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One more thing on this. IMO, you should NEVER permit this. The reason: this a waiver for the current plan and any other plan of the employer, regardless of whether it is in place now or not. Imagine a situation where a 25-year-old employee says, "I don't want to participate in this dumb plan." 10 years later, the employer amends the plan or starts another plan and the employee, now a 35-year-old with a spouse and 2 kids sees the value and wants to enter the plan. Don't you think he/she will then holler, "You never told me ...!!!!" Yes, they will likely lose in litigation (assuming that everything was in writing), but is this really the fight you want your clients to have.? In addition, as the others have said, if it's a small employer, it can cause you to fail coverage testing. Better to just amend the plan to exclude the person and then you can amend the plan to let them back in if they change their mind or if you need them for coverage. Just sayin' .... Ilene

Paul and Lou are spot on. Just because someone opts out, doesn’t mean you get a free pass on them for testing purposes. These elections are almost always more trouble than they’re worth.

And particularly if this is a small employer I would encourage you to look at the problems that can arise from irrevocable opt outs, especially in the area of coverage failure that may be difficult or impossible to correct via amendment depending on your demographics which may or may not be applicable to this particular situation. Just don't want to see you tripped up by unintended consequence sometime in the future.

An irrevocable election not to participate must be signed before the individual is first eligible to begin participation in the plan (or any other retirement plan sponsored by the employer which I think includes any other member in a controlled group with the employer. As a word of caution to the plan administrator, this is the type of election where in individual who misses the cut-off date may be tempted into trying to convince the plan administrator that the individual intended to sign timely, or was delayed by circumstances beyond their control, or even attempts to back date a form. The plan administrator needs to hold fast to the timing.

The Top Heavy determination is based on account balances. Account balances grow not only from receiving contributions but also from reallocation of forfeitures and from investment income. Account balances for non-Key Employees shrink from decreases due to distributions, in-service withdrawals, forfeitures and also from investment losses. High turnover among non-Key Employees and longevity among Key Employees can work together to increase the percent of total plan assets in the accounts of Key Employees. Then there are some pesky compliance rules. Key Employees are not necessarily Highly Compensated Employees. This can have an impact of various compliance tests depending upon the test and upon the plan's allocation formulas. Generally, declaring a contribution ineligible after it is made to the plan is like trying to un-ring the bell. Some have tried and failed to succeed with an argument that contributions made by Key Employees were a mistake of fact. Now, if all of the Key Employees are in fact Highly Compensated Employees, you may get a little bit of traction with the concept by focusing on restrictions on the HCEs, but the odds of this working year-over-year are not very good. There are unforeseen circumstances that can work against the strategy like variances in compensation due to terminations early in the year or hires late in the year, changes in ownership, changes in job responsibilities, and other similar facts and circumstances. Never say never. Be sure to explain everything to the client before selling them on this idea.

Unfortunately, that is a textbooks example of why prior year testing for the ACP test is generally a very bad option. What does your plan document say (the relevant language is likely in the BPD)? The pre-approved documents I know provide that the 3% is based on the first plan year in which the plan "provides for" matching contributions (see Treas. Reg. §1.401(m)-2(c)(2)). Effectively, the question is: when was the 401(m) plan adopted? The 3% rule exists because you can't have an ACP or ADP for the year prior to the adoption of the plan. IMO, by adopting a discretionary match, the plan "provided for" a match and created the 401(m) plan in 2022. The fact the employer elected not to make a discretionary match just means that they had a 2022 ACP of 0% - and fell into the trap associated with using prior testing for the ACP test. The plan would likely be much better served by amending to use current year testing for ACP; they can remain on prior year for ADP (but it is too late for 2023).

No

Yes, I agree. For purposes of the POP component of the Section 125 cafeteria plan, eligibility should be tied to each particular component within the health and welfare plan for which employees contribute on a pre-tax basis. That way if dental/vision has different eligibility standards than medical (e.g., they don't rely on the look-back measurement method's measurement/stability periods), employees' eligibility to pay for such benefits pre-tax through the cafeteria plan remains unaffected by a change in medical plan eligibility (or vice versa). It does make sense to tie eligibility to the health FSA component with medical plan eligibility, though. That is a requirement to preserve excepted benefit status for the health FSA (the so-called "footprint rule" that anyone eligible for the health FSA must also be eligible for the major medical). So there are situations where that eligibility tie specifically to the medical plan could make sense.

.... assuming the Plan itself is/will be amended to recognize the new 72/73 ages. There is no requirement to do so.

Both the AA and the BPD comprise a plan sponsor's plan document. Therefore, to the extent a provision is delineated in the BPD without any corresponding AA selection, the BPD governs and should be followed. Not everything can/will/need to be outlined/selected in the AA and anything that is not expressly provided in the AA via a permissible selection is subject to any BPD mandates.

Maybe a stupid question, but did you look at the average benefits test for coverage of the small plan? If yes, and that does not pass either, is there a defined failsafe in the small plan's document? If not, could an 11(g) amendment to the small plan allow for change in testing method to enable aggregation? Regarding #4, yes, aggregation is for coverage, nondiscrimination and BRFs, all or nothing.