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A plan’s administrator, to guide its discretionary decisions about whether to pursue or forbear overpayments, might create, implement, and maintain a set of written procedures. Whatever discretion ERISA § 206(h) recognizes, a fiduciary must use discretion following everything else in ERISA, including § 404(a) and its implied duty of impartiality. To supplement a general concept of treating similar situations similarly, one might overlay not favoring highly-compensated employees. But that idea does not by itself mean one must pursue an overpayment merely because the distributee was a highly-compensated employee. A fiduciary might ask itself a rhetorical question: What would we do in each of the imaginable future situations in which a computation error results in too-much allocations to participants’ accounts? An administrator should pursue an overpayment if the error was, or resulted from, a failure to apply a limit under Internal Revenue Code of 1986 § 401(a)(17) or § 415. See I.R.C. (26 U.S.C.) § 414(aa)(4). While it hasn’t happened yet, the Treasury department might restrain some flexibility I suggest. “The Secretary may issue regulations or other guidance of general applicability specifying how benefit overpayments and their recoupment or non-recoupment from a participant or beneficiary shall be taken into account for purposes of satisfying any requirement applicable to a [tax-qualified] plan[.]”. I.R.C. (26 U.S.C.) § 414(aa)(5).

And matching contribution are not used in the gateway test which why we typically see the SHNEC used as opposed to SHM since the SHNEC can be used as the floor to start top heavy, gateway, and 401(a)(4) testing. Though the SHNEC approach can present it's own set of issues sometimes trigger a gateway for terminated employees.

The ADP test measures for discrimination the deferrals for everyone eligible to defer. The lack of compensation made these people ineligible to defer, so I leave them out.

Re first question - "because it does." I'm not being snarky or difficult - my early mentor from back in the 1980's told me "not to try to make sense of everything, or I'd make myself crazy. Just accept that this is how it is." I thought that seemed like good advice. But I went crazy anyway... Re second question - the very term "SECURE 3.0" triggers panic attacks, nausea, and deep disgust. But, if there is a SECURE 3.0, then yes, this would be a wonderful provision to be included.

No and no. It's similar, I think, to an employee repaying a distribution overpayment from a prior tax year. IRS position is that the amount received (or made available) is taxable (compensation in this case) for such year and that anything that happens in a subsequent year does not change that. The person also received $X in taxable compensation from the employer before terminating which I think is not affected by cutting a personal check back to the employer. The person may be able to get some sort of personal miscellaneous tax deduction for the repayment (subject to those rules) but that isn't your concern, it's a matter for this person and his/her accountant.

7.5% is usually the highest the gateway has to go, but your testing numbers will determine if a lower gateway applies.

Aren't you working with an actuary on this? It is not likely that your suggestion works. It depends on the present value of the cash balance plan accruals for the NHCEs when those amounts are converted using the required factors. The cash balance credits are not equal to the values that get counted toward the gateway. The amounts must be converted to their actuarial value. See 1.401(a)(4)-9(b)(2)(v)(D)(3) if you want to average this for the NHCEs. Also, if you are trying to avoid the combined pan deduction limit by keeping the DC plan's employer contributions at 6% or less, then you must count all match and all PS toward that 6% limit. And all employer contributions to the DC plan are counted to trigger the combined plan deduction limit, so if the match is about 2% of eligible pay and the PS is 5% of eligible pay, then the DB plan has a very low deduction limit because the overall employer contributions to the DC plan are over 6% and that triggers IRC 404(a)(7), limiting the DB plan deduction. Of course, we are assuming the cash balance plan is not subject to PBGC coverage. edit: typo

I'm not aware of any restrictions beyond what the Plan may or may not allow on sources eligible for conversion. It may be that you need to set up a special source in the Plan something like "In Plan SH Match ROTH Conversion" so you can properly track any in-service distribution restrictions of the original source money.

And the business might have a few years' incorrect tax returns, by claiming a deduction for contributions to a plan that was not tax-qualified.

Someone should remind them - that even actual 'one participant plans' must file a Form 5500 for the final year. so they aren't going to get out of filing 5500s entirely. Unless of course they choose to ignore that rule along with the rest of the rules... The filing requirement is there for the final year even if the plan has always been under $250,000 and was not previously required to file due to being under that thresh hold.

Effective for plan years beginning 2024, this also was changed by Section 315 of SECURE 2.0.

As Cusefan stated, different options are available. Your question on what they can set up depends on a bunch of factors. Also, is this for 2022 or 2023? IC - independent contractors are not employees although there are many instances, they are not properly categorized due to the list IRS has i.e. they could be determined to be employees which require them to be paid in W-2. They need to be very careful in determining if they are truly ICs. As to what plans, it is a budgeting question. How much do they want to commit to spending? In addition, what is the demography i.e. ages, salaries, how many employees are they planning to hire in the future etc etc etc Since they terminated a 401k plan in 2022, I am assuming that they want the plan for 2023. If they want to set up a SH 401k plan, hopefully the old plan terminated prior to 10/1/2022. Otherwise, they can set up a PS plan and also add a cash balance plan, assuming they have the budget for it. Lot to discuss with them and see what they want.

There is no magic here. Generally, a Solo K is a 401(k) plan where the only employees that are eligible are the owner(s) and spouses (Note: This is not like stock attribution where other certain family members are considered HCEs). The terms of the plan dictate the eligibility and entry date provisions. Typically, the existing plan would be amended prior to other employees meeting eligibility. We alway mentor our clients to set up the plan assuming other employees may become eligible. We do this even when the employer states "we will never hire any employees" or " no one will ever work over 1,000 hours. There is no downside to setting up the plan in that manner, Experience and qualified plan wisdom prevails.

It's possible this is "overthinking". Consider the use of an Early Retirement definition that addresses the needs of the plan sponsor.

Also worth noting that effective 2024, the community property attribution rule is changed. See Section 315 of SECURE 2.0.

Yes, you are missing something. Refer to the Vogel Fertilizer decision of the Supreme Court from 1982. The "same 5 or fewer" owners must each own something in both/all companies that you are analyzing for control. Since non-related owner wife does not own anything in Husband medical practice, she is not included as one of the same 5 individuals. By the way, prior to Vogel the IRS regulations included any 5 individuals (not necessarily the same) for the 80% threshold -- the same interpretation that you are now making. I was practicing back in 1982 and the Vogel decision was a big deal...many groups that were deemed to be controlled all of a sudden found out that they were not!!

As noted - two separate issues: (1) NRA definition in plan document which has specific statutory requirements and (2) funding assumptions which must be reasonable. For (1) - anything before age 62 must prove/satisfy typical industry standards, not expectations at the company level. If law firm partners typically retire at 62 or later, then 55 doesn't work even if the partners are 40 and said they don't plan on working past 55. Which, if that is the case, then 55 as the assumed retirement age for funding valuation is certainly reasonable. I think you have troubling issue with the former here but not the latter.

We had clients execute an internal Plan Administrator memorandum (and give us a copy) with the applicable effective date if they had intended to provide Coronavirus Related Distributions (CRDs) when such were available and would think similar methodology would work for this.

First, any person who is not an owner and is an independent contractor providing service to the business(es) is not an employee and cannot be covered under a plan sponsored by either business (other than a nonqualified plan). Any plans, whether defined benefit, profit sharing and/or 401(k) will have to satisfy coverage (and unless a safe harbor of some sort) and nondiscrimination. There are a plethora of design options, but if they want the simplest likely most efficient arrangement then a safe harbor 401(k) was likely the best option. However, having just terminated a 401(k) last year I believe they need to wait a year to adopt a new one. As long as non-owner employee is eligible and there are no other contributions then there should be very little administrative burden for the owners - timely remitting contributions and signing annual 5500 filings. If owners want more than salary deferrals and safe harbor (whichever type), then there are more design options that bring more complexity and the potential for nondiscrimination testing. If they are satisfied with the lower SIMPLE contributions, that is certainly an option as well.

Is this a stock purchase or an asset purchase? If a stock purchase, then the concept is correct. If this is an asset purchase then there are other considerations that I won't try to address.

truphao made an important distinction which I believe is frequently lost on DB plan practitioners. A plan is required to define a normal retirement age, which is important for certain calculations under sec. 411 and other requirements under sec. 401. Reg. 1.401(a)-1 offers some guidelines for selecting a normal retirement age. When doing funding calculations, an actuary has to make an assumption about when a participant will commence benefits. 1.430(d)-1(f)(3) requires that actuarial assumptions, other than those specified in law, must be reasonable and must offer the actuary's best estimate of expected experience under the plan. Nowhere in that section or any other is there a requirement that the actuary assume that a participant will retire on the plan's normal retirement date. Indeed, if it would not be reasonable to assume that the participant will retire on the plan's normal retirement date, then the actuary may not make that assumption.

There needs to be 80% common ownership for a controlled group to exist. If the wife only owns 50% of another business, and the other 50% is owned by an unrelated party, then I don't see how a controlled group exists. If the businesses provide services to each other, or are regularly associated in providing services to third parties, then you could have an affiliated service group, but that is a different question. As to your other question, the term "Employer" for 401(a)(26) purposes is defined in 1.401(a)(26)-8 which references 1.410(b)-9. That section says Hence the term "employer" for 401(a)(26) purposes includes all other employers in the same controlled group or affiliated service group.

They could do a SIMPLE - nothing for non-employee contractors, W-2 employees would be offered if they met the eligibility rules being established, and the owners' contributions "from the company" beyond their deferrals would be a function of their net earnings from self employment (since they're owner-employees not getting W-2s).

In addition, depending on when the employees became eligible, you may have 5500 filing issues i.e. cannot file EZ even if no other eligible employee is deferring, they are participants. Also, if they were eligible before 2022, you have possible additional coverage, top heavy issues, missed deferrals, etc etc etc. Solo plans are marketed for 5500-EZ filers and have no flexibility for PS allocations and SH match (not that I have seen any) Good luck

Actually, it has to - contractors aren't employees.

If the plan’s administrator has not yet instructed a distribution to an alternate payee and has not yet instructed a segregation of accounts between the participant and an alternate payee, consider doing now whatever notices and other procedural steps ought to have been done when the administrator first received the domestic-relations order. Further, the administrator might want its lawyer’s advice about whether to allow the participant a reasonable time to present whatever factual information or legal argument the participant wishes to present to assert that the order is not a qualified domestic-relations order. In my experience, few participants assert that a court’s order is not a qualified domestic-relations order.

And don't forget your plan is top-heavy since the owner once made a contribution I'm assuming the top heavy ratio is 100% since the employees haven't been given the opportunity to defer.

Solo 401(k), Uni-K, etc are all marketing terms. Not technical terms at all. It is one of my pet peeves that people think these kinds of plans are special or exempt from something because they are called 'solo' plans. Not trying to rail against you, I know you didn't invent the term. Just expressing my distaste at some of the marketing and sales things in general. Those plans are regular 401(k) plans subject to the same rules, reporting, discrimination testing etc. I agree with the others, if the plan allowed for deferrals immediately you likely have a missed opportunity to defer, but it is document specific.

Absolutely there's a big issue, the successor plan rule. Some "solo" documents preclude other employees from participating at all. So a new document would be a definite. But for the same plan.

They already have a plan. And based on your post, the employees are likely already eligible.

Enrolled Actuary I might be biased.