justanotheradmin

Is 2025 a typo? Are you asking if 2025 Safe Harbor Match benefits can be reduced? What is the plan's definition of compensation? Is it W-2 based? If yes, then there is no cutback for 2025 because the final compensation for 2025 is already done. Excluding bonus for 2025 would have no affect if no bonus was paid during the calendar year. Unless perhaps there was a bonus paid in Jan 2025 that was for work performed in 2024. In that case, I agree, not allowed because its a cutback. Any amounts paid now, in 2026 would appear on a 2026 W-2. Even if for work performed in a prior year. Could you clarify? Are you proposing amending now for 2026? To exclude any bonus paid in 2026? Does the plan have a 12/31 year end? Or a different plan year end?

2% Shareholder premiums are generally already included in the box 1 figure. This is one reason why it is good to cross check comp on payroll reports against the actual W-2. Payroll reports through out the year do not usually include the 2% shareholder premium, it is tacked onto the final income reporting at year end and reflected on the W-2. An aggregated payroll report for the year may not include it, which it often is needed information to correctly determine Plan Compensation. The amount in box 14 is for informational purposes, not tax reporting purposes. So if the plan definition of compensation is gross W2 with no exclusions, usually you would take Box1 + pre-tax amounts in box 12. If there are pre-tax amounts NOT reported anywhere on the W-2, such as §125 or employee HSA contributions, those get added as well, because absent the employee's election to put money into those buckets they would have appeared on the W-2. Box 3 - I pretty much only use it for HPI determinations unless your plan doc has some interesting definition of compensation. Box 5 - this almost always means nothing for plan purposes unless the plan doc has an interesting definition of compensation

Ignore the sale for a moment, and ask the same questions. Can the plan terminate as of March 1? how is safe harbor impacted? If yes, what is the last pay date that is included as plan compensation? Typically this would be the last pay date on or before March 1 if that is the termination date. Once you figure out the answers to the questions above, then move on to the next question,. Does the pending/ anticipated sale change any of the answers?

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

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"