Connor

Thank you for your responses. I suppose I should've been a little more specific - the letters are going to the plan sponsors, not the participants, and their only call to action to us was the generic 'please call with any questions'. Most of the plans have participants numbering in the dozens, so no large plans, but some do have both W-2 participants and those who receive SE income - some even have participants who get both types of income. Though we are the bookkeepers, clients have occasionally asked for our take on the new rules and their options. We explained that, like many regulations, there are many ins and outs, and we only know the most general basics. We also remind them to talk to those who specialize in such matters. Artie M I think what you're saying is the missing part for us, as the articles and newsletters we've read (and there were quite a few) didn't delve as deep into the issue. Are the regs that you are citing found in the final SECURE 2.0 regs that recently came out? I'm with you Austin3515 about just adding Roth, as long as the payroll services don't make us regret it.

We work with a large financial institution that has sent us a sample correspondence that they plan to send to their 401(k) clients. It states that if a plan does not permit Roth deferrals, participants whose FICA wages were $150k of less in the prior year can continue to make catch-up contributions on a pre-tax basis, but those whose wages exceed this limt are not permitted to make any catch-ups. The research we have done on this topic seems to suggest that though it's possible to have a plan operate in this manner, it's not recommended, as such an arrangement can create discrimination issues. If this is true, we are surprised that an investment firm, which has a popular recordkeeping platform, would push this method without at least caveating the downside. Do we have a correct understanding of the new rules in this regard?

I would tend to say that's not necessary. I've had IRS audits for clients where they checked the 'No' box and never got a bond, where the auditor simply says "...and tell them to get a bond". Your situation is even better because you can tell the agent that a bond was obtained and the year in question is retroactively covered. We can usually get the agent to tell us why a certain plan was selected for audit and my experience has been that it was never because of a lack of a bond.

I think I got hung up on "five years - whichever is greater". I thought it was referring to the prior YOS - quite a convoluted sentence - no wonder the author of the article said it was "a real nightmare of a topic". We use FT William's doc which uses a more simplified version as default language for the Rule of Parity: "If an Employee does not have any nonforfeitable right to the Account balance derived from Employer contributions, Years of Eligibility Service before a period of five (5) consecutive One-Year Breaks in Service will not be taken into account in computing eligibility service. Elective Deferrals are taken into account for purposes of determining whether a Participant is a nonvested Participant for purposes of Code section 411(a)(6)(D)(iii)." This is also their default for the Rule re vesting service. We've used other vendors and have seen various docs from takeovers & if I recall correctly just about all of them had language similar to FT William's. I guess we have different experiences, ESOP Guy, but that's one of the things that makes this board worthwhile. The only employer contributions made to the plan in question are safe harbor matches, so it's actually not that rare for participants not to defer, and thus not get any match, and then they terminate with perhaps several YOS but no vested benefit. I definitely would prefer the 'once a participant always a participant' approach but we have quite a few clients protesting even the use of the above Rule. Thanks everyone!

The only contribution the sponsor makes is a safe harbor match, so the eligibility requirements for allocations cannot be restricted. The reasons the sponsor wants this are for 1) administrative ease mostly, and 2) smaller contributions secondarily.

Great - I agree with what's being said. Thank you for the comments and the Rule of Parity link. I believe the only situation that wasn't addressed was what if the participant had 2 -4 BIS and never had a nonforfeitable right to a benefit - would prior service be disregarded?

IMO, it would be the latter, with my reasoning being that the allocation of excess assets would happen before distributions are made, and the RMD is carved out of one's benefit when the payouts actually occur, especially since the RMD is not payable until 12/31/25 (or perhaps 4/1/26).

A plan sponsor from time to time rehires employees - sometimes several months, sometimes 3 or 4 years after being terminated. These employees occasionally were participating in their 401(k) plan prior to their termination and are deemed to be participants immediately when rehired in almost all circumstances, according to the plan document. The sponsor has asked whether it would be possible to force such rehires to meet the eligibility requirements all over again after they are rehired if they were previously terminated at least a year before their rehire date - I'm thinking it's probably impermissible to do this. They're currently using an FT William doc coded for the basic rule of parity provision, however, the program allows for modifications as an open entry item, i.e., anything at all can be written in to customize this provision, and the question of whether amending the plan to use this open entry item to enforce the one year restriction mentioned above arose. Is it legal to force requalification for such rehires after being away only one year?

I also agree, but this situation made me think of a CG question that's was going around our group without much resolution recently. If it's determined that both companies are members of a CG (or an ASG), does company B need to sign a joinder agreement/resolution adopting the plan? I was leaning more to the 'No' side, since B would already be required to have its eligible employees automatically covered by A's plan. Am I off base on this?

Had a situation just like this not too long ago and our actuary insisted that the 110% rule still applies.

Super - thanks again!

Thank you , John - that's great! If I may ask additionally: regarding how the discretionary match is described in the plan document and the safe harbor notice, a definitive formula must be stated (e.g., 66 2/3% match of the first 6% of comp up to 4% of comp), so the only discretionary thing is whether or not that contribution is made, not how it's allocated. If the employer decides to make a discretionary match but wants to allocate it a different way, a plan amendment would have to be done to revise the formula - do I understand this correctly?

Is it possible for a plan with a safe harbor match to also offer a discretionary match and still retain its safe harbor status, i.e., avoid adp/acp testing & TH mins? In other words, a triple stack match without a fixed match - could that still be considered a safe harbor plan? If so, what would be the limitations on the discretionary match?

The formality of how they look is definitely a plus for the IDPs, but I prefer them for the table of contents that they usually have - we've taken over a lot of plans that use prototypes and I don't think I've ever seen one whose adoption agreement has a TOC. I have to think there must be some that have them, as that feature would be no-brainer, especially since some adoption agreements are now 40+ pages long, but we have yet to encounter one. In a prototype doc, if you want to delve into a provision past its most basic parameters you would have to refer to two documents, the adoption agreement and the basic plan document that it would reference (which is like an IDP), so an instance like that would make the IDP easier to use IMO.

Plan currently provides that all participants receive a SHNEC. The 100% owner wants to make a PS contribution but the test results are destroyed because her participating daughters are getting a SHNEC - would there be any BRF issues if the plan is amended to just give the NHCEs a SHNEC? I can't recall if BRFs are ever an issue if it's just the HCEs that would ever get affected by an amendment. Thanks in advance for any assistance.