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I'll be honest, I don't think these penalties will actually be collected, except for extreme cases. Going to 10X penalties was the "revenue raiser" to make the math work on paper, but there is just no way they will collect these penalties in 99.9999% of cases.

Going to climb up on my soapbox for a minute. These penalties are asinine beyond belief, and the authorities should be thoroughly ashamed of this. Totally inexcusable. I don't object to "reasonable" penalties for compliance failures, and to be a little bit fair (although it pains me) the IRS is usually pretty reasonable if good faith efforts have been made. But the assumption of guilty until proven innocent just frosts me, particularly when the penalties are all out of proportion to the severity/effects of the violation. Climbing down now. A long, steep climb...

See the rule published at 88 FR 12048 (page 65 of the pdf here: https://www.govinfo.gov/content/pkg/FR-2023-02-24/pdf/2023-02653.pdf) DC plans use the number of participants with a balance as of the first day of the year to determine if they are a small plan or a large plan, unless they check the box for first return/report, in which case they use the number of participants with a balance as of the last day of the year.

The penalty does not apply if “it is shown that [the] failure is due to reasonable cause[.]” But Congress set the amount.

You have a late deposit to the 401(k) Plan. Deposit the additional amount along with earnings to the trust. If the trust is closed, they may have to go down to a bank and open an account in the name of the Plan. I'd first ask the original custodian if they can and process the deposit and issue a residual distribution for the employee.

How could there be no employee choice between cash and health coverage? You would have state wage withholding problems if you forced participation in a plan with employee contributions. In other words, there always is going to be the choice between cash and the health plan, which is why you need the Section 125 cafeteria plan safe harbor from constructive receipt to facilitate pre-tax contributions. It's the only game in town. Full details: https://www.newfront.com/blog/the-section-125-safe-harbor-from-constructive-receipt Cite: Prop. Treas. Reg. §1.125-1(b)(1): (1) Cafeteria plans. Section 125 is the exclusive means by which an employer can offer employees an election between taxable and nontaxable benefits without the election itself resulting in inclusion in gross income by the employees. Slide summary: 2023 Newfront Section 125 Cafeteria Plans Guide

But the IRS has discretion to reduce or remove the penalty

We can remark on the IRS’s difficulties in processing tax returns, information returns, and other documents—especially those filed by mailing paper, and resulting burdens for a filer to preserve evidence of what was filed and when. But the amount of the penalty is Congress’s Act. Internal Revenue Code of 1986 (26 U.S.C.) § 6652(e), amended by SECURE 2019 § 403(a) http://uscode.house.gov/view.xhtml?req=(title:26%20section:6652%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section6652)&f=treesort&edition=prelim&num=0&jumpTo=true. How Congress sets public policy might be attributed to representative democracy and the United States’ Constitution.

Yes, you should still be eligible as long as you haven't gotten the CP283 notice. CP 220 is the notice informing you that they made a change and what the result of the change was. A CP403 notice will probably follow, which is a notice of late penalties. I would not waste any time and file through the penalty relief program asap. IRS should be able to confirm that you are eligible for penalty relief. For a small fee of $500, I think it's worth it to know you are good rather than wait for them to make a call on abatement.

Absolutely the best approach. We start with Legacy.com which is pretty helpful. In a couple of cases, at the frustrated suggestion of a member of my team, we've called the coroner of the county where thy died and ask who claimed the body. One actually said it wasn't their county - and inquired on our behalf to the neighboring counties (where we got the info we needed). They actually are very helpful! (I think they don't talk to the living very often). If you can get a death certificate, it will usually indicate if they are married and spouse's name.

A quick and easy first step is to Google the name of the participant and "obituary". Obituaries often disclose names of spouses or former spouses, and surviving family members. If you are lucky, the surviving spouse lives at the address of the former employee. Otherwise, you can ask your locator service to search for the surviving spouse. If the spouse passed away before the former employee and the plan identifies beneficiaries that are next in line, then you can have the service look for the surviving family members.

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.