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If the union employees have not met the requirements to be able to take an in-service distribution, the employer can work with the union to coordinate a trust-to-trust transfer of accounts from the employer plan to the union plan. Part of that coordination may involve amending one or both plans to have provisions facilitating this approach. The union can decide what provisions in the union plan will be applicable to the balances received into the union plan. The key point is making this happen is between the employer and the union, and is not directly between the employer and the union employees.

As Paul I suggests: Beyond whatever ERISA and the Internal Revenue Code call for, labor-relations law might require that this be done under collective bargaining or some other labor-relations process. During a collective-bargaining agreement’s term, an employer doesn’t change terms or conditions of employment without the union’s assent. And this might need three parties’ assent or accord. A retirement plan is a person separate from the employer or employee organization that establishes or maintains the plan. While there often is some overlap between a labor union’s executives or other employees and a retirement plan’s trustees, it is not necessarily the same people. And even if is, the roles and responsibilities differ. Further, if the union-oriented plan is a multiemployer plan, it might have some trustees elected or appointed by employers. It would do little for an employer and a labor union to agree on a spin-off if the transferee plan might not accept the transfer. Some union-oriented retirement plans evaluate not only that the transfer would be proper, but also that it would be practical in the circumstances. (I’ve seen a union’s retirement plan reject a plan-to-plan transfer when that transferee’s recordkeeper disliked the data feeds that would come from the transferor’s recordkeeper.) I don’t say that any of this is difficult to do. (In my experience, it’s easy—except for getting the recordkeepers to play nice.) Rather, everyone should seek to follow the processes to do it right.

IF the employees 1-6 listed above are truly all 6 of the employees in the plan, then go with a safe harbor 3% nonelective, but indicate the sponsor will only allocate it only to NHCEs. If there really aren't anyone but those six HCEs, then you'll have manipulated the top heavy exemption for SH plans perfectly, no?

@Lou S. is correct that the "waive out"/"participation waiver" is a lifetime election with respect to any retirements that the company may sponsor now or in the future. That is pretty harsh, particularly if a daughter wishes at some point in time to work for dad's company and want to get a retirement benefit. Lou also is correct to reiterate that if either already meet the eligibility and entry requirements of the plan, it is too late to waive out. The waiver is off the table. The discussion about Top Heavy Minimum contribution is most appropriate and the TH plan provisions should be reviewed carefully. Most importantly, Top Heavy status is based on accounts of Key Employees, and the definition of Key Employee is not synonymous with the definition of Highly Compensated Employee.

oh then the daughters are HCEs as well, so your HCE average is going to be one-third whatever rate the owner actually contributed. Very good for testing purposes indeed. Unless you've got a top heavy plan, you might indeed be able to not require any further employer contributions.

You understand it correctly - the ACP test includes anyone eligible for either the match or after-tax arrangement, so if they all *could* have done after-tax, they're in.

from a part time lurker... my wife says I'm irrational and when speaking I go on and on and on... does that count?

One of the requirements for being a new qualified employer plan includes a 3-year look-back - including predecessor employers - that had a plan that covered substantially the same group of employees. Note that EINs in particular are not a factor. See Sec. 45E Small employer pension plan startup costs, subsection (c)(2): "(2) Requirement for new qualified employer plans. Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a qualified employer plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan." I suggest that you let the CPA know that you are not providing advice, and the CPA should decide what is appropriate when preparing their client's tax return.

Carla G., since this is an IRA you are under your state's law. I suggest going to a state court to have a new order awarding your client's share of the IRA.

Is the plan an EACA that would allow for an extended testing window? If not, does the document allow for the match to HCEs to be reduced so as not to fail the ACP test?

You are correct. As long as the shares remain in the ESOP (are recycled amongst participant accounts and are not redeemed via distribution then re-contributed), they carry the same cost basis as the original acquisition.

I'm not saying that is the reason, but it's valid. Even if it's required, what happens if the sponsor goes bankrupt say next week and say's "I don't care if it's required by the document we don't have the money, let the Trustee make a claim in bankruptcy court." Just playing devil advocate. I can see valid arguments for not doing the ACP refunds until the match is actually deposited. Don't want to pay the excise tax for refunds after 3/15? Simple, fund the match before 3/15 so we can process the refunds. Again not saying which is right or wrong, just presenting an argument for why a custodian might not process it which may or may not be spelled out in their contract.

Check the rules on participation waivers. You are probably better off excluding from the Plan in the document than having them execute a waiver. Pretty sure it must be executed before they become eligible and must be irrevocable. I believe it also applies to all future plans the employer may adopt but not 100% certain on that point. In your example the Owner and both daughters are all both HCEs and Key employees since they are all 5% owners by §318(?) stock attribution rules. All the rules for top heavy continue to apply.

So in the end there is no such thing as a defer only plan. There could always be an instance where a THM is required. 3% at that. Brings up waiving out of the plan all together. If the girls waive out would I need to worry about THM?

Great point - all HCEs means no coverage or ADP testing issues but if top-heavy because non-owner/non-key HCEs do not defer or do not defer enough, then they must get a THM from the employer.

You're not crazy. That doesn't mean government forms instructions are always crystal clear.

You are correct that for purposes of testing, the employer can elect either to include LTPTs in all applicable testing or to exclude LTPTs in all applicable testing. The examples 1(A) and 1(B) in section f(3)(i) illustrate how this election is applicable non-elective employer contributions. They could have provided the same examples applicable to match as well. The rule remains "all or nothing" for all of the testing listed in section f(1).

For purposes of this reply, the use of "opt out" or "waive out" in the question means an individual makes an irrevocable election not to participate in an employer-sponsored plan prior to becoming eligible for any employer-sponsored plan. My understanding is: For coverage testing, this employee is included as a non-excludable employee in testing for deferrals, match and NECs. For nondiscrimination testing, this employee is excluded from ADP and ACP testing, but is included in testing NECs.

I am not sure I agree with a "separate account" notion. If the plan is designed properly a participant can "purchase" an additional piece of benefit (an annuity) by rolling in his DC money. That additionally purchased benefit is not subject to 415 and it is PBGC protected (if the plan is PBGC covered). So, there might be some numerical leverage involved if/when segment rates go above 5.50%. There is a lot of math there. This is one potential why. Need more info what people are trying to accomplish.

EFAST2 does not have a validation edit for the compliance question asking for the Pre-approved Plan Opinion Letter number and there are plans that are individually-designed plans that don't have an Opinion Letter, so it is not a surprise that the filing DOL accepted the filing. Some software providers have added an edit check on the field at least to generate warning if the field is left blank, and some even go further to check the syntax (first character "Q" followed by 6 numerics, a maybe even a trailing character "a"). This seems like a prudent edit since around 90% of plans use a pre-approved plan document, and particularly because this question was not on last year's form and may not yet be incorporated into a preparer's routine.

Exactly. It is possible if the CBP document says rollovers are accepted, but it must be tracked as a segregated account (RK-wise, assets do not need to be physically segregated). It doesn't affect the benefit obligation of the CBP, so in the word of Effen:

You mean the employee exceeded the $2,850 health FSA salary reduction contribution limit in 2022? In that case, the guidance says to return the excess contributions as taxable income in the year of the correction (2024). IRS Notice 2012-40: https://www.irs.gov/pub/irs-drop/n-12-40.pdf If a cafeteria plan timely complies with the written plan requirement limiting health FSA salary reduction contributions as set forth in section IV, below, but one or more employees are erroneously allowed to elect a salary reduction of more than $2,500 (as indexed for inflation) for a plan year, the cafeteria plan will continue to be a § 125 cafeteria plan for that plan year if (1) the terms of the plan apply uniformly to all participants (consistent with Prop. Treas. Reg. § 1.125-1(c)(1)); (2) the error results from a reasonable mistake by the employer (or the employer’s agent) and is not due to willful neglect by the employer (or the employer’s agent); and (3) salary reduction contributions in excess of $2,500 (as indexed for inflation) are paid to the employee and reported as wages for income tax withholding and employment tax purposes on the employee’s Form W-2, Wage and Tax Statement (or Form W-2c, Corrected Wage and Tax Statement) for the employee’s taxable year in which, or with which, ends the cafeteria plan year in which the correction is made.

Why?

He can not defer more than 100% of compensation, you can't defer what you didn't make but an employer allocation can bring him over 100% but it being a sole prop... With such low comp the math gets circular if you are trying to do the absolute max. You'll need to do a PS contribution first which can't exceed the 25% deduction limit so using your $26,900 figure you get a $5,380 PS contribution which reduces his pay to $21,520 of which he can deffer 100% and the last $5,380 would be catch up. For a total of $26,630. Or he could do no PS and contribute the full $26,900 as deferral. It doesn't matter if the deferral is traditional, ROTH or a mix.

Thanks for pointing to the Secure 2.0 rule of excluding 401a9a - However, I don't necessarily agree with your first statement. With apologies to ASPPA - the below is from the EOB: 3.a. All amounts distributed during year are ineligible for rollover until minimum distribution is satisfied. Any distributions in a year in which the participant is required to receive a minimum distribution (i.e., a distribution calendar year) are treated first as satisfying the required minimum distribution for that year and, thus, are ineligible for rollover until the required distribution for such year is satisfied. See Treas. Reg. §1.402(c)-2, Q&A-7. This is true for distributions made in the first distribution calendar year, even though such distributions are not required to be paid until the RBD. Section 1.408-8, Q&A-4 of the 2002 Regulations and §1.408-8(b)(3) of the 2022 Prop. Regulations provide that the same rule applies to distributions made from IRAs within a distribution calendar year. While the above is focusing on Rollovers, I think the statement still applies that any distribution must first satisfy the RMD. So, the first taxable distribution could be taxed at 10% and doesn't have to be taxed at 20%. Once your RMD is satisfied, then all future partial distributions would be eligible for rollover.

If the plan compels an involuntary distribution and you have the estate’s taxpayer identification number, pay the required distribution (as ESOP Guy suggests). If the plan compels an involuntary distribution and you lack information needed for tax-information reporting, consider suggesting that the personal representative seek his or her lawyer’s advice about the representative’s personal liability for the estate’s loss that results from a failure to collect an amount due the estate and for an excise tax that could have been avoided.