Logan401

I answered my own question. I am going to treat the 6 months the same as the 12 months of eligibility. Problem solved!

Hello Everyone! I just need to clarify the rule for Option 1 for Otherwise Excludable Employees: The rule: The earlier of the first day of the next plan year after attaining age 21 and completing one year of service or 6 months after satisfying such requirements. The question: Let's say we are working on a 2023 profit share, and an employee was hired on 07/02/2022. The earlier of: 1st day of the next plan year after completing one year of service: one year of service = 07/01/2023, next plan year = 01/01/2024 Or 6 months after satisfying such requirements: 07/01/2023 + 6 months = 01/01/2024 (or is it 12/31/2023?) Question: Is 6 months after 07/01/2023 actually 12/31/2023 or is it 01/01/2024? Thank you in advance!

C.B., that is great news! My thought processes said "Yes", but I think I am second guessing myself. As long as it passes cross testing too, then this is viable. And, on a larger scale, say 12 HCEs & 61 NHCES non-excludable, if 8 of 12 HCEs receive an allocation, then only 29 of the 61 NHCEs must receive an allocation to pass coverage (71.31%). Agree?

No, not top heavy.

To keep this simple, I will use two HCEs and two NHCEs that are being tested for nondiscrimination. All 4 employees are non-excludable. Can one HCE & one NHCE receive an allocation, and the other HCE and NHCE receive $0.00? 410(b) test would be 100% Each employee is in their own group, and the plan does not have the SHNEC to trigger the minimum gateway. Thank you!

The main question is, can we amend the initial plan year to make it effective for profit sharing January 1, 2021 in order to open it up for the full annual additions limit.

There are only 4 eligible participants which happen to be all owners. They would like to max out their benefits to the $58k limit for 2021. Plan Document: Definition of Plan Year: The plan year is determined to be a 12-month calendar year or a prorated calendar year (short year) if adopting during a calendar year. Adoption Agreement: The initial plan year begins on the Effective Date of this plan and ends on the following December 31. If the initial plan year does not begin on January 1, the initial plan year shall be a short plan year.

The MEP is 12 months long, the client adoption agreement is effective 3/16/2021 as mentioned. if there are no new business exceptions, is it too late to amend to have the effective date 01/01/2021, as long as it is done prior to the due date of their tax return?

Greetings everyone. If a newly formed business started March 16, 2021 and adopted the plan effective March 16, 2021, are they subject to the short plan year proration rules? Or are they exempt from the rule because their business was formed later in the year? The plan is a Volume Submitter MEP, and the client adoption agreement states: "The initial plan year begins on the Effective Date of this plan and ends on the following December 31. If the initial plan year does not begin on January 1, the initial plan year shall be a short plan year." I thought there may be an exception for newly formed businesses. Thank you!

The allocation in question is a flat dollar amount, and no other employer nonelective was provided to trigger the gateway. That was going to be a follow up question, so thank you CuseFan for answering it for me.

The plan has each participant in their own allocation group. Is it okay to allocate $0.00 to NHCEs and $0.00 to HCEs and test them on an accrual basis, and test the NHCEs and HCEs receiving the same flat dollar amount on a contribution basis providing that the ratio testing passes?

One to satisfy coverage testing, the remaining for "just because". You are correct though. If it was to pass 401(a)(4), there must be economic substance.

I mentioned a few posts up that one NHCE was brought in because of coverage testing failure. I failed to mention about the remedy for this written in the plan document. Client now wants to give an allocation to all 5 termed NHCEs. Basically the one that was brought in because of testing failure can be included as part of the 2021 tax deduction, but the 4 remaining NHCEs would be tax deductible in 2022 since we would need an 11g to bring them in. I appreciate your help in this.

The plan document tells me that, to pass coverage testing that is failing, you must bring in NHCEs to the point of passing, and the last day rule does not apply. So, this is not an amendment, but simply following the terms of the plan.

The link to that discussion is here: https://benefitslink.com/boards/index.php?/topic/62590-11g-amendment/page/2/#comment-320881