Dominic

Thank you Artie: I will report back to you at the end of the 2nd Quarter to see how the contributions are going. Once we finish the first half of 2025, we will know better about potential conflicts as once hours are not worked, we can with 100% accuracy figure out how much more each person can contribute which occurs in the 3rd and 4th quarters. The IRS should have a simple formula 5% with their calculator for guidance in all markets. FINRA has these Analyzers and they use 5%, so why can't the IRS do the same? This would make administration so much easier for the USA and retirement plan limits.

The profit sharing can not exceed $61,000 as it is based on a flat dollar amount per hour worked. Only a few people will reach this amount, and everyone else will fall between $30,000-$55,000 in profit sharing. Regarding the 401k plan, not everyone maxes out. The issue of "amending returns" could be a nuisance, as well as calculating returns. There may be no profits in 2026, as the market has started quite shaky. Thank you for the detailed information.

There is conflicting information online. If a participant, between his profit-sharing plan (company monies based on hours), and his 401k employee-only deferral, is over $70,000 in 2025 (As an example). In 2026, we have to refund monies as he is over $5,000. Does the refund in 2026 (The distribution) out of his 401k plan (as this is where it needs to come from) not count towards 2025 income? As he went over the limits in 2025? The Record Keeper (who holds the plan assets) is willing to issue a 1099-R (I believe for 415 refunds, but I must gain further insight). Thank you in advance for your help. There is a 99% probability no refunds have to occur in 2026 as we have developed a detailed tracking system moving forward. Thank you.

Thank you for the detailed response. The TPA does not wish to calculate earnings. However, we will not know if the 415(c) limits have been exceeded until the 4th quarter of 2025. That being said, it is all based on the amount of hours a person works, because the profit sharing is based on total hours. There are 8,736 maximum hours in one calendar year. Please note that every single one of these people with potential refunds is HCE's, with no exception. If they were NHCE, they would never reach the 415(c) limits. Only a few employees can reach the maximum. Everyone else is based on actual time worked, which is favorable. A limited number of employees have had stops placed on deferrals, which are elective not to reach the maximum. Some are over 50 years old, and the age 50 catch-up of $7,500 will not apply, which helps. The age of 50 is scheduled to go away in 2026. If refunds are due, we will know in November and December, mostly December with almost 99% accuracy, and within the first week of January, with 100% accuracy. Hypothetical: We take one person who has to refund $5,000, and the 4th quarter gained 10%. Can we safely assume that the withdrawal is $500 in earnings, plus the $5,000? The Plan Document, not the SPD states the following: The IRS-approved prototype document with an opinion letter “states reasonable method”, regarding earning calculation refunds. In the end, we have notified every participant of the possible conflict. Adjustments have been made in elective deferrals to try to avoid this potential conflict. I have also been advised that the W-2 needs to be amended in 2026 if 415 refunds occur for the 2025 calendar year. Any further guidance would be highly appreciated. Thank you.

In 2025, the 415 limits are $70,000. Here is the scenario: The employee has a profit-sharing plan because of an agreement that can not produce refunds. The employee also has a 401k plan with employee deferrals only. Weekly payroll on the deferrals where the monies go in within 3-5 days after the pay date, is consistent and timely. The 2025 year ends and we realize that some 401k participants are over their 415 limits. Let's also assume that over the age of 50 and between 60-63 the catch-up and super catch-up contributions were backed off to the 415 limits. We now have a scenario where refunds have to occur. In the first scenario, a total of $9,000 has to be refunded. This $9,000 came in over 9 weeks ($1,000 per week) and applied to payroll periods in November and December. The $9,000 has to be refunded (This is a given) Now, the $9 million question: What about earnings on the $9,000 over 9 weeks, plus lead time to perform the calculations and set up the refunds? It is nearly impossible to capture 10 investments in different asset classes from the day the monies were invested, plus earnings to the day it was refunded. How does a TPA or Plan Administrator/Trustee calculate the earnings on the refunds? One can use this calculator and refund the monies by March 1st of the following year as the pooled investments are held in individual accounts from a major recordkeeper, etc. https://www.askebsa.dol.gov/vfcpcalculator/webcalculator.aspx Do we use the online VFCP calculator to determine refunds on earnings? I see no guidance if we had market losses, like in 2022 (unless you were all in guaranteed investment contracts). I doubt a TPA has sophisticated earnings software, and they probably perform this manually. Again, only for 415 limits here. The ADP test is a separate issue that one can monitor and know upfront based on the census of this plan. Earnings Calculator VFCP.pdf