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It is tempting to offer an opinion because as a TPA we try to be helpful, but we do not advise clients on whether holding a particular asset is allowed or is prohibited. We do not have the expertise to make that assessment. Providing such an opinion very likely would be not be covered within the scope of our E&O coverage should the investment be found to be prohibited or it is a total bust and the investment adviser starts looking for deep pockets to recoup the taxes and penalties or to cover the loss. If an investment adviser is asking, then likely the question also is beyond his areas of expertise. Consider pointing out to the adviser a need for competent legal advice.

I have not researched this in quite some time and have thankfully not had to deal with it. My understanding would be the 10% penalty for failure to meet minimum funding does apply and at this point would likely have penalties and interest for late filing of Form 5330. But with respect to the 100% penalty, I though that was imposed by the IRS ONLY if the funding deficiency wasn't corrected by the time they contacted you. If you are making up the 2021 funding deficiency and the 2022 MRC that should all be 100% deductible as required contribution unless something odd is going on like that is more than a Self-employed individual's earned income. I think the instructions for Schedule SB Q19 tell you how to discount the contributions; your unpaid minimum from the prior year goes into your reconciliation in Q28.

I'm not familiar with the "FTW" document referred to (which I take must be some sort of a "form" document), but for interpretive questions like this, look to the plan document itself. Per the document, who is responsible for interpreting plan provisions? Likely, the plan administrator (employer or a committee, for example). As others have said then, the plan administrator needs to make the decision. But more than that, the decision should be well reasoned and the process of making the decision, not just the decision itself, should be documented in writing for the plan's records. Obviously, the plan administrator should take into account appropriate advice from third parties, but should keep in mind that it is responsible for the final decision, not the third party. It may be difficult to convince the plan administrator of it's responsibilities for the plan, but that must be tried.

I haven't seen or heard of it happening, but my guess is that the IRS would only invoke that provision to deny an otherwise-EPRCS-sanctioned self-correction in rather extreme cases. Two categories come to mind: (1) intentional schemes by people who are obviously trying to game the tax code with plans that clearly violate at least the spirit of the law; or perhaps the overall plan is in good faith, but the taxpayer appears to have intentionally committed the specific error in question and was counting on the validity of the EPCRS-sanctioned self-correction to further an abusive tax scheme (the IRS deals with people like this all the time; I would be shocked if there aren't examples in this category where the IRS has thrown the book at the taxpayer, so to speak), and (2) plans that may not have intentional compliance failures, but where fundamental negligence is apparent (e.g., a plan that is being operated without a plan document, a plan whose assets are being intermingled with employer assets or being used as a piggy bank/source of loans by the CEO; plans (especially large or midsize plans) that lack a fiduciary committee, where the board is nominally the fiduciary, but in reality it is being run on a day-to-day basis by people who do not have any formal grant of fiduciary duty, who are not operating the plan consistently, and who are not regularly identifying and correcting plan errors). I doubt the IRS will invoke that provision in the case of a plan that is appears to be operated in good faith, with a fiduciary committee that meets regularly and addresses a variety of potential compliance questions at each meeting, that generates substantive minutes and has periodic discussions with ERISA counsel that routinely result in self-corrections when errors are identified. As part of a VCP submission, you have to include a statement about how you are fixing your procedures to avoid similar errors occurring going forward. As a rule of thumb, I think it is prudent to save everything you would have submitted as a VCP submission in a self-correction file, including a narrative description of the failure, how it occurred despite your reasonable procedures, and a description of how diligent you were in fixing the problem and correcting your procedures once you discovered the failure.

In the FTW document, B7g looks at continuous employment (B7f looks at hours within months). There also is an election available in B7L for what happens if an employee does not meet the eligibility requirement in the first consecutive month period. The example in the note in the adoption agreement only refers to calendar months and does not indicate elapsed time rules apply (note the B7g requires continuous employment). The Plan Administrator needs to make a decision here. The first work day in April of 2023 was April 3. The PA can decide that the employee was continuously employed for April, May and June and allow the employee to participate as of July 1. The PA can decide that the employee was not continuously employed throughout April and would look to applicable plan provisions in B7L for what to do next. The PA can apply rolling successive consecutive 3 month periods or rolling consecutive 3 month periods starting from the beginning of each month. If nothing is checked, the PA needs to decide how to interpret the plan, including looking at continuous employment for a 3 month period starting on the employee's hire date and continuing up to the 3 month anniversary of the employee's hire date. In short, if the PA counts April as a full month of continuous employment, the employee enters on July 1, 2023. Under all other scenarios, the employee enters on the January 1, 2024. The PA must apply the decision made here on a uniform and consistent basis for all other determinations of employee eligibility and entry dates.

"Let me make one thing perfectly clear" - for those of us old enough to remember...😁 Thanks CB - this is helpful.

It's the actual asset value as of the beginning of the year, most likely nonzero.