Lou S.

What does the document say? Eligibility is not a protected benefit but often documents will grandfather those who previously met the eligibility conditions. Though in practice it might be difficult to suspend his election when it's now determined he became an HCE based on look-back comp. To me this seems like an overly complicated provision designed to create unforseen problems.

No it is not safe to assume that.

I think they are trying to ensure they have no HCEs in the otherwise excluible group so they don't have to run a 401(k) test and process potential refunds. It may be that the owners kids pop on the payroll that could cause testing issue with the less than a year of service group. And I have not seen that particular provision in practice.

While eligibility is not a protected benefit I don't believe you can retroactively amend the plan back to 1/1/2021. The Eligibility change would have to be prospective, that is a date after the amendment is actually signed.

Is he reporting it as taxable income on his 1040 (or whatever schedule attached to 1040 it is this year I think Schedule 1 but don't quote me)? Is he paying Self Employment Taxes on it? Was it for services rendered to the Partnership? If the answer to all 3 questions is yes, then you can use it as earned income for an IRA contribution.

As others have mentioned if the SM match is the only employer contribution the plan is "deemed not top-heavy" regardless of the top-heavy ratio. That said for the determination date of 12/31/2020 you include the full 401(k) amount (pre-refund). The refund made in 2021 is an in-service distribution and will remain in your top-heavy test under the rules for in-service withdrawals and look backs from the determination date as detailed in 416. As long as you meet the "safe-harbor only" rules under §401(k)(12) & (13) you are deemed "not top heavy". Once you have $1 dollar of allocations outside those rules, you are back in the 416 top heavy world and need to comply with those rules.

Once again you are right as usual Mike and a credit to this board. Thanks. After going back and looking at the code I agree that $0 is not more than 60% of $0 which is how the statute is actual worded. I feel today has been a success learning something new that previously took for granted.

0 / (0 + 0) is undefined. The key employee balances divided by the sum of the key employee balances plus non-key employee balances.

I'm not disagreeing with your conclusion, but is undefined more or less than 60%?

It's an interesting question and one I don't think was contemplated when the statute or regs were written.

So if you are not TH for 2020 and you are a safe harbor for 2021, I'm not sure I see an issue as you should be deemed not TH for 2021 if the safe harbor match is the only employer contribution.

Short of a time machine where she doesn't contribute in 2020, sounds like you're stuck with the TH Minimum. For 2021, if the safe harbor match is the only employer contribution you are deemed not top-heavy. I'm assuming all amendments and notices for SHM were timely.

If you are averaging the 24 months I think that's fine if your document has some sort of proration for years where the participant works less than 12 months. That said no matter which method you wind up using I don't think the 3 year comp can exceed the 3 year $275,000 annual limit ((2017 + 2018 + 2019) / 3)

For timeliness of minimum funding under 412, that remains as 8.5 months after PYE. You can get some situations where a contribution is timely for minimum funding but not for deductibility in a particular year and vice a versa depending on dates which can be different. Sometimes this can be used to your advantage in planning sometimes it bites you.

If you are a "3% yes" in the document, you can't go to "3% maybe" mid-year, you would have to make that change effective the next Plan year.

It sounds like your looking for Pooled Employer Plans introduced by the Secure Act.

Regs were finalized in July of 2018 (I think that's when it was) allowing for that change. The original position always seemed strange to me, the change was a welcome one.

Looks to me like it was corrected by reversing a payroll error that shouldn't have happened.

When was it deposited? Is it a pooled account or individual? If deposited in 2021, why not call the $500 a 2021 contribution? If pooled, don't you have a $500 profit sharing contribution? You say "after taking into account the contribution for employee", why not use that $500 to fund the first $500 of the employer contribution for the employee contributions? And then you have last resort - §415 excess refund.

Retro actively amend to allow in-service withdrawals of profit sharing money at age 35 or more than 5 years of participation? Might open the flood gates if there are other employee accounts to consider.

Are you saying she got the $750 as income and also left the 401(k) contribution in the Plan? If that's the case as I understand it you have theft of $750, an uncorrected 402(g) excess, and an incorrect W-2. If they reversed the $750 contribution out of her account while running a corrected payroll and W-2 due to the unexpected 27th payment, you're probably fine. But it sounds like the former was done and not the later.

I don't see where the recent IRS notice extended that particular deadline and the April 15th date is in the regulations under 402(g).

Deductibility of retirement contributions is tied to the due date of tax returns with extensions. So if the IRS extends a tax filing deadline for an entity, that extends the time to make a deductible contribution.

As long as the Plan's Trust document allows it, sure. It's not prohibited.

Can't say it's something I've seen before.