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We need to keep in mind that this is an 11(g) amendment adopted on 10/14/2022 after the close of the 2021 plan year and effective retroactively to 1/1/2021 = the beginning of the prior plan year. The OP says the amendment adds employees to the Plan that complete 1 year of service with no further clarification. The employee in question completed 1 year of service for the 2021 plan year. The fact that the employee terminated in the 2022 plan year on 3/1/2022 is not relevant with respect to the 2021 plan year. With an 11(g) amendment, we can pick and choose who gets to participate in the prior plan year and only need to add enough participants to pass coverage. The amendment could have specified additional criteria to restrict who was includable in 2021 but apparently did not do so. Unless there are more facts than have been presented such as the EBP's employee service history questions , this employee should have been included as participating in the 2021 plan year.

Effective date.

I agree that there is very little guidance/rules on what to do when investment directions are not followed, and whether a correction is made or determining the amount of the correction seems to be driven either by the plan administrator finding the error and calculating lost earnings or by the participant informally or formally requesting to be made whole. This situation is fairly common but does appear anywhere as a prohibited transaction. I find 1.415(c)-1(b)(2)(ii)(C) regarding restorative payments and what is or is not counted for purposes of applying the 415 limit illuminating even though this section, too, does not address a correction method: Restorative payments. A restorative payment that is allocated to a participant's account does not give rise to an annual addition for any limitation year. For this purpose, restorative payments are payments made to restore losses to a plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under title I of the Employee Retirement Income Security Act of 1974 (88 Stat. 829), Public Law 93-406 (ERISA) or under other applicable federal or state law, where plan participants who are similarly situated are treated similarly with respect to the payments. Generally, payments to a defined contribution plan are restorative payments only if the payments are made in order to restore some or all of the plan's losses due to an action (or a failure to act) that creates a reasonable risk of liability for such a breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the plan). This includes payments to a plan made pursuant to a Department of Labor order, the Department of Labor's Voluntary Fiduciary Correction Program, or a court-approved settlement, to restore losses to a qualified defined contribution plan on account of the breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the plan). Payments made to a plan to make up for losses due merely to market fluctuations and other payments that are not made on account of a reasonable risk of liability for breach of a fiduciary duty under title I of ERISA are not restorative payments and generally constitute contributions that give rise to annual additions under paragraph (b)(4) of this section. The focus of text in yellow includes recognizing a payment made to the plan to because of losses due to a fiduciary's failure to act and that failure creates a reasonable risk of liability. Put another way, if you think you're going to get sued, fix it and its not an annual addition. It is interesting that the text in green is added to cover a situation where the participant lost money due to market fluctuations and the fiduciary (out of the kindness of their heart I suppose) decides to put in a little something to make up for the loss. The participant making an investment decision that did not work our does not have a reasonable risk of liability, so any such restoration of the loss to the participant is an annual addition. We never know where we may find a little bit of guidance.

Just have the plan to which the money was transferred as a direct rollover transfer it back, with allocable earnings or less any allocable loss. I say "just," but of course the trustee-to-trustee communication with the plan to which it was rolled over will need to be detailed. I think it would be appropriate for he distributing plan to issue a corrected Form 1099-R, but since this appears to have been a direct rollover it probably will not make a difference, nor would it probably require the individual to file an amended 2022 1040, since they would just be changing the amount in the informational rollover box. I doubt the IRS's computers would care. Inform the individual that they have an additional distribution coming from the plan and ask them to complete a new distribution form with respect to the amount. Then distribute it and report on a 2023 1099-R, assuming you get it done in 2023. The amount distributed should be the greater of the amount that would have been distributed to the individual when it should have been, plus the earnings you determine that amount should have received between the time when it should have been distributed and when it is distributed, or the amount transferred back from the plan that erroneously took the amount as a rollover.

Assuming that neither has started benefits: Ideally, the participant would submit a claim against the determination that the order is qualified. That would freeze the benefit pending resolution. Meanwhile the the participant and former spouse need to get their acts together to submit an order modifying the original one to provide what "should now" be the correct outcome. This would be done in the context of a friendly proceeding under the plan's claims procedures. The administrator needs to tread carefully because the administrator cannot push a resolution based on what the participant now says is desired by both. The administrator must be neutral in the process, but can be accommodating to the parties' reversal of the original filing under the claims procedures while carefully observing the formalities as long as the resolution is consensual. The problem is that the parties are not going to be able to pull it off the easy way and are unlikely to find a lawyer who can navigate the route described. And the state court will not be amused.

If the spouse has no compensation, there is nothing to defer. If the spouse has not worked 1000 hours in an eligibility computation period, the spouse has not met the eligibility requirements. The owner must follow the plan provisions. If the owner wants to have more liberal eligibility, they can amend the plan and apply the new liberal eligibility to all employees.

I prefer Gedankenexperiment!

I suggest asking a simple question - Who owns the account that is holding the interest-bearing cash? If it is the Trustee of the plan, then it is an asset of the plan. Otherwise, it is not an asset of the plan.

Did the Plan's attorney draft the amendment to specifically exclude participants/employees not employed on the adoption date?

Pending any future guidance to the contrary, I do not believe you can just count calendar years (or plan years) for determining LTPT eligibility. IRC 401(k)(15)(D)(ii) and ERISA 202(c)(4) (as added by SECURE 2.0 sec. 125) both indicate that the 12-month period used to determine LTPT eligibility is determined "in the same manner" as for standard eligibility, meaning the 12-month period commencing on the employee's date of hire, and presumably with the option to switch to the plan year only after the first 12-month period. What I would like to see document providers offer - and I don't know if anyone is planning on doing this yet - is the option to keep the anniversary date measurement period for purposes of determining LTPT eligibility, but switch to plan year for purposes of standard eligibility.

Thank-you Lou. I have the same conclusion, and I could not agree with the claim of the Plan sponsor attorney that since the individual was not a Plan participant on the adoption date that he is not entitled to Plan benefits.

Thank you for remarking on the § 415 rule on when restoration is not an annual addition. 26 C.F.R. § 1.415(c)-1(b)(2)(ii)(C) https://www.ecfr.gov/current/title-26/part-1/section-1.415(c)-1#p-1.415(c)-1(b)(2)(ii)(C). I lobbied for the predecessor—Revenue Ruling 2002–45—and the later rule. In the rulemaking, the Treasury department adopted my suggestion that the rule should cover not only ERISA fiduciary responsibility but also fiduciary responsibility under whatever Federal or State law governs the plan. Limitations on Benefits and Contributions Under Qualified Plans [final rule], 72 Federal Register 16878, 16887 (Apr. 5, 2007) https://www.govinfo.gov/content/pkg/FR-2007-04-05/pdf/E7-5750.pdf. The rule and the Treasury department’s rulemaking explanation of it make clear that the examples about ways a liability might be shown are nonexhaustive and nonrestrictive. In my whole-text and contextual interpretation, a “reasonable risk of liability” does not require a finding that a person harmed by a fiduciary’s breach would or might assert her claim for legal or equitable relief. Rather, it is enough to find that the liability, even on an unasserted claim, exists. Under ERISA § 409(a), a fiduciary that breached its responsibility is “personally liable to make good to such plan any losses to the plan resulting from each such breach[.]” An upright or decent fiduciary corrects accounts without waiting to be asked.

I would assume you count all service unless the LTPT rule are different than the regular eligibility rules. The minimum age just keeps out someone who otherwise would have met the service condition but does yet met the age condition.

I expect formulating administrative policy is allowed without impacting the ability to rely on the opinion letter. As an example, many pre-approved plans have a check box that asks "Are Loans permitted: Yes/No". The Adoption Agreement then has an appendix or addendum titled Loan Policy with all of the details like number of loans, interest rate, refinancing... I would see a Forfeiture Policy statement to be analogous.

The cite is 1.401(a)(9)-2 (which has not yet been updated for the changes in RMD ages made by SECURE and SECURE 2.0, so mentally insert other ages as appropriate)

For reference, here's a link to the form: https://www.irs.gov/pub/irs-pdf/f2678.pdf

Under ERISA § 406 and Internal Revenue Code § 4975, what characterizes a prohibited transaction is that a person other than the plan has some use of money, rights, or other property that belongs to the plan’s trust. Your example suggests that the employer promptly segregated contribution amounts from the employer’s assets and promptly remitted those amounts to the plan’s trustee or its agent. That the plan’s administrator did not direct the trustee to invest according to the participant’s direction did not cause the employer (or another fiduciary or party-in-interest) to have any personal use of the plan’s assets. If so, a mistake within how the plan’s trust invests might not result in a prohibited transaction. If there is no prohibited transaction, neither an IRC § 4975 excise tax nor an ERISA § 502(i) civil penalty is owing.

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.

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.

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.