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Very interesting topic and comments - but I think the discussion is somewhat off the real issue here. The fundamental problem is "what is Bitcoin and other cryptos?" I really hesitate to call it an asset as it has no, nada, zip, zilch intrinsic value. It is a computer record that is more of a medium for the exchange of wealth between buyers and sellers. Standing alone, it isn't a "productive" investment. One could argue that dollars have no intrinsic value as well - but dollars are backed by the full faith and credit of U.S. government (and we can discuss how much that is worth - but it is worth more than cryptos - which lack any backing whatsoever.) Add to that, it is an unregulated investment, unlike other investments (even scarily volatile/risky and other "V3" types of investments commonly called derivatives, or some options, commodities and the like). EVERYTHING ELSE that is an "investment" is regulated by some entity - in order to ensure minimally sufficient information is available for investors to make informed choices, and to ensure the integrity of the platforms on which the investments are traded. NO SO FOR CRYPTO. The fundamental problem here, is that people are arguing that a "prudent fiduciary" should be able to evaluate an unlimited universe of potential options (and select some of them prudently, of course), and that in order for some to speculate (and there is no other word for an investment in crypto) on something unregulated, without intrinsic value, and not productive (in the sense that it's value is pegged to its ability make money through some business operation) to allow something for which there is no information on how the thing is priced, traded, secured, or even subject to the jurisdiction of U.S. Courts (an ERISA requirement). I see no criteria that would allow a fiduciary to even evaluate this as a plan investment, let alone conclude that it was a "prudent" investment. Past performance is not indicative of future performance" is applicable here. It went up! It must be good. It also went down - and no one knows why it goes up and down.... No way to evaluate trader sentiment which seems to be the only driver of it's price. If people want to participate in the frenzy that is crypto - well, do it outside the plan where prudence considerations are personal, and not plan wide, or invest through an ETF that invests in crypto and crypto related assets (which are regulated and recognized as investments), or invest in companies that develop, promote or provide platforms for the trading of crypto. That said, the underlying technology of blockchain is a technology that has intrinsic value as it's uses are vastly more varied (and important) than just providing a foundation for cryptocurrencies. THAT may be worth investing in - and may be a prudent choice. Keep in mind that Fidelity is fundamentally a marketing company. They jumped on the bandwagon by developing a product to allow for trading in crypto on their DC plan platform. They got press. They are entitled to build their platform as they see fit - without fiduciary ramifications - just as my employer (whom I refer to as a "non-discretionary directed ministerial service provider" (aka not a fiduciary...) can build it's platform as it sees fit (without - for now - crypto - or even allowing for cannabis companies as clients (again, for now). I expect that Fidelity will get only a handful of niche clients who opt for crypto in their plan. Nonetheless, they got press for being an innovative company - forward thinking. And that is probably their ultimate goal/win by doing this. Congress' inquiry here is essential. Not so much as to regulate fiduciaries - but to understand the fiduciary implications, and then possibly legislate a regulatory scheme that protects crypto investors - not so much from the speculative nature of the investment, but from the lack of transparency, and security surrounding the trading of crypto.

It's always safer to err on the side of the participant, especially since in most cases, the losses will be minimal and therefore the cost to the employer also minimal. Generally, it's a small price to pay to appease the participant and the IRS. But maybe your facts are different in this case. I would think that in general it would be easier to do an EPCRS amendment to let those employees in early and not worry about returning money or any investment losses. Just amend it and leave everything else alone. Much simpler and less time-consuming for everyone.

You can't shift contributions between the ADP and ACP tests unless both tests are using the same method. Since the ADP test is being satisfied by the safe harbor non-elective contribution (regardless of whether the ADP test would have passed without the safe harbor), I think that prevents you from shifting contributions.

I have to disagree with Bird on this. The compensation used to determine the 25% deduction limit takes into account only those participants who actually receive an allocation other than elective deferrals. If an employee's only contributions for the year were their deferrals then you do not count their compensation when determining the deduction limit.

That would be my recommendation too, EBP. I think Bill Presson's thought is correct that this is required, so would not be erring on side of participant. The loss is the direct result of a fiduciary's breach of its duty of care in administering the plan. Look, if you are requiring them to take the money out then you can't treat them like a participant for 404(c), probably. Not sure there is any case out there where that has been litigated, though. One might be able to argue that if they didn't qualify as participants ERISA doesn't even apply, but if that's the case the legal claims of the participants will be even stronger under state law.

Catch-ups occur when you have exceeded a statutory or plan imposed limit. If the plan has no restrictions on deferrals then catch-ups can generally occur in one of 3 ways: 1 - any contributions in the calendar year above the 402(g) limit that are not in excess of the catch-up limit. 2 - recharacterization of contribution due to failed APD test (it is recharacterized as of the last day of the plan year) 3. - recharacterization of contribution due to exceeding the 415 because of employer allocations. (it is recharacterized as of the last day of the plan year) If the Plan has an imposed limit (like 5% of pay) I'm honestly not sure the date that the contribution is considered catch-up. For non-calendar year plans it's possible to get 2 catch-up limits in one plan year if they exceed the 402(g) limit in the first part of the non-calendar year plan. For the most part I agree with you that catch-up are generally the last dollar deferred.

And that is what others will use in competing against Fidelity.... ☺️ (and anyone who declares themselves to be "smart", isn't)....

In order to use the safe harbor correction method in EPCRS Appendix A, ALL of the following conditions must be satisfied (conditions greatly abbreviated and simplified): 1. correct deferrals begin 2. notice is given 3. corrective allocations are made Since the participant has terminated employment, you can't satisfy #1, which means you can't satisfy #2 either. Since you don't satisfy all of the conditions, you can't use the safe harbor correction method.

Ilene Ferenczy has a nice piece on her firm's website ("solutions-in-a-flash") on this topic. It was prepared in August of last year. It was one of the first pieces that I read that confirmed that if a participant terminated before the correction is made the traditional QNEC correction must be provided to that participant.

MoJo, I really liked all of your post. Will comment only on the above. I'm pretty sure that you've put your finger on it, but let's give the crypto believers their due. I'm pretty sure that the Bitcoin maximalists have placed bets on BTC because (a) they believe that what they like to call "fiat" currencies (the biggest one being the dollar) will at some point experience runaway inflation and be worthless, e.g. as happened to the mark in Weimar Germany, and (b) BTC essentially has a high moat and will be the sole survivor. Maybe also Ethereum. But it can't be more than that, otherwise you have something akin to fiat crypto, i.e. no cap on available tokens. I think they're that far out there. Think Ayn Rand in a Mad Max world.

Mmm, I may have been stuck in the old days when deferrals counted against the (then) 15% limit and so comp used for deferrals would count. I found at least one old thread that backs up C. B Zeller's position on this. I guess I stand corrected (but note that giving $1 of PS fixes the problem).

The question needs to be analyzed under the Prohibited Transaction rules, which tend to be fact sensitive. As part of the analysis one may well run into questions of enterprise organization and ownership (part of those important facts). For what it is worth, I would approach the question with a bias toward the negative, but would not presume anything. In other words, you are not going to get a reliable answer based on what you have provided*, except that it is a complicated question that deserves the attention of competent legal counsel if they are serious about the proposition. Oh, and I think it is unwise in any event. Part of the underlying philosophy of ERISA and the prohibited transaction rules is that one’s employment (and related income) should be insulated from one’s retirement savings. Eggs in a basket and all that. *Providing more information is quite unlikely to get a reliable response, except perhaps a negative. This is not the place for this kind of advice — too complicated and too important —especially for those who may be presumed to be able to pay for it.

Shrug. Not really. Eligible for PS, just not getting any. If you said eligible to defer and excluded (by plan language) from both SH and PS, I'd have to think about it, but don't really feel like it. Offhand I think eligible to defer is good enough.

Generally, the plan either refunds the amount to the employee or forfeits the money and makes the employee whole outside the plan. The goal is to put the employee and the plan back in the same place they would have been if the employee hadn't entered early. I interpret that to disgorge deferrals plus gain or makeup the loss. If the plan forfeits the deferral (and it had a loss) and makes the employee whole outside the plan, the employee would be better off than a refund minus a loss.

Lou is correct - according to the 2021 945 instructions: "If the total amount of tax for 2021 is less than $2,500, you’re not required to make deposits during the year." You will be able to get a voucher for 2022 when the 2022 945 forms are release later this year. Hope this is helpful.

IRC 408(m) should be amended to address the issue. Some proposed amended language: (m) Investment in certain items treated as distributions (1) In general The acquisition by an individual retirement account or by an individually-directed account under a plan described in section 401(a) of any collectible or of any virtual currency shall be treated (for purposes of this section and section 402) as a distribution from such account in an amount equal to the cost to such account of such collectible or virtual currency. (2) Collectible defined .... (3) Exception for certain coins and bullion .... (4) Virtual currency For purposes of this subsection, the term "virtual currency" means a digital representation of value designed to function as a medium of exchange, a unit of account, or a store of value, or a combination thereof, for which the digital representation is not a claim to physical legal tender, but which claims intrinsic value by design. --- Edited to add that the underlined portions are the only changes to the existing statute needed.

It's been a long time since I sent in an actual check for withholding for a 945 but if it's under $2500 don't you file it with the 945 in January? I suppose you could print the most recent 945-V and cross out 2021 and write in 2022, that might work but I can't guarantee it.

I would recommend doing so.

Yes/yes

There might be a couple of fixes: return the money, amend to let the few participants in early, etc. All, I think, based on the numbers of people. But, just to snipe a bit, I'm betting the TPA didn't allow ineligible participants to defer, it was the HR/payroll people for the employer.

The Form 5500 Instructions include this: If the filing due date falls on a Saturday, Sunday, or Federal holiday, the return/report may be filed on the next day that is not a Saturday, Sunday, or Federal holiday. https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2021-instructions.pdf