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Peter, are you asking when the determination of 5% ownership gets made? I don't know for certain, but drawing a parallel to the HCE rules I would say if they are a 5% owner at any time during the applicable calendar year (2027).

That life insurance is paid for from participant contributions rather than from a matching or nonelective contribution does not by itself nonapply the tax law about a “PS 58 cost” attributed for the life insurance death benefit. Internal Revenue Code of 1986 (26 U.S.C.) § 72(m)(3): Life insurance contracts (A) This paragraph shall apply to any life insurance contract— (i) purchased as a part of a plan described in section 403(a), or (ii) purchased by a trust described in section 401(a) which is exempt from tax under section 501(a) if the proceeds of such contract are payable directly or indirectly to a participant in such trust or to a beneficiary of such participant. (B) Any contribution to a plan described in subparagraph (A)(i) or a trust described in subparagraph (A)(ii) which is allowed as a deduction under section 404, and any income of a trust described in subparagraph (A)(ii), which is determined in accordance with regulations prescribed by the Secretary to have been applied to purchase the life insurance protection under a contract described in subparagraph (A), is includible in the gross income of the participant for the taxable year when so applied. (C) In the case of the death of an individual insured under a contract described in subparagraph (A), an amount equal to the cash surrender value of the contract immediately before the death of the insured shall be treated as a payment under such plan or a distribution by such trust, and the excess of the amount payable by reason of the death of the insured over such cash surrender value shall not be includible in gross income under this section and shall be treated as provided in section 101. http://uscode.house.gov/view.xhtml?req=(title:26%20section:72%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section72)&f=treesort&edition=prelim&num=0&jumpTo=true 26 C.F.R. § 1.72-16(b) https://www.ecfr.gov/current/title-26/part-1/section-1.72-16#p-1.72-16(b). 26 C.F.R. § 1.402(a)-1(a)(3) https://www.ecfr.gov/current/title-26/part-1/section-1.402(a)-1#p-1.402(a)-1(a)(3). That someone mentioned premium payments sent directly to the insurance company instead of to the recordkeeper suggests possibilities for violations beyond the one you ask about. Consider reevaluating whether, or on what fee, and with what scope of engagement, you want the prospective client. This is not advice to anyone.

Any thoughts on a scenario where the HPI has no regular catch-up, but when ADP testing is performed, a portion is recharacterized as catch-up if that person also happens to be HCE. If an election is made as much as 18 months prior perhaps in January, and the participant elects no -Roth catchup, it would seem to follow that the participant would received a distribution to correct the failing test. Somehow this feels wrong to me, that a participant's election would impact the corrective action on a test, but I can't think of an alternative. I think it might also create scenarios where some HCE get refunds (elected no roth) and others just have their money recharacterized (yes made a roth election, or plan's default is yes Roth). When performing testing, each HCE's election will need to be known if they happen to also be HPI and age 50 or older. I haven't given this a lot of thought, so I'm sure there are nuances I'm missing.

Peter is on point. Usually, the insurance carrier prepares the PS 58 reports and forwards them to the employer. The employer then prepares the 1099-Rs. However, if the PS58 is not reported, taxes paid, the entire death benefit is taxable to the survivor. There is also no basis recovery.

Since there is no new disclosure required for employees affected by the High Paid Roth Catch-Up, it could be inferred that - from a regulatory perspective - existing disclosures are sufficient to provide an effective opportunity to elect against Roth contributions. A large number of plans already have an obligation to send out notices to participants in the 30-to-90 day window before the start of the new plan year for things like fund disclosures, QDIAs, safe harbors... and the plan's Roth rules can be added to the group. This does not answer the question makes sense. The plan sponsor most likely will decide how Roth elections will be collected for payroll to have the information necessary to apply the elections to the participants' first paychecks of the year. The plan's design and administrative procedures will need to spell out how and when elections can be made so payroll will know what they have to do. What makes sense is whatever payroll needs to have available to be ready to take the correct type and amount of elective deferrals.

It all depends on the demographics. That is why we test for coverage. Any time I see this type of convoluted eligibility provisions, I suspect it is a form of cherry-picking individuals the client wishes to benefit and excluding "undeserving" individuals the client wishes to exclude. This type of provision inevitably fails spectacularly when the demographics change, particularly when a change occurs mid-year and an "undeserving" individual becomes eligible for a benefit.

Peter is correct about deferring to the plan terms. When plans are confronted with estate beneficiaries, they often want to pay to the estate fiduciaries, who may be determined by local law. Such law may provide for summary procedures that permit specified persons to become the personal representative of the estate. In those cases the small estate affidavit goes to the court which issues a certificate of authority that the plan may defer to in the same way as it would defer to letters testamentary for executors and letters of administration for other personal representatives. See e.g. NY SCPA 1304

A decision on whether to deferrals should be made pre-tax or Roth should be made based on a complete understanding of personal income and personal preferences. The new law regarding is much more complicated that one would think. It creates a Federal deduction for tips that can be taken on a personal income tax form. It does not exclude tips from all payroll taxes. The exclusion is solely for Federal income taxes. Tips are subject to Social Security and Medicare taxes, and any applicable State and Local taxes. There is a cap of $25,000 on the amount of tips that are deductible, and this phases out as income rises above $150,000 (for single filer) and phases out if income reaches $400,000 (for single filer). Not all occupations qualify for the tips deduction. The IRS is required to publish a list of occupations eligible for the tips deduction by October 2, 2025. If you earn tips in an occupation that does not appear on the list (when it is published), you get no tips deduction. While you are looking at income taxes, also keep in mind that there is a new deduction up to $12,500 (for single filer) available on overtime pay. NOTE TO PRACTIONERS: The new deductions are effective for income earned starting January 1, 2025. Payroll does not yet have full guidance on how to report tips and overtime so expect compensation information reported on 2025 census data to be exceptionally vulnerable to errors.

If using a prototype formatted document, look at the basic plan document. Maybe in the deferral section rather than the definition of comp. Some plans allow the exclusion of non-cash compensation for deferral purposes.

What does your document say? I believe you can do a refund of 415 excess from the deferral for HCE# so they receive the full employer contribution or allocate the excess to all other participants in the plan who have not reached the 415 limit but it could depend on what the document says what options you have.

All -- As Elmer Fudd would say "Be vewy vewy careful ..." First, it is common that so-called solo 401(k) plans are documented to include everyone immediately (since the presumption is that there is no one else). So, it is possible that each of the five plans, by their terms, include all employees. If that is the case, then you might have a tougher nut to crack, because the folks ARE eligible for stuff in those plans. Second, be sure that the plans have common provisions that permit aggregation for coverage and nondiscrimination. For example, you can't aggregate SH plans with non-SH or, I believe, different types of SH plans. Finally, the coverage and nondiscrimination concerns related to the salary deferrals when no plan existed for these guys at the time could be a real issue. It might be worth a VCP filing to ensure that the IRS agrees with what gets done, but it may be possible to design the employee plan (assuming that the stuff I noted above all aligns properly) to have a QNEC equal to the MDO that would have applied had the employees been covered by the 5 guys' plans. So, they are getting what they would have gotten had the correction been made in the individual "solo (k)" plans. However, if you do file VCPs, you might need one for each plan so that each of the plans is protected (or, alternatively, you could take the IRS's approved correction on one VCP and extend it in theory to a self-correction in the others, which would be relying on the idea that one VCP's approval can be considered agreement in principle to the other plans). Remember, however, that the IRS is strained both by a lack of personnel and a lack of expertise of the personnel that is still there, so this all may be hard to achieve.

If the documents were written that way.