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IRS Notice 97-45 says: VI. CONSISTENCY REQUIREMENT FOR ELECTIONS (1) Consistency requirement — in general. Except as provided in section VI(3) and (4) [related to multi-employer plans], in order to be effective, a top-paid group election made by an employer must apply consistently to the determination years of all plans of the employer that begin with or within the same calendar year. Similarly, except as provided in section VI(3) and (4), in order to be effective, a calendar year data election made by an employer must apply consistently to the determination years of all plans of the employer, other than a plan with a calendar year determination year, that begin within the same calendar year. This also is reflected in IRS's Chapter 6 401k Examination Techniques Using Automated Workpapers The top-paid group election made by an employer must apply consistently to the determination years of all plans of the employer that begin with or within the same calendar year. The election must be reflected in the plan’s documentation (Notice 97-45). Note that this requirement applies to the ability to make the top-paid group election. If either plan does not use the top-paid group election, then neither plan gets to use the top-paid group election.

The allocation of the excess DB plan assets that were transferred into the plan are not subject to the deduction limit. They will be limited by the lesser of the annual addition limit ($66,000 in 2023) or net earnings from self-employment.

Whatever the law might be, in my practical experience the Labor department can be aggressive about pursuing a former shareholder, partner, member, director, manager, officer, or even nonofficer employee if any relation regarding the plan, however remote, might be argued to have made such a human a fiduciary who arguably could have done something, or even a cofiduciary with knowledge of another fiduciary’s breach. The pursuit might not be about the penalty for a failure to file an annual report. Rather, the Labor department might pursue one or more fiduciary breaches and civil penalties on those breaches. If one doesn’t persuade EBSA to stop its pursuit, winning a Labor department proceeding can take on substantial attorneys’ fees and other expenses. That observed, EBSA might be less vigorous in a fiduciary-breach pursuit if participants and beneficiaries have been paid. Below Ground, before you electronically process a Form 5500 report, consider making sure someone with authority to act for the plan’s administrator approved the report, including especially anything that involves a choice about how to report (such as electing to delay an independent qualified public accountant’s report), and instructed you to submit the approved report. You’ll want evidence to prove that you never had, and never exercised, any discretion.

Right. I don't think that filing the 5500 is a fiduciary act, even though it's a responsibility of the plan administrator. Could be arguable, but the filing is a responsibility to the gov't, not the plan. Don't know of any case on this. Yes. The case I was thinking of met this criterion. If money was missing, of course they will try to go after that as fiduciary breach and failure to obtan an IQPA could be looked at by EBSA as part of a coverup, which could provide a path to claiming individual fiduciary liability. Amen, amen, amen.

I don't think the regs have been updated in quite some time to consider the prevalence of electronic payments. I have a hard time believing the IRS would challenge it or try to impose the penalty if there is evidence the wire/ach payment was initiated timely but credited after the date but can't say for sure. Also while regs address post mark, I would think you would get the same reliance using a private delivery service with evidence of pick up on or before 9/15 but again I couldn't say for sure. I think it would be nuts for the IRS to accept a post mark by "snail mail" and not accept a wire trail timely initiated, but then the IRS would be final arbiter.

So, first, this is a "firm" statement from the IRS of what they have been saying for some time - so the way we are interpreting this is "they mean it this time" especially since they've given the transition period (amnesty) to fix (certain) past sins. In other words, "fix it now, or if we catch you, you really going to get it this time ...." A problem, in our opinion, does exist with respect to the plan documents. Our document (prototype) has *always* said forfeitures must be used no later than the end of the year following the year in which incurred, and for those who have accumulated forfeitures (despite our constant nagging), we've advised them that a correction requires going year by year and reallocating forfeitures based on the year in which incurred. NOTHING we read in the proposed reg grants "amnesty" from having to follow the provision of the plan - and we doubt the IRS will allow you to ignore the plan provision in order to take advantage of the transition rule. We do have clients with individually designed plans, that don't say when forfeitures have to be used, so maybe they can take advantage of the transition rule. For now, we're advising our clients that "the IRS really really means it this time, so when we've told you in the past you had to do this, we believe you have to do this, or else!" I doubt many will pay attention, so we will be dealing with audit issues ultimately.....

Was the filing put on extension? If yes, then there is a reasonable chance they will get an IRS notice within the next year following up on it. Has the client already filed their tax return? If yes, I suspect they took no deduction for a SHM. If they did, then they have a tax return issue on top of everything else. If you have access to their tax preparer or financial, you may want to explain the issue and see if they will help convince the client to fund the plan. Sometimes, a client will listen to their tax preparer or financial adviser it those relationships are long-standing. This is going above and beyond trying to keep a client out of trouble, but sometimes if a client finally listens, they come to understand the value you bring to keeping them out of trouble. If the client adamantly refuses, you can try sending them letter that explains (not in great detail) the consequences of not funding the SHM, and mentioning to name a few: that the plan can be disqualified and everybody gets taxed along with paying penalties and interest; that the plan fiduciaries are personally accountable and liable for operating the plan according to its terms; that not filing or filing with false information under penalties of perjury carries separate penalties from the IRS and DOL that can quickly add up to amounts exceeding $100,000 each; and, that the cost of meeting their obligations now is far less than trying to clean up things later. You should consider taking a look at your service agreement for clauses dealing with termination of services and for clauses dealing with the client not fulfilling their obligations under the agreement and under the plan document. It is clients like this that make me think how much more fun this business would be without clients like this. Good luck!

You mean to thank Bri and Paul, who points to the Internal Revenue Service’s nonrule interpretations in Notice 97-45 1997-33 I.R.B. 7 (Aug. 18, 1997). If the administrator interprets either plan’s governing documents to mean something other than what a textual reading alone provides (or to resolve an ambiguity), the administrator might make a record of the reasoning for its interpretation. And if a nonapplication of a top-paid provision either plan’s governing documents arguably provides would lower a participant’s allocation or accrual under either plan, the administrator might want to be thoughtful and careful about the reasoning for its interpretation. That a governing document’s provision does not meet a tax-qualification condition does not, at least not by itself, give a plan’s administrator an excuse from ERISA § 404(a)(1)(D)’s command to administer a plan according to the plan’s governing documents. In my experience, a sensible reading of a plan stated using IRS-preapproved documents often calls for interpreting the plan to provide something other than what a reading of the plan’s text alone seems to provide. irb97-33.pdf

Isn't there something that says the TPG election must be made by across all plans of the employer to be valid? (Either a regulation or even something in the plan's document.) I always took that to mean that if one of a controlled group's plans didn't have the election, it basically invalidated it across all the plans.

Your reading of the "one-to-one" correction method is right: QNECs can't be limited to NHCE's with account balances. As further bad news, the use of elective contributions to pass the ACP test is allowed only if the elective contributions are subject to the ADP test. Treas. Reg. §1.401(m)-2(a)(6)(ii). You could submit a VCP application requesting a different correction method. The IRS will consider other correction methods and might, under these circumstances, be amenable to allowing the plan to correct through qualified matching contributions, which would be allocable only to contributing NHCE's.

I fully agree with what Paul I. said, with the following amplifications: (1) likelihood of discovery should never inform the course on which way to act; and (2) in addition to what Paul I mentioned, since the 5500 is signed under penalty of perjury, there is also the likelihood of criminal liability on the part of the client and its principals.

Assuming this is calendar year and you are talking about 2022. Other than document everything and resign I'm not sure what there is to do. If 5500 filed on accrued basis you would presumably file with a receivable matching contribution. Is the Plan Top-Heavy if not safe harbor? They do have 12 months to deposit the safe harbor so technically they have until 12/31 to make the deposit. Though the deadline for deduction for 2022 could be 3/15, 4/15, 9/15, 10/15 depending on entity type and extension status. Though deadline to include in 415 limit for 2022 is 30 days after deduction deadline. Remind them about plan disqualification issues, excise taxes, and that what it takes to discontinue a SH which they probably still are for 2023, let them know about IRS correct programs and the name of an ERISA attorney they can call.

Following ERISA § 404(a)(1)(D), the administrator must administer each plan “in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title [I] and title IV.” What allocation results if the administrator applies each’s plan’s definitions, allocation conditions, and other provisions as each plan’s text provides?

If this is for 2022, I do not know the answer but if for 2023, you can simply amend one of the plans now and be done with.

I had a similar situation years ago. I think that unless they have grounds to pierce the corporate veil under state law piercing principles, the penalties apply to the corporation, not the shareholders. That was my analysis and experience was consistent with analysis.

Until the IRS specifically blesses establishing a SHNEC for a new plan with less than 3 months of deferral with some official guidance saying that is OK, I wouldn't do one.

I think this falls under the timely mailing is timely filing rule and 9/14 would be the date. https://www.law.cornell.edu/uscode/text/26/7502 But be prepared to defend the timely mailing part upon audit.

It is definitely feels like an ASG. Therefore, all the plans sponsored by ASG must be treated as a single plan for compliance purposes; without the employee being covered and not getting the employer-paid benefit you either failing coverage or non-discrimination or both. As a practical recommendation I would approach that as a total redesign opportunity rather than trying to "squeeze" it in into Plan # 1 or Plan #2.