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Thank you, now I understand. Putting a high-comission long cost-amortization period financial tax-deferred product inside a tax-deferred plan which is likely to get terminated in 5-6 years to create a maze of non-dsicrimination, valuation and compliance issues. Nevermind that it is practically impossible to obtain a "market value" of the policy and that a life insurance cannot be rolled over into IRA upon termination. Did I get it right?

To make a commission

I can't remember the last time I saw a recordkeeper's platform list that lacked funds that advertised Sharia compliance, a Christian focus, and other religious themes. Meeting a participant's interest might be less expensive than learning what duties might exist and how they might apply.

My understanding is that the loan still exists, it was just taxable as a deemed distribution, which is different than a distribution/offset where the loan is actually "distributed" and no longer in the plan - but I defer to others who deal with this more regularly, as I do not. This all ignores the prudency and possible other concerns lending to someone who recently defaulted. Again, not my area so I'll others argue any issues there.

No

And if the participant pays the loan, the plan will have to track basis. Wheeeee!

MoJo, thank you for your clear thinking. As I mentioned in my posts Sunday, Tuesday, and Wednesday, I have not yet completed even my preliminary thinking about what advice I might render if I’m asked (and I don’t yet know whether I’ll be asked). All my posts have recognized that the intern exclusion might be a proxy age or service condition; that’s why I invited the discussion. Here’s the way I’m leaning: 1) Suggest the plan sponsor amend its plan to make an intern eligible if she is 21 (and perhaps to exclude an eligible intern from matching and nonelective contributions). Don’t condition elective-contribution eligibility on any hours of service. 2) If the plan is not so or otherwise amended, suggest the plan’s administrator: assume the Treasury’s proposed rule might be a permissible interpretation not only of IRC § 401(k)(2)(D) but also of ERISA § 202; assume the plan’s intern exclusion might involve an indirect age or service condition; and ignore the governing documents’ exclusion if an intern meets ERISA § 202 eligibility conditions. (That would not bring in many interns because few would be 21 until the summer between one’s third and fourth college years. And not many of them will have had two preceding summers.) As usual, I’d render full-picture advice about the range of risks and opportunities.

In addition to what Peter said, don't forget that: 1. The LTPT eligibility rules only apply to 403(b) plans that are covered by ERISA; and 2. For 403(b) plans, only eligibility computation periods that begin on or after 1/1/2023 are counted. The earliest a 403(b) plan would be impacted is 1/1/2025.

That makes it somewhat easier. You can suggest to proceed with the plan termination with a proper communication advising the sponsor of the potential disqualification risk upon audit. Make sure you create a well organised paper trail having your advices well documented. The burden is on the plan sponsor. Billing hourly (vs a previously agreed fixed) might be a good idea as well. And here is a reminder (I have almost tripped over that several times myself so I am paranoid now) - although no F-5500-EZ is not required, the SB still has to be prepared. Do not forget to review if the combined assets are over 250K if there is a 401(k) plan.

It is still counted as a loan and still accrues "phantom interest" until such such time as the loan can be offset under a distributable event of some sort.

If, rather than relying on a claimant’s self-certification, a governmental § 457(b) plan’s administrator or its service provider evaluates a participant’s claim for an unforeseeable-emergency distribution: Start with RTFD, Read The Fabulous Document. Some plans state provisions more restrictive than those needed to make the plan an eligible plan under § 457(b). If the plan’s provisions are the least needed to make a plan § 457(b)-eligible: Some interpret 26 C.F.R. § 1.457-6(c)(2)(ii) as not mandating another way to meet an emergency need if that other way “would [] itself cause severe financial hardship[.]” For example: Some might interpret that a participant loan—especially if it calls for payroll-deduction repayment—could in some circumstances worsen the participant’s cash-flow crunch. That interpretation might be logically consistent with the rule’s presumption that a participant ought to cease deferrals (to stop that drain on her cash wages she could use to meet her living expenses). A distribution from a rolled-in amount might worsen the participant’s hardship if the rolled-in amount came from a plan other than another § 457(b) plan and the participant meets no exception from the extra 10% tax on a too-early distribution. If the plan allows the claimant a distribution because she is severed from employment or because she reached age 59½ (or some later age), there is no need for an unforeseeable-emergency distribution. Many governmental § 457(b) plans delegate decisions, at least first-stage decisions, on unforeseeable-emergency claims to a service provider. Service providers’ frameworks and methods vary considerably.

my question is what is the point of putting a tax-deferred vehicle inside the tax-deferred vehicle? Especially given that on average CB life-span is 6-7 years?

Are you getting philosophical here about being a TPA, or about life in general? There are times I'd like to do a Personal Restatement.

The conundrum with the LTPT rules is the accumulated vocabulary to identify other-than-full-time employees. This includes part-time, temporary, seasonal, gig worker, contingent, per diem, contingent, trainee, among others. Similarly, we have cultural inferences that imply an employee likely is other-than-full-time such and is assumed to devote more time to other activities and to have less time available to work . This includes student, intern, adjunct, among others. The "we" in my comments above include not only us as practitioners but also includes DOL investigators and IRS agents. The intent of the LTPT rules is to afford an other-than-full-time employee an opportunity to make 401(k) elective deferrals if they work 500 or more hours in designated 12-month periods. The proof that the rules are being followed will be documented in the counting of hours and the offering of the opportunity to defer. Frankly, this is not substantially different for having to prove that part-timers are excluded unless they work 1000 hours or more, or that employees are regularly scheduled to work x number of hours per week. With respect to proving an excludable classification that is not service based, ironically, would be helped by having a classification that excludes employees in that classification that do work more than 1000 hours. We must keep in mind that there should be a valid business reason for any such classification. To be tongue in cheek, let's exclude "gophers".

ARA requests immediate administrative relief in the form of of delay of application and enforcement of LTPTE rules... https://www.napa-net.org/news-info/daily-news/american-retirement-association-asks-irs-more-time-ltpte-rule https://www.napa-net.org/sites/napa-net.org/files/ARA letter_relief re LTPTE Rules_112923.pdf

Even if the Internal Revenue Service publishes the nonenforcement guidance American Retirement Association seeks, that would not preclude a participant, including a should-be participant, from enforcing ERISA § 202(c) and ERISA § 203(b)(4). Reorganization Plan No. 4 of 1978 transfers to the Treasury department powers to interpret ERISA sections 202 and 203. But that does not undo a participant’s ERISA § 502(a) civil-enforcement opportunities. Even if the IRS might not pursue failures of conditions for tax-qualified treatment, plans’ administrators and their advisers should continue their interpretations of what ERISA’s title I commands.

An employer may not wish to ignore complaints grounded in good faith religious beliefs, even if it could ignore them without any legal risks. Employers have many more HR concerns than simply what is legal and what isn't. The point being if an employer can respond to a good faith religious objection to the employee's satisfaction without placing the plan's qualified status at risk, and without over-complicating plan administration, the employer may wish to hear some ideas.