Lou S.

Unlike the current year / prior year testing options that must be stated in your document, you can change your testing for otherwise exludable from year to year and use which ever results give you the best case scenario. Though we usually find throwing out the folks who have not met the statutory exclusions tends to give the best results as there are often a lot of NHCEs at 0% in the that group.

With the expanded eligibility have you tested otherwise excludeable employees separately? If not it may help your testing results. Or you may have already tried and it still fails.

I think you would probably be fine with the correction you propose as fixing a data entry error. Though you'd probably be on even stronger ground if you simply removed the erroneous deposit from participant, left it in plan, and used it to offset the next deposit. Same result, but the money never leaves the plan to go back to the employer.

I believe it creates problems for the SIMPLE-IRA that would need to be corrected as you are not allowed to maintain another plan if you sponsor a SIMPLE-IRA for the year. I'm pretty sure that extends to all members of a controlled group. There is a transition rule but I think that applies to M&A and might not apply to a startup. I don't deal with SIMPLE-IRAs so I'm not 100% sure on the correction but I think it involves disgorging the IRA contributions for the year of failure. There are number of similar threads about wanting to start a plan to replace a SIMPLE-IRA (though I don't know if your exact fact pattern) so you might search the site for threads on SIMPLE-IRA.

Assuming he had an election for 2022 to do that in the 401(k) plan, no I don't see an issue with what you are describing assuming that's the whole tax picture for the individual.

As I understand it his comp is "earned" on 12/31 and his "payroll period" for lack of a better term is the plan year, so his "per payroll" match would be the same as and annual match and not technically a true up..

I would assume so as well, but you know what they say when you assume...so I would read the document on the definition of compensation for top-heavy but I would be surprised if that wasn't the result.

Perhaps I misunderstood the question but my assumption was the plan allows in Roth conversion, the participant has existing SH matching funds, and would like to know if he can convert those to roth. It's possible he has only ROTH 401(k) and Pre-tax SH Match and would simply like all ROTH, but that's simply a guess on my part. I didn't contemplate this in the context of Secure 2.0 ROTH Employer contributions for which we have scant or no guidance at this point.

Unless the IRS issues further guidance I would agree with you.

But their deferral rate is not 0% it is undefined as "$0 deferral / $0 414(s) compensation" is not 0. At least not in any math class I took.

And matching contribution are not used in the gateway test which why we typically see the SHNEC used as opposed to SHM since the SHNEC can be used as the floor to start top heavy, gateway, and 401(a)(4) testing. Though the SHNEC approach can present it's own set of issues sometimes trigger a gateway for terminated employees.

I'm not aware of any restrictions beyond what the Plan may or may not allow on sources eligible for conversion. It may be that you need to set up a special source in the Plan something like "In Plan SH Match ROTH Conversion" so you can properly track any in-service distribution restrictions of the original source money.

It's been a while since I researched but if my memory is correct for HCEs you count the full amount for all testing including ADP, 415 and any other nondiscrimination testing, even if properly refunded.

Does the Plan require true up based on annual pay? If yes then you need to follow the document and give him a true up. The Plan can limit to compensation to while he is a participant but a non-deferring participant is still a participant. So if he entered 1/1 but didn't decide to start contributing until 7/1 he's still a participant as of 1/1.

Timing. 10%, let them figure it out with their tax return.

Yes it's possible that the plan could require 70 1/2, 72, or 73 depending on operation and conforming amendments. But my understanding is that if the plan document follows an older rule for RMD because of the document they can continue to make the payments but they are eligible for rollover and subject to the 20% mandatory withholding. Maybe I'm wrong in that understanding.

In this case it's all the same as the participant is 73 in 2023, is a non 5% owner, and has separated service in 2023. Under original age 70 1/2 rule, Secure 1.0 - 72 rule or Secure 2.0 - 73 rule, I believe you would get the same result in this particular fact pattern.

My memory was off on Self correction by amendment, you can't correct in-service by retro-active amendment to conform to operation, it's you can amend hardship retro active to conform to plan's operation, and only if it was primarily for NHCEs who were affected. So in this case the only "correct" way to fix is through VCP. Now if the client finds the resolutions he adopted in December 2022 terminating the Plan in December 2022 and gives them to you, I'll leave it up to you whether you want to walk away from the plan or play audit roulette. As for the failure to get Spousal consent, the fix is to get Spousal consent. If the spouse can't or won't consent the Plan is responsible for paying the spousal benefit.

Can you amend for in-service (assuming he is old enough) and get election forms completed (with spousal consent if applicable)? Then terminate the Plan? I "think" both of those issues are eligible for self correction under EPCRS. The other option which might be more prudent on your part is to refer him to ERISA counsel and then walk away.

I don't see a problem with it.

Did the new rules change the RDB? I thought it just raised the age from 72 to 73. So if he is 73 in 2023 and separates service in 2023 wouldn't he need a 2023 RMD with an RBD of 4/1/2024? Am I missing something?

I think that is the rule for a discretionary match. For a fixed match you can go over 4% but can't match on deferrals over 6% of pay. There are a few other conditions in the code but those seem to be the big ones.

It sounds like the match fits the exception §401(m)(11) and does not require ACP testing but you can double check to make sure you meet all the requirements.

No, you are using prior year testing and the prior year NHCE percentage is 0%. Probably should have amended to current year testing before the end of 2022.

Oh I agree it is very likely to get done. It's the timelyness of it getting done and the forthcoming guidance I worry about. I mean we are talking about a Congress debating whether or not it is a good idea to pay its past bills after all.