on or off in census uploads or through a plan-sponsor portal to the recordkeeping system. Or if a service provider sets or unsets a 16b indicator, it typically would restrict this to implementing the employer’s written instruction. Further, a service provider might restrict which of its employees may do this. A service provider might use its procedures and controls not only to avoid discretion in the way many retirement-services providers do (even for points of law on which the service provider’s knowledge often is superior to the customer’s knowledge) but also to avoid responsibility for a legal conclusion, especially about a point under securities law (rather than ERISA or the Internal Revenue Code). If you need guidance, you should get it from the right authority in your company.

No. The plan has to allow for deferrals for 3 months.

austin3515, you’re right that dividing plans to evade an ERISA § 103 audit would fit only if all plan, trust, investment, service, and related records logically follow the separateness of the plans. If a collective trust, master trust, or other trust for more than one plan is used, one would want the separateness of the participating plans, and the separate accounting between or among them, to be carefully documented. Further, service agreements with a recordkeeper, a third-party administrator, and other service providers would show separateness of the plans (and each plan’s trusts), and might incur multiple per-plan fees. C.B. Zeller, you’re right to describe one of the many ways two or more plans might together use a trust (or a trust substitute, such as a custodial account or an annuity contract). What matters is whether the documents and accounting show the separateness of the user plans.

$237,500 is the maximum that the employer can take as a deduction for all plan contributions (other than elective deferrals). All employer sources count. If the employer is carrying forward an undeducted contribution from a prior year, that reduces the deduction limit for the current year.

I don't have a cite handy but when we have done this, we have always required some logic to the split. Maybe function or site? I think it is a little aggressive to just divide employees down the middle and declare one group eligible for Plan A and the other group eligible for Plan B. Also, we have always split the assets (our plans are participant directed with specific assets belonging to specific Participants). How will you or the TPA or vendor produce statements for the Participants in Plan B if they have assets in Plan A? There is a 2019 Article in Plan Sponsor (b)lines on this topic. Also see Mike Preston's post in July of 2010 on this site. Finally, there apparently was a discussion at an ASPPA meeting in 2000 where the DOL discussed issues of avoidance and evasion. I would do this carefully with some reasons other than avoiding the audit.

Whew, I thought I was the only one...

I'll bite, what's a 16B indicator?

I don't think the old plan will have 140 participants the effective date of the change. There isn't a "later in the day" on the effect. It is effect is immediate, so think 12:00 AM. On that basis, the old plan will have 70 participants and the new plan will also have 70 participants on January 1. So they should be able to avoid the audit requirement. As for two plans in the same investment trust, that would constitute a Master Trust and an additional 5500 filing for the MT as a Direct Filing Entity. No designation as a MT is required, just more than one plan in a single trust. It seems to me that employers who use this strategy don't find it beneficial in the long run. It saves money for a year or two. But they have operational problems managing two plans. If the company continues to grow, they will have the same problem in a few years. This setup becomes too much of a burden to continue. So they bite the bullet and return to having a single plan.

True. I mean we don't even have to talk to people anymore! (just kidding). It has made researching and sharing of ideas so much easier. If we could only solve the problem of (conflicting) information overload......