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This is the part your client needs to focus on. Whatever payrolls exist from 10/1-12/31, you need to allow the participants to defer from them. So if the payrolls are on the 15th and the end of the month, you've got an extra few weeks to make things work. If the first payroll in October is 10/6, it's a much shorter time frame.

I have heard (although I do not have first hand experience with this) that you can request a copy of Form 5500-EZ using Form 4506. You might need a Form 2848 to request it on your client's behalf.

We could just stipulate no rehires in the service agreement...

Related employers are treated as a single employer and you must aggregate compensation from all when applying the limit. You don't calculate a 415 limit separately under each employer or a separate ADP for the employee under each employer, or apply hours of service separately, so same with applying the comp limit.

The short answer is yes, but the short answer belies the complexity that can be involved in performing coverage testing. For example, common usage of the word "plan" makes us think of a plan document and all of the provisions in that document. In the context of coverage testing, elective deferrals are a plan, matching contributions are a plan, and employer non-elective contributions are a plan. If any one of these plans fails, there is a coverage problem. Another example is each of these coverage tests looks at a population of nonexcludable and excludable employees. This determination is made employee by employee and not at a company level. Any nonexcludable employee will play a part in a coverage test and any excludable employee will not. Coverage testing, like other compliance testing, allows for many paths to get to a passing result. Some paths are relatively easy, other paths can be exceptionally complex, and the plan document may preclude using some paths or even mandate how a coverage failure must be corrected. If you are experienced with coverage testing, then you will recognize the situations alluded to in the comments above. Otherwise, find a mentor, colleague or outside assistance to work with you on performing the coverage tests.

The document needs to be signed before employees can defer. The Plan has to allow for 3 months of effective deferral to be SH. If you can get the Plan signed, get participant's completed election forms, and start payroll deductions by 10/1, you're good. Then you just have a timeliness of deposits issue if there is no trust to deposit it to.

One other alternative, keep the plan but eliminate the 401(k) feature - make it profit sharing only starting in 2024. The LTPT rule is only for 401(k) plans.

Truphao's comments about timing are the potential issue. I think you clearly have a problem if the service credit or compensation used extends back to any point where he still had employees as that seems to be covered in the examples. I think it's more gray if you draft the Plan such that there is no overlap between the Plan's existence and period where he still had employees. I mean at some point he has to be eligible to establish a plan right? But is it 1 day after he has no employees? the next fiscal year? 12 months after? 5 years? I'm not sure it's fully address, just falls under the catch all "facts and circumstance" For further you can start at... § 1.401(a)(4)-5 Plan amendments and plan terminations. (a) Introduction — (1) Overview. This paragraph (a) provides rules for determining whether the timing of a plan amendment or series of amendments has the effect of discriminating significantly in favor of HCEs or former HCEs. For purposes of this section, a plan amendment includes, for example, the establishment or termination of the plan, and any change in the benefits, rights, or features, benefit formulas, or allocation formulas under the plan. Paragraph (b) of this section sets forth additional requirements that must be satisfied in the case of a plan termination.

When the match was made/allocated in part of 2020 it was a safe harbor match and required to be fully vested at that time. Subsequent events may have taken the plan out of safe harbor status but I don't think they change the nature/vesting of the contributions previously accrued. Regarding 2022 treatment, I would see what the VCP filing and amendment says. For example, say a 3% SHNE plan is amended effective 7/1 to suspend the SH contribution. The plan is no longer SH and must do ADP testing, but that doesn't magically shift the fully vested 1/1-6/30 3% SHNE to profit sharing subject to vesting.

Agreed that's not clear, but my reading is the employer (or the TPA if attesting on their behalf) would have to submit a GCPCA on behalf of the plan for the period prior to becoming fully insured. The GCPCA is an annual requirement. Because of the delay in setting it up etc., we are doing the first one by the end of '23 to cover the full period dating back to CAA enactment. So that would cover the end of 2020 plus 2021, 2022 and YTD 2023. Someone still needs to complete the attestation for that period when self-insured, and it wouldn't be the carrier in this case. I don't see how the carrier attestation could satisfy that whole period when not fully insured for the duration--the carrier won't have any insight into the plan's contracts prior to changing funding arrangements. I'm assuming the same will be true going forward where funding arrangements change mid-year, as you noted. One last thought--if the TPA for the new self-insured offering is the same entity as acted as the carrier for fully insured, there might have a decent argument that no separate GCPCA is needed. But even then, you probably would still need to follow the same rules for self-insured where the TPA has agreed in writing to attest. CMS is putting on a webinar next week to "answer some common questions" that may get into these weeds: https://regtap-cms.zoomgov.com/webinar/register/WN_e6ORT5Y7T4mHjhRUHDsJPg#/registration In the meantime, here's why I'm reading it to require the additional attestation in your situation: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-57.pdf Q6: What is the due date for the Gag Clause Prohibition Compliance Attestation? The first Gag Clause Prohibition Compliance Attestation is due no later than December 31, 2023, covering the period beginning December 27, 2020, or the effective date of the applicable group health plan or health insurance coverage (if later), through the date of attestation. Subsequent attestations, covering the period since the last preceding attestation, are due by December 31 of each year thereafter. ... Q10: Can an issuer that both offers group health insurance and acts as a TPA for self-insured group health plans submit a single Gag Clause Prohibition Compliance Attestation on behalf of itself, its fully-insured group health plan policyholders, and its self-insured group health plan clients? Will the submission requirement be satisfied for the issuer and its group health plan policyholders and clients? Yes. An issuer that both offers group health insurance and acts as a TPA for self-insured group health plans may submit a single Gag Clause Prohibition Compliance Attestation on behalf of itself, its fully-insured group health plan policyholders, and its self-insured group health plan clients. However, to avoid duplication, the Departments recommend that issuers acting as TPAs (or other service providers) and attesting on behalf of self-insured group health plans first coordinate with each plan to ensure that the group health plan does not intend to attest on its own behalf for some or all of its provider agreements. With respect to fully-insured group health plans, the group health plan and the issuer are each required to annually submit a Gag Clause Prohibition Compliance Attestation. However, when the issuer of a fully-insured group health plan submits a Gag Clause Prohibition Compliance Attestation on behalf of the plan, the Departments will consider the plan and issuer to have satisfied the attestation submission requirement.

The VFCP calculator is used to calculate the correction under the DOL's Voluntary Fiduciary Correction Program. Is the sponsor actually filing under VFCP? If not, the VFCP calculator should not be used. Late deposit of employee contributions is a prohibited transaction, but late deposit of employer matching contributions is not (although it may be a self-correctable operational failure). So you would only include the deferrals in the VFCP calculator, not the match. The recovery date is the date that the principal was deposited. The final payment date is the date that the lost earnings will be deposited. The final payment date takes into account the earnings on the earnings, so it should be a date in the future when the amount determined by the calculator will be deposited.

If there is no Treasury regulation, a tax return might assert the taxpayer’s interpretation of the statute, and may do so with attaching a Form 8275-R. https://www.irs.gov/forms-pubs/about-form-8275-r. If a tax-return position is supported by substantial authority (which may be “a well-reasoned construction of the applicable statutory provision”), one need not attach Form 8275 to avoid an understatement penalty. 26 C.F.R. § 1.6662-4(d)(3)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.6662-4#p-1.6662-4(d)(3)(ii). If a tax-return position is less confident than substantial authority (which can be less confident than more likely than not [51%]) but has at least a reasonable basis and is disclosed (using Form 8275), this too avoids an understatement penalty. https://www.irs.gov/forms-pubs/about-form-8275. A certified public accountant who obeys AICPA professional-conduct standards does not recommend a tax-return position or prepare or sign a tax return taking a position unless the CPA “has a good-faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits if challenged.” Or, a CPA may prepare or sign a tax return that reflects a position if the CPA finds “there is a reasonable basis for the position and the position is appropriately disclosed.” Recordkeepers, third-party administrators, and other service providers often wish for guidance to interpret recent (and sometimes not-so-recent, or even decades-ago) tax legislation about retirement plans. But an absence of guidance sometimes affords a wider range of interpretations.

Not only for the circumstances you describe but also for other interests that might be met by segregating owners from employees, many practitioners set up two plans. The first plan has only owners (including spouses of owners), excluding employees. The second plan has only employees, excluding owners and deemed owners. To the extent a test of coverage or nondiscrimination is needed, one looks to the appropriate aggregation of the two plans. In this setup, the first plan is a non-ERISA plan, and the second plan is an ERISA-governed plan. For the second plan, it might happen that no participant chooses for her investment any nonqualifying asset. If so (and if the count of participants with balances remains small), ERISA § 103 would not require an independent qualified public accountant’s audit of the plan’s financial statements. About an ERISA § 412 fidelity-bond insurance for the second plan, if that plan’s assets is less than $10,000, the required coverage is $1,000. (I don’t know what price an insurer seeks for a $1,000 coverage limit, perhaps a minimum premium based more on the records bother than the risk insured.) If, as you conjecture, the one LTPT participant chooses no elective deferral (and gets no employer-provided contribution), the second plan’s Form 5500 report would show one participant, zero participants with a balance, $0 in plan assets, and so on. Yet, the employer/administrator would want to file the reports.

Agree with Zeller why does owner only need a SH? If there are future employees to worry about set it up a regular 401(k) for 2023 and make safe harbor effective for 2024. If they really need safe harbor for 2023 sounds like you have 2 options. Withhold the contributions starting October 1 and deposit as soon as the contract is setup with possible late 401(k) deposits or open a bank account in the name of the Plan to hold the deposits until the they can be transfer to American Funds and allocated to participant accounts.

Why does an owner-only want a safe harbor plan?

Might this speak to your question? “The account balance is increased by the amount of any contributions or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date. For this purpose, contributions that are allocated to the account balance as of dates in the valuation calendar year after the valuation date, but that are not actually made during the valuation calendar year, are permitted to be excluded.” 26 C.F.R. § 1.401(a)(9)-5/Q&A-3(b) (emphasis added) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-5.

FWIW - it seems like this is the operative phrase. So I agree, for your first example, the credit should apply. When you get into the weeds where some employees were covered and some weren't, then to my way of thinking, since this is a tax credit situation, it is the CPA's call - some of them are aggressive, some conservative - so who knows. I'm not aware of any firm guidance on this question.