justanotheradmin

Business has a SIMPLE IRA program, follows the rules to terminate it mid-year and replace with a qualified 401(k) plan. Partners are self-employed, do not receive W-2s, they do receive self-employment earned income from the business. Would you pro-rate their compensation for the year? to apply a portion of it to the SIMPLE and a portion to the 401(k) plan? Given that compensation occurs as of the last day of the year, that doesn't seem the right answer to me. Yes, deferrals can occur throughout the year, the IRS made that clear somewhere along the way, but end of year actual comp has to be sufficient to support it. If a person can make their deferral election all the way up until the last date of the year, because that's when their compensation is deemed to occur, then I would think the SIMPLE portion of the year would have $0 compensation and all of the compensation would be for the 401(k) plan. Related question - employer with self-employed earned income folks has a 401(k) plan, plan terminates mid-year. Since it terminated mid-year do the SE Income folks have compensation for plan purposes for that period, such that they could have employer contributions, deferrals, safe harbor etc? If the answer to those to scenarios are different, why?

@FORMER ESQ. is spot on. Providing the cite incase you need it. EPCRS Revenue Proc 2021-30 Part IV, Section 7.02(2) (2) Corrective amendments for Operational Failures. Operational Failures may be corrected under SCP by adoption of a plan amendment that conforms the terms of the plan to the plan’s prior operations, provided the requirements of section 4.05(2) are satisfied. 4.05(2) (2) Availability of correction by plan amendment in SCP. SCP is available for corrections made by plan amendment, as provided in section 4.05(2)(a), (b), and (c). In addition, a Plan Sponsor may adopt a plan amendment to reflect corrective action. For example, if the plan failed to satisfy the ADP test required under § 401(k)(3) and the Plan Sponsor must make qualified nonelective contributions not already provided for under the plan, the plan may be amended to provide for qualified nonelective contributions. 4.05 goes on into more detail about the requirements, so I suggest reading it in full, along with the other parts of the Rev Proc that it mentions.

Is the family member HCE? Is the plan only HCEs? such as a small owner only plan? it would be something to analyze as a benefits, rights, and features non-discrimination issue. But if the plan is 100% HCE or 100% NHCE maybe BRF testing would pass just fine. There are a variety of examples that illustrate the BFR analysis should consider not only the provision change itself, but the timing of a provision change, as well as who would benefit. For example - adding a loan provision for a short period just for an HCE to be able to take a loan - and then removing the loan provision some short time (how short?) later, would easily be problematic. If it walks like a duck, quacks like a duck, looks like a duck, is it a duck?

also - how recently did they close the prior CB plan? why did they close it? will there be lifetime 415 limits that the new plan has to track/consider?

The accrued benefits (balances) the participants see on their statements (or a participant website) are hypothetical. The actual amount of $$ invested in the plan's trust is different, and rarely exactly equals the accrued benefits. Unless the plan's document calls for something more frequent than annual (some do say monthly or quarterly), the hypothetical balances only would be updated once a year. The amount the employer deposits - has nothing to do with how much interest is credited and when, to the participant's accrued benefit hypo balance. Actual earnings - is not a common plan design for cash balance plans for a variety of reasons - what interest credit rate does the CB document say? There is not recordkeeping in the same sense that there would be for a 401(k) or 403(b) plan.

Sponsor has a 401(k) plan with an EACA provision. They want to change the plan to be profit sharing only, effective as soon as possible. How much notice is required to be given? I know 30-90 days is best practice - but is that required? Could they make the amendment effective tomorrow?

there isn't a requirement that I'm aware of. Here is a discussion that touched on that a bit.

Does any one work on pension plans that cover both US locations(US Citizens only) and Canada locations (with Canadian citizens/employees only)? I know it is allowed and possible, and that there would typically need to be provisions that may apply to ONLY the Canada employees, and ONLY US employees. There is an employer that sponsors a traditional DB plan, it is PBGC covered, and they are interested in expending the pension benefits to include their Canadian employees. Does anyone have some technical reading they can recommend? or if you do this kind of work do you have suggestions? TPAs I can suggest they look at that do this kind of niche work? Other thoughts?

not answering your question - but why move to the SEP? does the PEP not allow outright terminations for an employer?

Do I have this right? Deferrals were withheld from pay that shouldn't have been, and were sent in to that employee's SIMPLE IRA. All affected paydates are in calendar year 2026. Some questions: Is the employee okay with those deferrals as is, even though they are larger than intended? Would they sign a retroactive deferral election form for the employer to keep in their files as part of a self correction? And then they can sign a deferral election now changing prospective deferral amounts downward or to zero if they don't want to defer as much for the remainder of the year. Is the employer going to correct those paydates to show only the correct deferral amounts withheld? If so - then there is an advanced deposit of employer money in the person's SIMPLE IRA. It isn't pre-tax deferrals that would be distributed with a 1099-R to the employee as a standard correction. If there is an advanced/unexpected/misdirected deposit of employer dollars - can it stay in there? EPCRS corrections generally favor amounts staying in the the account if the amounts aren't large, the person is a NHCE and it does not take away from other participants.

I am sure. As of 12/31/2025 the forfeiture account does not have those dollars in it, not accrued or as actual cash. They are not available to be allocated as part of the benefits in the trust since they do not exist for the year in which you are accruing them for (using them for). If you don't believe me, I suggest you read the section of the plan's document that governs the use of forfeitures. If it addresses them clearly, it will say that forfeitures are to be used in the year in which they occur (2026) or the year following ( 2027) or some combination thereof, depending on that plan's specific provisions. This usage mirrors the various rules that apply to accruals in a trust, allocation of dollars, holding accounts, and the specific exception that grants forfeiture dollars a little more flexibility than regular assets in a trust, but there are still restrictions and rules that must be adhered to for the trust to maintain its tax-qualified status.

If they are keen on keeping the plan, I have seen successful VCP for instances where the initial plan document was missing completely. A lot of supporting documentation was required to satisfy the IRS, which those plans had. Such as asset statements, filed Form 5500s etc. Getting an ERISA attorney is the right step.

see the paragraphs about Safe Harbor Notices https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-plans-or-safe-harbor-notices I'm sure you've thought about these in relation to the compensation change - but in case not: will §414(s) compensation testing pass? is the cutback allowed? I know you asked questions on another post. so hopefully you were able to get the information you need to to do an analysis for the plan prior to any amendment being done

I don't know where that quote comes from. But changes in compensation that INCREASE safe harbor match aren't even generally allowed unless very specific parameters are met. I don't see how changes in the plan's definition of compensation to decrease the safe harbor match are permitted if they affect the NHCE. https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-plans-or-safe-harbor-notices " Prohibited mid-year changes The Notice provides the following list of “prohibited mid-year changes” that may not be made to a safe harbor plan, unless the change is required by applicable law or court decision. A mid-year change increasing the years of service for the vesting schedule for a safe harbor plan consisting of a Qualified Automatic Contribution Arrangement (QACA); A mid-year change to reduce or narrow the group of employees eligible to receive safe harbor contributions; however, this does not limit the ability of the employer to amend a plan mid-year to change eligibility service crediting rules or entry date rules for employees who have not yet become eligible to receive safe harbor contributions; A mid-year change to the type of safe harbor, for example, a change from a traditional safe harbor to a QACA, or vice versa; A mid-year change to modify (or add) a formula used to determine matching contributions (or the definition of compensation used to determine matching contributions) if the change increases the amount of matching contributions, or to permit discretionary matching contributions. However, a plan may make such a mid-year change if: the change is adopted at least 3 months before the end of the plan year, the change is made retroactive for the entire plan year, and the plan sponsor gives an updated safe harbor notice and additional election opportunities to each employee otherwise required to be provided a safe harbor notice at least 3 months prior to the end of the plan year. Other applicable law also may affect the permissibility of mid-year changes, including, for example, IRC Section 411(d)(6) (anti-cutback restrictions), IRC Section 401(a)(4) (nondiscrimination restrictions), and Reg. Section 1.401(k)-1(b)(3) (anti-abuse provisions)."

https://www.irs.gov/retirement-plans/fixing-common-plan-mistakes-failure-to-limit-contributions-for-a-participant Step 1: Distribute unmatched elective salary deferral contributions (adjusted for earnings) to the affected participant. If any excess remains, proceed to Step 2. Step 2: Distribute elective salary deferral contributions (adjusted for earnings) that are matched, and forfeit related employer matching contributions (adjusted for earnings). If any excess remains, proceed to Step 3. Step 3: Forfeit employer profit-sharing contributions until the annual additions longer exceed the 415(c) limits. The employer should report the corrective distribution made to the participant on Form 1099-R. The participant should include the distribution as income but does not have to pay the 10% additional tax on early distributions under IRC Section 72(t). The participant may not rollover the corrective distribution to another qualified plan or to an IRA. The plan sponsor should transfer the forfeited employer contributions (profit-sharing or matching) to an unallocated plan account. These amounts are used to reduce employer contributions in subsequent years.