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That is my understanding. Assuming it's below the maximum deductible and the sponsor designates it a 2024 contribution. You would be showing it on the 2024 tax return for deduction and on the 2025 schedule SB for minimum funding. I believe it also creates different asset bases for 404/430 when doing your 2025 valuation for min/max calcs.

Is the plan formula integrated with SS or is it a new comp design something like where everyone is in their own group where you are dong the 401(a)(4) testing with permitted disparity. Because if its the former it's pretty straight forward where every one gets 1 percentage on the base salary plus an additional percentage on the excess salary. So in your case it's possible everyone should be getting 12.93% base plus 5.7% excess and you look to the doc on 415 for the two owners who will go over the 415 limit and see what your document says in that situation. It may be refund of elective or it may be limit employer contribution. If it's the later, you should be able to run the calcs through your software and see what you need to pass. But as they say, when in doubt, read the document.

Paul I, thank you for confirming what I suspected about how a service provider might display an index without evaluating whether it is “appropriate” to the supposed comparison. (I see as rational some recordkeepers’ business decisions to do the task that way.) I’ve seen recordkeeper-assembled 404a-5 disclosures with foolish comparisons. For example, comparing: a global stock fund (which invests about half in US stocks) to an index of only non-US stocks; an emerging-markets fund to a developed-markets index; a US small-cap fund to the S&P 500 index (which is at least large-cap); a short-term Treasuries fund to an aggregate bond index; a US real-estate fund to a global stock index; a US value fund to a blend index. And some “benchmarks” I’ve seen used as a comparator for target-year funds involve no recognition of the asset allocation the fund targets. While I see the 404a-5 disclosures as often useless noise and sometimes harmful, here’s a trap. Even if many plans’ administrators accept without question a recordkeeper-assembled 404a-5 disclosure, a few ask for advice. If a plan’s administrator asks its lawyer for advice about whether a suggested format for a 404a-5 disclosure meets 29 C.F.R. § 2550.404a-5(c)-(d), including 29 C.F.R. § 2550.404a-5(d)(1)(iii) about “an appropriate broad-based securities market index”, the lawyer must pretend the Labor department’s interpretive rule generally has a purpose, and that the particular condition has a purpose. How else could one give advice about whether a displayed index is an “appropriate” index? While I do it often, it’s at least awkward to invite a plan’s fiduciary to evaluate whether the expenses of following a Labor department interpretation would be a loyal and prudent use of the retirement plan’s assets.

Question 1. Depends. A fiduciary of an ERISA governed plan may eliminate a group annuity contract (GAC) and not breach their fiduciary duties, even if the participants incur large losses. However, this is a legal question that depends on the facts and circumstances and would only be answered after a participant files suit and there is a determination in court. Here, where the plan sponsor by its actions is going to create large individual losses, you friend should be taking all actions necessary to minimize the risk of a finding of breach of fiduciary duty. Your friend needs to be able to show that he fulfilled his ERISA fiduciary duties. He can’t just say I don’t like the GAC and I want mutual funds. He has to show that he conducted a prudent and detailed analysis of whether surrendering the GAC and paying the surrender charge is in the best interest of the participants as a whole, taking into consideration the current market and participant needs. He should do a detailed comparison of the various alternatives, i.e., holding the GAC, a partial surrender, total surrender, costs of other investments, etc.. It is a given that he must show that he followed all the plan provisions and also the GAC provisions to ensure that the minimal surrender charges were paid. If possible, he should consult with an independent financial advisor/expert (preferably not the advisor he is moving to.. to avoid conflicts of interest) to ensure the decision was prudent and in the best interest of the participants. As with all fiduciary decisions, but especially here where there may a high risk of litigation (he is in essence creating a loss), he must be certain to document his decision (including detailed records of all the analysis performed, alternatives considered, the decision-making process, and the reasons for the final decision to surrender the GAC, etc.). Also, he should attempt to effectively communicate the change to the participants showing how it is in their best interest to do this. Of course, he has to walk a fine law … if he shows the GAC is such a bad deal someone might consider filing suit questioning the initial decision to put all the money in the GAC in the first place. Another option which many plan sponsors utilize when in this situation is simply freezing the GAC and redirecting new contributions into new investments, e.g., mutual funds. Here, he simply stops adding any more money to the GAC and in essence starts a new investment plan with the new mutual fund investment slate. At the point the GAC surrender period expires, he would terminate the GAC without the surrender charges and the GAC money would then flow into the new investments. Don’t know how long the surrender period is but at least for some of the money the participants will have more control. He may need to amend the plan for this. It doesn’t sound like your friend would want to do this but some plan sponsors will pay the surrender charges. Paying the surrender charges is more complex under the tax code and, if desired, your friend should consult an ERISA benefits attorney. see @CuseFan Question 2. This allocation should already be addressed in the plan and the GAC. All qualified plans must have “definitely determinable” benefits. Even though the funds are all invested in a single GAC, there should be current terms under which those funds are allocated to each of the participants. As you state, they are all getting statements now that track the amounts in the GAC allocated to each of the participants. The surrender charges would be allocated amongst the participants under a formula in the plan/GAC. There must have been participants who terminated employment and qualified for a distribution from the plan. How were their benefits determined? Overall, your friend should stay away from any type of modification or amendment of these provisions. Just thoughts...

Pooled funds I assume? Surrender in and of itself is not a violation, but could a disgruntled participant sue the fiduciary and claim a breach or even multiple breaches - the decision to get in and then the decision to get out? Possible, yes - probable? I think this has come up here before where it was asked whether employer or service provider (new funds or advisor) could make up the surrender charges to the plan to make participants whole, which may have its own ERISA concerns. Employer probably OK, service provider not so sure. I expect others on this forum have dealt with this in the past. Owner likely has largest balance so employer making whole might be palatable.

Buyer sponsors plan, terminates plan, then becomes sponsor of acquired plan. Yes, I think you have successor plan situation. Can they terminate, sure, but that won't be a distributable event. Why not merge plans - what is the aversion? I understand not wanting potential compliance liability for acquiring someone else's prior mistakes, but isn't that part of due diligence and indemnifications? In your situation, if the buyer is willing to sponsor the plan of its acquisition, why would it not want to merge? Unless buyer knows its plan has issues and wants it to go away?

Frankly, the vast majority of recordkeepers pick a data source (like Morningstar) and use whatever the data source provides. Recordkeepers take the path of least resistance to assemble the disclosure just to be able to say it was done. In today's markets, the investment information in the disclosure is ancient history by the time it is made available to the participant. The vast majority of printed 404a-5 disclosures make the long trip from the recordkeeper's mail room to the participant's trash bin. Any 404a-5 disclosure available online likely only gets opened by accident. There are far better formats for communicating investment information having greater value to participants.

Sure they can. They know how many returns you have filed. DOL is getting pretty good at data mining and analysis. Just like late or missing returns, it is only a matter of time before they start enforcing electronic filing mandates. We file all EZ electronically.

I don't think the IRS can monitor this now for small taxpayers. However, AI will make it easier. Failing to file electronically when required can be considered a failure to file so the penalties can add up quickly.

We have always taken the position that if at any time during the plan year the plan covered common law employees we would file Form 5500 or SF. We only file 5500-EZ if it covered only EZ eligible employees for the entire year. That has been our interpretation and is not legal advice to anyone. As for filing of the Form 5500-EZ under $250K that would be a client decision but be ready for an IRS letter and explanation if you've been filing Form 5500-SF and suddenly have no filings in the next year.

https://www.asppa-net.org/news/2024/9/plan-amendment-deadlines-extended-but-still-obligatory/ Per ASPPA - 12/31/2026

The extension applies for the deduction and the PBGC premium payment deadlines, but does not apply to the minimum funding deadline.

One is an on going formula that the IRS deems overly back loaded, the other is a fresh start amendment that is treated differently. But Effen's reference is what it relevant.

I disagree with this. If it's an asset purchase, the seller will continue on and can maintain their plan with no impact on the buyer's plan (old or new) whatsoever.