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It's not truly disaggregation, where you would treat it as two separate plans as you might be used to with 410(b) and 401(a)(4). Rather, what the new law says is that employees who have not met age 21/1 year of service can be disregarded when determining if a DC plan has satisfied the top heavy minimum. So it doesn't matter if there are any otherwise excludable key employees, you just ignore all of the under 21/under 1 year employees when determining who is entitled to a top heavy minimum. Where it gets weird is with the safe harbor match. The IRS ruled (in rev. rul. 2004-13) that a plan which different eligibility for deferrals and safe harbor does not consist "solely" of deferrals and match meeting the safe harbor requirements, which is the rule to be treated as not top heavy under IRC 416(g)(4)(H). That clause wasn't affected by the new law. So presumably a plan with different eligibility for deferrals and match is still treated as top heavy, and subject to the top heavy minimum. The fact that they don't have to give the top heavy minimum to otherwise excludable employees doesn't change this, it just means that employees who are not otherwise excludable (over 21/1 year of service) will have to get the top heavy minimum. The top heavy minimum for these people could be satisfied by their safe harbor match contribution, or if they don't get any safe harbor (or enough safe harbor, because they didn't defer enough or not at all), then by an additional employer contribution.

fwiw I find these two items incompatible. "...and operates" indicates some level of involvement. I'd say it is practically impossible to own a small business and not be "employed." I don't have a problem including a 5% owner as being "employed" but would be careful about any hours requirements.

Don't forget to read the document.

It's not "stupid guidance", it's their plan document. You should have been received SPDs (Summary Plan Descriptions) during your employment and this would have been noted in there. Even though it's crazy California, in this instance, they are correct in delaying your distribution.

That is not necessarily a universally held opinion. The other point of view would be that the employer, i.e. the controlled group, has already adopted the plan, and while it may take the form of a participating employer agreement, it is really an amendment to allow a previously-excluded class to participate. That said, I don't think there is a problem with amending a safe harbor plan to bring in a class of previously-excluded employees mid-year, and I agree it would be advisable to do it before 10/1 to cover yourself under either interpretation.

Does the plan’s administrator have a written claims procedure? 29 C.F.R. § 2560.503-1(b) https://www.ecfr.gov/current/title-29/part-2560/section-2560.503-1#p-2560.503-1(b). If so, what does that procedure provide about whether a claim for a principal-residence loan requires evidence beyond the participant’s statements on the claim form? If the written procedure grants the administrator discretion about whether to require or excuse supporting evidence, what has the administrator done regarding similarly situated claimants? If the claims procedure calls for evidence beyond the claimant’s statement that the participant loan is used to buy the participant’s principal residence, consider these points from the Treasury department’s rule: “The tracing rules established under section 163(h)(3)(B) apply in determining whether a loan is treated as for the acquisition of a principal residence in order to qualify as a principal residence plan loan.” 26 C.F.R. § 1.72(p)-1/Q&A-7 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR807fc2326e73cb3/section-1.72(p)-1. I.R.C. (26 U.S.C.) § 163(h)(3)(B)(i): “The term ‘acquisition indebtedness’ means any indebtedness which— (I) is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and (II) is secured by such residence. Such term also includes any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.” http://uscode.house.gov/view.xhtml?req=(title:26%20section:163%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section163)&f=treesort&edition=prelim&num=0&jumpTo=true. And back to the § 72(p) rule: “[A] loan from a qualified employer plan used to repay a loan from a third party will qualify as a principal residence plan loan if the plan loan qualifies as a principal residence plan loan without regard to the loan from the third party. (b) Example. The following example illustrates the rules in paragraph (a) of this Q&A–8 and is based upon the assumptions described in the introductory text of this section: Example. (i) On July 1, 2003, a participant requests a $50,000 plan loan to be repaid in level monthly installments over 15 years. On August 1, 2003, the participant acquires a principal residence and pays a portion of the purchase price with a $50,000 bank loan. On September 1, 2003, the plan loans $50,000 to the participant, which the participant uses to pay the bank loan. (ii) Because the plan loan satisfies the requirements to qualify as a principal residence plan loan (taking into account the tracing rules of section 163(h)(3)(B)), the plan loan qualifies for the exception in section 72(p)(2)(B)(ii). 26 C.F.R. § 1.72(p)-1/Q&A-8 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR807fc2326e73cb3/section-1.72(p)-1.

There are worse words for your fingers to be on autopilot!

And these are not wages, they are retirement benefit accounts, subject to ERISA and IRS rules (law) and must follow the formal plan document provisions (legal obligation) as noted above. FYI, I suspect that delay in paying out 401(k) accounts is to avoid someone quitting Monday, getting their 401(k) by Friday and wanting their job back Monday. Finally, if you're not planning to roll over your 401(k), 20% will be withheld for Federal tax liability, and your ultimate taxes will include Federal, CA state and if you are not age 55 there is an additional 10% Federal tax.

If 2022 reporting is still fully open (corp taxes, 5500/SB, etc.) and the haircut was agreed to by a generic "to the extent unfunded" then if economically advisable (Paul's questions) I think you're OK. The employer has the discretion to fund and make the "extent unfunded" less or zero. If there was a 2022 amendment and a hard-coded agreement for the haircut, then as previously noted, an HCE-only amendment could be problematic.

An ADP test and possibly ACP is required because those with the 1 year wait are not able to get the Safe Harbor contribution. Therefore, it's not fully a Safe Harbor plan for all employees. It's only a Safe Harbor plan for those that meet the eligibility requirements to receive the Safe Harbor. I like to try to keep my Safe Harbor plans to single eligibility expressly for this reason. In my opinion the dual eligibility design ruins the efficiency of a Safe Harbor plan.. especially the plan that only does deferrals and safe harbor contributions. I don't want to work that hard inside a Safe Harbor plan. And then, with dual eligibility safe harbor, I have to concern myself with Top heavy, did a KEY employee come into the plan and defer a percentage that will require refunds. To some extent, I am thinking harder about Safe Harbor plans than I am with a non-safe harbor plan. We all have to be really sharp on the Safe Harbor plans. There are some pitfalls that we don't want to fall into.

Out of curiosity, did the plan declare there was a short plan year ending before 12/31/2022 (assuming that the plan was a calendar year plan)? Has the plan already filed a final 5500 for the 2022 plan year? Was the haircut formalized in writing by a plan amendment or agreement between the shareholder and the plan? The answers to these questions could complicate things. Sometimes it helps to understand what is the motivation for trying to do this now. Is the shareholder's goal to fund $65,000 and then rollover the distribution? If the shareholder is not rolling it over, then does the shareholder live in a state where retirement plan distributions are not taxed or taxed at a lower rate? Is the shareholder looking to create a 2023 deduction? These types of questions can help answer whether the total time and expense of attempting this transaction is worth the net value of the result. Keep in mind that any special transaction that solely benefits a 100% shareholder almost always draws attention.

This is the law change coming from SECURE 2.0, that you can completely disaggregate for 416 (top heavy) purposes. Soon, the same people you're testing separately for 401(k) purposes will be able to be tested separately for TH purposes. And so since their separate test very very likely will have no Keys, their subgroup will be not top heavy, and so folks in that situation can be skipped for the 3%. (Even if the "statutory" employees are in a top heavy plan for their population.)

Hi longjongbongkingkong, welcome to the forums! 401(k) plans are governed by ERISA, which preempts state law. ERISA sec. 206(a) allows a plan to delay a distribution to as late as 60 days after your normal retirement age under the plan, or even later in some cases. So them allowing you to take a distribution 30 days after termination of employment is sooner than the legal minimum standard.

My answer would depend on how the 5% partner's income is taxed - probably as earned income and eligible for retirement plan contributions - and also how many hours this partner works (you seem to be saying 0) and finally what the plan says about hours requirements to enter and share in contributions.

Nope, and the PBGC wouldn't have an open file for the plan, either. Regular termination rules still apply, though.

If its a partnership or taxed as a partnership and the the former spouse is awarded an interest, I agree, it could make the former spouse a partner. If its a C-Corp, you have to file the 5500 or 5500-SF. If its an S-Corp, you would still be required to file a 5500-EZ if the interest makes both former spouses 2% S-Corp shareholders...

About whether and when a plan might be no longer a one-participant plan as Form 5500 instructions use that term, an employer/administrator might consider not only when a marriage ended but also whether a former spouse who had been a community-property or equitable owner during the marriage became a title-holding partner. For example, if a divorce’s settlement agreement provides a former spouse an interest in a partnership or an interest in a limited-liability company treated as a partnership, that interest could make the former spouse a partner. See 29 C.F.R. § 2510.3-3(c)(2) https://www.ecfr.gov/current/title-29/part-2510/section-2510.3-3#p-2510.3-3(c)(2). BenefitsLink mavens, if a former spouse gets no partnership interest, how would you advise a plan’s administrator to report this situation: The divorce decree is made after the end of the to-be-reported-on plan year but became legally effective months before the plan’s administrator completes its Form 5500 report on that plan year. Would you: Report as a one-participant plan (because those were the facts on the last day of the plan year)? Report as an ERISA-governed plan (because the Form 5500 instructions defining a one-participant plan speak in present tense—“covers”—and when the administrator makes its report the plan covers a participant who is neither a partner nor a partner’s spouse)?

Not sure why I kept typing "Participant Employer". I guess I type the word Participant so much my fingers are on autopilot!

Sometimes we need to step back and see if we are solving a real-world problem or just enjoying a stimulating intellectual conversation. dragondon, since you are asking the question in September 2023 about a 5500 for calendar year 2022 plan, I must ask as there a Form 5558 Application for Extension of Time To File Certain Employee Plan Returns filed for the plan before August 1st (or is the taxpayer's 2022 income tax return otherwise on an approved extension)? If yes, then why bother discussing whether to file the 5500. Just do it. The filing will be trivial and you will not have to explain later why an extension was requested. If no, then I can understand it is worth the effort to look for an acceptable reason why the plan is not required to file for 2022. Facing the prospect of paying a bazillion dollar penalty for a late filing would be particularly unpalatable for a new plan. I have seen situations where a plan had reasons to argue whether having no assets meant the plan technically did not exist or was not fully formed. Where this has involved a new plan, an argument (simplified) is along the lines that a plan with no assets does not have a trust, and a trust is required for the plan to exist. This is not advice, and I do not advocate taking this position. If the plan is facing major penalties, I do suggest finding an attorney who has experience working (successfully?) with clients that have been in similar situations.

I just watched a recorded webcast where it was said the IRS could (would?) waive excise taxes if self corrected within 180 days. Given you're within that time period (and still the same tax year) I would do that. Worst case, I believe, is a 10% excise tax if corrected timely.