Leaderboard

Here is the agency’s record of comment letters, which includes two filed in the reopened comment period: https://www.regulations.gov/docket/EBSA-2022-0026/comments?postedDateFrom=2022-11-01&postedDateTo=2023-06-12. Among other points, some comment letters advocate: Allowing correction of delinquent participant contributions or loan repayments up to the due date for filing the Form 5500 report for the year in which the breach happened. Or allowing 365 calendar days from the date an amount was or ought to have been segregated from wages. More use of government website calculators to count to-be-restored investment earnings and excise taxes (or excise-tax amounts instead included in restoration of participants’ accounts). Omitting a condition of notifying the Labor department about a self-correction. Increasing the $1,000 limit on to-be-restored earnings to make self-correction available for more plans, including plans with thousands of participants. And if there are other points on your wish list, one might read the fifteen comment letters to see whether anyone raised the point.

Another important consideration is the RMD separate account rules (which allow you to apply the rules separately to the account of each beneficiary). To avoid having to use the life expectancy of the oldest beneficiary for all the beneficiaries, avoid applying the 5-year rule to all the separate accounts if a non-person is one of the beneficiaries, or avoid having to use the 10-year rule if one of the beneficiaries is not an eligible designated beneficiary, it usually makes sense to split the account by no later than the end of the calendar year in which the death occurred if at all possible. If the participant died after required beginning date and the participant didn't satisfy his RMD before death, it is best to split the accounts even earlier since the beneficiaries are required to receive the remainder of any RMD the decedent was owed by end of the year anyway, and you are going to need to report the distribution as taxable to each beneficiary separately.

Why not just spin off in 2024 when they are no longer a controlled group instead of creating potential compliance problems for both plans by doing it in 2023?

I think there are various options, but the successor plan rules are designed to prevent premature in-service distribution of salary deferrals on plan termination. I don't think those should prevent a new plan or spin-off - however she wants to get her own plan - provided it does not result in a prohibited distribution. Two overlapping plans is a recipe for compliance mistakes in my opinion, and further complicates the situation if her husband's plan covers employees of his business.

Jamie Hopkins’ Forbes article quotes me for the idea that a participant, on reaching age 18 (or 19 or 21, if an arguably relevant State law sets that end of minority), is unlikely to disaffirm elective deferrals made while he was a minor. “If mom’s business gives her son a paycheck, a tax-favored savings opportunity, and a matching contribution, how likely is it that a first-year college kid will disaffirm his teenage years’ 401(k) contributions? And if he did, mom could get back her matching contributions and the investment gains on them.” https://www.forbes.com/sites/jamiehopkins/2021/03/15/the-how-tos-and-benefits-of-a-minor-participating-in-401ks/?sh=10656eae5a48

It certainly is possible, and there are potential pitfalls. FYI, there are several high-profile IRA providers that market IRAs for children to let them shelter income received for work. There also is guidance available for having kids in a 401(k) plan. Here are some examples: https://www.fidelity.com/learning-center/personal-finance/retirement/turbocharge-childs-retirement https://www.investopedia.com/articles/personal-finance/110713/benefits-starting-ira-your-child.asp https://www.nerdwallet.com/article/investing/why-your-kid-needs-a-roth-ira https://www.forbes.com/sites/jamiehopkins/2021/03/15/the-how-tos-and-benefits-of-a-minor-participating-in-401ks/?sh=47564b935a48 https://www.cbsnews.com/news/kids-and-money-start-them-early-with-a-family-401k/ Start your own family 401(k) today (if you can get your kids to do the work to earn a legitimate wage)!

If a plan provides beneficiary-directed investment, a fiduciary might want its recordkeeper or other service provider to divide a deceased participant’s account into the beneficiaries’ segregated-share accounts on the earlier of any beneficiary’s claim for a distribution or any beneficiary’s delivery of an investment direction. Further, if a plan provides beneficiary-directed investment and a fiduciary wants an ERISA § 404(c) defense that a beneficiary has control over investments for his or her account (or a similar State-law defense regarding a governmental plan or a church plan), a fiduciary might want its service provider to divide a deceased participant’s account into the beneficiaries’ segregated-share accounts as soon as any beneficiary is identified (and the maximum number of segregated shares is known or determined). A fiduciary might want its service provider to send an identified beneficiary a “welcome” package that includes the summary plan description, the most recent 404a-5 disclosure, notices, other communications, preliminary identity credentials, and instructions about ways to submit investment directions. Among several purposes and reasons, that a beneficiary received such a package might set up that the beneficiary then had control over investments for his or her account. Some recordkeepers do not “split” a participant’s account until at least one beneficiary is sufficiently identified with (at least) a name, a Taxpayer Identification Number, and an address. Some recordkeepers do not “split” a participant’s account until there is a name, a TIN, and an address for each of the segregated-share accounts. But some recordkeepers might allow filling-in placeholder information for a not-yet-identified beneficiary with a placeholder, the plan administrator’s EIN, and the plan administrator’s address.

Also keep in mind that the deduction limit is only a limit on the amount that can be deducted; if any of the match is funded from forfeitures, that still counts as an allocation for the ACP test and the 415 limit, but it doesn't count towards the deduction limit.

You can match 100% of deferrals as long as you don't exceed 415 there is nothing in the code or document rules that would prohibit it from a compliance stand point. It's the deduction limit that might get you into trouble but that 25% of all compensation so if there are a lot of employees eligible not deferring much it might work. Oh and ACP testing is likely to be a big problem as well as you're likely to have trouble passing ACP with the owner getting a ~40% match (I'm assuming this guy is the owner). So unless you have a lot of HCEs deferring 0%your ACP test is likely to fail miserably. You are probably going to have trouble with ADP testing as well unless this a safe harbor plan in which case only ACP is going to be an issue. Now if he's the only ee, you are right with the 25% er contribution + 401(k) as his effective maximum.