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For a reader who might explore the uses, here’s Internal Revenue Code § 401(b)(3) (as compiled in the United States Code): (3) Retroactive plan amendments that increase benefit accruals If— (A) an employer amends a stock bonus, pension, profit-sharing, or annuity plan to increase benefits accrued under the plan effective as of any date during the immediately preceding plan year (other than increasing the amount of matching contributions (as defined in subsection (m)(4)(A))), (B) such amendment would not otherwise cause the plan to fail to meet any of the requirements of this subchapter, and (C) such amendment is adopted before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof) which includes the date described in subparagraph (A), the employer may elect to treat such amendment as having been adopted as of the last day of the plan year in which the amendment is effective. I.R.C. (26 U.S.C.) § 401(b)(3) https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapD-partI-subpartA-sec401.htm.

A mid-year prospective reduction or suspension of the safe harbor contributions for HCEs is addressed in Notice 2020-52. III. CLARIFICATION OF REQUIREMENTS FOR REDUCING CONTRIBUTIONS MADE ON BEHALF OF HCEs As described in section II.B of this notice, contributions made on behalf of HCEs are not included in the definition of safe harbor contributions. Accordingly, a mid-year change that reduces only contributions made on behalf of HCEs is not a reduction or suspension of safe harbor contributions described in §§ 1.401(k)-3(g) and 1.401(m)-3(h). However, a mid-year change that reduces only contributions made on behalf of HCEs would be a mid-year change to a plan’s required safe harbor notice content for purposes of section III.B of Notice 2016-16. Therefore, in order to satisfy the notice and election opportunity conditions of section III.C of Notice 2016-16, which apply generally to changes that affect required safe harbor notice content and are not reductions or suspensions of safe harbor contributions, an updated safe harbor notice and an election opportunity must be provided to HCEs to whom the mid-year change applies, determined as of the date of issuance of the updated safe harbor notice.1 https://www.irs.gov/irb/2020-29_IRB#NOT-2020-52

I would like to chime in. Participants actual account balance is the sum of the actual assets in his account plus the value of the outstanding loan. Assets remaining after the loan - $25,000 Outstanding loan - $25,000 His account balance is $50,000 50% of this is $25,000 Less outstanding loan of $25,000 Remaining loan available is $0 You need to remember to add back in the loan since it is part of his account value before you determine the 50% of vested balance. Unless the asset value drops from the original time you took the loan, you should never get a negative answer.

@Peter GuliaI understand that service provider encompasses a broader group than just employee. I simply meant that the dynamics of determining advisee/advisor issues can be extremely different depending on the character of the service provider. if advising a company regarding an individual employee and the tax consequences under 409A, one often notes the adverse tax consequences, at least at this time, are almost entirely on the employee. In which case, the employer might take a riskier path than another. The dynamics change drastically if you tell the same company client the adverse tax consequence would land on the directors even if you have language stating the company doesn't guarantee any tax consequences and has no liability, etc.. That's all I was saying.

Thoughts about other ways: If the plan allows participant loans, might this participant prefer to borrow a needed amount, with an opportunity to repay over five years? If the plan provides (or might be amended to provide) a § 72(t)(2)(I) emergency personal expense distribution, might that be a partial fit for the participant’s needs? A distribution can be “for purposes of meeting . . . immediate financial needs relating to necessary personal or family emergency expenses.” I.R.C. (26 U.S.C.) § 72(t)(2)(I)(iv). Practically, this distribution is almost standardless, especially if the plan provides it on a participant’s self-certifying claim. Although $1,000 might be much less than the participant needs, it might be better than nothing. I.R.C. (26 U.S.C.) § 72(t)(2)(I) https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partII-sec72.htm. This is not advice to anyone.

Sure, if there are no CB accruals then your gateway drops back to whatever your DC allocation itself will require, including potential TH.

Just do an -11g amendment to bring the terminated people back in to the existing plan. Now that will mean the contributions for those people would be deductible in 2026 and not 2025. It your testing would work. Make sure vesting is addressed. You could explore doing a 401b3 amendment and it might work here instead. But I can’t promise that as I haven’t waded through everything. But if it does, the contributions would be deductible in 2025.

I have always filed using third party software, which produces an AckID for Form 5558 filings. I would still start with EFAST, but be prepared to have to go to the Office of the Chief Accountant.

On Santo Gold’s hypo, isn’t the account balance after the first loan is made still $50,000—that is, $25,000 participant loan receivable + $25,000 other investments? But wouldn’t ERISA § 408(b)(1) and Internal Revenue Code § 72(p)(2)(A) limit the amount for a second loan? Consider 29 C.F.R. § 2550.408b-1(f)(2)(i) https://www.ecfr.gov/current/title-29/section-2550.408b-1. Consider 26 C.F.R. § 1.72(p)-1/Q&A-20 https://www.ecfr.gov/current/title-26/section-1.72(p)-1. Even before applying the tax Code limits, ERISA § 408(b)(1) limits the outstanding balance of all loans to the participant to more than half the participant’s vested account (measured after the origination of each loan). On Santo Gold’s hypo, if the participant when applying for a second loan has not yet repaid anything on the first loan, isn’t the second loan $0?