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I agree. The good news is they also get credit for years of participation in the old plan for 415. They could also possibly spin off one of the plans to avoid the termination and offset.

There is no issue with using accrued to date testing, but in the first year with a typical cash balance/profit sharing combo, it's going to be equivalent to doing annual testing. You only count years in which the employee was eligible to accrue a benefit under the plan, so unless you have a DB plan that grants accruals for prior years of service, your years for accrued-to-date testing are just years of participation, which will be 1.

agreed, I agree with Corey as well regarding the spin-off, it might be the most practical approach.

I am tinkering with doing it by Group. b1 also gives one year, which should be enough.

You can start with an opening account balance for a past service benefit, but past service is limited to a safe harbor of 5 years, otherwise must be nondiscriminatory. However, you need to align the DCP and test balances accumulating from the same date. Note that if you use prior service to "dilute" current high HCE credits, the impact of that dilution decreases dramatically each subsequent year, so it's not the best longer term strategy to pass testing. That said, it might be a quick fix for year one and possibly year two testing, if you're using an OAB to bump HCE(s) up or waiting on young new NHCEs to become eligible and help pass annual accrual testing.

Clearly the contribution can't be allocated to Mary since she isn't an employee. It would need to be treated as an employer contribution and should be allocated to the participants in the plan according to the plan's allocation formula.

I have seen similar situations that fit this fact pattern and how each situation was resolved has varied. There are four parties involved: the participant, payoll, the recordkeeper, and the plan administrator. Here the participant requested a loan and obviously received the loan check since the it was cashed. I expect that the promissory note accompanied the check along with the comment that repayments would start on April 7, 2023 - and most likely said the repayments will start automatically by payroll deduction. The April start date was 8 weeks after the loan was issued and, depending upon payroll cycles, the repayments could have started as much as 10 weeks after the loan date. That is more than enough time for the start of loan repayments to be out-of-sight, out-of-mind for the participant. (In one situation I have seen, the participant's spouse died between the date of the loan and the expected payroll start date and the participant certainly was not focused on the loan.) In all of the situations, the participants took for granted that the company knew what it was doing and payroll was going to start taking loan repayments on time. That argument becomes weaker over time, but the default date can arrive before the participant becomes sufficiently concerned to ask the company why payroll deductions have not yet started. Certainly, receiving a default letter should at least triggered the participant to ask, but here it did not. In all of the situations, the plan's loan policy required the loan repayments to be may through payroll. Fundamentally, this is the root cause of the problem here and it is the participant who is suffering due to the failure of payroll to start taking the required loan repayments on time. Under this policy, a participant's ability to repay a loan fully depends on payroll. The IRS has acknowledged employers can be a root cause of loan failures as seen in Rev Proc 2021-30 6.07(3)(a). The recordkeeper sent a letter to the participant about the pending loan default. In most of the situations I have seen, the recordkeeper also sends a periodic report to the plan administrator listing loans with missed payments and also reporting the impending loan default date. Some recordkeepers copied the plan administrator on the letter sent to the participant. There is no mention here of any reporting from the recordkeeper to the plan administrator. If such reporting already exists, then the plan administrator should share some responsibility for not taking action to have the loan repayments taken from payroll, and in effect protecting the participant from the consequences of the payroll failure. In some of the situations I have seen, the recordkeeper is adamant that the default and 1099R are irrevocable. Given that Rev Proc 2021-30 6.07(3) provides correction methods for loan failures, I find this position to be overly restrictive. Further, we now have Notice 2023-43 regarding the availability for self-correction for certain inadvertent loan failures. The notice comments: "Section 305(b)(1) of the SECURE 2.0 Act provides that an eligible inadvertent failure relating to a loan from a plan to a participant may be self-corrected under section 305(a) according to the rules of section 6.07 of Rev. Proc. 2021-30, or any successor guidance, including the provisions related to whether a deemed distribution must be reported on Form 1099-R." I offer these observations to highlight that in the situation described here, the participant suffers all of the consequences yet others were involved in the loan process and contributed to the participant's loan default. I suggest exploring relief in this situation that may be available under SECURE 2.0 section 305 which may alleviate the consequences for the participant. I suggest that the payroll, the recordkeeper and plan administrator discuss modifications to the loan administration and default procedures to address potential future such situations. If robust reporting of missed loan repayments does not exist, I suggest the plan administrator should request the recordkeeper to prepare such reports preferably at least quarterly and include any participant who has any missed loan repayments.

Your observation about how to find the facts is just what I need to advise the plan-administration committee. Thank you.

Obviously the employer was in error. But I don't believe the participant asserting that she doesn't look at her pay confirms. Anyone on a tight budget does. And anyone that is 62 and a Luddite, I guarantee is reconciling her checkbook constantly. She knew. If I was the employer, I would let it stand. But I would offer to give her an employer loan of $X to cover the extra federal taxes to be paid back over the next year.

I think it would depend on how you drafted the amendment for their eligibility and whether or not you pass testing.

The loan probably should have been offset at the time of the cash distribution but yes it sounds like a QPLO and you just need the correct accounting entries and 1099-R.

Tax-exempt entities do no have deduction limits but individual 415 limits apply.

Safe harbor and profit sharing are both nonelective contributions provided by the employer. So they're tested together - you get one but not the other, you nevertheless benefited. So the T<501 exclusion does not apply, basically because the person literally benefited.

The rule is that they may be excluded if: They terminated employment with less than 500 hours of service; They did not benefit in the plan; and The sole reason they did not benefit is because they terminated with less than 500 hours of service. In your case #2 is not satisfied, because they did benefit. Safe harbor non-elective is aggregated with profit sharing for 410(b) and 401(a)(4) purposes, so they are considered benefiting for PS because they received a safe harbor contribution. So they can not be excluded.

You can't have a loan in an IRA, so they would not be allowed to roll over the loan itself to the IRA and continue paying it back in installments. However, a loan offset due to plan termination is a qualified plan loan offset (QPLO) so they could do a roll over by repaying the amount of the offset to the IRA before their tax filing deadline. Of course, this requires them to have enough cash on hand to contribute the amount of the offset. Which would be functionally the same as repaying the loan, just with an extended deadline. So if they don't want to/can't repay the loan in full, then the option to roll over the QPLO probably may not interest them either.

See the rules for Qualified Plan Loan Offset (QPLO). Plan Termination generally qualifies. Summary version - participant would then have until the extended due date of their tax return for the year in which the QPLO happened to rollover some or all of the QPLO to an IRA to avoid current year taxation. So for example if the Plan was terminating today and Joe has an outstanding loan balance of $10,000 for which the plan will issue a 2024, 1099-R for the QPLO, see instructions to Form 1099-R for proper distribution coding, then Joe would have until October 15, 2025 to come up with $10,000 from other sources to deposit to his IRA as a Rollover contribution.

It's not truly disaggregation, where you would treat it as two separate plans as you might be used to with 410(b) and 401(a)(4). Rather, what the new law says is that employees who have not met age 21/1 year of service can be disregarded when determining if a DC plan has satisfied the top heavy minimum. So it doesn't matter if there are any otherwise excludable key employees, you just ignore all of the under 21/under 1 year employees when determining who is entitled to a top heavy minimum. Where it gets weird is with the safe harbor match. The IRS ruled (in rev. rul. 2004-13) that a plan which different eligibility for deferrals and safe harbor does not consist "solely" of deferrals and match meeting the safe harbor requirements, which is the rule to be treated as not top heavy under IRC 416(g)(4)(H). That clause wasn't affected by the new law. So presumably a plan with different eligibility for deferrals and match is still treated as top heavy, and subject to the top heavy minimum. The fact that they don't have to give the top heavy minimum to otherwise excludable employees doesn't change this, it just means that employees who are not otherwise excludable (over 21/1 year of service) will have to get the top heavy minimum. The top heavy minimum for these people could be satisfied by their safe harbor match contribution, or if they don't get any safe harbor (or enough safe harbor, because they didn't defer enough or not at all), then by an additional employer contribution.