justanotheradmin

For the ASG question - IF they are one - there is a whole other issue of not having a SIMPLE at the same time as a 401(k) plan, by the same employer. And an ASG is treated as a single employer for those purposes, so generally cannot have both in the same year. Determining the status of the SIMPLE would be very important. The deferral limits for short initial year 401(k) plans generally aren't pro-rated as they are personal limits, not plan limits, but the plan document should address if there is any pro-ration of limits (deferral or otherwise) for an initial short plan year where there is no prior SIMPLE or predecessor plan. If there is a basic plan document for the 401(k) plan, you should read it carefully.

What would you propose as an alternative? The decision to amend the plan to allow for Roth is made above the participant level. If the plan is not amended, then the proposed participant communication seems appropriate. Unless the financial institution has discretion to make plan decisions, including to amend plans to allow Roth contributions(or disallow catch-up), I don't see any alternative. Plans are not required to offer Roth or disallow catch-up. Many the financial institution / recordkeeper do not charge enough or have a set-up that allows a lot of personalized customized plan design and follow-through, depending on the size of the plan. Unless they are on a service level where the financial institution is going to contact each affected plan sponsor personally, and educate them on the pros and cons of amending or not, I don't see it changing. Does the financial institution also maintain the plan's document for these clients? If not, they really aren't in a position to do much else. What is your role? If you are an advisor or TPA, those are the service providers I see doing more education with plan sponsors if a plan does not allow for Roth, but does allow for catch-up. I have had a number follow-up with sponsors throughout the year to educate and see if they would agree to plan amendments.

Why wouldn't the post sale contributions be allowed? if that business entity is still operating, people are still on payroll, the plan is not terminated(or frozen), then the post sale contributions have to be allowed. The change in ownership in and of itself doesn't change those participant's rights or ability to defer. A plan termination date prior to to the stock sale date does preserve a variety of other things, so often is preferred. But is not required. Also - what do you mean "scheduled for termination"? When the plan is terminated (benefit accruals stop), when it stops accepting deposits (trailing deferrals and employer contributions), and when it actually pays everything out and the trust is $0, are all different things. Absent a company resolution to terminate the plan(and subsequent amendment to the plan document to conform) the plan continues as is. It just might face additional compliance requirements. Since the sale already occurred - you should check with the business entities and see if their buy/sale agreement addresses the plan. I've seen cases where a termination resolution was drafted by the business attorneys and executed just prior to the sale, and then a copy included in the stock sale agreements. Maybe the plan is terminated already.

very similar to this error and correction - same correction and analysis principles under EPCRS https://www.irs.gov/retirement-plans/simple-ira-plan-fix-it-guide-you-excluded-an-eligible-employee-from-participating

https://www.irs.gov/retirement-plans/simple-ira-plan-fix-it-guide-you-used-the-wrong-compensation-definition-to-calculate-deferrals-and-contribution-to-participants-simple-iras

For the vesting - anything accrued prior to the change to the 3 year cliff would have to be on the 6 year graded or better. The amended could be written such that only new accruals are subject to the three year cliff. One simpler method is to amend so all old accruals are on a modified 3 year that is the combined better of the two (perhaps 0%, 20%, 100%) , and then new accruals are on a regular 3 year cliff. Another is to just use a modified 3 year schedule for old and new for everyone for all purposes. Lots of different ways to slice and dice, just make sure there is no cut-back.

so if I follow - the plan did not operate with an automatic enrollment provision - and because "the plan or contract is operated as if such plan or contract amendment were in effect" did not happen, it would not be a remedial amendment. The correction is still to amend retroactively - the various times I have submitted document issues to VCP that is always one of the requirements. Here, the plan would prefer SCP, so a corrective retroactive amendment still seems appropriate even if the plan decides not to utilize VCP. If that is the case - (and my apologies for citing the sunset provision and not the updated one) then I think it still follows that zero QNEC would be needed (assuming the plan satisfies the other requirements such as notice contents and timing). Where @Peter Gulia says "If that didn't happen, pursue corrections." corrections for which part? the document failure? the mandatory auto enrollment failure? the missed opportunity to defer/automatic enrollment? If the latter, the participants were given the opportunity to enroll, based on the plan's written provisions at the time. There was no operational failure, or failure to follow the plan document. So does a missed mandatory automatic enrollment provision in the document create an operational failure? I think I'm going a bit in circles. I do appreciate all the discussion and insight.

thank you @Peter Gulia thoughtful insight as usual. I will mull it over, but I think can be on board with the argument that it is within the remedial amendment period.

The calendar year end 403(b) plan in question is required to have the mandatory automatic enrollment provision as of 1/1/2025, as per SECURE. That is not in question. The question is how to correct a failure under EPCRS. The plan document did not include an automatic enrollment provision, and participants have not been automatically enrolled. There is no match contribution. A retroactive corrective amendment to add the provision, effective as of 1/1/2025 seems appropriate. And then analysis for a missed opportunity to defer - specifically a failure to implement an automatic contribution feature. Does it then follow that the plan can rely on the on the reduced QNEC provided in Rev Proc 2021-30 Appendix A part .05(8)? "(8) Special safe harbor correction method for failures related to automatic contribution features in a § 401(k) plan or a § 403(b) Plan. (a) Eligibility to use safe harbor correction method. This safe harbor correction method is available for certain Employee Elective Deferral Failures (as defined in section .05(10) associated with missed elective deferrals for eligible employees who are subject to an automatic contribution feature in a § 401(k) plan or § 403(b) Plan (including employees who made affirmative elections in lieu of automatic contributions but whose elections were not implemented correctly). If the failure to implement an automatic contribution feature for an affected eligible employee or the failure to implement an affirmative election of an eligible employee who is otherwise subject to an automatic contribution feature does not extend beyond the end of the 9½-month period after the end of the plan year of the failure (which is generally the filing deadline of the Form 5500 series return, including automatic extensions), no QNEC for the missed elective deferrals is required, provided that the following conditions are satisfied: (i) Correct deferrals begin no later than the earlier of the first payment of compensation made on or after the last day of the 9½-month period after the end of the plan year in which the failure first occurred for the affected eligible employee or, if the Plan Sponsor was notified of the failure by the affected eligible employee, the first payment of compensation made on or after the end of the month after the month of notification; (ii) Notice of the failure that satisfies the content requirements of section .05(8)(c) is given to the affected eligible employee not later than 45 days after the date on which correct deferrals begin; and" This seems like an aggressive interpretation of the correction options but I am open to being swayed that it others think it is perfectly reasonable and not aggressive at all. What say all of you?

Do you have an estimated wage compensation cut off for the employer contribution credit for new start-up plans? Originally $100,000.

Any thoughts on how the last week of the season will be impacted now that TE/GE has officially furloughed what appears to the the majority of their staff? Just curious what musing people have now that we are crossing the bridge.

Scenario 1: Plan has separate pre-tax catch-up and Roth catch-up contribution rates that are deducted concurrently with pre-tax and Roth contribution rates. A highly paid individual subject to the Roth catch-up requirement in 2026 has $10k in eligible comp each pay period and is contributing 5% pre-tax, 5% Roth and 5% pre-tax catch-up at the end of 2025 and does not elect to opt out of deemed Roth catch-up by zeroing out their pre-tax catch-up rate. My interpretation of the final regulations is that a pre-tax catch-up contribution should become available once the participant has contributed their catch-up limit in Roth YTD, i.e. after $8,000 Roth and Roth catch-up has been made in pay period 8. Q1a: Would the deemed 5% Roth catch-up election automatically cease to apply and revert back to a 5% pre-tax catch-up contribution rate starting pay period 9 without the participant making an affirmative election back to pre-tax or would it only revert if/when the participant makes that election? Q1b: If the participant is required to make the affirmative election back to pre-tax catch-up, is only making the pre-tax catch-up contribution rate change available after pay period 8 sufficient or do they need to be able to make the election sooner? If the plan allows, the participant would fill out an election form at the beginning of the year that says "10% pre-tax deferrals each pay period, less the following: 5% Roth deferrals per pay period, with the Roth portion capped at $8,000"

you are vastly over thinking this. First - participants don't get to say that their first $500 of deferrals (Roth or otherwise) are catch-up. Catch-up does not occur until a limit is exceed, or a reclassification occurs such as with a ADP test. they can say "If I have catch-up I want it done as Roth", or "if I exceed the regular 402(g) limit I want my deferrals to stop rather than have any catch", or "I think I will do the max deferrals, so I'm preemptively electing to do my deferrals as 50% Roth and 50% pre-tax" etc. Assuming there are no testing issues - At the end of the year - the HPI participant's deferrals are reviewed. If they are over the regular 402(g) limit, then the next question is "Does the participant have Roth deferrals that occurred during the year, such that the amount in excess of the 402(g) , is at least equal to the amount to be classified as catch-up?" Even if the person deferred Roth for the first half of the year, and pre-tax for the second half, if their Roth dollars are enough to satisfy the amount, then that's good enough. As far as an election by the participant - I would encourage plans to let their participants know - they can elect a portion Roth, and a portion pre-tax, and if the participant thinks they will go over 402(g) then they should probably try to elect enough Roth (either up front or throughout the year) so that it is going to be satisfied. If the participant election is such that "If I have catch-up contributions, I want them to be Roth" well then that's a different calculation. pre-tax would occur until the reach the regular limit and then Roth for the remainder of the year. If a participant is saying " if I am HPI and I have catch-up I want it done as Roth", and the plan would like to change the language on the deferral election form to be more specific, such that the election expires if the person is no long HPI, I suppose they could. but seems like it complicates things. "If I am a HPI and I have catch-up dollars I want them done as Roth and this election shall apply until I am no longer HPI, at which point my regular election will apply" "If I am not HPI and I have catch-up dollars my regular election will apply" "If I am HPI and do not make an election ..." the permutations seem endless... I think a simpler thing would a regular deferral election with an additional box: "If I am HPI I understand any dollars classified as catch-up will be classified as Roth deferrals unless I check the box below, in which case my deferral contributions will cease or be returned to me in the event I reach the regular non-catch-up deferral limit. This election shall remain in place until a new election form is completed" as an aside ERISApedia is having a webinar on this topic later this month. I plan on watching. I'm sure I will learn a few things and perhaps correct my understanding if i'm mistaken.

One issue I see is that Roth deferrals are withheld from pay. Is the employer planning on reporting Roth deferrals on the participant's W-2? And does the plan have a deferral election form on file for Roth from the participant? Would they plan on getting one? I often see voluntary after tax as a direct contribution from the participant, not processed as a deferral. Is that what occurred here? Is the person in question non-highly compensated? Lower paid does not always equal non-HCE. Without knowing more about the situation, I would hesitant to suggest reclassification to Roth deferrals as a solution.

were dollars withheld from pay as pre-tax deferrals? but they should have been withheld as Roth deferrals? Were they withheld as Roth deferrals , but just deposited as pre-tax? If the payroll is correct- but deposits were wrong, just as the recoredkeeper for a correction. If payroll was wrong- are you going to adjust payroll records? or are you leaving as is? If leaving as is - the participant should be offerred the option for an in-plan Roth conversion, which will convert the pre-tax deferrals into Roth deferrals, and the recordkeeper typically issues a Form 1099-R showing it as taxable to the participant.