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I posted an extensive overview on this very topic. Copying the relevant part here for reference. Approach #3 is the employer "eating" the cost approach you referred to, which I think is fine (and common) as a corrective measure. https://www.theabdteam.com/blog/correcting-missed-cafeteria-plan-contributions/ Prior-Year Mistakes: Missed Cafeteria Plan Contributions from the Prior Plan Year Where an employer discovers that it is has inadvertently failed to take the correct elected employee salary reduction contribution amount through payroll in the prior plan year, the employer has three potential options available to correct the mistake: 1. Employee Pre-Tax Contributions in Year Two for Year One Missed Contributions There is no formal IRS guidance confirming that an employer can take employee pre-tax contributions in year two to address missed contributions for year one. However, we think this is a low-risk approach that is very unlikely to present any issues. In practice, this is essentially the same approach that employers will commonly apply to address employee pre-tax contributions for a period of leave where the employee is utilizing the catch-up payment option. In that case, employers generally feel comfortable taking an employee pre-tax contribution upon return from leave to cover the full period of the leave—even where that leave straddles two plan years. Again, although the IRS has not formally approved of that approach, it is a common practice that is generally considered low risk. Note that the pre-pay contribution option is not available to address a period of leave extending to a subsequent plan year because that would violate the Section 125 prohibition of deferral of income rules. For full details, see: 2022 Newfront Health Benefits While on Leave Guide Health Benefits During Protected Leave Furthermore, the employee pre-tax payment in year two approach may also be a good fit to address a situation where the employer discovers a missed contribution error late in year one and wants to spread the repayment over more pay periods than remain available in year one. Employers utilizing this pre-tax employee contribution option in year two to address missed contributions in year one will want to keep the following issues in mind: Although it is unlikely to present any issues with the IRS, there is no formal guidance approving this approach; If the correction relates to missed FSA contributions from year one, it may require a manual override in year two to exceed the annual limit because payroll systems generally are setup to prevent pre-tax FSA contributions in excess of the applicable annual limit; and Employees may terminate employment in year two prior to the full amount of missed contributions being repaid, which would require the employer to either a) absorb the cost, or b) attempt to seek repayment by check. Employers should notify employees of this approach in advance so they will be aware of the additional withholding from their payroll in year two to address the retroactive contributions from year one. Employees will have already authorized the full withholding by making the original election to contribute, and therefore employers do not need employees’ approval to proceed with the corrective measure to take the corrective pre-tax contributions in year two. Sample employee communication: During a recent system audit, we discovered that your [Enter Year] payroll contributions for [Medical/Dental/Vision/FSA/etc.] were underfunded. We will be correcting this error by taking your missed contribution amounts through [an upcoming pay period or upcoming pay periods]. These corrective contributions will be [a one-time or per pay period] amount of [Enter Amount] taken on a pre-tax basis. Please contact People Operations with any questions. 2) Employee After-Tax Contributions in Year Two for Year One Missed Contributions The more conservative approach would be to require that the employee make the missed year one contributions on an after-tax basis. Employees could make these after-tax contributions in year two through payroll or by direct payment (e.g., check). This approach is of course less advantageous from a tax perspective to both parties. Where utilizing after-tax payroll contributions, employers should notify employees of this approach in advance so they will be aware of the additional withholding from their payroll in year two to address the retroactive contributions from year one. Employees will have already authorized the full withholding by making the original election to contribute, and therefore employers do not need employees’ approval to proceed with the corrective measure to take the corrective after-tax contributions in year two. Sample employee communication: During a recent system audit, we discovered that your [Enter Year] payroll contributions for [Medical/Dental/Vision/FSA/etc.] were underfunded. We will be correcting this error by taking your missed contribution amounts through [an upcoming pay period or upcoming pay periods]. These corrective contributions will be [a one-time or per pay period] amount of [Enter Amount] taken on an after-tax basis. Please contact People Operations with any questions. 3) Convert Missed Amounts to Employer Contributions One final approach is for employers to simply forgive the missed employee contributions without requiring the employee to repay the missed amount. There should not be any issue with taking this approach in a corrective context to address a bona fide employer error. This approach is the costliest for the employer, but also the simplest and least likely to cause employee relations issues related to the mistake. Under this approach, the affected employees still need to have had the full elected coverage (e.g., premium only plan contributions for medical/dental/vision) or balance available for reimbursement (e.g., health FSA or dependent care FSA) in the prior plan year despite missing some amount of the contributions associated with that election. In other words, this approach is effectively the equivalent of converting the missed employee contributions to employer contributions as a corrective measure—the employer is covering the cost for the amount they failed to withhold from the employee’s paycheck. Sample employee communication: During a recent system audit, we discovered that your [Enter Year] payroll contributions for [Medical/Dental/Vision/FSA/etc.] were underfunded. We will be correcting this error by forgiving your missed contributions. Despite the error on our end, you still had access to the full benefits you elected for the [Enter Year] plan year. Please contact People Operations with any questions. Terminated Employees: How to Correct Where Salary Reduction Contributions No Longer Possible Where employees with missed contributions have already terminated from employment, payroll contributions are no longer an option. Employers could in theory request employees directly repay the missed amounts to the employer (e.g., by check). However, the practical reality is that it is unlikely the employer will ever recover these missed amounts, and therefore the best practice is generally to simply forgive the missed contributions as a corrective employer contribution. Overcontributions: Returned as Taxable Income Any amounts that an employer discovers were over-withheld from employees (i.e., salary reduction contributions in excess of the employee’s election) should be returned to employees as standard taxable income subject to withholding and payroll taxes. This may require corrections to the employee’s Form W-2 if discovered after the end of the year.

You have a 403(b) with a match, hence an ERISA plan that should also have a plan document that tells you exactly what you should do. If rules are same as 401(k) plans then you distribute excess that is vested and forfeit excess that is not but read the document.

Probably yes, as long as it is prudent to provide the hard copy enrollment kits, and the cost is reasonable. See fact pattern #5 here for a similar example: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/guidance-on-settlor-v-plan-expenses

Belgarath is correct (of course), but the client needs to remember that every CPA firm starting an audit for 2023 is still going to need to get comfortable with their beginning balances, etc. They won't do an official audit, but they will spend a lot of time reviewing the 2022 (and likely prior) year's data.

Yes, it will be a large plan as of 1/1/2023. And no, I can't see why you are being told there is an audit required for 2022, unless perhaps due to non-qualifying assets and the bonding/disclosure requirements for the small plan audit waiver aren't being satisfied? But if that were the case, presumably whoever is telling you this would be able to provide their reasoning? P.S. - I'm assuming the Plan Year remains as calendar year after the merger.

You're misunderstanding how the look-back measurement method works. While it's true that employees who were in a limited non-assessment period or otherwise not full-time for all months in the calendar year do not need a 1095-C, that would apply only to new hires. In other words, a new full-time hire can have a LNAP of the first three calendar months. A new variable, part-time, or seasonal hire can have an LNAP based on the initial measurement period and initial administrative period of up to 13 months (plus a partial month for a mid-month hire) combined. But ongoing employees will be in a stability period based on the prior year's standard measurement period. Their status in 2021 is kept "stable" during the stability period based on the prior standard measurement period. For ongoing employees, the most common approach for a calendar plan year would look like this: Standard Measurement Period: 12 months, ending with a two-month gap before the start of the stability period. Calendar Plan Year Standard Approach: November 1, 2019 – October 31, 2020 Standard Administrative Period: 2 months, comprising the two-month period between the end of the standard measurement period and the start of the stability period. Calendar Plan Year Standard Approach: November 1, 2020 – December 31, 2020 Standard Stability Period: 12 months, tracking the employer’s plan year. Calendar Plan Year Standard Approach: January 1, 2021 – December 31, 2021 So even though there's a 12-month measurement period, that would have completed prior to the start of the stability period that applies to determine employees' full-time status in 2021. Ongoing employees' full-time status for 2021 is determined by the standard measurement period that ran from the end of 2019 to the end of 2020. Employees who averaged 30 hours per week (i.e., reached 1,560 hours of service) during that period are full-time for the 2021 stability period. Here's a longer overview: https://www.theabdteam.com/blog/key-decision-points-in-aca-reporting-vendor-setup-questionnaires-part-iii/

Yes, the 402(g) excess is taxable in the year deferred and the gain is taxable in the year distributed. So if you have a 402(g) excess for 2021 and make the refund with earnings between 1/1/2022 and 4/15/2022 you would issue 2 Form 1099-Rs for 2022 by January 31, 2023, one with code P for the excess (taxable in 2021) and the other Code 8 (taxable in 2022). Had you caught the excess in 2021 and made the refund by 12/31/2021 you could have done just 1 Form 1099-R for 2021 with code 8. I think if you have a loss instead of a gain it gets a little more complicated but it's addressed in the 1099-R instructions.

Since this is a takeover and 2021 hasn't been done, I'm assuming it's an EOY val, with a fixed dollar accrued benefit? BOY is usually preferred for this strategy, but without an income history there is a little bit of leniency to project the 415 comp limit. However, if the business growth has not been as stellar as expected, resulting in an appreciable 415 comp average; in year 4 this falls apart and you'll likely end up overfunded and 0 contribution. This may then start a seesaw effect because now you should end with an appreciable average compensation, but it can take until year 6 to flatten out. I.e. year 4, no contribution, creates compensation average; year 5, possible contribution, if so then same average compensation; year 6, no contribution, but now have average compensation based on 2 years; level results from now on. Also, this can be used when insurance will be a major asset, yes you still have a low compensation average, but your assets level may be depressed until year 3 when the cash values start to accelerate. Then your contribution swings are more level since you aren't so overfunded.

Best if you go back to the client/CPA and get the schedule c information (preferably copies) and deductions taken for all years. Just because they put does not mean they deducted it. Kac1214 made a good point on this. Never assume what that is not clear/confirmed.

And de minimis provisions have to be in the plan document, correct? How do you go back to 2018? 99k/year is a big number to be generated on de minimis especially where 415 may be limit due to lack of 10 years of service, as CB indicated. Any chance there was also a corporation adopting the plan?

Except the $10,000 de minimis benefit can’t be paid out as a lump sum.

Assuming that you are just simplifying for the purposes of this discussion - since the net earned income calc is a little more involved than just earned income minus plan contributions - then yes, you are correct. The contribution will reduce net earned income, which will reduce the high-3 average comp for 415. If this is the sponsor's only plan, then you can use the $10,000 de minimis 415 limit (prorated for years of service), which is not much, but it's better than $1,000.