John Feldt ERPA CPC QPA

The plan document would state that it’s discretionary. It can also state the upper limit of the match and any limit for deferrals that will be considered for the match, but more importantly, the document will state if the match is intended to be tested for ACP or exempt from ACP. If tested for ACP, the plan then must identify current or prior year testing. If the plan indicates it will be tested, you must follow the terms of the plan. If the plan indicates it intends to be exempt from ACP testing, for a discretionary match, the employer can use that discretion to decide the percent of the deferral for the match formula, the match limit, and the largest percent of pay deferral that will get matched, but that does not all have to be in the plan document. But keep in mind that the safe harbor notice must also describe this match to allow it to be exempt from ACP testing. So if the plan provides a 3% safe harbor nonelective, and they don't give any safe harbor notice before the beginning of the plan year (it’s not required for a safe harbor nonelective), then the match will not be an ACP-free discretionary match. There is an exception to that. If the 3% safe harbor is a QACA, and they don’t provide the safe harbor notice (it’s not required), they can still provide the ACP-free discretionary match if the plan provisions have it available. Strange, but true. I’ve never come across that in practice however. If the safe harbor notice is generated from your plan document system, then I personally prefer to enter as much info in the plan document to help with the match description in the safe harbor notice, but not so much that it would require an amendment, destroying the discretion that we want the employer to retain.

And keep in mind that nonkey employees who fall into the “otherwise excludable employee” group in 2024 (OEEs) are not required to receive the top-heavy minimum for 2024, assuming that’s what the plan sponsor will be adopting in their good-faith interim amendment. This is new starting in 2024. Lou is correct that you can’t add a safe harbor match mid-year to a plan that already allows deferrals. Is that what actually happened with your plan?

Yes. The discretionary match is limited to 4% of pay, the formula for the match must ignore deferrals over 6% of pay, the rate of match cannot increase as deferrals increase, cannot have any allocation conditions, must be described in the safe harbor notice, the plan must have provisions for the match, it must not allow any HCE to receive a higher match than any NHCE at the same rate of deferral, to name a few requirements. it can be subject to a normal vesting schedule, such as 6-year graded.

You asked: what if we reallocated the excess up to every participant's 415 Limits and there was still $200,000 leftover in excess assets? Would you say the remaining excess could then be transferred to a QRP? Once all participants are at the 415 limit and paid out, to fully terminate the plan, the excess must revert, and I would argue a portion of that reversion can be a transfer to a QRP. Now whether the IRS agrees, that’s a separate question. Counsel is advised.

Suppose all the plans have the same provisions and same investment options. You are fine to aggregate them for testing. The solo plans are a non-public EZ filer, which may be the goal here. If so, go for it. Charge appropriately, of course.

Defers enough to get at least 3% match? Seems okay to me. Follow the terms of the plan documents of course.

Technically the funds are company assets anyway, so either way should be okay.

Another we possibility might be to disclaim the check. We’ve already spent $95 worth of time discussing it!

If I were an actuary, I would be tempted to respond to the question with, “Some of us are beyond help, but thanks for asking.”

Agree. It’s not uncommon to see these firms make these mistakes, it happens a lot.

ASG, of course. But maybe they should get a legal opinion just to make sure. Maybe they know a law firm that employs an ERISA counsel. Happens a lot, surprisingly, although anecdotally I see it more with medical professions.

Who wants to herd a hundred cats, I mean, sole proprietorships?

(a) AND (b) both. You say (a) is not met. So that plan, plan X, is not required to provide top-heavy in that plan, unless Plan X is used to help any other plans pass coverage or nondiscrimination. Thus, if plan X covers only a nonkey HCE, you are golden. Plan X is not used to help the other plans pass coverage or nondiscrimination.

The timing of the contribution is subject to the Benefits, Rights, and Features requirements described under 1.401(a)(4). Easy to determine if it passes “current availability”. When audited, you’ll find out if it passes “effective availability”.

By definition, it’s not an excess if it’s simply more than the minimum they were required to provide. What limit did it exceed?

Then why is “gateway” mentioned in the original post?

Of course, if compliance with SECURE 2.0 is the only thing upon audit that the IRS can find wrong with a plan, then they’re not looking hard enough.

Check bounced? Insufficient funds? Or was it deposited, but perhaps with no allocation instructions, and after getting no response for how to allocate/invest, they sent a check for the trustee to transfer to another trust account for the plan to be held somewhere outside of the R/K platform? Some other reason? The reason it was returned may help for guiding them.

"As a result the 410(b) average benefits percentage test has failed." So we assume the ratio percent test is under 70%. Bri is correct that the plan document might restrict what you can do to make the plan pass testing, so follow that first. Otherwise, if the document gives you flexibility, you can pick the least expensive NHCE or two as needed to make it pass. But read the Carol Gold memo first about giving nominal benefits to short service low paid NHCEs, and its reference to 1.401(a)(4)-1(c)(2). And what Zeller said.

They don’t meet the last day requirement to get the full amount of nonelective needed automatically pass. So to make the nonelective pass, if the plan allows, pick how you want to test and maybe the cross-testing is less expensive. But if so, why did the document have integration anyway - that’s the question.

Was she attributed more than 5% ownership at any time during the 2 years ending 12/31/2024? That’s your answer. In 2025 that changes, and now you look at her wages in 2024 and the document for its TPG election, and if TPG applies, you look at all the census data from 2024 to determine if she’s an HCE in 2025.

Just 1 NHCE in the plan along with some HCEs? We’ll, you don’t have to cross-test, but if you decide that’s best, assuming the document does not require you to pass some other way, then yes, the gateway is applied to the NHCE regardless of any allocation requirements that normally apply to profit sharing contributions. Providing the gateway does not mean the nondiscrimination test passes, of course, but if the NHCE is enough years younger than the HCEs, it can be enough to pass overall.

And has no allocation conditions (no last day or minimum hours requirements). Runs concurrently. So a deferral of 6% of pay gets both matches in full.

1. It’s our understanding that the increased deferral limit of $17,600 in the SIMPLE is automatically in place for 2025. Is that right? If they have 25 or fewer employees paid over $5000 in FICA wages in the prior year, then it would be automatic. If they have over 25, then it applies if the 3% nonelective or the 4% match is elected to be provided instead of the lower 2%/3% amounts. I think it also needs to be disclosed in the notice provided to participants in the SIMPLE regarding amounts they can defer. And, in your calcs, don’t forget about the super catchup limits for age 60-63. 2. Is Compensation from 1-1-2025 to 6-30-2025 for purposes of calculating the 3% match in the SIMPLE, if any salary deferrals are made? Yes. 3. Is Compensation from 7-1-2025 to 12-31-2025 for purposes of calculating the Employer contributions (Safe Harbor, Profit Sharing, Discretionary Match) in the 401(k) plan, or could the 401(k) plan be written to use full-year (1-1-2025 to 12-31-2025) compensation for allocation purposes for the first plan year? Yes, absent guidance to the contrary, the plan could be written either way. The terms of the 401(k) plan document will dictate that. 4. Can the new Safe Harbor plan use the Match approach, or does it have to use the Non-Elective approach? Yes, either one, or a QACA match or QACA 3% safe harbor would satisfy the requirement. I haven’t checked, but maybe a starter safe harbor 401(k) might be possible too - you’ll have to look that up for me. 5. Is the SIMPLE match (if any) completely disregarded in the 401(a)(4) test in the 401(k) plan? Yes. SIMPLE IRA contributions are not subject to nondiscrimination testing and, my favorite, they are also not annual additions.

Perhaps suggest a solution to the IRS under Rev Proc 2021-30, with a VCP filing? Maybe start with a suggestion that the deferral percent using the comp without commission would be the deferral percent to apply to the definition of comp that does satisfy 414(s) for purposes of calculating the safe harbor match and, if the employer is willing to do that, under VCP you find out if the IRS agrees. Maybe the IRS won’t require QNECs for the deferrals as well.