PensionPro

We had this question come up several times, but a search of the BL discussion boards did not turn up anything. Here is the situation. Different companies in a controlled group sponsor different 401(k) plans. They intend to satisfy coverage separately. One of the plans fails coverage even when the not otherwise excludable employees are tested separately. The question is this: can they expand the coverage group to bring in otherwise excludible employees of the employer or must they bring in not otherwise excludible employees even if they are from other employers in the group? For what it's worth, and based on the language of the regs, we are leaning towards the latter approach - that the additional employees must be not otherwise excludible to comply with the description of the two testing groups in the regs. I would appreciate any thoughts and insights!

The 5 HCEs have their own individual corporations. The new entity has employees effective in 2024. The reason we can't test otherwise excludable separately and automatically pass is because the HCEs have spouses who are participating in the separate plans who are statutorily excludable. The six entities are related under the rules. [I was trying to keep the question simple - focusing on the cutback and 401(a)(4) testing issue]. Thanks.

There are 5 HCEs operating their solo 401(k) profit sharing plans with pro rata profit sharing allocation formulas. NHCEs were hired in 2024 and became eligible in 2024 but there was no plan covering them. The employer wants to retroactively adopt a PSP effective 2024 covering the NHCEs as permitted under SECURE 2.0 with a new comparability allocation formula, and cross test the contributions in all six plans. To me, this seems permissible and not a cutback, because the NHCEs had not earned a right to the allocation formula. Am I missing something? Thank you!

There is no risk in prior years, NHCEs were only hired starting in 2024. Failures in 2024 are being corrected under EPCRS.

@justanotheradmin Here is some more context - the HCEs had solo 401k plans and did not realize there were NHCEs in other members of the affiliated service group. They want to get rid of the solo 401k plans and have all members of the ASG adopt the new 401k plan. TH issue is a consideration so a 3% SHNEC is the frontrunner. Thanks for your thoughts.

@Peter Gulia Based on the language of the PPA you cited, we have instructed the client to determine the $250,000 threshold taking into consideration all one person plans in the related employer group. Thanks for digging that up!!

We have a situation where the HCEs have had a separate 401(k) plan since 1/1/2025. They want to establish a new safe harbor 401(k) plan for the NHCEs effective 10/1/2025. Is there an issue with HCEs being eligible to defer since 1/1/2025 and NHCEs being eligible to defer effective 10/1/2025. Does it matter if they elect a safe harbor match or safe harbor nonelective? It may be cleaner to have a safe harbor plan effective 1/1/2026 but, thinking out loud, is it possible to have a safe harbor effective 10/1/2025 and the NHCEs have a missed deferral opportunity for the first three quarters of the year? Thanks for any insights.

The issue is that the separate plan exceeded 250k in the current year. Taking the conservative approach in this case would result in prior filings being delinquent. The instructions are somewhat ambiguous. I was hoping someone was aware of the IRS position. Thanks @Peter Gulia and @Lou S.!

In determining whether a one-participant plan has exceeded the 250,000 threshold, all one-participant plans of the *employer* must be aggregated. Does the *employer* include members of an affiliate service group? There are one participant plans sponsored by different members of an affiliated service group. Citations to the statutes or instructions are helpful but not necessary. Thank you.

Surviving spouse is entitled to 50% QPSA or 75% QOSA. He wants to maximize the benefits from this source, because the remaining benefits are going to be split. Is the 75% QOSA more valuable, or am I missing something? Thank you.

Thanks Peter! We were thinking along the same lines. Filing Sched P will not hurt, but may help in the event of a tax controversy. It is only a 10 min investment to prepare the Sched.

I believe there is an indefinite statute for failure to file a return. There has to be some benefit to starting the 3 year statute by filing a return even if delinquent.

We are filing delinquent Form 5500 for 2003. The instructions state that you can attach Schedule P to start the statute of limitations. Is there any benefit to attaching the Schedule P for those early years? What has everyone else been doing? Thanks.

The IRS extended several filing deadlines to 10/15/2025 due to the LA wildfires. Does this automatically extend the restatement deadline for DB plans as Rev Proc. 2018-58 seems to indicate? Thanks.

A TPA client was told by an investment provider that in order for the provider to reveal information about mutual clients they have to be an authorized TPA and in order to do so they have to complete a form that the TPA deems intrusive because it asks about their book of business, revenue, insurance policies etc. etc. How do other TPA firms deal with this - do you simply provide the requested information? Thanks.

Plan excludes fringe benefits from definition of compensation. Is jury duty pay included or excluded from plan compensation? I have not been able to find anything definitive. Thanks!

Thank you everyone for your responses and sorry for the late check-in. The rules outlined are pretty clear and thanks to @C. B. Zeller for the reference to 412(e)(1). Schedule SB is required if the plan is qualified or if it is subject to ERISA. We are working with an outside consultant, and still do not have clarity on ERISA coverage. It is clear that SB is required up to the plan disqualification date.

The IRS entered into a closing agreement with plan sponsor agreeing to treat their DB plan as disqualified. Plan sponsor filed Form 5500 with an explanation stating the Sched SB is not required due to the provisions of the closing agreement. The IRS is threatening penalties for non-filing of Sched SB. Based on the instructions and the regs is a Sched SB required for a disqualified plan? Thanks!

Matching contributions fail coverage due to allocation conditions. Plan has failsafe language. it is FTW document. Can you bring in participants who did not defer and give them no match because they did not defer? Seem right based on plan language but seems wrong to bring in employees for coverage without giving them a contribution. Thanks.

Matching contributions fail coverage due to allocation conditions. 1. To correct, we have to provide QNEC to some NHCEs at the ACP rate. Can these QNECs be used in the ADP tests? Can they be used in the ACP test I believe the answer is yes to both 2. Or do we run the ADP/ACP tests first, then make QNEC to correct ACP failure which will correct the match coverage failure? I think # 1 is the correct methodology, but looking for other opinions. Thanks.

Thank you both. 72p does say that the 50k limit is applied at the time the loan is taken, so I think we are fine too.

Participant takes 50k loan from two plans sponsored by unrelated employers. Subsequently, the unrelated employers become a controlled group, and now the participant has loans that exceed 50k from the new controlled group. Is there a violation and how to fix it? My initial thought is there is no violation, but want to get other opinions. Thanks.

Interesting. Thanks for your insights. My question though is how does this analysis show that the amendment itself is non-discriminatory? I would have thought the numerator would consist of folks benefitting from the amendment. There is always something new to learn!

Let's say there are 3 HCEs and 7 NHCEs (group A) who are eligible because they satisfied the age and service requirements. There are 2 HCEs and 10 NHCEs (Group B) who are not eligible. 1 HCE and 2 NHCEs from group B were allowed premature entry. Is my 401a4 based on Grp B: 1/2 HCEs and 2/10 NHCEs for 40% Or is it based on Grp A: 1/4 HCEs and 2/9 NHCEs for 88.89% Hope this question makes sense. I am trying to determine the correct numerators and denominators. Thanks for your help.

The plan allowed 1 HCE and 2 NHCEs to enter the plan prior to satisfying the eligibility requirements. My understanding is that the amendment needs to pass 401(a)(4). My question is ... who do we include in the 401(a)(4) test - eligible employees, or ineligible employees? Thanks.