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It shouldn't have an impact on testing. You already include receivables in testing. If you report on a cash basis, your reporting just wont line up 1:1 with testing if you have receivables.

I don't think a 204(h) notice would be required. They all terminated employment, so no plan change to report.

I agree with all of the previous replies, but I wanted to point out that another thing that might be worth considering are the terms of the promissory note evidencing the loan. It could theoretically be considered by the IRS to be a part of the "terms of the plan" which might actually conflict with the plan document or other items. Therefore, when deciding on amendments including as applied to plan loans, it is also advisable to take the time to consider the wisdom of also taking a look at the terms of the promissory note and revising them for prospective loans to make them consistent with the terms of the plan and the plan loan policy document.

I think you're OK and do not need to employ the same method. Conversely, you could determine rate groups based on allocations but do your ABPT using benefits.

Which also goes away starting with the first plan year after 12/31/2023

If all of the active employees terminated as a result of the sale, it is obviously a partial plan termination and every impacted participant would be 100% vested.

I think the attached is what you were looking for. There is a prohibition for excluding a classification of employees where the classification is a proxy for a service-based exclusion - for example, excluding part-time or seasonal employees. If the plan has such an exclusion, then generally the plan must consider eligible anyone who earns One Year of Service (1000 hours in an Eligibility Computation Period) and meets any age requirement. Let's say in your example the seasonal worker met the eligibility requirements on 12/31/2022 and became a participant on a 1/1/2023 entry date. This person would not get an allocation as of 12/31/2022 because they did not enter the plan until 2023. Let's say this person did not work 1000 hours in 2023 but remained an active employee. If the plan has an allocation condition that the employee must work 1000 hours in the plan year to receive an allocation, this person would not receive an allocation for 2023. The person does not lose their eligibility status unless they terminate employment and the plan has rules of parity that wipe out that service - typically the person has consecutive One Year Breaks in Service that exceed 5 years more. Keep in mind that a plan can have totally different rules for determining eligibility service, vesting service and benefit accrual service. Note that this is a simplified illustration. Employee_Plans_Determination_-_Quality_Assurance_Bulletin.pdf

And not for 2023

This list doesn't include items that were or could be effective before 1/1/2024 and likely is missing some. These are rules to follow starting in 2024 that could be considered "must make" changes should they be needed: change in attribution of stock between parents and minor children. make retroactive discretionary amendments after plan year end and by the due date of the tax return to increase benefits. The plan may put in: emergency in-service withdrawals up to $1000 with no 10% excise and opportunity to repay. withdrawals for victims of domestic abuse with no 10% excise tax up to the lesser of $10,000 or half the account, and opportunity to repay. eliminating RMDs from Roth. allowing in the RMD rules for the surviving spouse to be treated as the deceased employee. The plan may add to its existing plan design: a match and add matching contributions on student loan repayments. involuntary distributions with a cash-out limit to $7000 from $5000. If the need arose, the plan could: use separate top-heavy testing for non-excludable and excludable employees. Given the plan design presented, the plan should not have to worry about LTPT employees. Given recent IRS guidance, non-Roth catch-ups are allowed for everyone (and given universal availability of catch-ups any restrictions on High Paids to Roth-only likely are not allowed).

Top heavy minimum is required. Rev. rul. 2004-13 example 2. Now if the employer had a separate profit sharing plan, they could make the contribution to that plan without triggering the top heavy minimum, because the first plan would still consist solely of deferrals and safe harbor contributions, and in the second plan no key employee gets a contribution. It seems silly, but that's the way the top heavy rules are written/interpreted...

A few years back I ran into this exact same problem. My research found that Mr. C.B. Zeller is 100% correct. The TH Minimum for Non-Key is required.

Before ERISA, forfeitures could be allocated only to employees of the specific employer that maintained the plan in which they arose. ERISA established the principle that all members of a controlled group are treated as a single employer for almost all purposes, including the exclusive benefit rule. Rev. Rul. 84-50 confirmed that the pre-ERISA ruling on the point (Rev. Rul. 69-570) is obsolete.

RBG is spot on, compliance testing is accrual basis and aligns with corporate and individual tax reporting. Cash basis accounting just impacts how it all is reported on the 5500.

Yes, that is correct. The twelve month period is based on the payment date. The trigger date is irrelevant.

This would be an easy question for a nongovernmental plan, since IRC §401(b)(2) allows an employer to treat a plan as having been adopted on the last day of a taxable year if it is adopted by the due date, including extensions, of the employer's income tax return for that year. A plan adopted on the last day of a year may be effective as of the first day of the year; that is pretty routine. Your client, however, has no tax return filing obligation, so section 401(b)(2) isn't literally applicable. Still, it's hard to believe that the IRS wouldn't be equally indulgent toward governmental plans. It is probably safe to prepare the document and submit it for a determination letter. Also, there is very little downside. If the IRS insists that the plan can't be effective until July 1, 2023, there will be no dire consequences. Your client won't lose any tax deductions, and the plan, being an instrumentality of government, won't incur any tax liability.

True. If there is a conflict with what the plan provides and what a non fiduciary service provider is engaged to do, the fiduciary plan administrator is going to be in a real bind, especially if the participant understands the participant's rights and benefits and wishes to exercise them. That is unlikely in the circumstances described. The service provider system driven arrangements will be imposed on the participant, and no one will be the wiser. So ask the service provider what is going to happen (notwithstanding whatever the plan terms are).

Consider also whether the spouses were married in, ever lived in, or otherwise invoked the law of a community-property nation or State.

Yes, that safe harbor is available for any ERISA welfare benefit plan. However, be careful with that "no endorsement" prong because it's rarely satisfied. Here's some details: https://www.newfront.com/blog/the-erisa-voluntary-plan-safe-harbor ERISA §3(1) defines an “employee welfare benefit plan” to include any plan, fund, or program established or maintained by an employer that provides: Medical, surgical, hospital benefits (e.g., medical, dental, vision, health FSA, HRA, EAP); Benefits in the event of sickness, accident, disability, death, or unemployment (e.g., disability, life, AD&D, severance); Vacation benefits; Apprenticeship or other training programs; Day care centers; Scholarship funds; or Prepaid legal services. ... No Employer Endorsement of the Program The third condition of the voluntary plan safe harbor is clearly the most difficult condition to satisfy—both because of its ambiguity in scope and its inconsistency with typical employer practices. Employers commonly refer to offerings that meet the first two conditions above as a “voluntary benefit.” However, for purposes of the voluntary plan safe harbor, employers must have additional degrees of separation from the program to qualify for the ERISA exemption. The regulations specify that the sole functions of the employer with respect to the program can be to a) permit the insurer to publicize the program to employees, and b) collect premiums through payroll deductions to remit them to the insurer. The employer cannot “endorse” the program in those limited permitted functions. In making sure employees are aware of the program, DOL guidance states the employer “may facilitate the publicizing and marketing of the program, but only to an extent short of endorsing the program.” What constitutes “endorsing the program”? The overarching theme from the DOL guidance is that endorsement occurs if the employer “expresses to [employees] any positive, normative judgement regarding the program,” or if it “urges or encourages member participation in the program or engages in activities that would lead a member to reasonably conclude that the program is part of a benefit arrangement established or maintained by the [employer].” The various court cases and DOL guidance interpreting this somewhat ambiguous language generally have found the following employer practices to at least potentially constitute endorsement: Employer selection of a specific insurance carrier to offer the program Employer selection of specific types of coverage to be offered under the program Employer involvement in the plan design of the program Program design structures that are only available to employees Program materials that include the employer’s name, logo, or any other identifying markers Positive statements about the program made by the employer (e.g., a recommendation to enroll) Including the program in ERISA documents (e.g., wrap SPD) or filings (e.g., Form 5500) Stating that the benefit is subject to ERISA in program materials Providing claims and appeals assistance to employees Accordingly, employers relying on the voluntary plan safe harbor exemption from ERISA will want to carefully monitor their benefit administration practices to avoid any of these forms of potential endorsement. Given how common these practices are with all other health and welfare benefits, it will likely take significant education and restraint among the HR, people operations, and benefits professionals responsible for plan administration to avoid inadvertently slipping into one of these traps for the unwary. Slide summary: 2023 Newfront ERISA for Employers Guide

Just for an update. After my post above I called and was told it was approved and mailed. Never got it. Waited another 30+ days and called near the end of June. I was told it was approved and a new copy mailed. Never got it. Finally called on Monday (9/11). Just happened to speak with the same IRS rep that I spoke with in May. He actually was a little perturbed that I didn't get it yet and promised me I would get this one. Good news, I got the new enrollment card yesterday. It was mailed 9/11. Felt a little like Steve Martin when the new phone book arrived.

September 15 is only 8 full months (through August) plus a half. 9.5 months from 12/31 is the middle of October.

That doesn't sound right. The 3E code is specifically for a situation where the sponsor has two plans, one for himself and one for his employees but has to test them together. (That way, the employees' Summary Annual Reports don't reveal the owner's riches, like if a small plan has 3 million dollars in it and the staff people are low in quantity and experience, and realize the only way their plan has that much money in it is if it's all the boss's.) You can use an EZ without needing the 3E code, and if this guy hasn't had employees in years, the 3E code wouldn't apply since there's no coverage test issue.

Consider also the terms and conditions of the plan’s administrator’s service agreement with the recordkeeper. That a plan’s governing documents permit or even provide something does not by itself obligate a nonfiduciary service provider to provide a service to support doing that something.

1. That depends on the plan terms and the written loan policy terms, if the plan has a separate loan policy. I presume that the actual loan documents are consistent with the plan terms and loan policy terms, but the loan documents also must be considered. I think most plans accelerate the loan when the participant's employment ends because most loans are paid only by payroll deduction. 2. If the participant takes "all the money" the participant takes the loan as well, which should terminate the loan (with resulting taxation for actual distribution, not deemed distribution), leaving nothing to repay. If you mean the participant receives a distribution of the balance other than the loan, see #1. 3. Not always. See #1 and #2. Timing of taxation should be covered by the plan/loan policy terms. Plans may differ in default and acceleration terms, which are also covered by the loan documents. The loan documents usually do not speak to taxation, but the Summary Plan Description or loan disclosure documents should.

Sounds like it'll depend on how long ago the last non-owner participant still had a benefit in the plan.

Depends on if they've got a minor child inducing a controlled group despite the non-involvement.....that law goes away soon but not for 2022.

If you want to be sure about what must be done, read the plan document including any associated basic plan document and the terms of the joinder agreement. Assuming the plan has a pre-approved plan document, it very likely has built in a lot of flexibility about how contributions are calculated for each business and possibly how the deduction may be apportioned among related employers. For example, the plan may allow, may not allow, or may allow a choice on considering in the contribution calculation for one company any compensation earned from another related employer. In situations where each business type differs (C-corp, S-corp, LLC, LLP, Sole Proprietor...), the decision about the amount of the deduction can be used by each company may have an impact on net taxes. The plan document will say what must be done, and everything else becomes a matter of how much time and effort will be spent analyzing all other available options.

I'm not an attorney so I don't usually see them called Joinder Agreements, we typically see Participating Employer Agreements (or similar) but maybe they are the same and we're just using them interchangeably. In this context it sounds like you have a controlled group with two participating employers of the same plan. Not really an issue at all, happens quite often. One plan, one account, one set of limits, doesn't matter which takes the deduction.

My brain is telling me that the PS to anyone is requiring that TH rules to kick in. Therefore, the non-KEY employees are going to need 3% from the Employer. Because I don't think there is such an exemption. Just my quick two cents.....

You're correct that the fix for this is to have the participant repay the amount that was in excess of the available limit, with accrued interest. However, the bigger question to me is why did the brokerage house accept direction from an individual who is not a trustee?

Definitely appropriate to do it that way.