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I would think twice (thrice) before taking this assignment. The facts presented do not bode well for a good consultant/client relationship.

Peter is being very non-alarmist (even though he is of course correct!). I would like to be much more alarming. Fix this immediately, it is super-duper bad. The Plan Administrator made a mistake; that's the plan administrator's fault and they need to pay the expense. At best you can take the position that this is a prohibited loan from the plan to the plan administrator, corrected with interest (etc). Get an attorney involved. This is very very problematic. probably eligible for self-correction under the new DOL Program, but absolutely needs to be corrected.

In my view (which is not advice to anyone), a fiduciary ought not to direct paying or reimbursing from plan assets such a penalty if a fiduciary, a service provider, or an employer is responsible for the act or failure to act that results in the penalty. That’s so even if a penalty was administratively addressed to the plan. If an employer paid a penalty but another person was at fault, the employer might get its lawyer’s advice about rights and remedies regarding the other person.

No, you can't self-correct the initial failure to adopt a written plan. See Rev. Proc. 2021-30 4.01(b) and Notice 2023-43 A-2(1).

I'm an auditor myself. A lot of the replies have addressed some great points. I recommend also ensuring that you have prior years' information available. If the plan has never been audited, the auditor will generally need to go back a couple of years. Each auditor is different so how many years they go back will vary. Also, if you have any issues during the year being audited or in prior years, make sure you have the correction information handy. The auditor will most likely ask for that information. We're actually co-hosting a webinar February 24th called "Pitfalls of a 401(k) Audit: What You Need to Know". We will be talking about audit readiness, some of the more common issues we note during the audit, and other topics. The link is here and it's free: https://register.gotowebinar.com/register/6794741519587475289. I think it'll answer some of your questions. You'll have an opportunity to ask questions during the session. I hope it helps.

I suppose it depends on whether or not the DB contribution is mandatory or not. If their MRC is 0 then they could skip DB funding and do the 25% DC.

The Labor department’s Voluntary Fiduciary Correction Program, at its § 7.6(b), suggests, indirectly, an opportunity to correct a fiduciary’s breach in paying, or allowing to be paid, from plan assets an expense that was not a proper plan-administration expense. While there are some further conditions and details, the correction is mostly about restoration or disgorgement, whichever is the greater recovery for the plan. https://www.govinfo.gov/content/pkg/FR-2025-01-15/pdf/2025-00327.pdf A VFCP no-action letter affords some relief from some ERISA title I civil investigation and civil penalties. I don’t know what might obtain tax law relief. This is not advice to anyone.

Isn't this the technicality on the difference between Nx and N(12)x?

After tax contributions have to be deposited by January 30, 2026 to be counted for 2025 calendar year 415 limit.