Lou S.

The maybe notice can only be issued for a Safe Harbor Non-elective. There is no "maybe we'll match safe harbor" A Safe Harbor matching contribution can be discontinued mid-year by amending the plan to remove the match, providing 30 days advance notice of the discontinuation to the effected participants and making all matching contribution from BOY through the discontinuation in the notice. In either case a "maybe" SHNEC that is "no" or a discontinued mid year safe harbor match is not treated as a safe harbor plan for that year and is subject to ADP/ACP testing and does not get the "deemed not top-heavy" exemption if that is a concern. If the advisor is insisting they are correct, have them provide a citation but you'll be waiting a longtime to receive one.

I think having it paid to the trust negates the ability of the spouse "to stretch" it for her life time and you are stuck with the 10 year rule but as Bruce1 points out, probably a better question for an estate planning attorney who is versed in interplay of both trusts as beneficiary and ROTH IRA rules.

Did the maximum lump sum drop do to interest rate changes or did the accrued monthly benefit payable drop?

I think I mixed up allocation rules for underfunded plans. I don't believe the PBGC has rules on allocating excess assets. Though the PBGC does ask for a lot of data in Plan terminations so whatever method they do chose be ready to defend it on audit.

I take it the Plan is not covered by the PBGC then? If you follow the document and pass IRS non-discrimination you should be fine. If you are offsetting, I think you would want to allocate the excess assets based on the benefit prior to offset and then apply any offset. As for reversion and QRP, does the current plan say allocate to participants or revert to employer and if revert to employer has that always been in place or in place for at least 5 years? As for favoring one HCE over the other, if the plan document allows or you can amend to something like that without a 411(d) cutback I don't see an issue.

What does the Plan document say? Does the proposed reallocation comply with the PBGC rules? Does the proposed reallocation pass IRS nondiscrimination testing? Is the Plan being submitted for IRS letter of determination with a request to rule on the reallocation method?

Oh yeah, if it's under examination correct the error as soon as possible.

As long as your contribution was in the min/max range under both and it doesn't cause any AFTAP limitation problems, I'd save the correct val to the file and provide a copy to the client but unless the IRS comes asking I'd just correct the next year 1/1 valuation and treat it as a data correction with possibly an attachment to the Sch SB to explain any issues. But I also don't see any issue that would be caused by filing an amended return. Lastly, you didn't say whether this plan covered employees or just owner and wife. If it is owner and wife only, you don't even file the SB with the 5500-EZ so you could just do an amended SB to the file in that case since the EZ itself would not change or need to be refiled as an amended return.

If you fail the 100x rule because the projected benefit dropped, I believe there are one or two other acceptable methods of satisfying the incidental death benefit rules but I'm that familiar with them so you'd need to look at the regs.

Do they not tell any NHCEs or just this one? and if just this one he must be the only NHCE. I'm not sure how forgiving the IRS would be with corrections of plans where no NHCE is benefiting. I'm honestly not sure what the correction is in this case should be. But I would think a 2% QNEC (50% of what the deferral would have been to get full match) for missed deferral opportunity plus 4% QNEC for missed match and get either an affirmative election or opt out signed fast to stop the bleeding.

I'm not sure you will find direct authority on that specific question. I think it is reasonable that the 415 limit for A is X/12 months prorated for the short year. And agree that the 415 limit for B is simply the 415 limit since there is no short year. So - If this is a stock sale then for the employees who were employed by A before the sale and now B after the sale then their 415 limit in B is the annual 415 limit - minus their 415 allocation in A. If on the other hand it is a asset sale then I don't think you need to reduce B limit by the allocation in A at all.

The client got bad advice on this course of action, at least with respect to 2024 because they are not considered a safe harbor for 2024, they just have a safe harbor matching formula for 2024 with the required matching contribution without any of the real safer harbor benefits for 2024. That is they are not deemed not-TH, they are subject to ADP testing and they are subject to ACP testing.

It's highest percentage ownership at anytime during the year so she became an owner in December. If it's calendar year she's an HCE for 2024.

That is an acceptable correction under EPCRS as far as I know. If a participant receives an allocation they were not entitled to under the plan due to an error, one way to correct it is to removed the funds from the participant's account, adjusted for gains/(losses) so the participant is in the same position they would have been had the error not occurred.

I agree that this could be covered by getting an IRS DL and specifically asking on a ruling about the excess asses above and beyond the IRS 415 limit for participants. But if benefits are increases to the 415 limit for all employees and there still excess assets, there must be some mechanism to deal with the excess where that is reversion to Employer or transfer to QRP but if it is against the terms of the document and less than 5 years from the change, I think the DL would be required to get the IRS blessing. It seems like one of those odd set of circumstances that should have a reasonably simple explanation but is at odds with the either the Code or the Plan document.

New or existing? You can't adopt a match after the year starts (to an existing 401(k) plan) and be safe harbor for that year. You can start a safe harbor match or convert a profit sharing mid year (as long as you allow for at least 3 months deferral). If it was an existing 401(k) you could have added a Non-elective for 2024 but not a match and been considered safe harbor for 2024. The TH minimum is 3% (assuming at least 1 key employee got an allocation rate of 3% or more which includes their 401(k) contribution) of 415 compensation for the Plan year, entry dates don't matter and goes to all eligible not just those making 401(k). The TH minimum "may" be reduced by any matching contributions an employee received IF the document allows. read the plan document for the answer to this question. The TH minimum "may" be limited to eligible non-keys IF your document allows. read the plan document for the answer to this question. The relevant IRS code section is 416 and the regulations there under. For 2025 assuming you did everything right with notices and are still matching safe harbor, you will deemed not top-heavy for 2025 if all you have is deferral and safe harbor match you are good to go, no additional top-heavy minimum. You can ask your TPA help explain your options for 2024 but you may be stuck with a 3% contribution for everyone eligible based on full year pay. That would be your maximum exposure but it may be lower if you can offset for matching contributions received and exclude key-employees.

Depends what you are are talking about. Is it for funding or payout? There is no way to waive the phase in that is defined by the Internal Revenue Code. When you pay out the 415 100% of pay limit is phased in on service which includes all year even the ones that existed before the Plan. And base on DOH both owners will have 10+ years of service at the end of 2026. Assume you've worked enough to satisfy the Plans service accrual rules. When you pay out the 415 dollar limit that is phased in on participation which only includes years the plan is active and at the end of 2026 it will be impossible to have more than than 7 years of participation given the plan's start date (unless you have participation from a prior DB plan but then you would also need to off set for prior payout) so you can get no more than 70% of the dollar limit. But that is payable at age 62. Since at the end of 2026 neither of you will be age 62, you'll need to actuarially reduce the figure from age 62 to payout age. And the overall limit is the lower of those two. Then when you convert that to a lump sum you need to use both the plan factors and the IRS factors and the lump sum is the lower of those two numbers. And figuring this all out correctly relies on knowing the Plan's actuarial assumptions and the underlying demographic data for the participants because they can affect the calculations and cause it to be lower than the IRS absolute max which probably what CHAT GPT is spitting out. So if you are getting 3 different numbers, the one who has the most information - your TPA - is probably the correct one.

You can try this site, but I have not reviewed it accuracy nor its compliance with all regulations. But it on the surface it looks like it is asking for all the right variables. https://pensionresource.website/EAMain?content=EAMain.Calcs.Proj415Lumps

If you're making 22% returns that's great but it's also likely to limit your contributions and or cause you to be overfunded on a 415 basis. Neither of the owners are at the comp limit from what you've shown so you're going to wind up with the lessor of the 3 year high comp or actuarial reduced dollar limit from age 62 to payout. It looks like both will have 10+ years of service but only 7 years of participation at the end of 2026. You should probably ask the actuary for an analysis of the funded status with a projection to 2026 and be prepared to pay for it and come up with a strategy limiting the overfunding. That might include more conservative investments, discontinuing contributions, covering more participants (if possible), increasing owner salary to raise the limit. Thous are just a couple of things but with out access to you plan data it's really tough to give you a final answer that you want. But if the Plan's actuary told you the 415 payout limit is X and the plan assets of Y are greater than that, they are probably correct.

Since it sounds like you still need to file a final return, filing an amended return to correct the asset data seems like the simplest and and most correct course of action. Whether they do that now or concurrent with the final return is up to them.

It's unclear if a mistake was made from your post. What actually happened to the assets? Did some rollover to the new plan but they reported those as transfers and the money that went to participants that didn't go to the new plan reported as distributions? Did they actually get elections from everyone for distributions? As for ignoring, since they acquired the stock, they acquired any issues should the IRS ask. But if the only "error" is the money leaving was reported on the wrong line I'm not sure how much liability there would be. OTOH, if they double reported it and the asset flow doesn't balance, you'll probably need an amended return anyway.

Unless she's an eligible employee, I think you have an exclusive benefit rule problem if they roll it within the Plan from his name to her name.

Unlikely the IRS is targeting your firm specifically. Though you may be doing plans that the IRS are targeting at a higher rate in your area. You can always ask the auditor the reason for audit, they are usually pretty open about it in my experience. I had a couple audits about 2-3 years ago and both were audits of the non-union plan but they also had union employees. And both auditors told me they were targeted over coverage issues as they were checking number of W-2s v number of eligible employees reported on 5500. Both closed without issue. And the biggest thing they were looking for was a record that the union employees were covered by a CBA plan and the non-union plans passed testing.

I suppose the plan sponsor could treat it as a prohibited transaction, return all the funds to the trust with interest and file a 5330 for the prohibited transaction excises taxes for 2024 and 2025 and then decide if they want to go through VCP to get the IRS blessing on that correction. And then proceed with paying out everyone from the trust like they are supposed to do. Is this a PBGC plan, that could add additional complications.

It has to pass the test on BRF. If he's the only one who has the option then 0% of the NHCEs have the option it's not going pass since the ratio will be 0%.