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One of the first things a recordkeeper does is obtain an existing plan document or provide a new plan document, and then get confirmation from the plan sponsor the recordkeeper's understanding of the plan provisions is correct. I doubt there would be a default EACA or any other plan design since in the near term most clients new to the recordkeeper already will have had a plan in place with another recordkeeper. A recordkeeper can take a quick look at a plan's 5500s on the EFAST2 and know the answers to most or all of those questions within minutes.

You have different issues at play here. You need to be considered an employee or self-employed and have "compensation" or net earned income upon which to base a contribution. Assuming you have that, the source from which the business funds the contribution does not matter although should consult with accountant regarding deductibility from certain sources.

Correct but last year I proactively got the email confirming they would be filing it on behalf of all fully insured plans in August of 2023 (email came in August but they filed it late November)

Peter, your instincts are correct - there will be plans that should add the EACA provisions by 1/1/2025 and will not have done so by the start of the new year. I expect that this will be a small percentage of those plans that must do so since the requirement has been out there for almost 2 years. The industry highlighted this requirement and new plans adopted after 12/29/2022 would have been informed about the effective date. I expect the plans most vulnerable to not meeting the 1/1/2025 date will be plans who do not know they were not grandfathered. This more likely would occur as a result of a corporate transaction (spin-offs in particular), or in a standalone plan moving to a MEP. It will be interesting to see if the 5500 edits for the 2025 filings include an edit of a plan without a Pension Characteristic Code 2S (auto-enrollment) and an original effective date after 12/29/2022.

I have worked for three large recordkeepers, they always get the documents to move a plan. They sometimes restate the same provisions onto a new VS document but they don't usually change the existing provisions unless there is an amendment.

The plan administrator receives a DRO and is tasked with determining if the DRO is a QDRO. One would expect there to be some documentation of the decision to approve or disapprove the DRO (e.g. committee minutes) and some formal communication (e.g. letters to the participant and alternate payee) of that decision. It would seem that best practice would be to keep a copy of this documentation with the participant's beneficiary elections.

Is there an employee here? I think Schedule E is passive income. I am worried about compensation. See publication 560 for the fun part: https://www.irs.gov/pub/irs-pdf/p560.pdf

This sounds like the plan's fine but her take-home pay was done wrong.

Earned income for retirement plan purposes must be for personal services performed. The sale of a business would generally be capital gains.

It's allowed and is very common. See Section 409(o) of the Internal Revenue Code.

This is an accounting and tax planning question first and foremost (including whether the proceeds are capital gains) after which the retirement plan question could be answered.

unless the person was entered into the plan immediately upon hire - no, the 30 days advance notice is the grace period. The default deferrals should typically start on the first pay date on or after 1/1/2025. Pay attention to the pay period end date as well. Many plan documents differentiate between pay date (W-2 cash basis) and accrual (when the hours are worked). If there is a pay date on 1/5/2025 and deferrals should apply to it - do it. Even if the hours for that pay date were worked in 2024.

The plan must provide that LTPT employees have the opportunity to make elective deferrals. Anything beyond this is optional. The number of employees is not a consideration. The plan is not required to give LTPT employees the safe harbor match or non-elective contribution.

It depends. Will any of the income be paid as earned income reported on a Schedule C and subject to SE taxes or will he maintain a corporation that will pay him a W-2 salary out of the incoming payments? Or will it all be recovery of basis and long term capital gains in the business? Probably need to talk to his accountant. if he's not going to have any Earned income or W-2 wages, then the answer is probably a hard no. If it's being paid as a "consulting fee" that he'll get a 1099-MISC and run it through a Schedule C or his corporation, it's probably yes.

if it walks like a duck, quacks like a duck, smells like a duck, its probably a duck. That being said - there aren't enough details to know. The real question isn't "Are proceeds from the sale passive income?" It's "Will he(as an individual) have earned income at a sufficient level to make it worth starting a 401(k) plan?" The money he receives for the business sale - where is it being paid? to an LLC? to him personally? Etc? If it is actually going to an LLC or entity - what is going to be his personal earned income from that entity? Zero? For example - if he has a LLC with an S-Corp election, but no W-2, then he has no earned income. If he only receives a K-1 Form 1120S, then no earned income. If its a 1065 K-1, is there earned income reported on it? His CPA will need to tell you if he actually has earned income.

Consider a PEP or DCG that has been operating at least since early 2022 and has a significant book of business. These types of plans bundle in most of the fiduciary functions, plan document, disclosures, and investments needed to operate a plan on top of their stable recordkeeping platforms. A 401(k) plan with an SHM is pretty much plain vanilla these days and this one should fit easily within the service offerings. Look for a PEP or DCG plan provider that has a very good relationship with the company's payroll provider, or have the company consider switching to a payroll provider who the plan provider works with. Otherwise, disconnects between the plan and payroll will be a source of problems and costs for fixes. Keep in mind that second place quality all too often leads to unavoidable costs that exceeds the quoted standard service fees.

This is incorrect as "Compensation" is only compensation upon being paid to the employee.

Corey B. Zeller, thank you for the excellent reference. About the awkwardness you remark on, it seems the Treasury recognizes there’s no practical way to provide a distribution right to apply for a time that ended.

Paragraph 1.401(a)(4)-11(g)(3)(vi) of the regulations provides conditions for amending a plan to correct a failure of the nondiscriminatory availability of benefits, rights, and features in a prior year. The paragraph says: I have never needed to use this to correct an availability failure. It does seem a little strange to me as, if I'm reading it correctly, it only says to correct the failure effective prospectively and keep that amendment in place until the end of the next year. It doesn't seem to do anything to relieve the participants to whom the benefit, right or feature was unavailable during the prior year. Would be curious to know if anyone has actually relied on this method in practice.

I think there are a number or threads on real estate in small qualified plans in general and small DB plans in specific you might find in a search of this this website. This is not advice, an endorsement of real estate or to suggest that you should not do it but there are several items to consider - An annual independent appraisal to get the fair market value for both funding and 5500 reporting, though you might use actuarial value of assets instead of FMV for funding your still going to need a good value FMV to work with. The potential for prohibited transactions is greater with real estate than other investment. Not that it can't be avoided, it just has the potential to look out for. The asset is not liquid which can cause problems with distributions, especially at termination or if RMDs come into play. If 415 limit is a consideration, not having an accurate FMV can cause the plan to exceed the 415 limit when you do get a value at payout or sell it and find it was worth more than the appraisals. Not the worst problem but one to consider as folks tend to not like being hit with a surprise excise tax. You tend to lose many of the tax benefits of investing in real estate by holding it inside a plan. I'm sure there are others but that's just a short list of things to keep in mind when a small DB plan invests in real estate.

...which would be a significant problem in a DB plan, as opposed to an IRA or DC plan. Based on the 2025 limits, the 415 maximum lump sum is about $3.5 million. If the husband and wife are the only participants and the assets grew to $5 billion, then they would be stuck with $4.993 billion that could not be distributed, but would be a taxable reversion to the employer, plus subject to $2.5 billion in excise tax.

A bit of update with real #s which came out better than expected. This is a 2023 run, FYI 415 limit at 12/31/2023 at age 26.5 approx 58k So with 330k salary at 31% total deduction, maximum that can be between DB and PS is 102k+ 58k is for DB and 44k for PS, better than 66k PS only 2024, adding 23k deferral, now over 125k Just wanted to share my findings BTW, used NRA 62 as 415 limits need to be observed especially with the short # of years that the DB might be around. Not bad for a 27 year old.

I guess it depends on the IRS agent. In the 1980s, we set up a DB plan for a pro boxer with an NRA of 35. The IRS did question it, but ultimately allowed it. As a follow up note, he fought consistently until age 35, then sporadically for about 10 more years thereafter, finally retiring completely at age 45. So we were fortunate to be able to have a plan that fully funded his benefits while his earnings were high, and not diluted by his later year earnings, as MoJo accurately described.

You'd have an extremely low actuarially reduced DB maximum benefit, and to what point? From my perspective you are dealing with a self-employed sole proprietor whose business is not just boxing but his persona/personality. The likes of Michael Jordan, Tiger Woods, Shaq, George Foreman (the original, not any of the multitude sons) - any major sports (or other industry) celebrity who developed a personal brand - has self-employment income long after their playing days are over. So Joe Boxer might retire from competitive boxing at age 35, but when does he really retire from being Joe Boxer the celebrity?

Agree - testing one plan use NRA as testing age. When testing two or more plans use the latest NRA applied uniformly as the testing age. Have not seen anywhere that allows SSRA.

Years ago, we set up a DB plan for a pro boxer - with an NRA of 35.... The IRS puked all over that and insisted it was unreasonable - and demanded at least 50. We had no choice (nor appetite to sue) and went with 50. The problem with Peter's excellent analysis is that the prime earning years get diluted with lower earning in the "related" activities post boxing, and that requires an interesting formula to still provide desired benefits (not to mention funding gymnastics).

At that age wouldn't a DC plan get him a higher maximum?

I imagine the questions are about whether “the normal retirement age is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.” 26 C.F.R. § 1.401(a)-1(b)(2)(iv) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)-1#p-1.401(a)-1(b)(2)(iv). Even if this plan is for only one worker, might the employer’s business—and the “industry” in which the business operates—be a little wider than just boxing prizefights? For example, does the worker intend, after retiring from being a boxer, to become a teacher, coach, or trainer? If so, might that business, even if done by a separate business organization, be regarded as the same employer and “industry” (whatever that word might mean in the context) as the prizefighting employer? I have no experience with an issue of this kind, so look to other BenefitsLink neighbors for practical guidance.

I never ever ever showed fees in a pooled environment. First of all, I don't trust what shows on the statements, second of all, it is inherently unfair (you could have a mutual fund that just shows net returns with no stated fees, vs. a managed account which nets out to the same fees but the fees are direct, or even the same mutual fund with different fee structures; that is, the same management fee baked in but the advisor fee could either be built in or charged separately). These issues are not unique to pooled plans, but at least there's no requirement to show them on the statements.

It means that the missed match is funded as a non-elective contribution and may be subject to vesting or may be contributed as a Q-NEC. The "missed match" shouldn't be sourced as a match, it should be sourced as a non-elective contribution. This is the reason the ACP test doesn't need to be redone after a missed match is corrected.

I'm trying to confirm the same thing, and I don't see a problem with applying the vesting schedule. If the nonelective was meant to be 100% vested, there would be no need to distinguish between nonelective and QNEC in the Rev Proc. Anyone disagree?

UPDATE 11/13 - Letters coming now saying IRS needs more time to evaluate. Unbelievable part is I've received 3 letters from clients who had received the denial letter and each of these followup letters have the wrong tax period listed. All three have different tax periods. One of them has the tax period as the date the extension denial letter was received. What in the world is happening in Utah!