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While you can do this, it's asking for trouble. What will happen is the business owner will sign a 401(k) plan on 12/31 and then go and issue themselves special payroll with some 401(k) deferrals on it. Presumably no one else gets the opportunity to receive some extra pay that they can all of a sudden contribute to the plan. Even if you cook up a way to pass the ADP test (like the one Lou described using prior year testing), you still have a nondiscrimination failure on the availability of the deferral feature. If you are going to put in an 11th hour 401(k) plan, make sure you get deferral elections out to employees, and early enough that they have an effective opportunity to defer.

What year did the deemed default occur. Was a 1099-R not issued for that amount? After a 1099-R is issued, the additional accumulated interest is there just to block future loans under the $50,000 rule, or under a plan rule limiting number of loans, the participant would not be taxed on it.

Following ESOP Guy’s good help, a rule states: “[T]he required minimum distribution amount will never exceed the [participant’s] entire account balance on the date of the distribution.” 26 C.F.R. § 1.401(a)(9)-5/Q&A-1(a) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-5 If a plan’s administrator fears a distributee’s § 401(a)(9) RMD amount determined on the preceding calendar year’s last valuation date would consume too much of a pooled account, the administrator might use its discretion to declare a special valuation date (which it also might do to support the plan termination’s final distribution). Using that valuation, the administrator would apply the rule quoted above so an otherwise required minimum would not invade other individuals’ accounts.

Yes, the RMD is always based on the prior 12/31 balance. The asset going down problem is why congress keeps waiving RMD requirements during times of sharp market down turns. The last time was 2020. I am doing this from memory but if the actual balance is below the RMD amount because of loss to the plan, and not a payment, there is a regulation that says you just take 100% of the balance. It has been a VERY long time since I had to look that up but it once happened to a client of mine.

You could be top-heavy for first year as well.

Yeah, testing is always an issue with late added 401(k) plans and getting people signed up in time for payroll deductions. I usually see the Plans set up with prior year testing the first year and limit HCEs to 5% of pay plus catchup to pass testing and concurrently amend to change to current year testing for the next year or amend in a safe harbor for the 2nd year going forward. I don't see why you can't amend to have auto enrollment start the following year if that's what you want. I think that's a notice issue you are concerned about right? Giving folks advance notice before the auto enrollment?

In Commissioner v. Keystone Consol. Industries, Inc., 508 U.S. 152, 159-162, 16 Empl. Benefits Cas. (BL) 2121 (May 24, 1993), the Supreme Court construed ERISA title II’s parallel text, Internal Revenue Code § 4975(f)(3), as extending, but not limiting, the reach of § 4975(c)(1)(A) [ERISA § 406(a)(1)(A)] to include as such a prohibited sale or exchange a contribution of encumbered property, even if that contribution is not used to meet a funding obligation. The Court held a contribution of property—even assuming the property was unencumbered, and the contribution was valued at the property’s fair market value—is a prohibited transaction. See also Interpretive Bulletin [94-3] Relating to In-kind Contributions to Employee Benefit Plans, 59 Fed. Reg. 66,736 (Dec. 28, 1994) https://archives.federalregister.gov/issue_slice/1994/12/28/66734-66737.pdf#page=3, reprinted in 29 C.F.R. § 2509.94-3 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-A/part-2509/section-2509.94-3. Also, an inquirer likely has mistaken assumptions about why one might want to contribute securities or other property that is anything other than money.

Thanks. Yeah, probably some technical issue that they can't let them self-correct or they just recognize that they are generally poorly overseen and letting people self-correct is likely to be fubared as much as the original "administration."

Is this actually a plan termination? (You say "One of the terminating plan" - rather odd phrasing by the way - so if in fact the plan is terminating, then you have a distributable event and it just goes away as a loan offset at that point). Or is it a merger of plans, or is the acquiring company taking over the old company and its plan? If the latter, I'm not sure they can refuse to take it. (For that matter, if it is the former, I don't see how they get to refuse to accept it.) It shouldn't be a big deal in either event; it's just a phantom asset which, as noted, is only maintained on the books for purposes of limiting future loans. It can be offset (distributed) if there is a distributable event, which depends on the nature of the plan transaction.

I thought SEPs couldn't use VCP for a significant failure of any kind? We are within the three year period. It's a CG from the get-go, thanks.

Assuming calendar year tax payer and calendar year Plan for 2022 - Employer contribution only (PS/MP/DB/CB) - under SECURE the latest date would be the due date of the tax return with extensions. So deadlines would be 3/15/23 or 4/15/23 unextended depending on entity and extended deadline would be 9/15/23 or 10/15/23. And minimum funding deadline for plans subject to it would be still be 9/15/23. For traditional 410(k) Plan you can't make deferrals effective prior to the earlier of the signature date or effective date so you need plan adopted and 401(k) elections by 12/31/2022. For safe harbor 401(k) non-elective you need at least 3 months of effective deferral to be SH plan so you need the plan in place by 10/1 and elections starting the first payroll in October. For Safe Harbor matching you also need to give out a safe harbor notice in a reasonable time before the deferrals start. The IRS deems 30-90 days prior as reasonable. So you need to distribute SH notices by 9/1/2022. Now you can distribute notices between 9/1/22 - 10/1/22 and show that was reasonable but the burden of proof on reasonableness becomes facts and circumstances for you to justify less than 30 days notice as reasonable. Now how much lead time you need to do all this before those dates like design, documents, opening trusts, getting enrollment materials and ee notices, having ee meetings, setting up payroll, etc. I leave that up to each individual Employer/TPA/Custodian.

These are great questions and like the others I'm not sure there is an answer to most, but I believe that if you can find your way to making the distribution (a) the amount is includible in the participant's income, whether they cash the check or not, and (b) you can withhold the default amount if they have not made a withholding election. See Rev. Rul. 2019-19. Since the plan is required to comply with 401(a)(9), in the absence of more specific language, I would probably advise distributing the smallest amount that could be distributed under any of the benefit options and then periodically sending the participant a letter that they can elect a different election and the actuarial value of the distributions already made will reduce the amount available for distribution after the election.

I think it is a legit ongoing plan expense, especially if the change resulted in lower ongoing fees to participants. If such fee reductions are percentage-based, then it would be appropriate to charge on a pro-rata basis, IMO. Having said that, I think I'd urge the sponsor to pay.

The DC RMD is based on 12/31/21's account balance value, regardless of any subsequent gain/loss during 2022 being reflected in the final total distribution amount the person will have due.