Zach Del

We have a client XX that was acquired by YY in 2021, but they opted to merge the YY 401k plan into the XX plan rather than the other way around (usually the seller’s plan transfers into the buyer’s plan). The assets transferred in June 2022. As part of the merger, they changed the plan name and the plan EIN of the XX plan to the YY plan name and EIN effective 6/30/22 The issue is a final 5500 was filed for the legacy YY plan for PY 2022 (after assets transferred to XX). But that same EIN is still being used for the current merged plan. I, along with the plan auditor, suggested amending the plan number of the current merged plan to 002. The recordkeeper, however, is saying that in order to change the plan's three digit number from 001 to 002, a final 5500 needs to be filed for 001 showing assets going to zero. The "transfer out" from the XX plan and into the YY plan would be captured in Schedule H showing a "transfer" to YY-002. I understand that if a plan terminates or transfers/mergers, then a final 5500 should be prepared. But the plan did not terminate in this case. The seller's plan name and EIN were amended to match the buying company's name and EIN. I'm thinking there should be a retro amendment changing the 3 digit plan number of the current merged plan to 002. Amend the 2022 XX filing to reflect the changes of Plan Name, EIN, and plan number in line 4 of Part II. Then the Final 5500 for the legacy YY plan should be amended to have plan 002 in the 5(b)(3) box of Part IV of Compliance questions. I feel like this would be the most logical and easiest for the DOL to follow. But I've been receiving conflicting information, from ERISA counsel, on whether it's required to file a Final 5500 if you're changing a three digit plan number. But I feel like those who view it as required is just because it almost always correlates with a termination or merger. Any and all feedback is appreciated. I wasn't involved in the plans back in 2022 so trying to clean up now.

Signed in November of 2023 effective 01/01/2023.

We have a client who signed a plan amendment to change their match computation period from per payroll to annual with a true-up provision, but they signed the amendment with the wrong intended effective date. They intended to start the true-up for the plan year 2024 (for true-up to be paid in early 2025), but instead signed the amendment effective 01/01/2023. They don’t want to fund the true-up for 2023 as they have not budgeted for this. To fix, we asked the RK to draft a document with effective date 1/1/23 with the original match computation of per payroll, while also drafting a second document effective for 1/1/24 with the change to annual with the true-up. The recordkeeper is reluctant to process these as they say this could be viewed as a cutback of benefits. Do you agree with that? The plan has never funded a true-up and have been paying their matching contributions per payroll as they always have. Their match is also discretionary, the formula is not stated in the plan document. It seems like their plan document allows some flexibility in the attached screenshot. PAA Screenshot.docx

We've run into multiple situations where it is discovered companies are not taking employee deferrals from bonuses and commissions, despite there being no exclusions specified in the adoption agreement. What is the typical correction? Would analysis need to be done for every plan year going back to when the AA was restated? Or since inception? This seems to be a recurring issue for plans that are being audited for the first time (first year over 120 ppts).

Can anyone confirm it is indeed possible to terminate a company plan that is part of a MEP? The attached article states the only option is spinning off the plan assets into a new plan and immediately terminating the new plan prior to the close of the merger. However, I've seen conflicting information on this. We have a client that purchased a company in a stock deal, who's plan is part of a MEP. https://www.employeefiduciary.com/blog/role-meps-play-401k-plan-termination

Regarding compliance testing, a profit sharing contribution would be subject to ACP testing regardless of the plan's safe harbor status. But a pro-rata allocation would generally pass automatically.

Great insight, Paul. Much appreciated.

There is an employer match of 50% of the first 10% of eligible comp (annual computation period w/true up). I'm not sure how many are maxing out Roth deferrals, but there are roughly 19% of NHCEs and 62% of HCEs that hit their 402(g) limit in 2022. 130 NHCEs and 60 HCEs. Agreed on the "mega backdoor Roth." That's what the participants and sponsors call it so I've been conditioned.

I know allowing after-tax contributions for intent of mega backdoor Roth conversions only tend to work for very large companies. Is there a minimum number of employees where this strategy generally starts to make more sense? 1,000 employees? We have a company that is around 800 employees that is considering adding an after-tax contribution source. They currently pass ACP testing easily using the top paid group election. The most recent ACP test had around 90 HCEs and 80 other employees who reached the 2022 income limit of $305k but are NHCEs because of the top paid group. If after-tax were to be added, I suppose it would depend on how many employees in each category actually used the source. If it were only a handful of the HCEs in the top 20% they'd be screwed. Are there any other considerations with respect to the demographics that should be considered?

Ahh, that makes sense. The availability tests aren't covered in QKA, so I was missing that piece. Appreciate the help all.

Can you explain what the difference is between ACP testing the aggregate contributions, and testing each formula under 401(a)(4)? Passing the ACP test is supposed to be the exclusive means of showing employer contributions satisfy 401(a)(4). Unless by "each formula" you mean the combination of contributions produced from each formula. I'm always confused what 401(a)(4) is referring to unless it's ADP/ACP, and I'm taking the QKA..

A plan came to our attention that has been making the same discretionary matching contributions for the past three years at least. The first formula is 100% of the first 3%, but they also pay 100% of the first 6% if a participant is employed longer than 10 years. I've never seen this before. I thought the maximum service requirement for an employer allocation is 1000 hours. Would they need to pass ACP testing on each formula separately?

This is a discretionary match that was paid throughout the plan year. The plan document states the match computation period is payroll by payroll. My understanding is that the computation period dictates the mathematical components used to determine each participant’s matching contribution. If the computation period is each pay period, then the formula is applied to deferrals/compensation earned only during that specific payroll period. Therefore, a true-up would only be applicable in a plan where the match computation period is annual (regardless if the match was actually PAID per payroll or annually). So the question is whether the true-up is possible with a per payroll computation period, and also does a true up provision need to be included in the plan document? I'm not sure if the mechanism is simply implied by the choice of computation period, or if it needs to be explicitly stated. What makes the situation even more confusing (and concerning), is that the plan document includes a last-day rule as a condition for receiving match contributions. Isn't the plan in operational failure if they fail to forfeit/refund all of the match paid to the employees during the year? Additionally, the employer wants to exclude terminated employees from their hypothetical true-up. I don't see how they can exclude them from a true-up (if they can make the true-up), without also acknowledging that they are not entitled to any match accrued during the plan year. As you can see, a lot of red flags here and a few inconsistencies with the plan document. Any guidance would be appreciated.