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And never use the word backdate; that implies you are doing something illegal. You are establishing a plan witn a retroactive effective date.

I think this seems reasonable. Though if you freeze Company B, you should be able to merge it into Company A at any time in 2024 no need to wait until 2025. I think you'll want to get the SH match notice out to Company B ASAP and document why it isn't be distributed 30 days before the plan year. Document why you think the notice was given in a a reasonable time and let sponsor A make the call since the IRS could take a different position based on facts and circumstance. I think to the extent that most of the employees in Company B contribute in 2024 and get the full SH Match the better your argument that the notice was reasonable and timely is likely to be accepted by the IRS should the issue come up.

There are some rules to follow and consequences to deal with if a plan sponsor is pre-funding a contribution. First, they cannot pre-fund elective deferrals. Elective deferrals must come from participants' compensation that when that compensation would otherwise have been paid to participants. Some employers tried to pre-fund elective deferrals early on when 401(k)s came into existence and the IRS shot it down. The employer can pre-fund non-elective employer contributions (NECs). Keep in mind that a defined contribution plan is exactly that - a plan with a specified formula for calculating a participant's contribution. If the pre-funded NEC has a loss, the employer has to make additional contributions to fully fund the participants' contributions as calculated using the plan contribution formula. The pre-funded NEC doesn't belong to the participant until it is allocated on an allocation date, and the employer must give each participant the contributions specified by the plan come an allocation date. Once a contribution is pre-funded and is in the trust, it cannot revert to the employer. As an asset of the plan, it needs to be treated in a manner consistent with the plan provisions and used for the benefit of participants. If the pre-funded NEC has a gain, that gain reasonably could be allocated using the same allocation basis that was used to allocate the contributions. It would be a stretch to use the gain to pay a plan expense that otherwise would be allocated to participants using a different allocation basis. A plan can say explicitly forfeitures can be used to pay plan expenses, but earnings on pre-funded NECs are not forfeitures. If there is pre-funded NEC (without considering earnings) that is more than the contributions calculated using the plan contribution formula, then the excess could be used to pay a plan expense if the plan says the employer can reimburse the trust for expenses. Since the plan should not have unallocated amounts, the excess would have to be allocated to participants which may require a plan amendment if the plan's contribution formula is fixed and there is no discretion available to the plan administrator on the amount of the contribution that is allocated. A match could be pre-funded, and this would carry all of the baggage that is associated with a pre-funded NEC. If the excess is not allocated as a contribution to participants or used for a purpose that is authorized by the plan document (like an expense), then there is a good argument that the excess is not deductible. This also possibly could lead into topics where plans fear to tread like unrelated business income taxes and prohibited transactions. Bottom line - on the surface, pre-funding seems like a clever way to earn extra income in the plan. If it worked smoothly, everyone would be doing it. Many have considered it, very few attempted it, and those who did gave it up after suffering unintended consequences.

Fundamental point: a cash balance plan is NOT a type of plan (ala DB, PS, MP), it is a type of DB formula. Thus, you have a DB plan where you are going to change the formula. It is not a plan termination, just a type of formula change.

I know the FT William cash balance document has a spot to say that it is a conversion from a traditional DB. Check your document; it may have a similar option.

In some ways, the added bit in the statute follows a practical reality. When the human who makes an election and the human who receives and records the election are the same human, there might be little or no obvious evidence about exactly when something happened. While a good practitioner doesn’t tell her client to create false evidence, some would suggest: “You should search your records carefully to find the election you signed that December.” Not many IRS examiners have the time and tools to uncover that a paper election dated December 26, 2022 wasn’t signed, or even written, until April 2023. The new tolerance is only for a first year. After, the proprietor or sole member will need to remember the need for the by-the-end-of-the-year election. Some business owners find it’s simpler to elect one’s § 401(k) deferral, declare one’s nonelective contribution, and pay both into the plan trust all before the year ends.

The new § 401(b)(2) opportunity (for plan years that begin after December 29, 2022) to make a § 401(k) cash-or-deferred election after the last day of the year to which the election would apply can be available only for the plan’s first plan year, only if the election is made by the person who owns the entirety of an unincorporated business, and only if she is the only employee (a deemed employee) of that unincorporated business. Otherwise, “a self-employed individual may not make a cash or deferred election with respect to compensation for a partnership or sole proprietorship taxable year after the last day of that year.” 26 C.F.R. § 1.401(k)-1(a)(6)(iii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(a)(6)(iii). When such an elective contribution must or should be paid into the plan’s trust might be governed and influenced by other law. Other law might include ERISA or, for a plan ERISA does not govern, State law. And other law might include relevant tax law, including about tax returns and tax-information reporting.

Being not fully tuned in to "new" developments, I should have commented that sole proprietors can now set up a 401(k) retroactively, so apparently there is not really any concern about making retroactive elections, at least for sole props. How this is good tax policy I don't know, but I digress.

Yes. While TPAs do a great job explaining Federal tax law, complexity about what powers a local government has or lacks calls for a lawyer’s advice.

This is life. I'm all for beefing up the IRS with more funding for more people, better trained people, and better hardware and software. I'm currently involved, personally, with a screw up between the IRS and the Social Security Administration. It's so screwed up it's funny, except that I have to deal with it. Five figures are involved.

A roth conversion source of an after tax account account that is converted is not the same as a roth 401(k) contribution account and the two should be account for separately.

I'm not sure I understand. The conversion will be to a sources that mirror's the characteristics of the original source. So if he could take in-service withdrawals of after tax contribution source, he can take in service withdrawals of roth converted after tax contribution source. That is you might need a separate ROTH source for each type of money that a participant may convert to roth. As for the taxation I think if he takes a later distribution from the roth source before age 59.5 you'll have some recovery of roth basis and some taxable piece based on the protated potion that is earnings. Unlike an IRA where you recover the ROTH basis on a FIFO basis, I think in qualified retirement plans you still have the protata method you need to use. Unless there was a change I missed.

Some lawyers have interpreted Pennsylvania’s Fiscal Code § 8.2 [72 Pa. Stat. § 4521.2] as the Commonwealth not providing a nonelective or matching contribution for a Commonwealth officer or employe, but not—by the enabling statute’s two sections [cited below] alone—precluding a political subdivision from providing a nonelective or matching contribution. See 72 Pa. Stat. § 4521.2(g) (including “nor shall the Commonwealth contribute to its deferred compensation program”). Here’s Pennsylvania’s enabling statute for governmental § 457(b) plans: 72 P.S. § 4521.1 https://govt.westlaw.com/pac/Document/NEEF65700343A11DA8A989F4EECDB8638?viewType=FullText&listSource=Search&originationContext=Search+Result&transitionType=SearchItem&contextData=(sc.Search)&navigationPath=Search%2fv1%2fresults%2fnavigation%2fi0ad7140b0000018c68930141e98d975f%3fppcid%3d6daf38e7a9864d17b11a10c8d1bc3a74%26Nav%3dSTATUTE_PUBLICVIEW%26fragmentIdentifier%3dNEEF65700343A11DA8A989F4EECDB8638%26startIndex%3d1%26transitionType%3dSearchItem%26contextData%3d%2528sc.Default%2529%26originationContext%3dSearch%2520Result&list=STATUTE_PUBLICVIEW&rank=1&t_querytext=deferred+compensation&t_Method=WIN 72 P.S. § 4521.2 https://govt.westlaw.com/pac/Document/NF25AB7B0343A11DA8A989F4EECDB8638?viewType=FullText&originationContext=documenttoc&transitionType=CategoryPageItem&contextData=(sc.Default)&bhcp=1. These are current through 2023 Regular Session Act 32. The hyperlinks above are to an unannotated (and unofficial) version of Pennsylvania Statutes. A researcher should read an authoritative text, read the annotations, and use a citator tool to look for court decisions and attorney general opinions that interpret the statute. (It has been many years since I last looked at the law on a question of this kind.) Consider that other Pennsylvania or municipal law might preclude, restrict, or constrain a political subdivision’s employer-provided contribution. Likewise, consider that a response to your query might vary with the identity of the particular political subdivision, its funding sources, its supervision from Commonwealth agencies and instrumentalities, its ordinances and other local law, its bargaining with labor association, and other facts and circumstances. Internal Revenue Code § 457(b)’s deferral limit applies to the sum of a year’s deferrals, including elective, matching, and nonelective deferrals. Nothing here is legal advice.

Yeah, honestly I've never seen the funding or reporting tied to Jan 31, the due date for the W-2. That's misleading at best. I still take the position that contributions should be determined by Dec 31 (for a self-employed person*, that means having a form on file, for a corporation, that means having a form on file and having the money withheld from a paycheck). Actual deposit deadlines are a different matter; for self-employeds, it boils down to the due date of the return, for a corporation, it goes to the 401(k) deposit rules (generally 7 biz days). *I know that this has been debated here and elsewhere and it seems to be generally ok to decide, for a self-employed, as late as the due date of the tax return. But the spirit of the law, in my mind, says it should be decided by Dec 31 and we try for that.

I think it can be argued that you can't do it in a self-directed plan - that would be the "rule" that you are looking for. I'd see what the plan says, if anything, about holding funds before they can be allocated to participant accounts. If you're going to do it anyway, then I'd use a cash equivalent of some kind. It's just not worth the headache of dealing with losses (personally I would take the approach that losses are losses (the pre-funded account is treated as a pooled account), and not made up with additional employer contributions, but then you're back to the issue of whether this can be done at all in a self-directed plan). And not worth the headache of dealing with gains, either, which should be allocated on a pooled basis before being transferred to the self-directed accounts. True confession - we've done it, by sending money to a misnamed forfeiture account, and eventually transferring to self-directed accounts. Any gains were minimal and washed around somehow in the "forfeiture" account, eventually effectively taken as fees when the plan terminated. If the plan is pooled, then I don't see a problem, in practical terms.

A few of things are glaringly missing. The article focuses on when the "employee contribution" (read elective deferral) is funded. The article says "you can set the amount you plan to contribute" but does not note that you have to set the amount by December 31st of the tax year. https://www.gpo.gov/fdsys/pkg/CFR-2010-title26-vol5/pdf/CFR-2010-title26-vol5-sec1-401k-1.pdf The article focuses on W-2 reporting which is appropriate when the entity is taxed as an S-corp or C-corp, but I would say from my experience that most owner-only plans are sponsored by sole proprietors who more likely are reporting Schedule C income, or by partners who are reporting K-1 income. The article does not emphasize that if the tax return is filed or not extended by the original due date, then that blows up the opportunity to fund up to the extended deadline. Is the article wrong? - not necessarily. Is the article likely to mislead a reader whose situation does not match the articles underlying assumptions? - almost certainly.

It's a pooled contribution to the plan until it's allocated to participant accounts so standard prudent fiduciary rules would apply.

Two spot-on excellent answers. If the person wants ad hoc payments, take lump sum (if not restricted) and rollover to IRA and then withdraw at will.

I think you need to provide more details. If you are talking about an employer prefunding an employer contribution before any allocation conditions are met, the DON'T DO IT. Period. If the funds experience a loss, who suffers? If the funds have an investment gain (even interest), is that an additional contribution when allocated? If there is money left over because too many people don't meet the allocation conditions, how do you account for the funds (and it clearly can't go back to the employer). As far as how the funds are invested, they are plan assets. I would say "prudently" but would reiterate - DON'T DO IT.

I am with Effen. Adding a few points: 1)In-Service can be made available at 59.5 (rather than only at NRA) which requires the proper language in the document. 2)I also think of in-service as a distribution of a full accrued benefit rather than some random amount. Thus if a participant recived a full distribution at January 1, 2023 of his benefit accrued as of December 31, 2022, then there is nothing to be distributed until January 1, 2024 since he receives an additional accual only on December 31, 2023. Is it too simplistic? 3) Those distributions require some actuarial gymnastics if the design is at 415 level, got to be careful with proper capturing the offset for val purposes

I could be wrong, but my understanding is that any distribution from the plan must meet a defined form of payment. This would be some sort of lifetime annuity or a lump sum equal to the present value of the accrued benefit (or account balance if cash balance plan). An in-service distribution just means that a participant who has attained normal retirement age (NRA) doesn't need to separated from service in order to qualify for a distribution. The distribution paid still needs to satisfy one of the optional forms of payment stated in the plan document. IOW, I don't think a DB plan can just pay some random amount requested by a participant. If the participant attained NRA and wanted a LS distribution, the plan can pay it (assuming no restrictions apply). If the plan provisions allow that individual to earn additional benefits after the distribution, then they could be paid those as well once they have been earned. I don't really see anything wrong with taking a lump sum equal to the full accrued benefit at the beginning of a year, then another distribution later in the year if they have earned an additional accrual, but I think most documents restrict the recalculation to once a year. I don't think the actual funding of plan is relevant, other than if it impacts benefit restrictions.