Bri

I use "statutory exclusion" to refer to people not meeting 410(a)(1) and (4). Hired March 2021, entered July 1, 2022, terminated August 2022 before their "must be in" date in September 2022. Thought being, test the plan of employees like this consisting of just her. (She needs a 5% THM because she hit 1000 hours, as the DB plan spells out its TH comes from the DC plan for the 5.) And then everyone else would the actual gateway because they're tested against the owners. If the plan were able to also test top heavy separately for the excludables, then her disaggregated "plan" would meet the 401a26 exemption, I think, so that she wouldn't need a specifically meaningful benefit. I ended up not disaggregating after all, was probably a $300 difference out of like 500,000 in company contributions due, and most of it isn't vested anyway.

Fun stuff here, doing a DB/DC combo. One terminated NHCE is the only statutory exclusion. But she did get to 1000 hours and is getting a contribution credit, but not enough to cross the theoretical 0.5% threshold. My hope was that I could leave her out of the "main test" so that she gets a 5% top heavy minimum only under the DC and not the normal gateway 6.5% rate. Problem is, if I disaggregate the statutory exclusions, then I've got a "plan" with just the one NHCE who doesn't "benefit". And the Regulation 1.401(a)(26)-1(b)(1) excludes NHCE-only plans from 401a26 if (a) not top heavy (b) no HCEs (c) not aggregated for 410b or 401a4. The conclusion I'm drawing here is that I can't wait for the disaggregated top heavy testing under SECURE 2.0. Because I'm thinking either (a) increase the CB credit up to 0.5%, or (b) just test her with the non-excludables and give her the higher gateway. And since (b) is cheaper than (a), I feel like I wasted an hour trying to carve her out in the first place. Any other thoughts? --bri

If all your rate groups (not including deferrals) pass at 70%, then you don't need to pass the average benefits percentage test (which does include deferrals).

How about the new overpayment-don't-recover option new to Secure 2?

If there's no pay to substantiate it even as a nonelective contribution, why not use it to pay admin fees?

I had a plan like this, the one employee, NHCE, not told about the plan - ERISA counsel said the IRS is okay with using 3% as the MDO (and that it would cover the top heavy minimum, too).

It's more an issue when trying to pass coverage when using the average benefits test rather than ratio percentage test.

Missed people should get earnings. (If this is a pool, use the trust's earnings rate that everyone else got. Otherwise something similar to 401k missed earnings isn't inappropriate.) A less-easy option could be just to re-do the allocations as they would have been allocated, were those individuals included properly. Could make a big mess, though, in terms of adjustments due among participants (who won't like any explanation as to why funds would be shifted out of their accounts).

They could do a SIMPLE - nothing for non-employee contractors, W-2 employees would be offered if they met the eligibility rules being established, and the owners' contributions "from the company" beyond their deferrals would be a function of their net earnings from self employment (since they're owner-employees not getting W-2s).

Actually, it has to - contractors aren't employees.

Can I presume that if your plan doesn't even allow Roth then those catchups aren't allowed at all, and instead of recharacterization any ADP excess would have to be refunded?

Usually that just means they stripped out all sorts of questions from the adoption agreement and the basic plan document that aren't ERISA-specific. You don't need an "in-service withdrawals at 59½?" question, as the plan can default to yes and if the sponsor doesn't need one, she just doesn't take one. So the AA ends up being a quarter the length of usual adoption agreements. Anyway, I've seen that kind of document explicitly say something along the lines that if the employer ends up with an employee who could end up covered, then the plan sort of freezes up - no contributions allowed, and so it's imperative on the sponsor to get a "full-blown" 401(k) document.

Ha, maybe hide behind the Plan Administrator's right to call for an interim valuation during 2022 anyway. With such a large asset drop it might have been prudent to re-value the account balances ahead of a large distribution, such that the guy was only going to end up with 80k anyway.

Absolutely there's a big issue, the successor plan rule. Some "solo" documents preclude other employees from participating at all. So a new document would be a definite. But for the same plan.

(3)Definition of year of service (A)General rule For purposes of this subsection, the term “year of service” means a 12-month period during which the employee has not less than 1,000 hours of service. For purposes of this paragraph, computation of any 12-month period shall be made with reference to the date on which the employee’s employment commenced, except that, under regulations prescribed by the Secretary of Labor, such computation may be made by reference to the first day of a plan year in the case of an employee who does not complete 1,000 hours of service during the 12-month period beginning on the date his employment commenced.

I suppose there's "language" behind the scenes - Does the document say the BDF must be submitted to, or simply received by, the Plan Administrator? And is the contract with the Custodian spelling out that anything they get on behalf of the plan is deemed to be submitted to the PA, since the PA clearly would have access to Custodian's portal as to download their own local copy?

May a plan indicate that one particular employee gets his own definition of AE separate from everyone else's? I suppose another thought would be to increase the guy's benefit via -11g so that the 2023 lump sum of the new benefit equals the previously-calculated amount on the old benefit. Then that could be an extra accrual for the guy which who knows, might help your testing.

By the way, did they flesh out the timing rules on that? Company match could go in as late as 10/15 the following year, but participants aren't going to wait to see how it affects their tax returns they filed for 4/15. I'm suspecting it's the date of deposit, rather than the as-of date of the allocation, so that 10/15 match deposit the following year doesn't count as something for the previous 12/31.

Sounds like 267 is the right answer. Either use Box 1 plus the salary deferrals or use Box 5 plus the S-corp. medical

Wow, this topic wasn't so popular! Anyway, what if I mentioned that the document for the plan covering 10 of the 11 controlled group members has the TPG election. Then maybe the other plan for the other entity simply has an improperly-completed AA document error?

Nah, once you blow past 20,500 any deferrals start filling that catchup bucket.

Does your software back-calculate the total number of years each time you process the eligibility? Or does it potentially just increment by one, on top of the prior year's calculated total? If the participant was in between 800-1000, then the software may have kept her with 0 years of eligibility service as of 12/31/2021, and then not given her a year for 2022 either because of the <800.

So, it's known that if a client makes an election to use the top-paid group for HCE determinations, it needs to use the same election across all plans of the employer for the determination year. But what happens if separate plans from related employers have conflicting elections? I would suspect that since not all plans actually include the election, then the election is invalid and everyone over the pay threshold will count as HCEs. But it'd be nice to have something to point to. Does anyone have anything reliable for that? Thanks. --bri

The 6,500 in catchups don't count towards the 415(c) annual additions limit. So that total is really just the 20,500 plus 1,100.

I'd also surmise that the change in sponsorship comes with assuming all the plan's assets AND liabilities (meaning, the pending receivable contributions).