Hello, 

I know there is a pop section 125 safe harbor from further discrimination testing if you pass the eligibility test. I’m newer to this and a bit confused. Below is the situation- does it qualify for the safe harbor eligibility test and if not why not? My concern is that the 1 and only HCE is enrolled so that’s 100% and the 40/190 is 21% but the 40/500 is only 8% and I’m not sure if the denominator for the formula includes all those new employees in initial measurement periods and ongoing employees in new measurement periods. 
 

1) fully insured 

2) all participants are offered the identical benefits for identical pricing with identical eligibility rules 

3) only 1 HCE and they are enrolled 

4) at any given time 190 employees on payroll roughly 

5) 500 w2s created at year end (high turn over retail) 

6) 40 are eligible for benefits in any given year 

7) all other active employees are either 1) in initial one year measurement period as variable hour new hires or 2) ongoing employees in a new measurement period 

8 ) every employee is eligible if they average 30 hours a week during a measurement period (no different treatment by class/title) 

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Logistics: 2025 Plan Year, Cash Balance Plan, Sole Prop, Current Benefit Formula: 100% of Compensation

Can the benefit formula be amended to 50% of Compensation (i.e. decrease the benefit without violating 411) for 2025 plan year only under 401(b)(3)? I assume not but wanted to see if community has any thoughts.

I understand the accrual rules are generally not a consideration when increasing the benefits under 401(b((3) but does the same apply for 411?

Thank you. 

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Is there any reason why a plan with individual named trustees would be exempt from having a separate trustee agreement that includes provisions covering such matters as the powers and duties of trustees, investment authority, and the kinds of investments that may be made? 

Here's some background, a client of ours is changing custodial platforms and the custodian has requested a copy of the plan's trust agreement. This is very standard in my experience. I noticed we didn't have a copy of the signed trust agreement for Cycle 3 and asked the client for a copy. The advisor reached out and indicated that they thought a plan with an individual trustee wasn't really required to have a trustee agreement. The plan uses a pre-approved document and the document provider does provide a standardized trust agreement. 

I know that they are not required to use the document providers standardized trust agreement but I've never heard of a plan being exempt from having one. 

Owner only plan.

Loan was not paid off in 5 years (5 years ended 12/31/2025) and 3 left.

Is there any self correction?

Otherwise, what needs to be done?

Never dealt with this before.

Thanks

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I've got a client who asked if they could use the xt allocation in the plan to not allocate "profit sharing" (I know, I know) to anyone who doesn't already have an account in the plan.  They have several thousand employees and a lot of turnover (but they are required by donors to have a very generous eligibility provision), so trying to get accounts set up for small employer allocations that are then immediately withdrawn is a hassle - they'd rather direct the contribution to more stable employees.

Acknowledging that there is still a lot of work to do to firmly establish the parameters here... how off-kilter is this idea?  The AA does allow for classes of individual participants.  And they don't necessarily want a match.  They are OK with the allocation going to participants who terminated during the year who have previously opened an account (i.e., deferred).

Let's say that I can pass 410b somehow - maybe by not giving the HCEs any allocation (which would be best for gateway and the rest of 401a4 testing).  Is there anything else that would prevent this kind of skullduggery?

Thanks.

I’ve been retired a few years, so maybe I’m missing something?  A former client contacted me with questions re his 2026 RMD.  Non-calendar yr PS plan with an annual val date of 6/30.  So use the 6/30/25 account value less any distributions plus any contributions made between 7/1/25 and 12/31/25 to determine the 26 RMD.   He took his 2025 RMD late in 25, as well as an additional distribution rolled to an IRA.  So these distributions get subtracted from the account balance.   

His (huge, national) TPA firm calculated the RMD without this adjustment, despite the adjustment being defined in both the regs and in the RMD language of said (huge national) TPA firm’s prototype DC plan document. When my client pointed this out to them, the response was “we as a practice calculate the RMD without the adjustments for distributions and contributions after the valuation date.  If you want to use your calculation with the adjustments it is not incorrect to do so.”

So, “as a practice”, they don’t follow the regs or the plan document?  At least if there are only distributions to subtract worst case the RMD is overstated.  But if they also ignore any contributions, they’d be understating the RMD, leaving the participant subject to a potential excise tax and the employer with an operational violation of the terms of the plan.  

Am I missing anything here?  Thanks. 

Jim

I am looking for input from others who work with Paychex recordkeeping.

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About half a generation ago, someone might face a pressure to help a plan’s sponsor date a document falsely. https://benefitslink.com/boards/topic/44420-ethical-dilemma/

Now, many service providers use software and internet delivery to present a ready-to-sign document, and expect a plan sponsor’s adoption or approval through DocuSign or another e-sign tool.

Is an ink-on-paper signature such a disruption that it’s too hard to pretend a document was signed sooner than when the plan sponsor signed it?

Are there still situations in which a temptation to date a document falsely persists?

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