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Yeah, I took two years of Latin in high school, and no, just no. Cogito ergo fuggetaboutit.

None of the SEP contribution gets counted in the nondiscrimination testing, so the amounts contributed to the SEP count as a zero EBAR and fulfills $0 toward the minimum gateway.

David Schultz doesn't like cameras too much and Brad is much better looking than he is... Agreed; I know that Kelsey agrees as well. I am just cautious into who's mouth I put my feet. And, yes, Kelsey knows her stuff - no doubt about that. I couldn't agree more that the complexities and "newness" of the issues here, along with a lack of guidance and a lot of articles that provide high-level analysis, can be dangerous. Though as the author of some of those articles (which I would argue went into more depth than most but still didn't uncover every possible issue), I will note that it is an iterative/takes-a-village process to walk down all of the paths and determine all of the potential operational issues for something so new and different (indeed, my articles have specifically called out that the devil is in the details). I've spoken with Kelsey, Robert, Derrin, Ilene, and many others about these topics in emails, phone calls, at dinner, and over drinks (I really need to get a life), and we are all still finding new issues and complications daily.

Yup.

They don't have to. But I always continue to file. 10 minutes of work every year is less than than it's gonna take going back and forth with the IRS as to why the form doesn't have to be filed in the first place.

The many articles floating around have created quite the issue. They had people convinced that the first LTPTs would enter on 1/1/24 when the first LTPTs could have entered as early as February 2023 (I suppose January 2023 could be possible but I haven't seen an example). Oversimplification and lack of guidance until late 2023 was a bad combination.

(And SEPs require a pro rata allocation with extremely limited exceptions)

This example is so spot on and agrees with David Schultz and G8Rs... Every other article I read on this did not go into enough depth to make it clear why it was 2025. I always thought it was because you needed at least 2023 and 2024 to be eligible (due to the pre 2023 exclusion), not that it was the delayed effective date of the provisions that made it 2025. https://www.truckerhuss.com/2023/09/long-term-part-time-workers-more-questions-than-answers-for-defined-contribution-plans/#:~:text=Section 125 of SECURE 2.0%3A LTPT&text=Pre-2021 service is also,governed 403(b) plans. Examples When is an employee eligible to enter a calendar year 401(k) plan if the employee has 500 hours in 2021, 500 in 2022, and 450 in 2023? Answer: The employee would enter the 401(k) plan on January 1, 2025. Under SECURE 1.0, this employee does not meet the 3-year rule as of the end of 2023; therefore, the employee is not eligible to participate as of January 1, 2024. Under SECURE 2.0, effective for plan years beginning on and after January 1, 2025, the 3-year rule is reduced to two years; therefore, this employee has satisfied the new rules for eligibility (based on performing at least 500 hours of service in 2021 and 2022), and will become eligible for participation as of January 1, 2025. Note: For 401(k) plans, service performed prior to 2021 is excluded. For 403(b) plans, service performed before 2023 is excluded. The LTPT rule under SECURE 1.0 does not apply to 403(b) plans. SECURE 2.0 extended the LTPT rule to 403(b) plans. Therefore, if the plan in the above example were a 403(b) Plan, the employee would not be eligible for the plan, as service performed under a 403(b) plan prior to 2023 is excluded for purposes of the LTPT rule Also the Proposed Regs seem to line up with this too. "(2) Determination of 12-month periods—(i) In general. Except for any 12-month period beginning before January 1, 2021, all 12-month periods during which an employee is credited with at least 500 hours of service with the employer or employers maintaining the plan must be taken into account for purposes of determining whether an employee has satisfied the requirements of paragraphs (b)(1)(i)(A) and (B) of this section."

I disagree (and used this very scenario in a recently published Journal of Pension Benefits article on the LTPT legislation). To clarify my earlier comment: The pre-2023 service exclusion was added by S2.0 to the parallel ERISA provision (which is new and was added to extend LTPT coverage to 403(b) plans) - this is the S2.0 provision you quote above, but it only applies to the ERISA provision and 403(b) plans. The Code (401(k)) provision, was amended by S2.0 to change the requirement from 3 to 2 years, but it did not change the rule that only service periods starting before 1/1/21 are excluded for purposes of that provision (again, this only applies to 401(k) plans, pre-2023 service periods are excluded for 403(b) plans). I am confident that I am not alone in this interpretation. (I am pretty certain Ilene Ferenczy, Derrin Watson, and Robert Richter all concur with this interpretation, although I only speak for myself). I can say that Relius and Omni are being designed to determine eligibility in this manner. And I do not read that Sayfarth article to disagree with my interpretation. A fundamental principal of service crediting is "all service counts" (credit to Robert Richter). The only time prior service does not count is if there is a rule that excludes it (such as a break-in-service rule or a law, such as SECURE Act §125(b)) which provides that pre-2021 service is excluded for purposes of the LTPT rules that apply to 401(k) plans. The Seyfarth article is saying that in 2025 the service requirement is reduced from 3 to 2 consecutive YOS. But I see nothing in the law, regs, or Seyfarth's article that says pre-2023 service is excluded for purposes of applying the 2 consecutive YOS requirement. I do not wish to be argumentative, but I think this is an important point to ensure everyone understands correctly (and I agree, this is a PITA result): When the S2.0 change from 3 to 2 consecutive YOS kicks in, my interpretation is that anyone with 500 - 999 HOS in 2 consecutive 12-month periods that begin on/after 1/1/21 will be eligible to enter as a LTPT (assuming they were at least age 21 when they completed that 2nd consecutive YOS). Those consecutive periods can include 2021 and/or 2022.

Let’s leave to actuaries what mūtātīs mūtandīs might mean in mathematics. And let’s leave to teachers what mutatis mutandis might mean in logic. Black’s Law Dictionary (11th ed. 2019) describes the phrase’s meaning as “with the necessary changes[.]” Lawyers have used the phrase to avoid some duplicative renderings of terms, promises, conditions, representations, and warranties in some kinds of contracts, obligations, or undertakings. A leading treatise about how to write contracts gives this example: “Each Guarantor hereby makes to the Lender, as if they were in this agreement, mutatis mutandis, each of the statements of fact made by the Borrower in the Loan Agreement.” Kenneth A. Adams, A Manual of Style for Contract Drafting ¶ 13.576 [page 449] (5th ed. 2023). But whatever the old phrase might mean in other contexts, one should not presume that specifying a date that has some meaning regarding a plan’s discontinuance or termination by itself changes a day set for a retirement plan’s allocation condition. Bill Presson leads us to the solution: Read, thoroughly and carefully, what the documents governing the plan say. If what the documents provide is ambiguous, the plan’s administrator might use its discretion to interpret what the plan provides or omits. Often better, the administrator might suggest that the plan sponsor amend the documents. Or does The Shadow know?

Just don't file it late if you were not required to file. I have dealt with far too many late EZs over the years. The IRS does not care that you were not required to file, if you file late you will have to pay the penalty or correction program user fee.

As suspected. I HATE when these new fad strategies start going around. Yes, I understand that for some people this is a good choice, but the niche is small. So far, just today, I had to explain to 2 clients that it won't work for them specific to their plans given the coverage of employees, the low participation rate of employees, and the impact of both ACP and Top Heavy being put back on the table. This is being done all the while that the investment advisor is saying how his manager says there is no such problems. Right.

yes, ACP applies. Not likely to work unless all Ees are HCEs.

Just as a follow-up to my above comment. Just this morning I had another client who is being advised to do Mega Roth, and guess what? They have 10 other employees under the Plan. It is a 401(k) Safe Harbor Plan, so the broker thinks that ACP Testing doesn't apply. As I understand, Voluntary Post Tax Contributions are NOT considered Safe Harbor Contributions, so the ACP testing would apply. Is this correct?

I think we can add Kelsey Mayo to that list as well. I have a very short list of trusted sources (Brad Pitt is on the list) on this topic. We should all be very careful with articles/blogs aimed at a wide audience, as they tend to skip some of the more technical issues that are too complicated for a wide audience. You could easily spend an entire article just discussing the "shift to plan year" issue, and many non-industry readers still wouldn't understand it.

Post hoc ergo propter hoc, ipso facto, mephitis mephitis, illegitimi non carborundum, non sum dignus, all to say I have no idea. I took 1 semester of Latin in 7th grade, and by the time I got to 5th declension plural ablative, decided it was a language fit only for masochists. But seriously, I think Bill and Bird have it covered. Bufo Americanus.

Just be wary of the top heavy provisions, if applicable

Found the answer on page 84, which I had skipped over initially because it starts out talking about Safe Harbor Matching, so I had (incorrectly) assumed that the entire paragraph was relating to Safe Harbor Match. "If the employee was not provided the opportunity to elect and make elective deferrals (other than Roth contributions) to a safe harbor § 401(k) plan that uses non-elective contributions to satisfy the safe harbor requirements of § 401(k)(12), then the missed deferral is deemed equal to 3 percent of compensation. In either event, this estimate of the missed deferral replaces the estimate based on the ADP test in a traditional § 401(k) plan." Page 85 looks like it covers Automatic Contributions, SHNEC contributions not made (which is not the case here), and after-tax contributions. Thanks for pointing me to the right answer.

@austin3515, I am not sure that this is true. SECURE 2.0 Act §125(a)(1) modifies ERISA §202 to add the LTPT requirements (making them an enforceable right and extending the rules to 403(b) plans. The new ERISA §202(c)(1)(B)(i) adds the 2-consecutive year rule and the new §202(c)(4) provides that periods prior to 1/1/23 may be disregarded for the purposes of that section. However, SECURE 2.0 §125(a)(2) also modifies Code §401(k)(2)(D)(ii) to reduce the eligibility requirement from 3 to 2 consecutive YOS, but it does not modify the rule in SECURE (1.0) Act §112(b) that excludes service prior to 1/1/21 for purposes of Code §401(k)(2)(D). That is, if an employee (at least age 21) works 750 HOS in 2021 and 750 HOS in 2022, but less than 500 HOS in 2023 and 2024, that employee would be eligible to enter the plan on 1/1/25 based on the requirements in the Code, when the requirement is reduced to 2 YOS. You are reading the 2023 limit for the ERISA provision and applying it to the CODE provision, but unfortunately, IMO, that is incorrect.

Eligibility is not a protected benefit but you can grandfather it for folks who already met the old eligibility but not the new, or for folks employed as of a certain date. As long as it's not discriminatory, like bringing in the just the owners kid or a newly hire partner to the firm you have a lot of flexibility, it all depends on how the amendment language is drafted.

I wouldn't typically terminate a plan before the end of the year if the company wanted to make a contribution for that year, or else, as Bill Presson notes, you do something to waive last day requirements or whatever. Depends on what you want to happen I guess. mutatis mutandis to you too.

Agreed. Are they considering waiving that requirement for anyone employed on 1/1? I see that sometimes to catch the December people you describe and have it only apply to those hired after 1/1/2024.

Appleby's comments are correct. But on a practical level, this is unfixable - the costs are so open-ended it is ridiculous (penalties, fees, contributions to be made for others who weren't informed). If it's me, I explain the correct way to fix it, and then informally note that maybe it was never a legit plan at all due to all of the failures involved, and that he could either ignore everything and eventually take the money out as a taxable distribution (even though no deduction was ever taken), or take it out now as an excess contribution and pay the 6% per year excise tax. Just make it abundantly clear that the broker is the one who screwed up, and that you're not giving formal advice. Just minimize your efforts and distance yourself from the mess.

No one knew anything about this plan but the shareholder. The employees were not told and therefore had no opportunity to participate in either tax year. The financial planner didn't even know he had employees. Response: There is a $50 per day penalty for failure to notify employees ( the employee notification is the summary description). The summary description must be provided for every year the employer continues the SIMPLE IRA plan The employer had a 3% match. Response: OK. If the summary description had been provided, this would not have been an issue, as employees who do not make salary deferral elections would not be entitled to a match. But, by not providing the summary description, the employer has the issue in No. 1 There was no handling of the 14,000 on the tax return. There was no payroll withholding for the SIMPLE. He simply gave his financial planner 14,000 of personal money and this financial planner gave it to his guy handling the SIMPLE IRA. Response: This is not a SIMPLE IRA contribution. It is an ineligible/ excess contribution to the SIMPLE IRA, requiring correction. The SIMPLE was filed with the IRS because the shareholder got Form 5498 saying he had deposited 14,000 into his SIMPLE IRA for 2022. Response: The Form 5498 only tells the IRS that the employer made a contribution to a SIMPLE IRA. Unfortunately,that does not mean that the contribution is legitimate/valid. The SIMPLE only came to light when the shareholder asked how much he could contribute in 2023 because his financial planner wanted to know. It was a SIMPLE because the IRS received forms saying 14,000 had been deposited into the SIMPLE on behalf of the shareholder. Response: The plan is a SIMPLE if the employer did complete the SIMPLE Employer adoption agreement (SIMPLE 5304,5305 or prototype). But, there are compliance issues which include: It appears the contribution is not a SIMPLE IRA contribution, and the required annual notification was not provided to employees. Please see 4. I just don't know what to do when the money deposited was after tax money belonging to the shareholder. Nothing went through payroll for either year. The question now is how to fix this. If he takes the money out it will be a taxable distribution on the 14,000 which has already been taxed. There will be plan penalties, early withdrawal penalties and the plan will need to be closed out. I think it's flawed and was never a real SIMPLE regardless of the fact after tax money was deposited into it. Still, I have no idea what exactly to do. Response: Technically, it is a SIMPLE IRA is the SIMPLE paperwork was properly completed. But, there is a lack of compliance as noted above- but the employer might be able to get the penalties reduced- someone with practical experience working with the IRS on EPCRS issues should be able to say if and how. While the early distribution (pre-age 59 1/2) penalty is 25% for SIMPLES that have not met the two year period, I think it would be 10% in this case, because the contribution is not a valid SIMPLE IRA contribution. I hope this helps.

Operational error only, assuming all amounts actually withheld from paychecks were deposited timely. So no prohibited transaction, as Kenneth stated above. The correction should include missed earnings, of course, but there is no employer use of withheld amounts to create a PT, assuming there isn’t some other fiduciary breach here.

He can do an EZ the year after the plan was still Title I. So if all the payouts done in 2023, then 2024 would be an EZ just for the one-participant plan.