CuseFan

Do you have free access to ASPPA's recorded on-demand webcasts? Although documentation is an issue from what I and at least one other person have experienced.

I think you have more problems to consider. Was the other company a participating employer? If a solo 401(k) "product" was used then likely not and the document also would have precluded eligibility of any employees. I think you have a demographic coverage failure as well. It's not that they were eligible and not told that they could defer, but I'd bet that under the terms of the plan they weren't even eligible. So not only do you need to fix the missed deferral opportunity - I'd say you have to fix any demographic failure and document deficiencies. You say owner didn't contribute in 2024, but what about other years, when was this a CG, when were there employees? There might be some other solutions here but you need to dig into all the relevant details. If these employees should have been eligible then I do not think zero contribution is an acceptable fix.

You cannot permissively aggregate CBA and non-CBA populations - there is mandatory disaggregation. You may only permissively aggregate different CBA populations which are otherwise treated as their own separate "plan", see below, (v)(B) of that regulation. Therefore, I think you need plan language governing required testing. (B) Permissive aggregation of collective bargaining units. Notwithstanding the general rule under section 410(b) and § 1.410(b)-7(c) that a plan that benefits employees who are included in a unit of employees covered by a collective bargaining agreement and employees who are not included in the collective bargaining unit is treated as comprising separate plans, an employer can treat two or more separate collective bargaining units as a single collective bargaining unit for purposes of this section and §§ 1.401(k)-2 through 1.401(k)-6, provided that the combinations of units are determined on a basis that is reasonable and reasonably consistent from year to year. Thus, for example, if a plan benefits employees in three categories (e.g., employees included in collective bargaining unit A, employees included in collective bargaining unit B, and employees who are not included in any collective bargaining unit), the plan can be treated as comprising three separate plans, each of which benefits only one category of employees. However, if collective bargaining units A and B are treated as a single collective bargaining unit, the plan will be treated as comprising only two separate plans, one benefiting all employees who are included in a collective bargaining unit and another benefiting all other employees. Similarly, if a plan benefits only employees who are included in collective bargaining unit A and employees who are included in collective bargaining unit B, the plan can be treated as comprising two separate plans. However, if collective bargaining units A and B are treated as a single collective bargaining unit, the plan will be treated as a single plan. An employee is treated as included in a unit of employees covered by a collective bargaining agreement if and only if the employee is a collectively bargained employee within the meaning of § 1.410(b)-6(d)(2).

You complete required paperwork for an 8/1 annuity starting date (effective date of payment). Payments can be administratively delayed, which is essentially the time necessary to process the distribution and have the check cut and mailed. Saying it can't be paid until the annual audit is completed is not a reasonable administrative delay. What if you retired 3/1, would they delay payout until October? The audit is for the 2024 plan year and should have no bearing on your payout, unless you are a restricted employee (one of the highest 25 historically paid HCEs). In that case, plan must be 110% funded AFTER your pay out and maybe the audit is required for an accurate value of plan assets - that is the only potential logical reason I could think of.

Agree completely with Paul I. I also think these are typically larger plan sponsors and is also more prevalent with defined benefit plans that have been around for a long time, older cash balance conversions, and possibly ESOPs that pre-dated their inclusion in pre-approved plans. Most of this could be inertia, and then there is not wanting to continually restate and submit modified pre-approved plans.

Unless such employees would have to be included for coverage and nondiscrimination because they are not statutorily excluded you do not include for average benefits.

I agree, would only amend prior year filing if the correction was material. If it doesn't affect audit requirement or materially change active counts then I'd just correct going forward. So, 70 vs 69 - not material - 4 vs 3 I'd think about amending. My opinion FWIW

Correct - only works in HCE-only plans or very large plans that can also pass ACP testing because of generous match and excellent NHCE participation. Need to make sure that VAT contributions are tracked separately and get converted before any investment earnings accrue or pick up any such earnings as taxable upon conversion. This can be done via in-plan conversation or withdrawal of the VAT account, just make sure you have provider that can accommodate and all is properly tracked and reported.

The existing trust agreement should specifically state the procedures for replacing a trustee and appointing a new one. The new trustee could be seen as an additional trustee, not a replacement, so that distinction should be clear in some documentation, be it a resolution or amendment. There is usually a notice requirement for the exiting trustee, but since that is not possible given your circumstances then I think additional documentation is warranted. A clearly written resolution together with an amended trust agreement with the successor trustee should be sufficient documentation.

Agree, just be sure the basic document provides for eligibility failsafe at 1000 hours in 12-month computation period.

Interesting question. Similarly, what if one spouse worked elsewhere and there was a separate QDRO set up for the non-employee spouse within the plan, would you count that? I do not have a definitive answer but my inclination is that in either case you continue to count, and if distributed then count for 5 years. When a key or HC employee's account or benefit is partitioned or otherwise attributed to a spouse, beneficiary or ex-spouse, some restrictions/requirements remain attached. For example, in the DB world, if an HCE is restricted then his spouse/beneficiary/alternate payee is also restricted. In your case, I think it counts toward top-heavy determination, whether key or non-key, and the QDRO doesn't change that. IMHO.

Exactly, so w/o interest 1/7 of $105k is $15k in year one, 1/6 of $90k is again $15k in year two, so w/o any interest all years are $15k. With gain/loss, year two is 1/6 of whatever that balance is. If 10% gain, then 1/6 of $99k is $16,500 for year two. And so on.

Terminating the MP is probably the best option regardless, otherwise, a transfer of those accounts (versus an elected rollover) would require continued separate tracking and future annuity normal form requirement.

The SMM timing (legal requirement) severely lags the effective date of implementation, I suggest a best practice would be some sort of consolidated communication disclosing that and whatever else the employer is implementing/enhancing under SECURE 2.0. That is, take the current opportunity to "blow the trumpet" and get some positive PR - "as allowed by recent law changes we're making our plan better for you by ..."

HCE, you are correct. You may want to explore, with legal counsel and accounting input, the possibility of correcting now by applying FICA and Medicare taxes to the existing employer-attributed account (contributions and earnings) as if it just became vested, and then do properly going forward. Another potential fix is applying retroactively and paying the interest and late payment penalties, if these don't go back ages. Hope that is not your case as you don't mention related issues for any current or prior distributions. Again, consult legal and accounting counsel. The "penalty" for missing this, as you note, is that all payouts are then fully subject to FICA and Medicare, accumulated contributions and all investment earnings. Any investment earnings on contributions (and prior earnings, if applicable) already subjected to FICA and Medicare are not subjected thereto, which is why I would explore the prior years' fix and do properly going forward. At worst, you could probably split employer-based accounts into wrong portion (subject to F&M on payout) and right portion (apply F&M as contributed/credited). If your payroll is external, I'd review that contract/service agreement and look to seek some compensation or other recourse for the error. Good luck

Yes, if value of benefit exceeds $7,000 you cannot force out or force a lump sum. Some plans mandate commencement at normal retirement date, but most do not, so as stated above the person could defer benefits until RBD. Then, if still unresponsive, you can commence the benefit in the normal form - J&S if married, life annuity if not. You could try to purchase a deferred annuity that provides all the plan's options (including lump sum) but it would be very expensive if you could even find an insurer, as these are full of too many uncertainties that insurance companies dislike. It would be easier (but not necessarily easy and still expensive) to buy an immediate annuity for the specific option elected by the participant, but having an unresponsive participant does not facilitate that. Unless you're in the situation where this benefit must commence (upcoming RBD), I would just sit tight until you had to do something with this participant. You're not paying PBGC premiums, thankfully.

Return and re-issue proper checks is probably the best way to fix.

Peter, w/o knowing the exact facts, I do not see the time lag as problematic. My thought being, if done properly, the Plan Administrator (also likely Company X) instructs RK or TPA to initiate the involuntary cash out process which entails providing a 402(f) notice and at least 30 days in the election period. Adding administrative time on the front end and back end, a couple of months from start to finish is not unreasonable (if this is indeed how the situation unfolded). That begs the question and the initial ask from rocknroll2, if the cash out process begins when the account is under the threshold but exceeds such at the time of distribution, may it still be paid without consent?

Was it a default RO check? Otherwise, it would have to had been elected by A (so no problem), and if a direct payment be net of 20% tax w/h (again, no problem if taxes w/h).

Asset sale - practice B buys assets of practice A, owner A now becomes employee of practice B, plan A stays behind - no ownership overlap so no ASG. But on what basis/income does owner A make contribution to plan A?

Yes, after the sale I would say there is an ASG. I suggest unfreezing the DBP before the transaction (a MUST) and using the transition rule under 410(b)(6)(C), which applies to ASGs and also gives 401(a)(26) relief for the same period. 410(b)(6)(C) (C)Special rules for certain dispositions or acquisitions (i)In generalIf a person becomes, or ceases to be, a member of a group described in subsection (b), (c), (m), or (o) of section 414, then the requirements of this subsection shall be treated as having been met during the transition period with respect to any plan covering employees of such person or any other member of such group if— (I) such requirements were met immediately before each such change, and (II) the coverage under such plan is not significantly changed during the transition period (other than by reason of the change in members of a group) or such plan meets such other requirements as the Secretary may prescribe by regulation. 1.401(a)(26)-5 (5) Certain acquisitions or dispositions — (i) General rule. Rules similar to the rules prescribed under section 410(b)(6)(C) apply under section 401(a)(26). Pursuant to these rules, the requirements of section 401(a)(26) are treated as satisfied for certain plans of an employer involved in an acquisition or disposition (transaction) for the transition period. The transition period begins on the date of the transaction and ends on the last day of the first plan year beginning after the date of the transaction. (ii) Special rule for transactions that occur in the plan year prior to the first plan year to which section 401(a)(26) applies. Where there has been a transaction described in section 410(b)(6)(C) in the plan year prior to the first plan year in which section 401(a)(26) applies to a plan, the plan satisfies section 401(a)(26) for the transition period if the plan benefited 50 employees or 40 percent of the employees of the employer immediately prior to the transaction. (iii) Definition of “acquisition” and “disposition.” For purposes of this paragraph (b)(5), the terms “acquisition” and “disposition” refer to an asset or stock acquisition, merger, or other similar transaction involving a change in employer of the employees of a trade or business.

Also agree with all of the above if properly and sufficiently documented. As part of that - resolutions/amendments et al - I would also suggest that those should have been timely submitted to B's trustee/custodian and the titling on the account should have been changed on or about 12/1 as well.

Got it, thanks.

What is the reasoning for a separate plan?

You say overfunded DB plan and then this? I'm confused. If indeed an overfunded DBP, I don't see an issue with paying eligible expenses from the plan in the year incurred (current) regardless of the audited year and HCE/NHCE numbers for those years. If a DC plan where you were charging NHCE accounts currently to pay for an audit of a prior HCE-only plan year, that could be a concern, but not convinced that would be prohibited. With a DBP, employer funding is ultimately responsible for promised benefit either way.