John Feldt ERPA CPC QPA

Under SECURE 2.0, employers can do a retroactive amendment to improve benefits starting with the 2024 plan year if adopted by the due date of the employer’s tax return. Whether or not that can be applied to a full restatement may be a stretch, I would not push it that far without counsel weighing in. If needed, they can still use 1.401(a)(4)-11(g) to make a retroactive change.

Yes, as Paul noted, first you run coverage testing, 410(b), for each qualified plan, the numerator is those non-excludables who benefit in the plan and the denominator is all nonexcludables for the entire controlled group. When you see the coverage test fail for some plans, look to aggregate some of the “plans”, but you cannot aggregate a safe harbor 401(k) plan with an ADP tested 401(k) plan, you can’t aggregate a current year tested non-safe harbor 401(k) plan with a prior year tested 401(k) plan, and you can’t aggregate a basic safe harbor match 401(k) plan with a safe harbor QACA match or with safe harbor nonelective 401(k) plan, etc. Keep in mind, a 401(k) plan is really 3 plans for purposes of running a coverage test, 1) deferrals, 2) match, and 3) nonelectives. Thus, if you apply the OEE rule to help the testing, you end up with 6 coverage tests but hopefully 3 of them have only NHCEs and those 3 would automatically pass. If there are cash balance plans and/or defined benefit plans as well, the benefits that are accrued can aggregated with the nonelectives in defined contribution plan that share the same beginning and ending of the plan year with the DB or CB plan. Also, any plans that get aggregated for coverage MUST also be aggregated for nondiscrimination testing. Which explains why you can’t aggregate a safe harbor 401(k) plan with a non-safe harbor 401(k) plan for the deferral coverage test and for the match coverage test. This also explains why you can’t aggregate a current year tested non-safe harbor 401(k) plan with a prior year tested non-safe harbor 401(k) plan for the deferral coverage test and for the match coverage test, and so on. Does that help?

Maybe look at restructuring, 1.401(a)(4)-9, if you have enough NHCEs. Otherwise known as component plan testing. Amend the plan prospectively to exclude HCEs from safe harbor. An amendment to exclude HCEs from something would not be a discriminatory amendment.

Seems okay, if the document allows, and again, “if” no one else new works any hours in 2025. You could allocate a full $50,000 if you’re not over the deduction limit. If they would turn age 50-59, or age 64 or more this year, then you could allocate $57,500 between deferrals and ER PS if they deferred at least $7,500 (again watch the ER contribution deduction limit. And if turning age 60-63 this year, and deferring at least $11,250, then you could allocate $61,250. Again, watch the deduction limit overall. If hired before 7/2/2025, then next year the honeymoon is over, and safe harbor would be in order. But really, the owner will likely want to defer in 2025, so just do the 3% safe harbor for 2025. Then talk about doing SH match for 2026 if the 3% is so costly that they just cant stand it.

Now that you have that, how much were her gross wages from the company in the prior year? And, if the plan says the top paid group election applies, is she in the top paid 20%?

If it’s a prototype formatted ftwilliam document, it’s a “Note” in the adoption agreement. These “notes” are generally not reminders or FYI’s, but are plan provisions that must be followed.

And just a reminder, the HCE determination for the year is not based on what they earned that year, it’s based on what they were paid in the previous year. And check the document to see how the top paid group election is defined.

Can you find the reg for that? Meaning, if a SH is NOT ending mid-year, but is ending exactly at year end, a reg says you have to issue a 30 day advance notice to stop the safe harbor from continuing into next year?

If your document does not allow an exclusion, like a standardized document? Then I would look around for a nonstandardized document to use instead.

If 2023 will be included as a year of service, then the actuary will likely take the NESE from 2023 plus the $193,565 for 2024 and divide by 2 years. I assume the $150,000 contribution is achievable based on your age, service, your average NESE, and the currently applicable funding interest rates published by the iRS. We will leave that determination to the enrolled actuary and the terms of your DB plan document.

A cash balance plan is a defined benefit plan. The maximum benefit that can be paid out from a defined benefit plan is limited by Internal Revenue Code Section 415. This is a very important distinction when comparing how this plan gets handled when compared to a defined contribution plan, like a 401(k) profit sharing plan, where a participant just gets their account with investment returns. A defined benefit plan cannot pay the participant more than the maximum allowed, even if investments do great, and even if the amount defined in the plan’s formula is higher than the payout maximum. One of the two main factors that limits the maximum benefit payable from the plan to a participant is the participant’s highest consecutive 3-year average compensation (wages). As I’m sure you can guess, an extremely low consecutive 3-year average compensation for the participant will result in an extremely low maximum benefit that can actually be paid to them from the plan. And when they reach that maximum, it is very likely the lump sum they can be paid after that will begin to decrease with time. Yes, decrease. Your favorite local enrolled actuary can tell you if this will work for employee A and tell you how long (or short) of a period it will be before they hit their ultimate lump sum 415 limit and can’t be paid out any higher amounts from the plan without establishing a higher consecutive 3-year average compensation.

If you’re just going to do Roth or convert to Roth in the solo profit sharing plan, just set it up to allow voluntary after tax contributions, contribute that, and convert to Roth. No 6% calc. needed. You just can’t contribute more than your Net Earnings from Self-Employment (NESE). Otherwise, you take line 31 of your Form 1040 schedule C, subtract 1/2 of your SE tax, subtract the employer contribution and then limit that result to the comp limit under 401(a)(17) to get the “what” that you asked about, which is your NESE. Multiply this by 6% to get the contribution limit (and you of course noticed it was a circular equation as the contribution itself affects the contribution limit. If you add a DB plan, the contribution to that plan is also included in the equation used to determine the NESE which in turn is used to determine the 6% limit. Now that you have this, review your calc again. You almost got it - close but no cigar. Keep in mind that your max DB contribution is limited as well. Its based on your highest consecutive 3-year average NESE. Thus, contributing any deductible amount to the PS plan is hurting the DB limit affecting the DB contribution that the actuary is calculating for you. It’s not uncommon for owner-only combo plans to blow up due to being impatient when waiting for these calcs to be done - to give the owners the amounts that can actually be contributed and deducted.

I have extreme doubts that the IRS would just call and not have a standard form letter to mail out. I can’t be 100% certain this is a scam, but it’s got to be a scam or a very uninformed agent regarding IRS procedures.

Yes and No. They can use more than 1/7. No, check the rule on this, but I am pretty sure they can’t allocate toward 2024 by using money transferring in during 2025.

Under IRC section 401(a)(17), compensation is limited for qualified plans. For a calendar year 2024 plan, that limit is $345,000. For 2025 it will be $350,000.

Seems like it is to me.

I’m sure it will be super easy to have the plan document and the admin system be set up for 2YOS anniversary years for the PS and the “switch to plan year” method for everything else.

If any portion of the plan is cross-tested, then all benefiting NHCEs over 21/1 (those who are not OEEs) must receive the minimum gateway. Call that the over 21/1 'plan'. Those who are OEEs (under 21/1), if tested separately from the over 21/1 plan, are in a group that is almost never cross-tested (call this the 'under 21/1 plan'. Instead, it is contributions-tested, also called allocation based testing, so that 'plan' is not required to get gateway (again, if tested separately from the over 21/1 plan). If not cross-tested, no gateway. If a plan is cross-tested, the benefiting NHCEs must have the minimum gateway (perhaps even more to pass testing overall) but the gateway is not restricted by an allocation conditions like last day or a minimum hours requirement. If the plan is allocations-tested, not cross-tested, the 'EBAR' is replaced for testing with this: the employee's total nonelective allocation divided by the employee's testing compensation. Compare these rates HCEs to NHCEs and the rest of the math is the same.

If they received the 3% safe harbor, they are benefiting and thus not excluded from coverage testing and not excluded from nondiscrimination testing. To be ignored from the test, they have to meet all of these: 1) did not benefit, 2) did not work 500 hours, 3) terminated employment, and 4) the only reason they did not benefit was due to the failure to meet a condition, such as a last day or an hours requirement to get an allocation. If the terminee only gets the safe harbor, then you have only 1 of 2 NHCEs at the HCE rate group. You’ll need to run the average benefits test to answer your question. You can run that test either on a benefits-tested basis or on an allocations-tested basis. Gateway is not triggered by the average benefits test. Tell the system to not cross-test and that should turn off the minimum gateway.

There is no 30-day advance notice requirement for the initial period when deferrals first become allowed. Otherwise, if you had a safe harbor plan with immediate entry, you’d somehow have to give new hires a 30-day notice before they start working for you. If the plan already has deferrals now, then you can add a 3% safe harbor nonelective for this plan year that you’re in, but you can only add SH match as of the first day of the next plan year. 1.401(k)-something…

Yes, the plan can test the average benefits test on a benefits basis and test the rate groups on a contribution basis (no gateway required). Or vice versa (gateway required). All nonelectives, including the prevailing wage QNEC, are lumped together for coverage and nondiscrimination. FYI.

And if top-heavy, they accrue a top-heavy minimum life annuity in the DB plan that you need to track.

And according to SSA.gov, the Social Security taxable wage base will increase to $176,100 in 2025 from $168,600 in 2024.

The CPI-U for September 2024 was published with a value of 315.301. Based on Tom Poje's spreadsheet, the dollar limits for 2025 are projected to be: Almost all increased (NOT Official yet, of course): Deferral limit: $23,500 (up from $23,000) Catchup: $7,500 (unchanged) Compensation Limit: $350,000 (up from $345,000) Annual Addition Limit: $70,000 (up from $69,000) DB Limit: $280,000 (up from $275,000) HCE: $160,000 (up from $155,000) Key Employee: $230,000 (up from $220,000) Just for reference, the unrounded figures are: Catchup: $7,997.50 Deferral limit: $23,993 Compensation Limit: $354,260 Annual Addition Limit: $70,852 DB Limit: $283,408 HCE: $160,072 Key Employee: $230,269

A parent-subsidiary is when 80% or more of one company is owned by the parent company. Owned by company. If they have common shareholders, that’s is a brother-sister scenario.