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To put some dates on the original question ... am I understanding it correctly, that you are talking about a plan adopted (say) 8/15/2025 with an initial effective plan year of 1/1/2024-12/31/2024? If that's the case, the first Form 5500 will be the 2025 form, due 7/31/2026 or 10/15/2026 on extension. You will check the box for a retroactively adopted plan on the 2025 form. You do not file a 2024 Form 5500 at all. However you will need to attach both the 2024 and 2025 Schedule SB to the 2025 filing.

I can't add anything else - but we did fire a client once because the owner took an illegal hardship distribution.

A foreign trust is a trust other than a United States person trust. I.R.C. § 7701(a)(31)(B); 26 C.F.R. § 301.7701-7(a)(2). A United States person trust is “any trust if a court within the United States is able to exercise primary supervision over the administration of the trust, AND one or more United States persons [has or] have the authority to control all substantial decisions of the trust.” I.R.C. § 7701(a)(30)(E); 26 C.F.R. § 301.7701-7(a)(1). Even when the trustee is a United States person, a retirement plan’s trust is a foreign trust if the trustee is a directed trustee and a non-U.S. administrator or other directing person decides plan distributions or other “substantial decisions.” 26 C.F.R. § 301.7701-7(d)(1)(ii). In addition, if a non-U.S. person has the power to remove, add, or replace the trustee, that power means the non-U.S. person controls substantial decisions of the trust. 26 C.F.R. § 301.7701-7(d)(1)(ii)(H). If a nongrantor trust becomes a foreign trust, that “conversion” is treated as a sale of the trust’s assets from a U.S. person to a foreign trust. This deemed sale means that the difference between the fair market value of the trust’s property and the property’s adjusted basis is income subject to federal income tax. I.R.C. § 684. It has been many years since I last looked at this; so, check all the citations and read for yourself. The plan’s administrator should get its lawyer’s advice.

One has to wonder what idiots came up the concept of a self-certification. Create a rule that can be circumvented and people will do just that. When it comes to Military Survivor Benefit Plan ("SBP") annuities if the Former Spouse remarries before age 55 the entitlement to the SBP is suspended (not terminated as is the case with CSRS and FERS) but may be reinstated if the marriage ends in divorce of the death of the new spouse. So guess what happens? The Former Spouse remarries before age 55, then divorces the new spouse before age 55 and remarries after age 55. How easy is that? In Brown v. Continental Airlines, Inc., 647 F. 3d 221 (5th Cir., 2011) - https://scholar.google.com/scholar_case?case=4019345202025914766&q=brown+v.+continental+airlines&hl=en&as_sdt=20000003 Continental alleged that a number of pilots and their spouses obtained "sham" divorces for the purpose of obtaining lump sum pension distributions from the Continental Pilots Retirement Plan that they otherwise could not have received without the pilots' separating from their employment with Continental. The pilots were allegedly acting out of concern about the financial stability of Continental and the fear that the Plan might be turned over to the PBGC and that their retirement benefits would be substantially reduced. By divorcing, the pilots were able to obtain QDROs from state courts that assigned 100% (or, in one instance, 90%) of the pilots' pension benefits to their respective former spouses. The Plan provides that, upon divorce, if the pilot is at least 50 years old (as all the pilots in this case were), a former spouse to whom pension benefits are assigned can elect to receive those benefits in a lump sum even though the pilot continues to work at Continental. The former spouses presented the QDROs to Continental and requested payment of lump-sum pension benefits. After the former spouses received the benefits, the couples remarried. Continental sought to obtain restitution under ERISA Section 502(a)(3). The Court of Appeals noted that ERISA § 206(d)(3) limits the QDRO qualification determination to whether the state court decree calls for benefit payments outside the terms of the Plan. It rejected Continental’s expanded reading of §206, concluding that plan administrators may not question the good faith intent of Participants submitting QDROs for qualification. In my area of pension and retirement law, preparing QDROs, I regularly see Participants taking maximum loans and self certified hardship distributions to reduce the amount in the Plan available to a prospective Alternate Payee. So either get rid of self certification or expect to be played.

It would seem that the withdrawal could be considered an overpayment from the plan, and the rules of EPCRS procedures for overpayments would allow plan administrator to ask for the return of the withdrawal. A hardship withdrawal cannot be rolled over, so the withdrawal when originally paid would have been treated as a taxable distribution reported on a 1099R with a code that indicates if it was subject to an early distribution penalty. If the 1099R was not yet sent out, it would take communicating with the 1099R preparer on what gets reported. If the 1099R was sent or if the preparer refuses to cooperate, then the participant will have to file a request with the IRS to recoup the taxes and penalty. If the funds aren't paid back, the plan administrator can choose not to recoup the amount. The plan administrator should work with the recordkeeper/TPA to take steps to prevent this participant from taking a hardship withdrawal with out an approval from the plan administrator. The employer also may wish to have a discussion with the participant about possible disciplinary action for lying and taking money out of the plan under false pretense. Just some thoughts.

This is an operational error for failure to carry out the terms of the plan (i.e.,, the election of the participant). As such self-correct by removing the contribution from the participant's pre-tax account under the plan and put it into a Roth account under the plan. No QNEC is necessary because you simply did not put it in the right account. (The employer had authorization to deduct the amount from their paycheck and the deduction was made.) Then, as @justanotheradmin suggests you must take care of the taxation aspect of the contribution to ensure the Roth nature of the contribution. The 1099-R as @justanotheradmin suggests would remove the issue of withholding and ensure its taxation but something about it seems a little distasteful as it was not the employee's fault (no election should be required for Roth treatment as it should have been a Roth from the beginning). Since this error likely occurred recently, I would likely suggest that the employer manually correct the payroll to reflect the proper income tax withholding (that means the correction would flow through to their W-2 for the year) and contribute the missed withholding for the employee as it was the employer's fault that withholding wasn't taken (of course, the employer could request the employee pay the required withholding or withhold amounts from the employee's next paycheck to cover the withholding but, if considering getting the withholding from the employee, just issue the 1099-R).