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It says right in your highlighted section - "Individuals similarly situated will be treated the same." It may pull in more than you need, but it's what your document says and it will pass coverage after bringing them in.

They were an employee for those month, so if they met the eligibility conditions they would be in the test. Compensation would be defined in the plan document but I'm guessing that yes the W-2 wages would be used. And they would probably be treated as terminated as an employee since they are now an IC but you can confirm that with the client.

yes We haven't filed for many, many years. If you have a pre-approved document, and keep it up to date, then there should be no problem with the language. And getting an FDL does not protect you from being audited on the plan's operation. IMO, they have raised the fees to a point where they are essentially saying "don't bother us."

Look at the plan document to ascertain whether there is any distributable event. As implied in above responses (and in original post), it seems unlikely; thus, the recommendation to do a spinoff.

Yeah, I missed that too before crafting my response, thanks Lou - your eyes must be younger than mine!

Among the challenges about arrangements of the kind ESOP Guy describes is that businesspeople communicate expectations in ways that evade detection by a banking, insurance, or securities business’s compliance, internal-controls, and supervision systems.

Yup I worked for a bank's trust department doing the recordkeeping for the plans the trust department had the investments. It was common back then for the bank to pretty much make it a condition of giving the company a badly needed loan to move the 401(k) assets to their trust department and we did the recordkeeping. I was 100% convinced this was a breach but the bank was pretty open about how the deal needed to happen in their mind.

Great discussion and good points. The sad truth is most business owners in the small to mid-size market wouldn't care it they are able to save a penny. We targeting TPA services, but what about banks? I've had clients and prospects move their Plan because the bank was waiver a favorable letter of credit in front of them. I am confident we do the right thing and regulations are geared at correcting a lot of these wrongs, which only impacts those that follow the rules. We press on and remember, we can only lead that horse to water!!!!!

You get to a certain age and you lose your "filters." I deal with enough ... from the DOL that it's time I turn them loose on something really egregious....

CuseFan, there can be circumstances in which fees might relate to shared or coordinated services, with an experienced fiduciary’s prudent attention to protective conditions and reasoned accounting. But in the situation your opening post describes, wouldn’t a good fiduciary ask the service provider whether it would charge the employer a regular fee for the payroll service, and lower the fee charged to the retirement plan? Does the service provider’s offer of “free” payroll services suggest that the retirement plan’s fiduciary might not have selected or negotiated the best deal the plan could obtain? (Whether with the same provider, or by selecting a different provider?) When one fee otherwise would burden the employer and another fee burdens the plan, shouldn’t whatever combined fee lowering is available favor the entity the ERISA-governed fiduciary owes its exclusive-purpose loyalty to? And shouldn’t the retirement plan’s assets not benefit an entity about which the plan fiduciary might, even indirectly, have a compromising interest that could interfere with the plan fiduciary’s unimpeded decision-making for the plan’s benefit? Observe that the conflict might be less (but not completely removed) if the employer pays the retirement plan’s fees from the employer’s assets, with nothing charged to the plan. I concur with your observation that one might not call out a seeming breach, at least not without having collected and analyzed the facts. (Even if I saw an obvious breach, I wouldn’t say anything other than to my client.) Knowing that many plan fiduciaries do not get a lawyer’s advice (even when the retirement plan properly could pay that fee) motivated my question: What percentage of small-business employers innocently do not know that it is improper to allow a retirement plan to subsidize a lowered expense for some other service?

Our positions are not mutually exclusive. Call the DOL, then go after their clients!

A disloyal or imprudent fiduciary burdening an employee-benefit plan with expenses that reflect a service provider’s offer of “free” services for something other than the plan likely happens more often than we read about. If the plan’s fiduciary gets no advice from anyone beyond the service provider that offered the arrangement, how likely is it that the employer/administrator’s Form 5500 report will disclose a prohibited transaction?

Indeed no. Rather, it makes you want to identify their clients so you can go after them.