CuseFan

Absolutely. Given the 9/15 drop dead date, we work backwards from there given the situation (solo plan, few employees, larger plan) for the time needed to complete the valuation, establish the trust/custodial account, execute plan documents, draft and review plan documents and come up with our approximate due date for the client to engage us for a prior year effective date. Don't want a sales rep selling a 2023 plan on 9/13/2024!

Be very careful because a pro rata allocation based on account balances might NOT be nondiscriminatory if those balances ON THEIR OWN are not nondiscriminatory. If balances accumulated under an aggregated cross-tested CB/DC arrangement that leveraged NHCE contributions to pass then you may need to allocate excess differently (such as flat dollar or percentage of pay) or include in a final year combined testing and pass in that fashion, which requires aligned the plan years so your CB may need to run to 12/31.

Also, you don't fully describe the error, in particular the errant contribution. If the error was not made, would that have resulted in more of a contribution allocated to other participants (we contributed $X to be allocated to those eligible based on pay) or simply would that contribution amount not been made at all (we wanted to contribute X% of pay for those eligible)? If the former, then the defect likely warrants correction where someone (employer, TPA, shared) makes the plan whole by funding, and then such is allocated. If the latter, participants have not been harmed, this is simply an inadvertent error the plan sponsor can choose not to recover.

I think they claimed a deduction for 2022, which needs to be amended on that tax return, which certainly evidences intent. But yeah, that would certainly be a Hail Mary pass and you wouldn't know if it was completed until the game, maybe even the season, was over.

Also, be aware that a pre-approved document being used may or may not accommodate the exclusion without grandfathering, and if what the plan sponsor wants is not supported and requires modified language, that could negate reliance and require a determination letter submission.

Yes, only benefiting NHCEs need to get gateway. Have these non-key HCEs accumulated balances such that it's not top-heavy (yet)?

Same situation you posed Tuesday but now asking if EPCRS might be a fix? Maybe, but that's now without its issues. This is likely not the typical self-correction fix and move on scenario, which means a VCP filing to request the proposed solution. Given that there is clear documentation (deduction) that they intended to contribute, IRS may be sympathetic to allowing a 2022 allocation, especially since the main reason for doing so is providing profit sharing to people who have left the company (very noble - don't see that much). However, if the allocation formula is cross-tested and would allow HCE(s) to max 2022 by this "fix" I think that is a MUCH tougher sell. Regardless, VCP filing response times work against you, especially for a non-routine/special issue, so you may not know until late this year (best case) or sometime next year for approval. I don't think IRS would waive any deduction timing or limits, so you might be doing a 2022 PS allocation in 2025. I don't know the ramifications for doing what you want now and then filing to get IRS to bless after the fact. Depending on the formula, you may be able to get all the actives in 2023 what they would have received for 2022 and 2023, just not the 2022 terminations. If the problem is owner(s)/HCE(s) not maxing out 2022, I think they just need to "grin and bear it" and they'll never forget another profit sharing contribution.

If top-heavy, the non-key HCEs need to get a 3% top-heavy minimum.

If I'm not mistaken I believe court cases have sided with participants, if they have proof they were in the plan, where the plan sponsor has not retained records to document the entitlement to and payment of benefits. I also think what DOL may view as a reasonable record retention and destruction policy would be much more stringent than what a plan sponsor or practitioner may consider. This is my non-legal practitioner memory from reading stuff over the years, and maybe my contextual memory is incorrect.

Basically, I think you are correct - EZ and then SF. rbr, I think it's the nature of participants (not employees) for EZ, having non-participating employees doesn't take you out of that. There is even a plan characteristic code for the situation where the "one-participant" plan relies on aggregation with another plan of the employer to satisfy coverage.

I believe the answers are (1) after-tax (unless it came from a an IRA or another plan, which should have been communicated at the time) and not a rollover; and (2) if after-tax, that $4,000 should have been treated as basis and the taxable portion limited to $16,000.

I think it has to be a 2023 contribution as it will also count as a 2023 annual addition.

If each location A and B satisfies coverage with respect to the total employer then if the allocation at each satisfies 401(l) you do not need to test further.

Agree with Peter. Even if you don't have a PT you could have an operational defect. If the aunt was sole beneficiary to the estate, no harm no foul maybe but Plan Administrator needs to get all the facts (not to mention follow the terms of the Plan).

It sounds like the owner just wants to skip some proper transactional steps and get the cash where it ultimately will end up, and just create a "memo" to document since there wouldn't be the transactional paper trail. I don't know how an IRS or DOL auditor might feel about that and do not think it's a good idea.

Look at eligibility for a CB credit or PS contribution independently to determine whether someone gets either or both, and then apply your gateway requirements, which might result in all being provided through PS. if provisions don't allow for enough to get gateway then you're looking at an 11(g) amendment. Other complicating factors include top-heavy and safe harbor non-elective. All this should have been flushed out when the CB was designed and implemented and PS provisions amended for compatibility. 1) Employed 12/31 but <1000 hours, CB depends on requirement, PS depends on top heavy. If they get anything in either plan then they must get gateway. 2) Terminated >1000 hours, CB depends on requirement, PS nothing. If they get CB they need to get gateway. If PSP has no overriding failsafe language for gateway then you need an 11(g). I like to see CBP with 1000 hour requirement and PS individual groups with no requirements, and if it's a SHNE then that's what you essentially need..

Got it, and for sure a corporate trustee would only accept trusteeship/responsibility for those assets that it also custodied. Here's another thought - if you can find a corporate trustee (recordkeeper?) that also offers a brokerage window, which might also accommodate the ability to transfer existing brokerage accounts' assets in-kind. That doesn't fix the MP issue but does get all assets under one roof/responsibility for simpler admin/reporting but somewhat placates those wanting their brokerage accounts.

Is there any compelling reason to remove the MP accounts prior to consolidating on a platform? They are already dealing with in-service limitations and QJSA requirements on those accounts, I would think that would become easier on a platform unless the provider cannot handle or handle differently than other portions. Note that MP in-service can be lowered to 59 1/2 now too, if that helps. If you really had to parse those out, I think you could spin-off those accounts into a new separate MP plan - essentially reverse the prior merger - and then terminate that plan. Participants would have to waive annuities with spousal consent, but you couldn't force that, and they could roll lump sums as desired into their IRAs or into the PSP.

I would agree with this if was to the exclusion of longer tenured and higher-paid employees, which IRS called out as abusive years ago. However, including everyone should not be an issue. Having fully vested K & SH come with a waiting period so that administratively you are not dealing with small payouts for short service terminations makes sense. MAYBE IRS would take issue if the employer had a lot of annual turnover within that 6-month eligibility period and it certainly wouldn't hurt getting legal counsel opinion of the provision within the specific context of that IRS abusive practice guidance.

Right, accountant will arrive at K1, from which you can derive the SECA deduction in coordination with W2 pay. Of course the contribution amount for the employee allocation is an expense against that K1, so the accountant may be on hold as well. I think the question is, if that adjusted K1 is $100,000, for example, and say the W2 is $50,000, is any employer contribution then split 2/3 self-employed and deducted on 1040 with 1/3 a contribution for the employee W2? That also results in the aforementioned circular calculation as the contribution for the employee is an expense against the partner's K1. I doubt there is any guidance out there and would agree that a proportionate allocation between partner and common law employee contributions is most appropriate. If the employer contribution is base on a percentage, then your calculations are easier as you start with employee allocation and work from there.

Excise taxes are on excess contributions, not earnings. But if you only did a partial correction by 3/15 - not ALL of the excess contributions AND earnings then you have not corrected by 3/15. I think IRS would deem the pre-3/15 payment as a combination of contributions and earnings such that the post-3/15 payment would have a contribution component. For example, if you paid $9,000 of excess contributions by 3/15 and then $1,000 earnings in April, I think you really corrected 90% or $8,100 in contributions by 3/15 and have $900 after 3/15 subject to excise tax. Maybe I'm wrong, but IRS generally does not favor partial corrections.

If the person is not a 5% owner then their required beginning date is generally based on the later of the applicable age or their actual retirement. Plan termination prior to one's retirement does not trigger an RMD based on age alone. BUT, consult the plan document as some plans (but not many) base their RMDs on age alone without consideration to retirement whether or not a 5% owner. and it's 4/1, not 4/30

Peter makes some great points, which brings up an interesting question I have for our group - in your experience, have you any plans with union covered employees that are excluded that have been audited where the agent (IRS or DOL) requested and reviewed the CBA to verify that retirement benefits were subject to good faith bargaining? Curious.

I have been away from this sort of admin for years but my recollection is (1) you can refund excess by 3/15 (avoid excise tax), (2) refund after 3/15 but before 12/31 (incur excise tax), (3) provide QNEC to pass test if current year testing, deposit by 12/31, or (4) if you do not correct by the end of the following year then a permissible EPCRS self-correction method is what you describe in (2). https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-the-plan-failed-the-401k-adp-and-acp-nondiscrimination-tests

pre-3/15, no excise tax, post-3/15 excise tax