TH 401k

@Lou S. Could you provide an overview of the exemptions applicable in various other situations? The plan is not top heavy.

The plan has a total of 14 eligible participants, comprising 4 Highly Compensated Employees (HCEs) and 10 Non-Highly Compensated Employees (NHCEs). It uses statutory eligibility and includes both Safe Harbor Matching and Profit Sharing under a new comparability formula. The client has elected to provide a Profit Sharing contribution of 5.6% to all HCEs and 1.86% to only 4 NHCEs. Using ASC software, we performed cross-testing under the Annual Accrual method with Permitted Disparity. Based on the plan design and testing methodology, it is our understanding that the plan is not subject to the Gateway minimum contribution requirement because only Profit Sharing no other nonelective contribution. Accordingly, we have overridden the status of the remaining 6 NHCEs to “N/A” to facilitate passing the nondiscrimination tests. Both the Average Benefit Percentage Test and the Rate Group Test have passed. However, during the Coverage Test for Profit Sharing, the plan initially failed due to an NHCE ratio of 40% (4 out of 10 NHCEs receiving contributions). In cross testing, concentration ratio was calculated at 71%, with the Safe Harbor threshold at 41.75%, Non-Safe Harbor at 31.75%, and the midpoint at 36.75%. Since the coverage ratio fell below the Safe Harbor threshold, the plan failed through Average Benefit Percentage Test. To ensure the plan passes the coverage test under the Average Benefit Test, I allocated a nominal $1 Profit Sharing contribution to one additional NHCE, thereby treating them as benefiting under the plan. This increased the NHCE benefiting count from 4 to 5, raising the coverage ratio to 50%. Since the Safe Harbor threshold is 41.25%, the plan is deemed to pass the coverage test. However, I’m uncertain whether allocating just $1 is sufficient for compliance purposes, or if I should have applied the same 1.86% contribution that was provided to the other NHCEs. The client has clearly stated they do not wish to increase contributions or modify the existing allocation structure. I’ve proceeded with the $1 allocation to meet the testing requirement, but I’m posting this for feedback—would appreciate any insights on whether this approach is acceptable under current compliance standards.

What is the exact procedure to correct excess contributions of 2022 plan year if the correction is being made in 2025?

For the 12/31/2024 plan year, the client has several unresolved compliance issues from the 2022 plan year that remain uncorrected as of 2025. Specifically, there is a 402(g) excess deferral of $2,000 for Participant A, who is a non-highly compensated employee (NHCE), and a 415(c) excess annual addition of $6,000 for Participant B. Based on the records available, neither of these excesses has been corrected or reported to date. In addition, another plan has two uncorrected issues from the 2022 plan year related to plan-imposed limits. First, a deferral was made in excess of the plan’s stated deferral limit (as defined in the plan document), separate from the statutory 402(g) limit. Second, the employer matching contributions were calculated at 3.5% of compensation, whereas the plan document limited the match to 3%. This resulted in an excess matching contribution. As of 2025, neither the excess deferral (under the plan-imposed limit) nor the excess match has been corrected — the excess deferral was not returned to the participant, and the excess match was not distributed or reallocated to the forfeiture account. 1. What is the appropriate method of correction under IRS guidance, specifically for each of the following issues: the uncorrected 402(g) excess, 415(c) excess, plan-imposed deferral limit violation, and the excess employer match? 2. What penalties, if any, apply to the plan sponsor for not correcting these issues within the applicable correction window? 3. What are the tax implications for both the plan sponsor and the affected participants upon correction of each issue, including income inclusion, excise taxes, and any other tax consequences? 4. What IRS forms are required to properly report the corrections (e.g., Form 1099-R for corrective distributions, Form 5330 for excise taxes, or other applicable forms)? Clarification is also needed on whether these issues may be corrected under the Self-Correction Program (SCP), considering the time elapsed and the types of failures involved, or whether a Voluntary Correction Program (VCP) filing is required — particularly for the plan-imposed limits and uncorrected statutory excess.

@Briage weighted allocation on the basis of 8.5% interest for all employees and no allocation condition for Profit Sharing. Coverage result may be, total number of hce 1 and benefitting is 1 and total number of nhce 4 and benefitting is 4. Ratio is 100%, plan will pass coverage I think so.

This is my first time working on an age-weighted profit-sharing allocation. The plan includes 5 participants: 1 HCE and 4 NHCEs. The plan effective date is 01/01/2021. The Normal Retirement Age (NRA) condition is age 65 with 5 years of service from the date of plan participation. The plan year ends on 12/31/2024, and it is not top-heavy for the current year. After allocating profit sharing, the plan fails the 401(a)(4) nondiscrimination test. The issue arises with the HCE participant, who is 70 years old and was hired on 07/05/2022. In the age-weighted allocation calculation, we initially used 2 years to NRA for the HCE, resulting in a significantly higher EBAR compared to the NHCEs—causing the plan to fail 401(a)(4). However, based on Treas. Reg. § 1.401(a)(4)-8(b)(1)(ii), it appears permissible to cap the current age at 65 for participants who have already reached 65 age. While apply 0 years to attain NRA for the HCE (instead of 2), the plan passes the 401(a)(4) test. My questions are: Can we apply the age 65 cap for participants who are already past the plan’s NRA, in accordance with the regulation cited? Can we change the HCE’s date of birth to reflect age 65 and revise the hire date to 2020 to help the plan pass testing purpose only —and is this permissible under any Treasury regulations? Does the HCE need to satisfy the 5-year participation requirement to be considered as having attained NRA under the plan's definition? Is there any regulation that allows us the years of participation (similar to how the NRA age can be capped at 65) to help normalize the EBAR calculation and pass nondiscrimination testing? Any insights or guidance to help us accomplish a compliant allocation would be greatly appreciated. Thank you in advance for your help.

What is MEP Plan? What is the different types of MEP? What is Controlled Group and Affiliated Service Group? What is the difference of CG and MEP? What is unrelated and related Employer in MEP? Is it necessary that MEP plan should be Controlled Group? Is Combined Testing is mandatory in MEP? When is MEP is preform combined testing? Is there any IRS documents which explains all these things? Or any other documents.

Yes. Client amendment the adoption to include SH Match to avoid TH Minimum. But, at the end it is required to provide TH Minimum contribution. At this point, is there any way to avoid TH Minimum in other allowable way.

My plan is top heavy for 2024 plan year. Top heavy minimum is required for current year. However in the mid of the current plan year i.e., on 06/01/2024, plan amended to opt for SH Match contribution (My understanding is that plan is subjected to both ADP & ACP because mid year inclusion of SH contribution). In this case, I think TH minimum is required for non key employees. There is no compensation exclusion in the plan. 1. If there is DOP comp is excluded, how to handle this scenario. 2. If the plan is opted SH provision, it is exempted from TH minimum if it is had SH at the end of the plan year. 3. TH Minimum is exempted whether plan having either SH Match or SH Non elective with no other Employer contribution. I'm curious to here any other points or opinions. If there, it is helpful by providing provision code or IRS documents which it is explaining.

The attached image is sample. I'm doing compliance Testing for xyz 401k plan and under safe harbor non elective, 3% SHNE is selected along with the comment mentioned under other plan that xyz ESOP plan name. However, I'm confused whether I have to allocate 3 percent SHNE for employees in my xyz 401k plan or else it denotes ESOP plan. Is there any IRS provision or regulations which is giving clear definition for this section in adoption agreement. What is the next to whether to allocate SHNE in 401k plan or ESOP plan. ESOP in doing by another. Here by taking assumption I'm completing the plan that the plan is not top heavy and there is non of them exceeding the annual addition.

But here"Does the plan satisfy the coverage and nondiscrimination tests of Code sections 410(b) and 401(a)(4) by combining this plan with any other plans under the permissive aggregation rules?" it is not mentioned 401k deferral (ADP) and 401m (Match). My understanding is it denotes coverage as 410b and 401a4 in case of failure of coverage and corrective measures for coverage by taking ABT. Is it correct? If you think otherwise, share your thoughts on my comments.

I'm working on Form 5500-SF and come up with one clarification. My plan fails coverage test and ABT and passing by combining another plan with my plan and passes coverage. In this scenario, whether I have to check yes for "Does the plan satisfy the coverage and nondiscrimination tests of Code sections 410(b) and 401(a)(4) by combining this plan with any other plans under the permissive aggregation rules?". Another plan combining both ADP ACP and 401(a)(4) with another plan. Whether I have to check Yes for this scenario for 14a. Is possible explain what is the difference between these two scenarios and give me link of documents which explains this scenario. Thanks in advance!!

Yes. Thank you!!! If possible clarify the below points "My senior recently explained the concepts of aggregate and permissive disaggregation method. If the coverage test is performed under permissive disaggregation, all non-discrimination tests should also be performed under permissive disaggregation. If the coverage test passes in aggregated method but fails under permissive disaggregation, and the ADP/ACP pass under permissive disaggregation but fail under the aggregated method, it is acceptable to proceed the ADP/ACP tests under permissive disaggregation and the coverage test under the aggregate method. He mentioned that there is no need to perform the coverage test under permissive disaggregation because we have performed the ADP/ACP tests under permissive disaggregation. In this case, we can simply pass the test by performing the coverage test using the aggregate method."

Yes. average benefits test also fails. Is it not permissible to use different method for different non discrimination test (i.e., Permissive disaggregation for ADP ACP and Non disaggregated for coverage test). Can yo advise what is the best way to make all non discrimination test pass.

Yes. permissive disaggregation of otherwise excludable employees. If I take in ADP in non-disaggregated, the plan fails but if I take ADP in permissive disaggregation it pass. However my coverage test fails in permissive disaggregation. Whether I can take ADP ACP in permissive disaggregation and coverage test in non-disaggregated.

In prior year, ADP ACP Non-discrimination test and coverage test is taken in disaggregate method. I have taken both coverage and ADP ACP test disaggregate method. However, my ADP ACP is passes in disaggregate but coverage is failed in disaggregate. But the coverage is passes in aggregate method. As per my understanding, it is not permissible to change the method of ADP ACP testing from disaggregate to aggregate because the plan follows prior year Testing Method. Is it permissible to take coverage test in aggregate method to make the test pass. Is there any provision in IRC regarding this scenario. Thanks in advance!!!

Recently I have faced below scenarios and I don't have much clarity on it. Did anyone explain it for me?? My plan doesn't not excluding Union employees and having both union and non union employees. At the same there is few employees who is union is satisfied the LTPT eligibility. Whether these LTPT Employees is included in Union ADP Test or treat them as excluded and not to include in Union ADP test?

Thank you so much for your response and the information. I understand, and I appreciate your time

Thanks for your detailed explanation!!! Is the employee is eligible to receive Employer contribution (SH, Match or PS). If possible, explain how to proceed, what are the documents required, what are the IRS provisions to meet, etc.

My plan is having 21 Age, 1 YOS and quarterly entry. PYE - 12/31/20224. One employee hired on 2020 and not completed 1000 hours on anniversary period and from 2021 to 2023, not having 1000 hours in any of the plan year, but having more than 500 hours in each plan year. He is not a part time employee. Whether we can make him as eligible employee based on LTPT rule?

I have a doubt in 410b report. My plan doesn't not have allocation condition for profit sharing contribution, and employee terminated with less than 500 hours inactive (i.e., current year terminated employees). Whether these employees (HCE or NHCE) should comes under "Terms with 500 or less hours of service" in excludable employee section or these employees is Non- Excludable employees. 1. If possible explain me with allocation condition, last day rule with 500 hours 2. Only 500 hours allocation condition.

SH match with employer match with allocation condition and one NHCE is having deferral and SH Match but withdrawn all account balance before the end of plan year. Whether that contribution should be included in testing for 2024 plan year?

My plan year end is 12/31/2024 and having Safe Harbor match. One employee is deferred and received the SH Match on pay roll basis. He is terminated in between on 6/25/2024 and withdrawn all the account balance. My doubt is, whether the employee's deferral and SH Match contribution should be included in testing or not for 2024 plan year?. If it is included in the testing and that employee is HCE and having refund, how to proceed with the distribution of excess amount? Already the employee is doesn't have any account balance, then how to proceed the distribution?

As of January 6, 2025, the plan sponsor’s forfeiture account has a balance of $35,000, which includes $25,000 from 2023 and $10,000 from 2024. 1. Is there a deadline for the use of forfeitures? 2. Is the deadline the same for both the 2023 and 2024 balances, or does each year have a separate deadline? 3. If there is a deadline as per IRS regulations, please clarify and provide the relevant regulations. 4. If the forfeitures from 2023 are not used during the 2024 plan year and remain unused at the end of 2025, would this violate any IRS regulations or compliance requirements?

No. The plan document doesn't address it.