CuseFan

You're saying that the eligibility requirement for the match portion is 250 hours or service, correct, not an ongoing condition to receive? Yes, such employees would be otherwise excludable and could be tested on a disaggregated basis.

Yes, great points. We have plan sponsors sign off on "Plan Administrator Memorandums" that itemize their desires on administrative items that are implemented in practice now but amended for later, so there is file documentation when it comes time for the amendment.

I believe whatever provisions applied at the time the distribution should have been or had to have been made under the terms of the plan should be applied when corrective distribution is made.

Remember that IRS Notice 2024-02 extended this to 12/31/2026.

I think a spin-off is likely the best way to go. Subsequent termination should be looked at through all the facts and circumstances with respect to consideration of permanency, on which we've had many discussions in this forum. If her benefit is small, would her spun off plan have an EZ requirement? Yes, there is required actuarial work even if frozen, so keeping around not likely worth it. I don't know if her withdrawal as a participating employer is a termination or distributable event. She is no longer employed by an employer sponsoring the plan, so maybe. If she left benefit in plan as TVR then yes, I think that could trigger PBGC coverage. I haven't seen this at the micro level, is there a 5310-A filing requirement or are these exempt? 410(b) transition rules were crafted in the context of transactions that altered control groups rather than law changes, so maybe need some guidance (unless there was some in the recent notice).

Yeah, I missed that too before crafting my response, thanks Lou - your eyes must be younger than mine!

Paying under the default rules is certainly the safest way to proceed. The timing should be defined by the plan, right, unless he made a subsequent election that deferred it five years? Or does the plan allow timing election as well, like either the earlier of or later of age 65 or termination of employment? If he is 12 or more months before payment must be made under terms of the plan he can make an election now but must defer 5 years beyond that, so only useful if he doesn't want/need the money. As noted, the affidavit method has its risks but any and all tax consequences hit the employee rather than the employer is my understanding, so I don't think the company is liable regardless. That said, doesn't hurt to have that added layer of indemnity. I have not seen this before.

And I think it has to be that way because a failsafe provision needs to be defined/automatic without employer discretion, which would be available via 11(g) amendment if failsafe was not chosen in AA. 11(g) has requirements of its own (vesting concerns for terminated employees) whereas I don't believe failsafe provisions have that. However, if you have a large group terminated as part of a transaction then you may also have partial termination and associated vesting anyway.

This looks similar, but not exact, to our FTW basic document which has the following. Check further down in your document for similar language, which mandates you add all the ties. (3) Determination of Greatest Amount of Service. For purposes of determining the greatest amount of service, Employees in each group specified in (1)(A)-(C) shall be ranked in order of the greatest number of Hours of Service for each determination period. The Employee with the greatest amount of service shall first be considered a Participant (in the event of Employees with the same number of Hours of Service, all shall be added). If after application of the foregoing, the Plan does still not meet the applicable requirements, the process shall be repeated at each next lower level of service until the applicable test is met.

Thank you again Peter for more valuable insight and I don't disagree with anything you said. With respect to your poll, I don't have a feel for that. I suspect it is a very high percentage who innocently (probably not the best term there) do not know they are engaging in a fiduciary breach - and many likely do not equate a conflict of interest as a fiduciary breach. But that is just a hunch without any experience to support, FWIW.

Thanks everyone for your valued opinions. My only thought about it being gray rather than black or white was what if the sponsor (or a third party) did a diligent search and chose the TPA independently first and then such TPA offered free or reduced fee payroll services to their new client and there is documentation of such process? What if 401(k) fees were the same whether free/reduced payroll services were accepted, would that matter? I'm definitely not arguing for this, but if alerting a fiduciary about a potential breach (whether client or prospect) and calling out service providers that are facilitating such breaches, I would want to know if there is a fact pattern where this would be permissible. Ultimately, I would steer fiduciary to qualified legal counsel but business owners usually need a very compelling push to incur such legal fees.

I've been asked a question that I don't think is black and white but certainly smells funny if not outright bad. Start-up payroll/TPA companies appear to be offering free payroll services to companies that move their 401(k) plans to their TPA arms. Is this a fiduciary breach by the plan sponsor? Maybe, or with certainty? If the primary (any?) decision criteria to move the plan is the unrelated benefit to the plan sponsor and not solely in the best interest of plan participants, then that is clearly a breach, is it not? But does the mere appearance of a conflict of interest (and breach) mean that there is one? Would a participant even know? Would this even be discoverable upon a routine audit? Or are these types of arrangements littering the skies flying under the radar without scrutiny? I remember reading either something similar a few years back, where some economic benefit is offered to the employer if plan administration is moved, and thought the opinion or consensus then was it didn't pass the smell test. Thoughts and opinions please.

Agreed, and from what I had heard, failure to have the audit completed on time is not reasonable cause for late filing.

NHCE? Why is there even a limit? What about a retro amendment to remove the limit (for NHCEs)? If you refund I think you exclude from ADP test if NHCE but not if HCE, but don't know that part for sure.

Refreshing to see these occasional pop-culture (or should I say pops culture?) references which are lost/useless when chatting with our newer employees. Thanks

agree with your assessment

Damn, I opened a hundred packs of bubble gum and not one Joe Schlobotnik!

My position is that you need a current amendment to go from $1k to $5k to be able use the SECURE 2.0 jump to $7k and 2026 amendment. My reasoning is if the plan only has $1k then does have the default IRA rollover provision? (certainly there is no IRA provider) I don't know if the anti-cutback rules give you that. Maybe basic plan documents are generic enough in that regard that it's covered. Anyway, I'm in the conservative camp with B, especially for DBPs where the plan's cash out threshold also ties in to QJSA requirements.

Or, if there are non-owner HCEs and want to provide SH to them, you can also limit SH to non-Key employees.

I'm fairly sure #1 is no. Not sure about #2. Saw some ASPPA presentations that say compensation from all related employers is used for testing, HCE determination and deduction limits. But IRC 404 says for self-employed compensation is net earned income from the trade or business upon which the plan was established. I think the safest way to proceed is establish DB retro to 2023 with both entities adopting, determine DB NARs and MVARs using total eligible compensation from both, determine EBARs using compensation from just the adopting employer, and apply 6% limit using the same. Then have owner adopt DC for SE business in 2024. It is not optimal but still likely substantial opportunity retro for 2023 and better than waiting until 2024.

I understand Roth is ultimately taxable, but if profit sharing at first, is it not subject to the 25% deduction limit that would otherwise apply? Or are you assuming based on the numbers above that it's an issue in this case? I think the simplest way (and what gets done the most? opinions?) is contribute VAT and then do immediate in-plan Roth conversion before any investment experience, leave in the plan as Roth and not even bother with IRA.

What both our esteemed colleagues said - plan document must accommodate, subject to testing unless HCEs plan only, and too late for 2023.

Agreed. Once we got to "not treated as a separate participant" that all fell in line.

Love navigating the gray! The early termination for a business transaction such as selling the business should not be a concern unless the transaction was foreseen at the time the plan was established. That is, I would not start a plan effective 2023 if I had a contract to sell the business in a specific year in the not too distant future. Retirement is a trickier situation, as people plan to retire at a certain age all the time but then keep working for various reasons. Is having employees a positive or negative factor where the owner has plan for 2-3 years and then retires? Was it just a short-term tax deferral for the owner or did employees actually benefit? A lot of sides to the arguments and a lot of angles from which to approach accommodating the objective. If no employees to worry about, why not start the plan for 2023 and then freeze after 2024 or run it active another year or two at minimal earnings/compensation before ultimately terminating after 5 or more years? It doesn't get you to the presumptive 10 years but gets you closer - I intended longer but income dropped after 2 years so I froze and then after a few more years I decided to retire. BUT, your responsibility is to communicate the rules and various options and let client decide how to proceed given the risks.

The answer is yes, one DBP can cover them both, but the question is whether you have a single employer plan of a control group or affiliated service group (in which case you HAVE to have one plan covering both) or a multiple employer plan for which your reporting is a little different. If you don't have a CG under the new rules or an ASG, but want one, have one make the other an employee for a nominal salary.