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Easier said than done. We routinely "merge plans" without merging assets which takes some time. "Zero balance" occurs when the assets are "deemed" to now be part of the surviving plan, despite still being held in a trust account established by the former plan. We always spell out in merger documents that the plan is deemed merged precisely at midnight. Arguably then, the disappearing plan has a zero balance at that point, and has a final 5500 for the prior year, and the new plan has assets transferred in as of the subsequent year. An artifice for convenience? Darn tootin'. But absent guidance, a defensible position. Merger lawyers (all but the best) don't seem to understand this....

The artifice for convenience needs to be in sync with the reporting. Filing a 5500 with the final return box checked and with a balance on the Schedule H or I is an edit check that can trigger an inquiry. We have seen the merger agreements with the date and time of the plan merger set specifically at 11:59pm on 12/31. Some agreements take extra care to note explicitly that the ownership of the trust assets for the plan merging in also is effective as of that time and date. In real-world trust reporting, the trust statements very likely will show assets as of COB 12/31 for the plan being merged. If the trustee is also associated with the recordkeeper that is preparing the 5500, the draft 5500 likely will show those assets as the ending balance and will not have the final return box checked. The trust reporting will not show a zero balance until the assets leave the account. So, yes, easier said than done and a balancing act. We had to involve an agent's supervisor to overrule an agent's refusal to accept that the merger was consummated as of the effective date of the merger even though there was a trust report that showed a balance in the name of the merging plan. All too often merger agreements are done with considering the implications on the plan, and the client's benefits staff and the plan's service provider only learn about the merger until after it is too late to provide input. For smaller plans, it is far easier and less time consuming to go with the flow and file a 5500 that covers the days into the next plan year when the trust reporting in the name of the merging plan will show a zero balance.

Bill, I was of the thinking it could but simply overthought it. Appreciate both of your responses!

If, following a qualified domestic relations order, the participant’s spouse or former spouse is treated as an alternate payee and distributee, that distributee may make a rollover (including a direct rollover) to an eligible retirement plan. I.R.C. § 402(c)(1), 402(e)(1) https://irc.bloombergtax.com/public/uscode/doc/irc/section_402.

Good point - Thanks for that analysis. I hadn't really thought about it in that light. And no, I'd say VCP.

Perfectly stated. I would add that this means that a 12/31/22 merger date means a final return for 2022 (regardless or where the assets physically resided). A 1/1/23 merger date means a final return for 2023. (We would generally use 12/31 to avoid an additional return.)

That might not be about what the IRS allows because self-correction means the employer doesn’t ask the IRS. Among the burdens of self-correction (even before SECURE 2.0 § 305) is that it puts responsibility on the employer and, practically, its adviser. If, after a self-correction, the plan’s tax-qualified treatment is challenged, the burdens of proof and persuasion are on the employer to show that the failure was eligible for self-correction and that the correction was appropriate. When a professional is asked for advice, whether written or oral, that a failure is eligible for self-correction, the professional evaluates the liability exposures and other risks of that advice. About the example you set up, ask yourself this rhetorical question: Could Belgarath, knowing that States’ laws hold a nonlawyer to the same standard of care that would be used by a prudent lawyer (with the same exposures for liability to one’s advisee and third persons), write something to confirm the failure is eligible for self-correction?

IRS FAQs - Auto Enrollment - Are there different types of automatic contribution arrangements for retirement plans? Companies may choose different types of automatic contributions arrangements: The basic automatic contribution arrangement described above The eligible automatic enrollment arrangement (EACA) An EACA is a type of automatic contribution arrangement that must uniformly apply the plan's default automatic contribution percentage to all employees after giving them a required notice. EACAs may allow employees to withdraw automatic enrollment contributions (with earnings). To withdrawal contributions, an employee must: elect to withdrawal under the plan terms (within 30 -90 days after the employee's first automatic enrollment contribution was withheld from wages). Employees are 100% vested in their automatic enrollment contributions. The qualified automatic enrollment arrangement (QACA). A QACA is an automatic contribution arrangement with special "safe harbor" provisions that exempts 401(k) plans from annual nondiscrimination tests. The special safe harbor is a schedule of uniform minimum default automatic contribution percentages starting at 3% and gradually increases each year an employee participates. Under a QACA: an employer must make a minimum of either: a matching contribution of: 100% of an employee's contribution up to 1% of compensation and a 50% matching contribution for the employee's contributions above 1% of compensation and up to 6% of compensation; or a nonelective contribution of 3% of compensation to all participants, including those who choose not to contribute to the plan. employees must be 100% vested in the employer's matching or nonelective contributions by two years of service. A QACA may not distribute the required employer contributions due to an employee's financial hardship.