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When you say "refund one participant," what I'm hearing is that there are multiple HCEs and you want to just pick one to eat a refund. That is not ok under any method I have ever heard of. The 401(k) regs and EPCRS lay out specific methods for correcting an ADP test failure. Try something else at your own peril. Also don't forget to read the plan document. Does it say anything about how an ADP test failure will be corrected?

That no participant elected a deferral is not among the reasons the Instructions’ page 3 states for not filing. https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2021-instructions.pdf

Yes, the 402(g) limit is a calendar year dollar limit. So the fact that the plan is terminating mid-year doesn't alter the maximum dollar deferral allowed.

Lou, Here is one word of caution. Although the Alternative Method might yield a lower premium for 2022 you will lock yourself into using the Alternative Method for 2022 and 4 following years. Which means your plan is going to miss on the recent rates increases (which are quite material) for 2023 and beyond. I would not do it a change to Alternative Method unless your plan is terminating soon.

Step 1: re-test, Step 2: repeat Step 1 until test passes, Step 3: new client signs fat consulting check Never, ever, unless paid to do so, rely on someone else's test.

Even presuming consistency rules for all an employer’s employee-benefit plans (of those that seek to meet a tax law condition that refers to Internal Revenue Code of 1986 § 414(q)): The Treasury department’s temporary rule (adopted February 19, 1988, and last amended June 27, 1994) interprets § 414(q) as it was in effect for 1996 and earlier years. Under that rule, § 414(q)’s definition for a highly-compensated employee applies if another Internal Revenue Code section refers to § 414(q). 26 C.F.R. § 1.414(q)-1T https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.414(q)-1T About health, other welfare, and fringe-benefit plans, that § 414(q) temporary rule lists sections 89, 106, 117(d), 125, 129, 132, 274, 423(b), 501(c)(17)-(18), and 505. Section 223—Health Savings Accounts states no reference to § 414(q). Does some coverage or nondiscrimination rule apply intermediately or indirectly?

Great summary Bill! RTR!

The first correction window is 12 months after the plan year end. During that time, you can either refund certain amounts or do a QNEC (if it is current year testing). If prior year testing, you can only do refunds. (Well, technically, you can use QNECs deposited during the testing year, but who makes those kinds of contributions other than when they have to for a correction of some sort) After that 12 month window, you are in EPCRS territory, and the methods are spelt out there. (Note, you can no do a QNEC, even if you have prior year testing.) basically, the corrections are: QNEC to pass the test OR do refunds and THEN the employer must provide a QNEC int he amount of the gross refunds. Another note: You can no longer test otherwise excludable separately. I think now under EPCRS you have 3 years after the end of the plan year to correct it. After that, you have to submit under VCP. If I'm wrong, then it's two years.

My experience with them has been mostly positive. The pros are they are responsive and they give you a lot of leeway to correct client mistakes without giving you much grief to do so. The cons are they typically expect you to do more than some other custodians with respect to supporting the client and processing information. But overall I wouldn't have a problem recommending them. As a side note though it does seem they have tried to price themselves out of the really small plan market with their most recent pricing model so your target market might have an impact on how you view Nationwide v other providers.

For me, I would want a sponsor to tell me in writing that they want to elect the alternative method. Then I'll prepare the premium filing using the alternative funding target. There is a checkbox to say that you are electing the alternative method, which would need to be checked. The rates for the alternative method are just the 430(h)(2)(C) segment rates without stabilization, which is to say, they are the segment rates used for calculating the maximum deduction limit. Your premium funding target using the alternative method is just your (vested) maximum funding target. Good question about the lookback month, it doesn't come up very often that a plan changes its lookback month. My guess is that if you changed the lookback month for funding purposes, it would also change for alternative premium funding target purposes. Remember that the segment rates for the alternative method are 24-month averages, so they will tend to be higher (=lower premiums) when interest rates are falling, and lower (=higher premiums) when interest rates are rising, as compared to the standard method (spot) rates. With interest rates looking to rise sharply this year, I would be very careful about recommending a sponsor switch to the alternative method now, since it will lock them in to the 24-month average rates for 5 years.

You can always correct using refunds or QNECs up to 12 months after the end of the plan year that failed. Otherwise, if it's eligible for self-correction, you can use the One-to-One method in rev. proc. 2021-30. If it's not eligible for self-correction, then it's into VCP. If you don't want to use the one-to-one method, you could try proposing an alternative method in VCP, but I think you'd better have a darn good reason why you aren't using the method that was specifically provided in the rev proc.

Well, I'd start with figuring out what year's test has failed 🙂

See Treas. Reg. 1.411(b)(5)-1(d) and (e). You might find this page helpful as well: https://www.irs.gov/retirement-plans/issue-snapshot-how-to-change-interest-crediting-rates-in-a-cash-balance-plan Any fixed interest crediting rate of not more than 6% annually is fine. The IRS is generally concerned about interest crediting rates being too high, not too low.