justanotheradmin

they can put a class exclusion in the document, and as long as testing passes with those folks as zeros in the test, its fine. same as any other class exclusion. But if the exclusion covers the majority of the NHCE, and all the HCE are in the plan, likely testing won't pass.

just minor additional thoughts - if you have made a written request for the SPD and have not received it, that is usually something the DOL, EBSA can get and forward to you. Are you/were you a highly compensated employee? If so, and you are requesting a lump sum distribution, it is possible the funding is not adequate to allow for a non-annuity distribution. If the new actuarial firm is redoing the work from scratch, back to the beginning of the plan, that can take some time, and might be drawn out based on all the things everyone has already mentioned. Did the employer have a 401(k) plan as well? Were you eligible for that plan? For very small employers, it can be more cost efficient to give large benefits as employer contributions into a 401(k) plan, rather than retroactively add everyone to a DB plan. If that is the case, or something they are considering, then likely compliance for both plans would need to be redone back to 2020. Many small business owners seem very entreprenurial to me, and if there are other businesses they have that were part of a related testing group, but weren't included in the plans correctly, the complexity of the correction might be larger than you realize.

they are still in your test. the test will pass though because the HCE group will be 0%.

the term new comparability is used in a variety of ways, but for your situation, you should pay attention to C.B. Zeller. Precision of language is important when talking about these tests and allocation methods. General test, rate group testing, ABPT, coverage, cross-testing, all refer to different things. Cross testing is specifically the idea of testing Defined Contribution benefits on a Defined Benefit basis. Or Defined Benefit accruals on a Defined Contribution basis (but that is far more rate). New comparability is a similarly used term. That's not what you are doing here, and everyone being in their own group or getting custom amounts does NOT require the use of cross testing. As mentioned above, general testing on an allocation rate (DC) basis is fine to use.

and yes there will be additional testing requirements. the EE who are eligible for deferrals, but not for SH, generally need to be tested for ADP/ACP. If there are no HCE in that testing group its usually not a problem, but is another thing to be aware of and perform each year.

Are the hours going to be counted forever? What if it takes someone three years to reach 1,000 hours, do they want the person let for the safe harbor and profit sharing at that point?

assuming this is via ach, sounds like its late then. hindsight is 20/20 the employer should have at least revised and submitted the people they could. and then only a portion would be late and in future years, they should get people added to the recordkeeper sooner, even if the deposit is going to occur at the 11th hour. no reason to wait to input employee data until the 11th hour.

you are going to need to provide more details. Late how? After the deadline in order to be deductible? Generally tied to the organization business tax return filing deadline? More than 12 months after the year end so that it creates a possible 415 issue?

some things to think about: "No HCEs would benefit from this change" seems like a broad statement, and if any of the HCEs are also the owners, a smaller contribution to the NHCE to help testing seems like they are benefiting (even if not in the plan). Would a larger contribution to NHCE get the same result for the HCE's contribution. If so, the proposed amendment is purely to reduce the amount necessary to the NHCE while maintaining the HCE's higher benefit. Its not the same as saying "No HCEs would have increased plan benefits from this change" Could the employer adopt a PS only plan for just that person now, for 2024 and then merge the two. If so, is it allowed to save that step and just do the amendment? is the NHCE vested? would they be vested in the additional contribution? This is why individual group / new comp plans should almost never have allocation conditions. Especially small plans. It can be very cost effective to give a large PS contribution to a terminated non-vested employee and help testing, which wouldn't be allowed if the plan has a last day provision. In this case, its the hours that is the hang up. If testing passes with the term person getting zero PS, that's fine. None of my musings are to suggest action one way or another.

Keep in mind that HCE does not equal HPI . The Roth as catch-up applies to highly paid individuals, not highly compensated. There will be some overlap, but not always.

Thanks Paul, I'll start there. and yes, copies of the agreements and documents have been requested. These seem to be more and more common, so I need to get more familiar with the impacts.

yes - assuming the plan document allows for it given the late timing (it might say something more reasonable like those types of elections impacting compliance testing are due 30 days before end of year so the plan admin can prepare for year end testing), and the plan administrator is able to accommodate it, why not? I'm not aware of anything in the rules that says the election has to be made available until the last moment of the year. But if the plan administrator can accommodate it and the doc allows, sure.

Does anyone have any good resources, articles, webinars, links etc on how testing is impacted when rank and file workers are handled through a PEO as their employer, but the owners are not? I've done some searches here on BenefitsLink but haven't some across anything particularly useful, but please feel free to share links to other related threads too. The PEO workers are covered by the plan offered by the PEO, the owners are not, and want the business to sponsor its own plan. I am fully aware PEO co-employment is NOT the same as Leased EE status, which is why I'm asking. I've had some sponsors argue that the NHCE are not their employees at all, which doesn't seem right to me, but I am not well versed in PEOs, and I'm sure there are varying flavors, so who knows. Think basic 401(k) plan with a safe harbor provision. Thanks folks!

Seems it might work as follows: Item3 - electing out - presumably they would complete a deferral election form for the regular 402(g) amount without catch-up ($24,500 or whatever it gets indexed to for 2026), and if the ADP test fails when performed in early 2027 necessitating refunds the amount that would be reclassified as catch-up would instead be distributed as pre-tax deferrals. item 5. - the participant would complete a new deferral election form - and if desired included the higher election amount (up to max including catch-up), and also if the ADP test fails and any portion can be reclassified as Roth Catch-up that would occur rather than being distributed.

Is the Earned Income reported on Form 1065 K-1, income for the individual for purposes of the 401(k) plan if the K-1 is issued to a P.C.? My answer is no, but I am second guessing myself and want another opinion. Scenario Plan Sponsor: LLP , Participating Employers are two P.C.s LLP has regular W-2 employees that participate in the plan. Those are not in question. The shareholders of the LLP are two Professional Corporations and are clearly listed by the P.C. names on the individual 1065 k-1. Think "Jane Garcia, a Professional Corporation". The LLP as well as the P.C.s appear to be listed as active with the Secretary of State. Line i2 says "What type of entity is this partner?" and it says S Corporation. Jane Garcia - receives a Form W-2 from her P.C. She does not receive a W-2 from the LLP. Jane is arguing that the earned income on the Form K-1, from the LLP to the P.C. counts as personal earned income to her and also as plan compensation. Since the actual shareholder is a corporation, and is listed as one both in name and entity type, my understanding is that the earned income reported on the K-1 is NOT personal tot he individual. But I am getting so much push back from "Jane" and her advisors that I am second guessing myself. I am not a CPA, so I suppose its possible that there are special rules that apply to P.C.s that I am unfamiliar with so figured it would not hurt to ask the hive mind.

I still use some of the things from Janice Wegesin and as long as its not something where the rule changed, they still hold up so well. I loved her webinars and publications, always so helpful and technical and practical for people who actually do the work!

Any thoughts on a scenario where the HPI has no regular catch-up, but when ADP testing is performed, a portion is recharacterized as catch-up if that person also happens to be HCE. If an election is made as much as 18 months prior perhaps in January, and the participant elects no -Roth catchup, it would seem to follow that the participant would received a distribution to correct the failing test. Somehow this feels wrong to me, that a participant's election would impact the corrective action on a test, but I can't think of an alternative. I think it might also create scenarios where some HCE get refunds (elected no roth) and others just have their money recharacterized (yes made a roth election, or plan's default is yes Roth). When performing testing, each HCE's election will need to be known if they happen to also be HPI and age 50 or older. I haven't given this a lot of thought, so I'm sure there are nuances I'm missing.

if you read down this thread I think some of the comments will be helpful. It will come down to how the testing is aggregated and what methods are used to pass.

Are these all separate business entities? and the entity that employs the NHCE was not a participating ER to any of of the solok plans? Do any of the solok plans already have a SH provision? I often see SoloKs set-up with SH to NHCE only so that if a NHCE becomes eligible in the future its already addressed. If so, there may be a continuity issue with a new 401(k) plan if it doesn't have the same type of SH benefit. if the SoloK had a SH Match, and the new plan is SH NEC and they are part of the same testing group, they typically would not be able to use the SH provisions to get a waiver on the ADP/ACP testing for that year. You should also analyze for possible successor plan issues.

Some initial thoughts / questions I'm assuming there are NHCE that would have been eligible to defer as of 1/1/2025 but for some sort of written class exclusion. But those are assumptions, please correct if wrong. I would think SHNEC would need to be retro to 1/1/2025, to cover the entire period deferrals were available to the HCE. yes, there is a coverage/benefits, rights, and features issue - a retro corrective amendment to allow them to defer to correct the missed opportunity to defer along with QNEC if needed. If considering SH Match, I would expect a full missed match correction per EPCRS would be needed back to 1/1/2025 for the NHCE, but I'm not sure I even see SH Match as an allowable option. Why aren't the NHCE part of the HCE plan? Are they specifically excluded as a class? While it possible, its a bit unusual, depending on the industry and document provider. Why start a separate plan for the NHCE? There are valid business reasons to have separate plans for separate classes, but many small employers find it not worth the effort. Is there a top heavy issue?

Correct, once some has an affirmative election they are typically done for the year with autoenroll. If the plan document has a periodic sweep-in provision they might be subject to it in the future, whereby anyone who is enrolled at less than the auto % has to refill out an election each year, but that provision is specific to each plan. Plans should be giving an annual automatic enrollment notice to newly eligibility participants and anyone else subject to auto enroll. It might be technically allowed, but I've not seen plans rely on just the SPD to satisfy the auto enroll notice requirement. I see the auto enroll notice done as a separate item, similar to a safe harbor notice, updated and given annually. I do often see the autoenroll notice combined or given with the QDIA notice.

Folks should also check your software providers. The one I use defaults to a year of service ending on 12/31 if the date of hire is 1/1, but does have an option to change that to end on anniversary date instead. How software is programmed is not determinative of course, but might be helpful in know how others choose to count a year if you are on the fence about it.

If the sponsor has proof of payment(such as a transaction on the business bank account) I would take that as confirmation that the DFVCP submission was done.

if the entry date was immediate (not quarterly) upon satisfaction on the service and eligibility conditions, yes, December 31 makes sense to me.

I agree with this. The documents don't usually say "a year and a day of service" they usually mention a year. Looking at a basic plan document for a major provider, it says computation period for purposes of eligibility and regular 1 year of service is "12-month period beginning on the Employee's Employment Commencement Date". The anniversary date option also mentioned in the basic plas document - is described as "12-month period which commences with the Employee's Employment Commencement Date or which commences with the anniversary of the Employee's Employment Commencement Date" If I use @Calavera's reasoning each anniversary date would be both the first date of the computation period as well as the last date of the prior computation period. The specific language will vary by document provider, but double counting a date doesn't make sense to me. That's like saying 1/1 is both the first day of the new plan year and the last day of the prior.