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Thanks for the discussion. I think the client is just going to make the $1.31 deposit and report the failure on the 2024 5500. It will just be removed on the 2025 5500 (the first one that my company is preparing). We of course did not provide any specific advise to client. We just provided some options they could take.

That's going to depend on the allocation rules in the document. It should say how to split a contribution, or whether the employer determines individual specific amounts by individual classes.

I don't see it as an IRS failure. But the PBGC could be very sticky or they could choose to be very helpful. That is if everyone got the proper payout the PBGC might "just" want the missed premium filings with penalties and interest, and a late Form 500 and 501 along with all the paperwork that goes with that. Or they could say the termination is void and have you go back and do a lot which might also crate some IRS issues in addition to the PBGC ones. It sounds like a good time to get ERISA counsel, especially one who works with PBGC issues, involved and review potential options.

@Peter Gulia the plan is required to accept payment from any third-party. Most commonly that would be the employer providing a COBRA subsidy. But it could also be the employee on behalf of a former spouse. As Chaz noted, sometimes a divorce decree will require this. That's not the employer's problem (any such state family court order is preempted by ERISA and not enforceable against the plan), but it could be the employee's problem if they failed to do so. Bottom line is payment does not have to come from the QB. The plan has to accept payment from any source. Here's a couple cites confirming: https://www.govinfo.gov/content/pkg/FR-1999-02-03/pdf/99-1520.pdf Many plans and employers have asked whether they must accept payment on behalf of a qualified beneficiary from third parties, such as a hospital or a new employer. Nothing in the statute requires the qualified beneficiary to pay the amount required by the plan; the statute merely permits the plan to require that payment be made. In order to make clear that any person may make the required payment on behalf of a qualified beneficiary, the final regulations modify the rule in the 1987 proposed regulations to refer to the payment requirement without identifying the person who makes the payment. https://www.irs.gov/pub/irs-drop/n-05-50.pdf Under the COBRA continuation coverage requirements of section 4980B of the Code, payment is merely required to be made; there is no requirement that it be made by the qualified beneficiary. If full payment by a third party (such as the HCTC advance payment program) is tendered timely to a plan for the COBRA coverage of a qualified beneficiary and the plan terminates the coverage of the qualified beneficiary for failure to make timely payment, the plan is not in compliance with the COBRA continuation coverage requirements and is subject to the excise tax of section 4980B (generally, $100 per day per beneficiary for each day that the plan is not in compliance with respect to that beneficiary).

Your best bet is the ERISA Outline Book. Start with an advanced search for "peo" and "hce". You should review the agreement between the PEO and the company, the PEO plan, and the proposed plan for the company. You also should look at the PEOs payroll practices, vacation, holidays, work schedules and other similar time for which employees receive compensation. It is fairly easy for an arrangement with a PEO to be treated as a leasing arrangement due to how the PEO functions operationally. Do not rely solely on representations about the status of the employees from the PEO or from the company. Facts matter more than representations. It is very likely that the PEO employees working for the company will need to be considered in coverage and nondiscrimination testing for the company plan.

Subject to the answers to Peter's questions, I think it would be safe to remove the spouse from coverage if presented with an divorce decree executed by a court. Any divorce decree can theoretically be appealed a number of times, which would put the plan administrator in a predicament if an original decree is not considered "final" for purposes of dropping the spouse from coverage. The employer would then offer the spouse COBRA continuation coverage (assuming the employer is otherwise subject to COBRA). If the order is modified, it might be to require the employee to contribute all or part of the cost of continuation coverage but that would generally not be the concern of the employer except possibly to the extent that the employee's wages are garnished.

Soooooo, because someone else may not have do their job the contributions were not late? I agree with Peter, if this is what you are going to do or advise the client to do, you need to speak to legal to protect yourself. There may be an explanation, but you need to make sure its reasonable and can stand up to scrutiny. Edit: just re-read the OP. Why go through this for $1.31? Especially after it has already been reported and the IRS/DOL are aware of it (they data-mine the 5500s). Just deposit the $1.31 and move on.

Here are some questions a plan’s administrator and its lawyer might consider to discern the situation: Does the health plan allow a participant to choose coverage for one’s spouse. (Not all do, but your description about “remain covered” suggests the plan allows coverage for a participant’s spouse.) If the plan allows coverage for a spouse, who decides whether to elect or omit that coverage? The participant? Even if there might be a court’s order that commands the participant to do (or refrain from doing) something, is there any court order that commands the plan’s administrator? Do the health plan’s governing documents specify who is or isn’t a spouse? Does a plan provision do anything more than refer to the status of spouse under public law? (For example, a plan might define the status more narrowly than by reference to public law alone.) Is the plan ERISA-governed? Or is it a non-ERISA church plan? Or a governmental plan? Does the health benefit involve a health insurance contract (not counting a stop-loss insurance contract)? If so, does the health insurance contract define who is or isn’t a spouse? Does the court that ordered the divorce have or lack personal jurisdiction over the plan’s administrator? Does the court that ordered the divorce have or lack personal jurisdiction over the health insurer (if any)? Has the participant taken any action to remove the participant’s spouse or former spouse from the coverage? If the participant did something, does it fit the plan’s provisions against mid-year changes, including provisions designed to follow the Internal Revenue Code § 125? Has the plan’s administrator received the domestic-relations court’s order granting the divorce? If what the administrator received is not an original or a court-certified copy, has the administrator done something to confirm the true document? Does the court order’s text state anything about when it is or becomes effective? If relevant (it might not be), what does the State’s law provide about the effect of an appealed-from court order? Does the appeal assert that the conditions for granting a divorce were not met? Or is the appeal only about economic or other matters (and not about whether the conditions for a divorce were met)? Even if the plan’s administrator is confident about all the facts and law suggested by these and other questions, it still might be smart to lawyer-up. Also, a plan’s administrator might want its lawyer’s advice about proper steps to avoid or defeat a State court’s jurisdiction. Or, if the plan’s administrator is served for a State court’s proceeding, to remove any action against the administrator to a Federal court, preferably the particular court, venue, and forum specified by the plan’s exclusive-forum provision.

I see all the usual things you are going to want to check, 410(b) coverage, 401(a)(4) coverage, missed deferral opportunity, top-heavy minimums. And you are going to have aggregate those solo-ks with the employee plan for much of it. I think you might only be able to do 3% safe-harbor for 2025 and I don't think you'll be able to terminate and roll the solo-ks to IRAs due to successor plan rules. There may be other options but the cleanest might be to start a new safe harbor 401(k) retro active to 1/1/25 for the whole ASG - merge the existing solo-ks into the new plan either now or 1/1/26 - test all plans together - and give NHCE an additional QNEC for the missed deferral opportunity from 1/1/25 - whenever you can start deferrals under the new plan.