John Feldt ERPA CPC QPA

Simply make sure the nonelective portion of the plan passes coverage and nondiscrimination. Piece of cake!

Jim, Enjoy retirement. Suggest they find a good, reasonable TPA. -John

An amendment to end safe harbor was created in February but was actually signed back in December? Client has no new plan document for 2024, signing one now and refusing VCP? Due to human nature, when a sentence starts with “Is there still a Temptation . . .”, I think the answer likely “yes” regarding just about anything that follows.

It allows the full year compensation limit to apply. This is a very common practice in the industry. in your example, November was too late for a calendar year plan to be safe harbor in 2024. How did the ADP test turn out? Was there a top-heavy surprise?

Without the 3% safe harbor, then 410b coverage is only 100% if an PS allocation is provided to each nonexcludable employee.

It’s a QACA safe harbor match. I think that’s under 401(m)(12). The plan must have certain minimum automatic enrollment provisions in place to use this provision. Due to the mandatory automatic enrollment requirements for certain new plans, I see it much more commonly these days than even just five years ago.

As long as you follow the terms of the written plan document, sure. I could be wrong, but I think most IRS pre-approved plans specifically spell out how this must be handled by referring to the DOL regulations. You can always have a seasoned ERISA counsel review the document to provide their opinion.

Yes, that passes nondiscrimination. And #1 above does not require any reasonable business classification, that requirement only applies to the coverage test and only if the coverage test needs the average benefit percentage test to pass (the simple ratio percent test is under 70%). Just to clarify, the first requirement is to pass the coverage test. If that does not pass, you do something to make that pass. Then you test the amounts that passed coverage for nondiscrimination. Sure, sometimes that goes hand in hand, but it’s possible to get lost in the minutiae of the nondiscrimination test sometimes to forget that we still don’t have enough NHCEs to get through the coverage test first. In your example, you said the plan has safe harbor. If it that’s a safe harbor nonelective, and assuming there are no significant numbers of employees who are excluded from the plan by class, then you probably pass coverage under the ratio percent test as the safe harbor nonelective is provided to all the eligible NHCEs. As I’m sure you know, we don’t run extra coverage tests for each flavor of nonelective, such as “profit sharing”, we lump all of them together.

If you’re asking about a top-heavy test, my understanding is that you count receivables at the end of the first plan year, but thereafter, they are only counted if subject minimum funding requirements under section 412. Of course, I could be remembering that incorrectly, but I’m sure the 416 regulations explain how to handle it.

DOL regulations indicate that hours are based on the date worked (or the day for which pay was earned). Thus, hours worked in 2025 count in 2025, regardless of the payroll dates. Compensation differs and has an optional provision. Compensation is based on the date paid, unless the plan is written to use the “first few weeks” rule or “post year-end compensation” provision to pull in comp after year end and push out comp paid right after the plan year began.

Perhaps the 401(k) plan is an old grandfathered governmental 401(k) plan, and that’s how the 5-year cliff vesting can apply to the match.

Isn’t the good-faith interim amendment due 12/31/2026 for the language that brings in the exception for top heavy for OEEs? And the plan merely operationally complies with whatever language they will adopt until then? If so, I would believe the amendment can retroactively state how the plan operated regarding this new exclusion and say OEEs aren’t entitled to any DC-only plan top-heavy minimums starting 1/1/24. If so, and someone is not accruing a DB benefit and they are an OEE, then their top-heavy minimum is zero in 2024, 2025, and 2026 assuming that is the language that they adopt by the end of this year.

It’s tracked as a rollover, but that assumes the prior plan actually terminated and the completed benefit election form indicated a lump sum rollover to this new plan. If not, that should be addressed first. Regardless, sure to offset the 415 limits in the new plan by the adjusted value of the old plan benefit based on the date paid, amount paid, and years of participation (a multiple annuity start date calc is needed for that).

If the plan preserves the 100% schedule for all participant at the top me of the amendment, and if all the HCEs have six years of vesting service anyway, perhaps you can argue the change from immediate vesting to a six year schedule results in no discrimination when comparing employees with the same number of years of vesting service?

The refunded deferrals and earnings are both reported on Form 1099-R, no changes are needed on the W-2. I don’t see any reason to provide a W-2c.

Ah, thank you!

To allow a $0 correction, then the employer should provide the 45-day special notice after the correction begins. If the employer wants to give the 50% QNEC as part of the correction, then no notice is necessary. Look at Rev Proc 2021-30.

My understanding is that you can amend to exclude them prospectively and that the document probably requires a 30-day advance notice to do so, even though they are HCEs. But check IRS Notice 2016-16 to see if you agree.

Jakyasar, a reasonable classification is only necessary for passing coverage when the 70% ratio test for coverage is not satisfied. If there are only two employees and both are HCEs, then coverage is deemed to pass, so the exclusion can be done by name without creating any issues.

Take a look at Treasury Regulation section 1.401(a)(4)-12 and see if that helps. Keep in mind that in the reg, the term “plan” is actually the tested “plan”, which is the combined employer DC contributions and DB benefit amounts (other than match) from both the CB and the 401(k).

Must track separately also because, unlike 457(b) distributions, it will generally remain subject to the 10% excise tax if distributed as taxable before age 59.5.

Ditto.

They can only defer from W-2 wages not yet paid. They can only defer from wages paid once the 401(k) plan document and trust agreement is executed (signed). They have to be eligible under the terms of the plan. A deferral election is also required. Other than noting today’s date on the calendar, and the other 50 requests coming in today for a plan document to allow deferrals in 2025, that all sounds easy, right?

Peter, you asked: Is there another reason why a plan’s sponsor might prefer not to allow nonhighly-compensated employees to make an employee (after-tax) contribution? Yes, there is. When you run an ACP test, you only include the employees eligible for the match. So, if the match allocation has conditions, like last day or 1000 hours, then those employees aren’t in the ACP test. Yay. BUT, as soon as you allow after-tax, everyone eligible to contribute after-tax is now in your ACP test, even those that did not meet the conditions for the match. That could add a whole lot of NHCEs with zeros to the ACP test.

Right, it can be funded as after tax only up to the lesser of 100% of compensation or the $70,000 dollar limit. The extra $7,500 catch-up is only available as a deferral.