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Keep in mind that there are categories of employees that can be excluded from the count of the number of employees. For example, you can exclude anyone who : did not reach age 21 by the end of the determination year, did not complete 6 months of service during the determination year. This typically involves employees where the time between the hire date and termination date is less that 6 months (e.g., hired later in the year prior to the determination year and terminated early in the determination year, or hired in the second half of the determination year), is not regularly scheduled to work more than 17.5 hours per week, normally did not work more that 6 months in any year of their employment, is in a union and excludable from the plan, or is a non-resident alien and exlcudable from the plan. These exclusions are optional and could reduce the count of 37 to a lower number, particularly if you round down. Keep in mind that the owners means more-than-5% owners in the event there are owners with 5% or less ownership. Most importantly, keep in mind that the top-paid group election must be elected in the plan document.

A corrective amendment under 1.401(a)(26)-7(c) is subject to the same requirements as a corrective amendment under 1.401(a)(4)-11(g)—in particular, the amendment must satisfy coverage and nondiscrimination testing on its own. If the individual(s) you are looking to bring in to the plan under the amendment is/are HCE, and the employer has any non-excludable non-HCEs, the amendment would not be allowed. The same is true if you are looking to satisfy the meaningful benefit portion of the test by increasing an HCE who is already benefiting at a lower level—you could not increase them on their own without also benefiting some non-HCEs. Note this is only true for a corrective amendment adopted after the end of the year. Assuming a calendar year plan, it is currently too late to fix under -7(c) for 2022, but if you are looking at 2023, then you could expand the group of participating employees in any way you like before the end of the year without the additional restrictions of -11(g). In addition, although there is currently some ambiguity around when this becomes effective, you will (eventually) be able to adopt an amendment retroactively to fix this under 401(b)(3) (as added by SECURE 2.0 sec. 316) without the additional restrictions of -11(g). One last thing—does your plan document include a 401(a)(26) fail-safe? If so, follow its terms before you start looking at corrective amendments.

Per Bill's response, 1.401(k)-3(e)(4)(i) requires, among other things, advance notice when terminating a safe-harbor plan mid-year. Note that this is purely a safe-harbor rule that must be met in order to retain the safe harbor during the short plan year in which the plan terminates; it's not an across-the-board 401(k) rule. Conversely, 1.401(k)-3(e)(4)(ii) allows a safe-harbor plan to be terminated mid-year in connection with a corporate transaction without adding the notice rule. It doesn't say that notice doesn't have to be provided; it just says the plan can be terminated mid-year (keeping the safe harbor) in connection with a corporate transaction. The notice of intent to terminate rules copied above address DB plans, but the IRS website doesn't seem to get into that level of detail.

ERISAGooroo, the rubric for your question seems to ask about deductibility as well, although your actual question does not. I think the payment is deductible by the RK, either way, as a business expense. If paid to sponsor, then the sponsor has income offset by a contribution deduction.

Without looking anything and without cites, I'd think that the taxation of Roth (gains only of course) would depend on his age and the holding period. I don't recall an exception for a QDRO. Assuming he is under 59 1/2, then the gains would be taxable (and subject to 20% WH) but not subject to the 10% penalty.

Hi Duckthing - correct, that is what I was intending to say. If your document says you must bring people in, then you can't use ABT, even if ABT would have passed

Perfect. If the owners are among the Top 8, we use them in the Top 8 correct? So it's the Top 8 plus whichever owners would not be included otherwise. Just want to make sure.

The requirement for the 60-day notice of intent to terminate is found under ERISA sec. 4041(a)(2). This section only applies to plans subject to Title IV, in other words, PBGC-covered DB plans.

A QDRO distribution now (if the plan provides it without waiting for an earliest retirement age) might meet your client’s need for money. That might be so if “about 90%” of the QDRO distribution is allocable to Roth amounts and the conditions for a Roth-qualified distribution are met. About Federal income tax generally: Even if a court order commands or an alternate payee requests an immediate distribution, a plan’s administrator first divides a participant’s account into the participant’s and the alternate payee’s separate portions, and sets up a segregated account for the alternate payee. Unless the court order specifies otherwise (and calls for nothing contrary to the plan), a division should result in the alternate payee’s segregated account getting Roth and non-Roth amounts in proportion to the participant’s before-division account. See 26 C.F.R. § 1.402A-1/Q&A-9(b) (“When the separate account is established for an alternate payee . . . , each separate account [the participant’s and the alternate payee’s] must receive a proportionate amount attributable to investment in the contract.”). See also I.R.C. (26 U.S.C.) § 72(m)(10). If an alternate payee is or was the participant’s spouse, such an alternate payee is treated as the distributee of a distribution paid or delivered from the alternate payee’s segregated account. I.R.C. (26 U.S.C.) § 402(e)(1)(A). A distribution allocable to non-Roth amounts likely is ordinary income. A distribution allocable to Roth amounts might be a qualified distribution not counted in income. I.R.C. (26 U.S.C.) §§ 402(d), 408A(d)(2)(A). (Your description of the assumed facts does not say whether the participant completed a five-taxable-year period of participation in the designated Roth account, and does not say whether the participant is dead, disabled, or reached age 59½. See https://www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts.) About the too-early tax: “Any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1))” is an exception from the extra 10% too-early income tax that otherwise might apply to a distribution before a distributee’s age 59½. I.R.C. (26 U.S.C.) § 72(t)(2)(C). About a payer’s withholding toward Federal income tax: Whatever the withholding rate or instruction, a payer applies it to the portion of the distribution counted in income. “[A] designated distribution does not include any portion of a distribution which it is reasonable to believe is not includible in the gross income of the payee.” 26 C.F.R. § 35.3405-1T/Q&A-2(a) Hyperlinks to sources: Statute: I.R.C. (26 U.S.C.) § 72 http://uscode.house.gov/view.xhtml?req=(title:26%20section:72%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section72)&f=treesort&edition=prelim&num=0&jumpTo=true. I.R.C. (26 U.S.C.) § 402 http://uscode.house.gov/view.xhtml?req=(title:26%20section:402%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section402)&f=treesort&edition=prelim&num=0&jumpTo=true. I.R.C. (26 U.S.C.) § 402A http://uscode.house.gov/view.xhtml?req=(title:26%20section:402A%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section402A)&f=treesort&edition=prelim&num=0&jumpTo=true. I.R.C. (26 U.S.C.) § 408A http://uscode.house.gov/view.xhtml?req=(title:26%20section:408A%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section408A)&f=treesort&edition=prelim&num=0&jumpTo=true. Executive agency rules: 26 C.F.R. § 1.402A-1/Q&A-9(b) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.402A-1. 26 C.F.R. § 35.3405-1T/Q&A-2(a) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-C/part-35/section-35.3405-1T. Caution: Nothing here is advice to your client, or to you.

Nothing get reported until the money leaves the trust. It then gets reported on a 1099-R for the participant for the year of distribution.

Yes, that's right, but since there is no "fee" it gets transferred to the forfeiture account. It doesn't seem to make sense that we put the $1.37 into somoene's account only pay $1.37 to FundCo as a "bonus". Rather, the money gets transferred to the forfeiture account where it will benefit the remaining participants. Is it a QNEC? Then it's fully vested money. If the person is still employed, it stays. If the person is terminated, it gets distributed as a force-out. However, in this case, there is no distribution, b/c the $1.37 (plus investment experience) is taken to cover the "fee." As long as other, "normal" participants are usually charged a fee.