austin3515

LOL, all of those designations mean nothing compared to my true claim to fame - International Man of Mystery! Though if you do seek an ERISA attorney, I know a good one! Here is a little more color. Assume a day care center is called Day Care I, LLC. Day Care I, LLC is owned by Susan 100%. Susan owns 51% of Day Care II, LLC and Day Care III LLC and the manager of those facilities own 49%, respectively (two different people). They have one website, DayCare.com. All three locations are listed and co-branded. Taking the position that this is an Affiliated Service Group would be very conservative and reasonable based on my position that a playscape is not a material income producing factor for a Day Care center. Having one 401k for all three and running one ADP test, I just don't see how that could be challenged. If you want to take the other position, I strongly endorse one Peter Gulia to do an analysis of the facts and circumstances to see if it can be defended. For example, maybe Susan wants a SH Match 401(k) for her employees in Day Care I and knows it would never pass coverage taking into account Day Care II and Day Care III (the other owners do not want to spend the money). That could be a reason to investigate that position. But as a TPA, I would not endorse administering that way without a "Peter Guiia" letter in the file approving it. Note: I did not look up the ASG rules here, but I'm pretty sure because they are not professional service entities, the entity type stuff is not an issue. My example is based solely on the affiliation and common ownership. I'll note the original question made no reference to whether there was an affiliation, but I assume the question would not have been asked otherwise.

Absolultely. When you compare a day care with a machine shop or Walmart, there are stark differences. It would be quite dangerous to argue a day care is not a service business. They might have a huge playscape that they paid a lot for, but is that playscape a material income producing factor? I don't think so... Plus to me it seems like the danger lies in assuming NOT a service business. To err on the side of caution means concluding it IS a service business. I personally would not assume it was not a service business wihtout a letter from an attorney.

I'm curious to know what your role is with these clients? From a compliance perspective this is all quite complicated. If you work for a TPA I hope someone at your firm has a solid grasp of this stuff. If you work for a financial advisors office, you're definitely asking the right questions but you're going to want to get someone involved who has the right expertise. They might be available at the recordkeeper if you ask for it. They will not be proactive because the scale is too large as others have noted. But most of them will go over things if you call them. But I can make this a little easier for you. Add Roth. It's a good benefit, and plans without Roth are becoming closer to Unicorns every day. Note that you have plenty of time to add Roth in order to avoid the limitations since most people are not doing any catch-ups until at least June (most likely not until Q4 2026). I think most TPA's and recordkeepers were pretty aggressive about getting Roth added over the last year or two, if they didn't already have it. I know some clients didn't add Roth to keep it simple, I get that. And that was probably a more defensible position before these mandatory Roth rules. But low income people in particular (who pay little or no taxes) are better off doing Roth. There was a great article today by Carol Calhoun who mentioned that anyone eligible for the tip income and overtime income deductions is making a mistake contributing pre-tax because they are converting tax free income to taxable income (I'm paraphrasing). https://benefitsattorney.com/bad-tips-for-401ks/

I just want to clarify that almost no TPA or compliance provider every aggressively pursues cumbersome and complex provisions. However, beggers cannot be choosers. I really really want that new business, so I don't get choose their plan design for them 👍. It's always the biggest clients, who by the way have had those provisions for decades at times, that are at issue. Now Congress did us all a favor with SECURE Act (if you want to take a glass half full view of the world). Now when we go to clients and tell them your "plan document sucks" there is some real meat on the bone, since the LTPT stuff in my view is technically, figuratively and literally impossible to comply with.

Husband A treated as owning 100% of Company A and 50% of Company B (taking into account his wife's ownership). Husband B and Wife B are NOT common owners so are not taken into account for the brother-sister analysis. You're not even a controlled group for 415 purposes because those rules don't even apply to brother-sister groups (and even if they did the threshold is MORE than 50%, which is interesting but not relevant). You only asked about Controlled Groups but I think sometimes people lump together controlled groups and affiliated service groups even though they are different questions. My point being you would need to watch out for Affiliated Service Group rules. In addition of course the other concerns Belgarath mentions 😄

I think the IRS got this one right. You might enjoy the whole thread...

you're providing the 3% Safe Harbor and the people with less than a year of service no longer get the THM (assuming you are going to make the "obvious" election here and adopt that new policy under S2.0). It is true that if you used the profit sharing piece anyone who has comp as a participant would need a small THM but I'd still opt for that scenario. Not sure if that helps.

Why do I get the feeling this is happening for hundreds and hundreds of plans...

I think I have my own answer. The "start-up credit" in paragraph (a) of 45E is increased by the 45E(f). But it is still the credit under 45E(a). 45E(a) is for "qualified start up costs." And qualified start-up costs are defined to include only costs related to a Plan that has at least one NHCE. The key is that the 45E(f) credit is a 45E(a) credit and the Employer Contributions are therefor "qualified start-up costs" and subject to that definition. Not a straight line, but definitely would be foolish to claim the exemption; the line is not straigtht, but it only has a slight arc. Someone could probably argue this away but imagine arguing this applies to an owner-only plan when there is a pretty strong position to the contrary.

The only NHCE requirement found in 45E seems to be in the definition of Qualifying Expenses for the admin expense credit. If thre is not at least one NHCE in the plan, then the start-up costs are not "Qualifying." That requirement seems not to apply to the 45E(f) credit for employer contributions. So assuming these examples set up a plan and otherwise qualify (i.e., no plan in prior 3 years) are the following statements correct? 1) A sole propritership or partnership with no employees should be eligible for the credit regardless of what their earned income is because they have no FICA wages; and 2) An S-Corp with no employees that pays the owner 104,000 in 2025 (less than the threshold in 2025) should be eligible for the credit as well. Oddly I can't find any articles clarifying that the employer contriubtion credit has an "at least 1 NHCE" requirement. Of course none indicates that there IS such a requirement either...

If a plan has the Rate of Return pegged to something like the S&P500, and the S&P goes down 20% in 2025, but then goes up 10% in 2026 , what happens to participant hypothetical accounts? For example, if someone's hypothetical account was $10,000 on 1/1/2025, it stays at $10,000 through 12/31/2025 because the benefit can never go down. My big question is will there account still be at $10,000 at 12/31/2026, because the 10% return in 2026 was not enough to make up for the losses in 2025? i.e., is it a cumulative tracking? Or is the ROR always just pegged to the ROR specified in the doc for that year, with all prior returns (or losses) ignored?

For this one, I actually think the IRS is correct. The COLA section does not reference an increase for these. The COLA section calls for increases in B(i) (regular catch-ups) B(ii) (SIMPLE Catch-ups), and Paragraph (E) (Super Catch-ups, which is why I think the IRS is wrong). But there is no COLA provided for B(iii) which is the elevated SIMPLE IRA catch-up limit., That one is hardcoded to 110% of the 2024 limit. No COLA increase. Obviously a technical correction would be needed on that. Really puzzled on why they thought there was no COLA for the super-catch-up though.

This is odd. The same scenario applies to the enhanced limits for the catch-up contriubtions on SIMPLE IRA's with fewer than 25 people. They left it at $3,850 for those plans even though they increased it to $4,000 for plans that are not under 25 people. That's ludicrous. I can't believe this is not going to be addressed 😱

I sure this doesn't end up being a scenario where we all send out our updates and they change their minds. I forget what happened a few years ago with a change in the SSTWB that was a mess. It's unlikely that Mercer and Milliman are not reading this correctly.

1.401(m)-2(d)(4) appears to be the linchpin on this. IT's the one that say the ratio of an HCE's match to their deferrals cannot be greater than that of any NHCE. Not sure what you all think but I don;t see anything that explicitly says that requirement cannot be performed on a consolidated basis between both matches. One requirement is that you have to satisfy one of the SH contributions--this plan does. A fixed match cannot be based on deferrals in excess of 6% of pay. This plan presumably will not do that. The last relevant requirement is that the match rate for HCE's can't be greater than NHCE's. When combined, the NHCE's will be greater (because the HCE's will be excluded from the SH Match). The reg does not say "excluding the Safe Harbor Match." I would never do this without submitting an ask the Author question of ERISApedia, but I am definitely curious if you all see something in the reg that would cause a problem. (4) Limitation on rate of match. A plan meets the requirements of this section only if the ratio of matching contributions on behalf of an HCE to that HCE's elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) for that plan year is no greater than the ratio of matching contributions to elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) that would apply with respect to any NHCE for whom the elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) are the same percentage of safe harbor compensation.

They must have read my post 🤣🤣🤣

All that being said, is the arrangement I described not roughly analogous what many others are doing? I can't imagine Morgan Stanley invented this approach?

Let's boil it down to a simple example. All of the employees at my company (for example) are eligible for a $5,000 bonus every year if we hit our goals. We only get that bonus for 2025 if we are here through 12/31/2028. It is then paid out 1/31/2029. The same thing applies every year (rolling). There is nothing wrong with this because it is not a deferred compensation plan, correct? No compensation is ever being deferred because as soon as the substantial risk of forfeiture lapses, it is paid out (within 30 days which counts as a short-term deferral. Is my understanding correct?

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2025-03a Do people agree that if a plan is designed as a top-hat plan specifically, the concerns outlined here are not applicable? The Morgan Stanley plan does not sound like a plan exclusively for HCEs and management. Sounds like a plan offered widely to all advisors. I assume that is the issue. And I further assume that because the benefits are paid when vested there is no deferral of income anyway which eliminates concerns about "funding." Do I have this about right?

Sure would be nice what the issue is with profit sharing. You have said the plan does not include a profit sharing provision. I suppose there could be $2MM of profit sharing from past provisions on a 6 year graded schedule. If that is the case then I get that. But if you're goal is just to keep it simple, everyone in their own group is a lot simpler than the language I mentioned.

Well this is how I see it: (E) sets the beginning number alone. The beginning number alone is 150% of the 2024 catch-up limit. After 2024, the reference to 2024 is moot. Why? Because (C)(i) says the amount in paragraph (E) is adjusted for inflation. I actually don't where the other view would come from?

I don't think anyone mentioned the bold text below? 414(v)(2)(C). Doesn't that suggest COLA adjustments? (C) Cost-of-living adjustment (i) Certain large employers In the case of a year beginning after December 31, 2006, the Secretary shall adjust annually the $5,000 amount in subparagraph (B)(i) and the $2,500 amount in subparagraph (B)(ii) for increases in the cost-of-living at the same time and in the same manner as adjustments under section 415(d); except that the base period taken into account shall be the calendar quarter beginning July 1, 2005, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500. In the case of a year beginning after December 31, 2025, the Secretary shall adjust annually the adjusted dollar amounts applicable under clauses (i) and (ii) of subparagraph (E) for increases in the cost-of-living at the same time and in the same manner as adjustments under the preceding sentence; except that the base period taken into account shall be the calendar quarter beginning July 1, 2024.

you could ask an ERISA attorney if an exclusion like this would work. You would uncheck the HCE exclusion box in the Safe Harbor section and instead say in the "Other" box: "The Employer shall determine each year, on a discretionary basis, which HCE's (if any) shall receive an allocation of Safe Harbor Nonelective Contributions. The Employer may further determine each year the amount of each HCE's allocation of Safe Harbor Nonelective Contributions, provided the allocation does not exceed 3% of Compensation for any HCE." This does not get you out of any top-heavy minimums mind you. There is no checkbox for the above which is why you would want to check with ERISA counsel. You might even submit it to Relius and see what they say. I think they'll give you a pretty good answer. There is nothing legally wrong with what I wrote as far as I know. Curious to hear what Belgarath would say!

I don’t see why you couldn’t do that but not sure how you do it without names. CFO and CEO might be the same as names anyway. Again the normal approach is profit sharing. Maybe the reluctance is vesting though.

If this a calendar 2025 plan year end it’s not too late to add the provision.