justanotheradmin

Thank you!!

That helps! at least it keeps me motivated knowing there is something out there! Thanks @austin3515

if the two testing groups are in the same plan, yes overall gateway must be met if one is tested on an accrual basis. Answer might be different it it is actually two separate plans being permissively tested together, and each plan covers two different sets of people (not the same people). Like a plan for division or Company A, and a different plan for division or Company B, assuming A and B are a control group or some such. i don't know for sure the answer in that scenario.

Similar Question - Non profit and For profit are clearly a control group (Non profit owns the for profit). Non- Profit has a large 403(b) plan with several hundred participants. For profit does not have a plan but would like one, small employer. There are a few HCE. The for profit cannot participate in the 403(b), but if they start their own 401(k) plan, I think testing would fail? They do not want a 401(k) plan to cover both entities, the non profit likes their 403(b). My understanding is 403(b) and 401(k) plans cannot be aggregated for testing, but if I'm wrong, could someone tell me? Am I thinking of this clearly? Issues: 401(k) with a 403(b) in the same testing group Different entity types in the same testing group Anyone have suggestions? My apologies if this would be better in a separate post of its own, it just seemed like a good place to ask about a similar scenario.

If the kids are not deferring the maximum - perhaps their tax advisor could educate them on IRAs. If they are eligible to make IRA contributions, might be better than messing up the 401(k) testing with deferrals. They could still be eligible for the plan, and help testing, but a way for them to still get tax savings, but not skew testing.

CuseFan has the best suggestion. Restructuring is sometimes also known as component testing. both testing groups would have to meet minimum gateway. Generally the youngest HCE + older NHCE are put in a group and tested on a contribution allocation basis, the older HCE and the younger NHCE are tested on future basis. For next year - I would not suggest adding in allocation conditions - if you do , it handcuffs who can receive an discretionary employer contribution. Your plan document might waive allocation conditions for purposes of meeting gateway, but what if a younger NHCE left partway way through the year, and it would be advantageous to testing to give that person a larger contribution? you would not be able to if the plan has a last day employment condition. That person would be limited to the Safe harbor, and perhaps gateway. I do suggest that safe harbor nonelective go to NHCE ONLY in plans that are cross-tested. If it works out to give the HCE 3% and not skew testing, that can always be accomplished with a discretionary contribution. Alternatively - for some future year - if the plan is small, owner comp is high, and general participation is low - sometimes it works out better for the plan to use safe harbor match. The owners defer the maximum, if their comp is high they can receive a large match, and then make up the difference in discretionary employer. Depending on the specifics, it might get the owners to the maximum overall limit with less minimum to the NHCE to pass testing. May not work as well if the plan is top heavy. But something to consider sometimes.

vested account balance.

Before getting into the Safe Harbor question - Does the service component pass benefits, rights, and features testing? Is the service based match formula discriminatory in favor of HCE? If the HCE are getting(or even more likely to get, even if not actually receiving it) the higher formula, and not the lower formula, does that pass non-discrimination testing? If a discretionary match is within the ACP safe harbor parameters - my understanding is that it has to utilize a formula that is non discriminatory. If it does that, AND is within the extra parameters, then it is possible to preserve the automatic pass on ACP testing that the safe harbor match portion provides. A service based formula (for match, or nonelective) in and of itself - is not automatically discriminatory. But for things like an employer nonelective would typically be subject to 401(a)(4) testing. So similar questions have to be asked about Match. I hope others will provide more specific insight.

The owners might not have very high compensation. If person's earned income for plan purposes is $85,000 it will be hard to get a maximum contribution with just deferrals and employer. If the owners have personal taxable investment accounts with large balances, its a way to basically transfer $70,000 from that account into a Roth account each year. And then instead of sitting in a personal taxable investment account, the money sits in the plan as roth and grows tax free. I'm not a big fan personally, but that's what I hear from some that use it for that purpose.

I think the ASG question needs to be answered first. If there is one - the combined limits are only pro-rated under SECURE 2.0 if the SIMPLE is terminated and a replacement 401(k) is immediately put in place, and all the requirements are met. Which doesn't sound like occurred. So trying to determine deferral limits for this scenario is outside the scope of the language in SECURE 2.0, and you need to look to EPCRS for what to do when there is both a SIMPLE IRA program and a 401(k) plan in the same year by the same employer. When there is a SECURE 2.0 compliant SIMPLE term + replacement 401(k) the pro-rated limits are just math, based on the days and portion of the year each one was in place. If you want some examples of how the math works, I think ERISApedia had a webinar that covered that last year, as did several other providers, if my memory serves. The combined prorated 402(g) limit is specific to that single employer, for those two (SIMPLE + 401k) combined. Not the participant. If the combined prorated limit is $22,000 and the employee maximized those, and also works someplace unrelated with a 401(k) plan, they can defer the difference up to the annual regular 401(k) limit. Their personal 402(g) limit is not the same as what the employer's has to apply. If there isn't an ASG - then company B is just starting a new 401(k) plan. And the short rules for pro-rating limits, whatever they are in that plan's legal document, will apply. The existence of a SIMPLE sponsored by an unrelated entity is immaterial to the analysis. Perhaps the question you are trying to ask is more "if a person participates in both a SIMPLE and 401(k) from two unrelated employers, how is their personal deferral limit impacted?" not as detailed as you might need, but here is a starting point for additional reading https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-one-retirement-plan

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