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No. Deposit now and deduct in the next year.

I am not 100% sure I fully understand the first paragraph. But if I do I don't think you will find clear guidance in the regulations. My best guess based on what you wrote I would stop and see if you can get a call with client, ESOP TPA and yourself. A SHNE can go into an ESOP and that TPA needs to know how to do it right. They have to treat it like it is a SHNE and all the related restrictions. Or it can be done in the 401(k) plan and if the combined plan are Top Heavy for example the ESOP TPA needs to know about the SHNE is for that and combined 415 obviously. This stuff take good coordination and communication between the 401(k) TPA, ESOP TPA and client or it will go wrong badly. I am going to say it again there needs to be a conversation here to make sure everyone is on the same page and people need to get used to communicating annually to make sure everyone understands what is happening in all the plans. This is especially true if the SHNE is being paid to the ESOP.

ahhh to be so idealistic.....

Interrogation from the Language Police: “Also, thefts and other frauds were extraordinary.” Does this mean that the amount of thefts and other frauds was extraordinary, i.e. rampant? Or does it mean that thefts and other frauds were uncommon, and therefore extraordinary?

Yes. Just test it for BRF to make sure it does not favor HCEs and you should be fine if the amendment is drafted correctly.

Peter, but the issue isn't that the money went missing. The issue is the check never got cashed. The RK shouldn't have accounted for an uncashed check for 5 years. They would have cleaned it up and forced it to an IRA long ago.

Agreed, this sounds like 415 excess rather than 402g if its because there wasnt enough comp to defer from. @KaJay forget comp for minute, did the deferrals exceed $23,000 (and catch-up if eligible)?

Does anyone else feel like they are reading a student's thesis written by AI.....

Well, I would agree with Dare Johnson but for the regs under 3121(v)(2). Arguably, the IRS has tolled the statute of limitations with regard to FICA on nonqualified deferred compensation under those regulations. 3121(v)(2) states when nonqualified deferred comp is to be taken into account for purposes of FICA. I am not going to go through the rules. But you should note that if an employer does not follow the special timing rule, Treas. Reg. § 31.3121(v)(2)-1(d)(1)(ii) provides that the general timing rule will apply. This means that if FICA taxes have not been withheld and remitted upon vesting/performance, they must be withheld and remitted when the compensation is actually or constructively received. In addition, the non-duplication rule won't apply, resulting in the full balance of the deferred comp payment (i.e., including earnings) at the time of distribution being subject to FICA. Under the non-duplication rule, once the comp is "taken into account" for FICA purposes, the earnings on the amounts taken into account escape taxation. If non-duplication rule doesn't apply, the general result is more FICA tax will be paid (than if it applies), and also employees receiving distribution payments in retirement are less likely to have met the Social Security wage base during those years. Prior to 2017, employers could request a settlement agreement with the IRS that allowed them to remit in the current year the amount that should have been withheld in accordance with the special timing rule, preserving the applicability of the non-duplication rule, and not having to restate reporting for prior years. But it was eliminated. Also, there are potential litigation risks… see Davidson v. Henkel Corporation … an employer may have liability to employees if they do not apply the special timing rule, depending on the terms of the NQDC plan document. In Davidson, a former employee receiving distributions from his employer’s NQDC plan, sued when they took FICA from his distributions stating the company should have withheld FICA sooner (i.e., at vest) under the special timing rule. Because the company failed to properly withhold FICA tax, his ultimate tax hit was increased because he lost the benefit of the non-duplication rule. The company argued they could use the special timing rule or the general timing rule. The court agreed but then said the plan doc language required that they would follow the special timing rule. Since the company violated the terms of the NQDC plan they breached the contract and were held liable. Also if reported on 1099, don't see how FICA was accounted for because there is no where on the 1099 to do that.

Under a State’s law, there might be constraints on a public-school employer’s authority: A public-school district or other political subdivision of a State has no more power than State law grants it. Many States’ enabling statutes allow a public-school employer to collect and pay over salary-reduction contributions to a § 403(b) contract, but don’t allow other contributions. State law might preclude a public-school employer from retirement provisions beyond participating in the Statewide retirement systems. To the extent (if any) that State law requires or permits collective discussion with an employees’ association or other collective-bargaining group, that process might restrain a governmental employer. However, sometimes a superintendent’s, principal’s, or other executive’s employment agreement is custom-negotiated. Agreements of that kind often require vetting by the school attorney and approval by the school board.

Agreed. If the income does not flow through to Schedule SE (which references K1 box 14) and is not subjected to SECA taxes then it cannot be earned income from self-employment.

It sounds like the K-1 is issued to the partner's corporation, NOT the partner. The K-1 is not plan comp. This is not an uncommon setup, but its also often misunderstood. Based on the scenario you lay out, his comp for plan purposes is his W-2 from the corporation, not the K-1 from the partnership to the corporation. If the income passes from one entity to another (not taxed as income from self-employment), why would it count as plan comp?