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Your TPA is correct. Keep in mind that 25% of compensation limitation includes the match as well. This is not DYI exercise, the results are driven by demographics and thus will be unique to your company. The best outcome meeting your objective should be analyzed by your TPA and include at least a couple of alternatives. My recommendation would be to invest heavily into improving the communication process with your TPA or find another TPA which would make you feel comfortable.

Reg 1.401(a)(17)-1(a)(1) says in part "Section 401(a)(17) provides an annual compensation limit for each employee under a qualified plan." There is no time element associated to the limit. The IRS does note that a plan document could specify that deferrals (and related match) could stop when a participant's compensation first reaches the compensation limit. See https://www.irs.gov/retirement-plans/401k-plans-deferrals-and-matching-when-compensation-exceeds-the-annual-limit Taken together, if the plan document doesn't explicitly require stopping when YTD pay reaches the compensation limit, then it is okay not to stop. The plan sponsor and advisor need to show you where the plan document says to stop when YTD compensation first reaches the limit.

I am rather dismayed that this question keeps popping up. However, it is good to be reminded that the plan document controls, though I often wonder whether the sponsor is making a conscious choice to serve some policy reason or it is simply a default in the design by the document provider.

The calendar shows that we are in November with 50 days left in 2024. Assuming you have a calendar year plan, there are two initial questions to ask your TPA ASAP: Which of our objectives are attainable under the provisions of the existing plan document and with our projected demographic and compensation data for 2024? Which of our objectives are attainable if we adopt permissible amendments to our plan document effective January 1, 2025 based on projected demographic and compensation data for 2025? (You will have the most flexibility if the plan is amended before the start of a new year.) @truphao is correct that this is not a DYI exercise and an in-depth look likely will incur some cost. There is a third question to ask - what can we do to optimize our benefits and our deductible contributions? Given your demographics, there is a very good possibility that adding a defined benefit or cash balance plan as a second plan could greatly increase the contributions for some participants well above the $69K annual additions limit for the 401k plan for both 2024 and beyond. Ask your TPA to think outside the box. Time is of the essence.

I answedred my own question but I thought this was interesting enough to share: Participant takes a loan from the 401(k) Plan to pay for the higher education expenses of their dependent or themselves or their spouse. Why does this not qualify as a "Qualified Student Loan"? Answer: SECURE inddicates that the following definition applies to qualifying student loans: 221(d)(1) Qualified education loan The term "qualified education loan" means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses— (A) which are incurred on behalf of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred, (B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and (C) which are attributable to education furnished during a period during which the recipient was an eligible student. Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term "qualified education loan" shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or to any person by reason of a loan under any qualified employer plan (as defined in section 72(p)(4)) or under any contract referred to in section 72(p)(5).

Thank you! This makes complete sense & what I was inclined to do. 100% going to add a SH provision. Now my main hurdle is that the owner is self-employed so I need to make sure that he has enough income to support what he's already done for 2024 + the cost of the employee.

Well for 2023 you can test otherwise excludable separately so you shouldn't have an ADP testing failure. For 2023 you'll need at least a top heavy minimum for the employee and a QNEC for the missed deferral opportunity. But you should be able to self correct under recent IRS guidance and the most recent EPCRS procedure. For 2024 the solo-k should just be restated, no need to open a 2nd plan. Look at the EPCRS procedure for any additional missed deferral opportunity than may be required. You are also going to have 401(k) testing and TH minimum so you might want to consider adding a 3% safe harbor non elective prior to November 30.