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Does the plan have a determination letter? If so then there's your written evidence that the IRS finds the plan is compliant (in form, at least) with the qualification requirements, including sec. 401(a)(31). You could also point them to code sec. 401(a)(14) which says that a plan does not have to begin distributions before the latest of the year of termination, age 65, or 10 years of participation. But for real, the participant clearly doesn't really understand what they are reading in the regs, or they are just seeing what they want to see. You can explain to them that the reg doesn't say what they think it says, and if they really feel they are being denied a benefit that is due them under the plan, then you can always point them to the plan's claims procedure.

Precisely, just went through all this with a colleague yesterday. Solo or HCE-only plans - no reason not to allow this. But any NHCEs - fugediboutit!

In a non-PBGC combo, the maximum deduction on the DC plan is usually 6% of comp. At maximum comp, that means the total contribution to the DC plan will usually be $19,500 (deferrals) + $6,500 (catch-up) + $18,300 (6% of 305,000) = $44,300. If they are ok with Roth contributions, what you could do is contribute $61,000 - $19,500 - $18,300 = $23,200 as voluntary after-tax contributions and then immediately do an in-plan Roth conversion on that amount. That lets you get your total contributions up to the 415(c) limit. Of course, voluntary contributions are subject to the ACP test, so this design falls apart if there are any NHCEs in the plan. It also only makes sense if they want to do Roth contributions, which will not appeal to everyone.

The amount to be refunded is based on the percentages needed to pass the test. The refunds will be made first from the HCEs with the largest amount of deferrals until such time as all of the amounts to be refunded is paid out. Bottom line, the HCE who maxed out at the deferral is going to have a refund even if all of the amount of the refund is due to the other HCEs.

Well, they have to be a "distributee" and sounds like they aren't. So they don't even get to enter this section because they aren't tall enough yet to reach the line on the sign.

Does the document spell out what to use? If the document gives you the leeway to use any 414s compensation, then sure, you MAY limit 414s to only periods of participation. (You don't have to, but you have to be uniform for all employees.) If you have separate participation comps (and a hearty "Blam!" to anyone who's forced that upon you) then I suppose you'd use the participation comp relevant to exactly what you're testing for. If you're testing the gateway then you're measuring nonelective contributions by the employer, so use the participation date applicable to getting nonelective contributions under the plan.

Problem is ...this late entering of the 5558 into the system is the cause ,some times, of plans getting a late filing penalty notice.

Side note: why even have a SHM?

Correct. Refunds have to use the method described in the regulations.

No, you can't pre-emptively reclassify as catch-up to improve your testing results. You perform the test as normal, and then the amount that would have otherwise been distributed as a refund gets reclassified as catch-up. If there were another reason that the deferrals could be reclassified as catch-up, such as exceeding the 415(c) limit when combined with a profit sharing contribution, then you would exclude those deferrals from the ADP test.

I think your terminated NHCE is nonexcludable. You can treat a terminated employee as excludable if they terminate in the current year and worked less than 500 hours, and only if they did not benefit in the plan solely because they terminated with less than 500 hours. In your case they worked more than 500 hours so they have to be included in your coverage and nondiscrimination test. If the plan has a last day requirement to receive a contribution, then you will either need to rely on a 410(b) failsafe (if the plan has one) or do a 1.401(a)(4)-11(g) amendment to waive the last day requirement for this employee.