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Plan permanency is a "thing". It is best discussed with an employer BEFORE the plan is adopted. This takes away the first excuse an employers makes is "no one ever told me so". Is the IRS serious about it? Yes, it's in the regulations and the IRS Manual. See https://www.law.cornell.edu/cfr/text/26/1.401-1 and 1.401-1(b)(2) in particular. Also see the IRS Manual Section 7.12.1.13 Permanency Requirements/Reasons for Termination https://www.irs.gov/irm/part7/irm_07-012-001#idm139730249437392 . This latter link provides a lot of details on what is considered by the IRS in reviewing a plan's permanency, and you will find the answers to your questions and a lot more information. Is this something the IRS even checks? Yes. One way the IRS can learn about the issue is during a review of a company's tax returns. Seeing a deduction for a contribution in one year but not in subsequent years likely will trigger a question. Another way depends in part on whether to plan has filed a Form 5500-EZ, 5500-SF or 5500. The IRS has a formal Entity Control Check that it uses to keep track of filings made year over year. See page 24 of the IFILE User Guide https://www.efast.dol.gov/fip/pubs/EFAST2_IFILE_User_Guide.pdf . The IRS can track filings for the pairing of the employer's EIN and Plan Number. If there are too few or an abrupt end with no designated final filing, this may trigger an inquiry. Keep in mind that a discontinuance of contributions also can lead to a plan being considered terminated. Take a peek at IRM 7.12.1.14. If you convince a plan to delay terminating but the employer makes no contributions, you potentially are making the situation more complicated. Consider cutting your losses with these clients, and focusing your time and resources on educating employers before they sign up.

Although ERISA § 403(c)(1) commands that a plan’s assets must never inure to the benefit of any employer, § 403(c)(2)(A)(1) excepts a return, “within one year after the payment of the contribution”, of a contribution an employer made “by a mistake of fact[.]” ERISA § 403, unofficially compiled as 29 U.S.C. § 1103 http://uscode.house.gov/view.xhtml?req=(title:29%20section:1103%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1103)&f=treesort&edition=prelim&num=0&jumpTo=true. Interpretations about what is or isn’t a mistake of fact vary widely.

There is a difference in the instructions for the Form 5500 between Line 5 Total number of participants at the beginning of the plan year Line 6g(1) Number of participants with account balances as of the beginning of the plan year (only defined contribution plans complete this item) The 2023 instructions for the 5500 line 5 [lightly edited] say: " For pension benefit plans, “alternate payees” entitled to benefits under a qualified domestic relations order are not to be counted as participants for this line. For pension benefit plans, “participant” for this line means any individual who is included in one of the categories below: 1. Active participants (i.e., any individuals who are currently in employment covered by the plan and who are earning or retaining credited service under the plan). This includes any individuals who are eligible to elect to have the employer make payments under a Code section 401(k) qualified cash or deferred arrangement. 2. Retired or separated participants receiving benefits 3. Other retired or separated participants entitled to future benefits 4. Deceased individuals who had one or more beneficiaries who are receiving or are entitled to receive benefits under the plan. " The 2023 instructions for the 5500 line 6g(1) say: "Line 6g. Enter in line 6g(1) the total number of participants included on line 5 (total participants at the beginning of the plan year) who have account balances at the beginning of the plan year. Enter in line 6g(2) the total number of participants included on line 6f (total participants at the end of the plan year) who have account balances at the end of the plan year. " Clearly Line 6g(1) is counts either a subset or all of the participants reported on Line 5. Participants who are eligible to defer but who do not have a balance at the beginning of the plan year are NOT included on Line 6g(1), but they ARE included on Line 5. The Form 5500-SF instructions are the same where Line 5a is the same as the Form 5500 Line 5 and Line 5c(1) is the same as the Form 5500 Line 6g(1). Note there is an EFAST2 edit check which may be contributing to the confusion: "Z-007 - WARNING - Fail when the total participant BOY count on Line 5 of the Form 5500, Line 5a of the Form 5500-SF, or Line 5a(1) of the Form 5500-EZ of the current submission does not match the total participant EOY count on Line 6f of the Form 5500, Line 5b of the Form 5500-SF, or Line 5b(1) of the Form 5500-EZ from the previous year's submission."

The provider is claiming that the those different lines asking for different numbers are in fact asking for the same numbers, which makes no sense, otherwise there would be one set of beginning/ending counts. And clearly, collecting counts for both eligible participants and participants with balances would be a metric of interest to IRS/DOL.

I have too much time on my hands and will rant a bit here. My thoughts on doing the 5310 are completely contrary. My viewpoint is that of someone who works mostly on micro plans. I've been doing this long enough to remember when there was no fee for the 5310, and you got an FDL within a few months. Then they started charging for it, and taking longer and longer. It used to be something that we insisted on, then gradually became a client option, and now we barely mention it. The main thing that triggered my policy change was that we had a plan that was audited, after we received a FDL. I said "but but but but we have an FDL" and the agent said "yeah but we "just" need to review some operational things, and the FDL doesn't cover that." So they did the audit, and it was a major PITA because the company had shut down; fortunately they had some stuff in a warehouse. Of course they found nothing. Unless you have an individually designed plan and need the FDL to cover the document, I do not think it is worth it. Basically you have a choice of 1) getting the FDL and spending a decent amount of money and waiting an interminably long time for an answer, and still being subject to an audit of the plan's operation, or 2) not getting the FDL and being subject to an audit of the plan's operation. You really should not have a document issue if you are using a pre-approved document. I don't believe the ADPs and Paychex of the world are submitting 5310s, and they have way more plans.

Are those 5 people HCEs? If so they could be excluded from the safe harbor. Otherwise, they could adopt a separate plan for those 5 people, as long as both plans pass coverage separately. But you couldn't do it within a single plan.

I'm not sure why people would bring in their LTPTs for anything else beyond what they're being forced to bring them in for. If you want them in for more, change your regular eligibility.

I may have exaggerated slightly, in that a doctor's office pays 4 or 5 doctors a couple million and the rest of the participants a few thousand each. Top heavy plan, covered in a profit sharing plan. Still just a way to pay tax deferred profits to the owners of the business.

Millions for a 2-3 year plan sounds more like a 415 issue than it does a permanency issue!