Leaderboard

Sounds like a TPA limitation and not a Plan or Code limitation.

A "plan" must pass both coverage AND nondiscrimination. A "plan" each of your mandatorily disaggregated components and any permissively disaggregated components. You cannot choose to test "plans" A and B together for coverage but separately for nondiscrimination, whether nondiscrimination is ADP, ACP or general 401(a)(4).

When is the sponsor's tax return due, and will they go on extension? That will determine a lot of the answers.

Agreed, thanks Bird. I think I just needed to vent about it in my frustration 😁

I think you would probably be fine with the correction you propose as fixing a data entry error. Though you'd probably be on even stronger ground if you simply removed the erroneous deposit from participant, left it in plan, and used it to offset the next deposit. Same result, but the money never leaves the plan to go back to the employer.

You cannot sponsor (in CG) any other plan if you have a SIMPLE. SECURE 2.0 will let you terminate a SIMPLE mid-year and replace it with a safe harbor 401(k) plan but not until next year (2024).

I believe it creates problems for the SIMPLE-IRA that would need to be corrected as you are not allowed to maintain another plan if you sponsor a SIMPLE-IRA for the year. I'm pretty sure that extends to all members of a controlled group. There is a transition rule but I think that applies to M&A and might not apply to a startup. I don't deal with SIMPLE-IRAs so I'm not 100% sure on the correction but I think it involves disgorging the IRA contributions for the year of failure. There are number of similar threads about wanting to start a plan to replace a SIMPLE-IRA (though I don't know if your exact fact pattern) so you might search the site for threads on SIMPLE-IRA.

The LTPT rule trumps the 20-hour exclusion rule and the student exclusion rule thanks to SECURE 2.0's change to the last sentence of Section 403(b)(12)(A). I agree that it is easier not impose a service requirement on elective deferrals. I will add a somewhat related question: Has anyone seen anything about how the LTPT rule applies to employers with more than one ERISA 403(b) plan? I don't see an exception in the new ERISA § 202(c) that allows a 403(b) plan to satisfy the LTPT rule for employees who are eligible to participation in another employer 403(b), 457(b), or 401(k) plan. Without such an exception, this could require major changes for employers with more than one 403(b) plan. Thoughts? Am I missing something (I hope)?

One plus is Partners in a partnership, Sub-S owners, LLC members, Self-employed all can deduct the premium cost of their benefits (Health, Dental, Vision) coverage from thier scheduled income, up to 100% of the cost, in the year incurred, also reducing thier scheduled FICA Taxes. This offsets the ineligibility for Section 125 has been available for many years. Everyone with an eligible HSA contribution is allowed to take the deduction on their Federal 1040 and that reduces their taxable State Income (in most states), no FICA savings.

I work on 403(b) plans exclusively. 403(b) plans had been excluded from the LTPT rule prior to SECURE 2.0 but now these plans have been included. I agree that the use of the "20 hour rule" in this new context will be a challenge and will discuss not using it with sponsors. The "universal availability" rules cause all employees to be eligible for 403(b) unless the 20 hour rule (1000 hours in a year) is in the plan. The IRS shares your disdain for the 20 hour rule, Belgarath, and this item is on audit lists as it is frequently used incorrectly or the recordkeeping is inadequate. The "good news" for 403(b) plans is that we don't have to test deferrals because of universal availability so the negatives in avoiding the 20 hour rule will "only" occur with matching or other employer contributions.

B21, For partners in a partnership, there is no de minimis percentage threshold which would render them NOT self-employed individuals. Therefore, if a partnership had 500 partners, not one of them could be considered "employees" under the cafeteria plan rules, regardless of whether each partner owned an equal percentage of the partnership.

For an ERISA-governed plan, there are complexities about how ERISA § 202(c)(1)(B)’s provision for long-term employees interacts with Internal Revenue Code of 1986 § 403(b)(12)(A)’s nondiscrimination conditions as they apply regarding employees “who normally work less than 20 hours per week.” Under new Internal Revenue Code of 1986 § 403(b)(12)(D), a plan need not allocate a nonelective or matching contribution to an employee eligible for § 403(b) elective deferrals “solely by reason of” ERISA § 202(c)(1)(B). If a plan provides contributions beyond elective-deferral contributions, the employer may elect not to count the ERISA § 202(c)(1)(B) long-term part-time employees in coverage and nondiscrimination measures, but counts the employees “who normally work [at least] 20 hours per week.” https://irc.bloombergtax.com/public/uscode/doc/irc/section_403 With no advice (not that anything I put on BenefitsLink is advice), that’s my first (and cold) read. Do BenefitsLink mavens concur?