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Andrew, I understand your concern that you did not get all the money in the 401k you were expecting. However, the funds that were supposed to go into the plan you received as cash compensation. In other words, you received the pay AND received a 50% QNEC. Seems like a scenario I could live with. If there was any missed match, you would have received 100% to the plan also. You are correct that the QNEC is a Pre-Tax. The Pre-Tax QNEC is per IRS code, so no choice in the matter. I hope I have answered your questions. If not, let us know. Thanks

Because it's an employer contribution, and all employer contributions are pre-tax. Roth is a specifically made at the election of the employee. You can choose to convert it to Roth (and pay the tax on it). Roth is §402A, completely different section of the tax code than employer contributions. There is no provision under 402A that allows for QNEC.

Yup. A firm’s employee with § 3121(a) wages more than $145,000 would be § 414v)(7)-restricted to catch-up deferrals as Roth contributions while the firm’s partner with a million-dollar draw (but no wages) has her choice between Roth and non-Roth contributions. That’s how the statute reads, and the IRS confirmed it. Whether that’s fair or decent we leave to the Members of Congress.

I had a client with a penalty notice actually call the IRS. They were told that the filing was done timely but the issue is that the total listed on lines 6/7 do not equal line 9. Obviously lines 6-7 are used when reporting participants with Entry Code A, whereas line 9 (aka page 2) would list everyone reported on the filing. If this is accurate, sounds like whomever set up that algorithm to flag the issues goofed big time since any filing with a code B, C, or D seems like it would get flagged. Also a tough look for the IRS when their method of informing plan sponsors about a simple error is via a huge penalty!

You need to separate the purpose of the LPTP rules (to allow the employee to simply make elective deferrals) from the regular rules governing eligibility to become vested in and receive an allocation of employer contributions. All elective deferrals are required to be 100% vested at all times. As far as vesting in other employer contributions, subject to the provisions of the plan and plan qualification rules based on the particular plan design, such persons can be required to complete 1 year of eligibility service (1,000 hour) to become eligible for the employer contribution portion of the plan, to receive vesting credit with respect to such portion and to be eligible to share in the allocation of employer contributions under the plan.

Geeze, I remember those "good old days", less regulation, etc. I have seen many plan documents with prime +1 lately.

Long time ago I got the same answer from one of the IRS agents when I called them to clarify the word "maintain".

I hope this does not cause the IRS to consider not sending out some type of blanket response to their error.

Thank you! It looks like the IRS is latching onto NAPA's prior incorrect reference to EFAST (instead of FIRE) being the e-filing system for these, suggesting that incorrect e-filing could be part of the issue. Clearly, it's not -- I'm sure no practitioners are trying to use EFAST to file them.

Sure. (I think) it is pretty clear that the prohibition on having a 5305 model SEP and another plan relates to contributions, not the mere existence of a document. It's just about 415 limits (again "I think"). Three is absolutely no audit circumstance under which the mere existence of a model SEP is discoverable (not that that makes it ok, but it kind of proves the point about why it might be a problem - limits, and, I suppose, testing).

Update from ASPPA today: https://www.napa-net.org/news-info/daily-news/irs-clarifies-erroneous-late-filing-notices-received-plan-sponsors-advisors

Barring additional guidance/technical correction, this falls under the "life ain't fair" exception to life.

Yup, Luke has a good point. You need to find a loan that looks like what is going on here. The credit union I use offers loans secured by one of your own CDs (why you take this out baffles me but they have offered it for decades so someone must do it) is CD rate +2%. The 60 month CD rate is currently 5.99% so plus 2% you get 7.99%. You have as a baseline a fully secured loan by your own assets being offered by a local lending institution. It is lower than prime+2 higher than Moody's. Although a lot closer to prime+2 Maybe the client of the person who asked original question should see if they can find that and document it if they really want to forge their own path. But given how small the gap between prime+2 and what I got in my area it might not be worth the work and risk.

If you file the 5500 without the audited financials, there is a chance that EBSA may bounce your filing. Since your client has not filed Forms 5500 for multiple years, let it get its ducks in a row and file all of the under DFVC for all of the years. The reason is that the penalty for filing late is capped and filing the multiple years simultaneously will likely result in your client hitting the cap under the program. Then there will be no more never filed or late Forms 5500. Now, that would be very nice, don't you agree?

I would agree with CuseFan to the extent of the current state of the rules for EPCRS. However, I disagree with CuseFan to the extent he posits the option of amending the plan prospectively and hopes that the sponsor does not get caught since the client would be at risk for the period between the date of the plan's restatement and the later of the adoption or effective date of the prospective amendment. The issue is what did the original plan document provide: a 3% SHNEC or matching contributions? If the original provided for the 3% SHNEC, in addition to the question of why the plan even bothers to be treated as safe harbor, since more than 3 years have elapsed since the restatement took effect, you would need to do a VCP to ask for the plan to be retroactively amended for how it has actually been operated. If the plan original plan docuent provided for matching contributions, you would do the VCP filing and ask for the plan to be retroactively back to the original effective date to conform to its actual operation. Interestingly, one of the SECURE 2.0 Act provisions greatly expands the availability of self-correction. While you could decide to wait until the IRS issues a new EPCRS Rev Proc, you are playing a dangerous game of hoping that the IRS does not knock on your client's door in the interim. Bottom line: do the VCP filing and get it over and done with.

So you're suggesting to act counter to published guidance regarding excess deferrals, and have the employer alter payroll records to hide what actually happened to fix an employee's issue? I wouldn't do it, but you have fun with that.

Effective for plan years beginning in 2023 and later, the audit requirement applies to plans with at least 100 participants with account balances on the first day of the year. The 80-120 rule still applies, so if the plan filed as a small plan in 2022, they would not have to have an audit until they have more than 120 participants with account balances on the first day of the year.

It's called subrogation and is very common. Some states prohibit insurers from subrogating, so often fully insured health plans are prevented from doing so. Self-insured health plans are not subject to state anti-subrogation laws, so usually can subrogate more freely. The plan materials (plan document, SPD, etc.) should address the plan's subrogation rights. Usually, personal injury lawyers will send ERISA document requests to the group health plan sponsor at the outset to confirm whether the plan can subrogate.

Absent the conclusion Cuse peaks so eloquently of, what would the point of the LTPT legislation be? I think it clear that is is a clear indication of Congress' intent that "thou shalt not exclude LTPT'ers." Exclude who you want for "normal" participation, but LTPT will override... And by the way, in the 403(b) world with universal availability, S2.0 specifically made these rules applicable in that world to clear indicate that it overrides the 20 hour per week exclusion allowed as an exception to universal availability.

You cannot categorically exclude part-time/seasonal in your document unless it is with the caveat that if they complete 1,000 in an eligibility computation period then they enter the plan. I would think the 500 hour LTPT rules now supplement this such that you still cannot categorically exclude solely on the PT/S classification.

Well the SEP failed to meet the coverage requirements, so it's not deductible. Not being an ERISA plan I don't know that the employees have any claim for benefits. There is no provision for any offset between qualified plans and SEPs, maybe something could be negotiated with the IRS. In my experience clients and their advisors tend to let sleeping SEPs lie. Seems like a good time to repost this, I wrote it years ago (back when the 415 limit was $40K): Ode to SEPs At the ripe old age of 42, My CPA said this won't do, He told me I'm out of step, To cut my taxes, go start a SEP. Sent me to a TPA, he said Yep A SEP might work, but first let's see. Lo and behold, we have an ASG! He told me we could work around the ASG; But there would be attorneys fees, Determination letters and trustees, Not only that, I'd have to contribute for employees! But, wait, I have no employees, they work for XYZ, But the lawyer said the ASG Means those employees work for me! We'll design a plan, that will conform, Of course you'll have to file the 5500 form. I said OK, let's kill some trees, But before we do, please explain the fees. When he was done, I had to pee, Surely I could find simplicity. So I went online to explore Found SEPs, 401(k)s, and more, They needed my name and address and EIN But had no pesky questions about 414(b), (c) or (m). What about the IRS, would they find my SEP? They audited my return, said I did misstep, About my SEP they did not complain, But disallowed my green fees, oh the pain! My SEP grew and grew and I paid no fees Wrote a check every year for my 40 Gs. As for my employees, they did not know, For their retirement, they have nothing to show.

NYHeel: The argument is NOT a stretch. It just plain doesn't work. I provided the regulatory cite so you can decide if you agree with me. That particular restriction looks at the ratio of match to elective deferrals for HCEs and compares it to the ratio of match to elective deferrals for any NHCE with elective deferrals at the same percentage of safe harbor compensation. I don't see any way to construe the restriction to have anything to do with match-eligible compensation.