C. B. Zeller

Not sure I follow your comment about top heavy. Are you saying that none of the XYZ employees have EVER worked 1000 hours in a year, meaning they are all otherwise excludable and therefore don't have to receive a top heavy minimum contribution under SECURE 2.0 rules? If so, then I agree. However if any of them ever do work 1000 hours then they will have to receive a top heavy minimum because the DC plan does not consist SOLELY of deferrals+safe harbor, and therefore doesn't qualify for the top heavy exemption. If this is a concern that there might be XYZ people who work 1000 hours in the future, I'd recommend separating the 401(k)+safe harbor and the profit sharing into separate plans so that you can maintain the top heavy exemption. Anyhow, use $500k for your deduction limit calc. None of the XYZ employees are benefiting in the plan so you can't count their comp.

The gateway may not be tested using component plans. See 1.401(a)(4)-9(c)(3)(ii)

A plan which consists solely of deferrals and safe harbor contributions is deemed not top-heavy. As soon as a dollar of profit sharing goes in to the plan - regardless of whether it goes to a key or non-key employee - the exemption is lost. Now the plan must provide the top heavy minimum. First check the highest allocation rate to any key employee, including deferrals. If that's greater than 3%, then the top heavy minimum is 3%. Then look at each of the non-key employees, and see how much they received in safe harbor matching contributions. If they deferred at least 3% (or 5% if a QACA), then their safe harbor match would be at least 3% and they would not need any additional employer contribution. Then you have to give a profit sharing allocation to each of the other non-key employees who were employed on the last day of the year. If they received any match at all, then the profit sharing just has to be enough to get them to 3% match + profit sharing. If there are any non-key HCEs that received profit sharing, then you have to test the profit sharing allocation for coverage and non-discrimination. All of this is assuming that it agrees with your plan document. This is what the plan documents that I use say, but you have to read yours to make sure it's the same. For example, yours might give the top heavy minimum to all employees as opposed to just non-keys, or it might not have the last day requirement, or something else entirely.

I assume this is a DC plan? If so then 1.401(a)(9)-5 applies. So the default rule is that you use the entire balance, vested or not. However if the RMD exceeds the vested balance, then you only distribute the vested amount. If we're talking about someone who terminated during 2025, then also be sure to check the plan document's rules about when forfeitures occur. If they are deemed to have a forfeiture immediately upon termination (say because their vested account balance is less than $7,000) then their account balance as of 12/31/2025 (for the 2026 DCY) would only be the vested amount. For 12/31/2024 (used for the 2025 DCY, due by 4/1/2026) there couldn't have been a forfeiture by then so I think there's no question that the full account balance is used.

It's actually based on the employer, determined without regard to controlled groups or affiliated service groups. So if you have a plan sponsored by two companies, A and B, which are members of a controlled group, and employee X earns $100,000 from each A and B, then even though their plan comp is $200,000, they are not subject to Roth catch-up from either employer since their comp from any employer was not greater than the limit. Meanwhile if you have employee Y in the same plan who earns $180,000 from A and $20,000 from B, then their deferrals from A would be subject to Roth catch-up while their deferrals from B would not.

Cuse is correct. If your client needs proof, you can point them to IRC sec. 401(k)(12) which requires that the contribution be made to "each employee who is not a highly compensated employee and who is eligible to participate in the arrangement." Also see Example 4 in 1.401(k)-3(c)(7) of the regulations which is exactly on point that you can not impose a last day requirement on a safe harbor contribution.

This particular provision has actually expired: However, SECURE 2.0 sec. 350 codified essentially the same correction method into law at IRC sec. 414(cc). See also Notice 2024-02 section I, which gives further guidance, including how to apply 414(cc) to terminated participants.

If they want to be more restrictive, then passage of time is not going to accomplish that. They probably want to use a counting hours method, possibly with an equivalency if they don't/can't track actual hours.

Passage of time typically means that the participant becomes eligible after a period of time without regard to any service or breaks in service. It's similar to elapsed time, but without the service spanning rules - or rather, if the service spanning period were forever, instead of 12 months. Say an employee was hired on 11/6/2025, works for 2 months and quits on 1/6/2026. Then they show up again a year later and are re-hired on 3/1/2027. They are in the plan immediately on 3/1/2027, because more than 6 months have passed since their original date of hire. Contrast that to elapsed time, where they wouldn't get credit for their period of severance (because it was more than 12 months) and would have to work another 4 months after being re-hired in order to have earned a total of 6 months of elapsed time. It's probably a good idea to keep the 1000 hours failsafe in the document. While I can't think of a situation where it would override a 6 month passage-of-time requirement, maybe there are some class exclusions that it would be needed for. It also gives you some assurance, because it sounds like this passage-of-time provision is custom language added to the document. So, on the off chance that the IRS finds issue with it on audit, then at least you have the standard language to fall back on. As far as applying break-in-service rules, I don't think they would apply. But ultimately the interpretation of the plan document is up to the Plan Administrator, so they should abide by their best judgement, taking into account what has been communicated to participants about the rule, and probably with they lawyer's advice.

The 1-rollover-per-year rule only applies to distributions from IRAs, which are rolled over to another IRA. They can roll over as many distributions from plans as they like. They could also roll over multiple IRA distributions to plans without violating the rule.

By "AI consultant," do you mean a human who consults on AI matters, or a piece of software which is intended to function in place of a human consultant? I don't have any recommendations either way, just wanted to clarify the question.

Whether a plan is subject to mandatory auto enrollment is based on the date the CODA is established. Presumably the CODA was established when the profit sharing plan was established, so it would be after December 2022 and therefore not exempt.

The proposed regulations say that you count employees using the rules of 54.4980B-2 Q&A-5. Which says... If the half-time employees come out as 50% under this rule, then I would agree with your calculation and the plan would be exempt from automatic enrollment.

Assuming she's catch-up eligible, then yes. Yes. My understanding is that this is how the IRS applies the rule under audit. A participant's comp is not counted unless they benefit under the plan for the year, meaning that they actually receive some dollars, and deferrals don't count.

When talking about coverage testing, don't forget about the average benefits test. Depending on the size and demographics and contribution rates, this might be an easy win. Assuming that coverage is not going to pass separately, then they will have no choice but to change their plan designs. Obviously they could make both plans safe harbor, or make both plans ADP-tested. Or they could merge the plans into one, which would be either safe harbor or not. Other options might include fixing the coverage test by excluding some HCEs, or giving additional benefits to NHCEs.

The rule is that a participant has to receive at least some profit sharing in order for their comp to count towards the 25% limit. I don't know what source you are citing, but I imagine the author just meant that the definition of compensation used to apply the 25% limit includes deferrals, which is true. You can't just reclassify deferrals as catch-up because you want to, you have to exceed a limit. That's why I suggested giving some profit sharing in order to a) intentionally exceed the 415 limit, causing some deferrals to be reclassified, and b) make her compensation eligible to be included in the 25% limit. If she's under 50, and hasn't deferred the entire $23,000 yet, then she could also reduce her deferrals to make room for some profit sharing.

No. Elective deferrals are disregarded for purposes of the 25% limit - see IRC 404(n). Therefore a participant whose only contributions are elective deferrals is not considered to be benefiting for purposes of 404(a)(3). Therefore their compensation is not included in applying the limit. In other words, in order to count her comp towards the deductible limit, she would have to receive some profit sharing. Is the wife over age 50? If so, give her up to $7,500 (or more, if she's 60-63) in profit sharing. Her deferrals will be reclassified as catch-up, due to exceeding the 100% of comp 415 limit, and she will have some profit sharing so her comp will count towards the deductible limit.

1.410(b)-7(c)(3) is the reference. The relevant part states, with formatting added to make the point clear:

You would file the 2025 5500-EZ and check the retroactive adoption box. Of course an SB is still required to be provided to the plan sponsor, it just doesn't need to be attached or filed with the 5500-EZ.

Conversely, one might wonder what idiot came up with the idea of auditing something that you don't need to. Congress and the IRS have given plan administrators explicit permission to rely upon participant self-certification of hardships, unless they have actual knowledge to the contrary. So why would the plan administrator go looking for trouble when they had no duty to do so, nor liability for not doing so? There can be no good that comes from this, only problems.

To put some dates on the original question ... am I understanding it correctly, that you are talking about a plan adopted (say) 8/15/2025 with an initial effective plan year of 1/1/2024-12/31/2024? If that's the case, the first Form 5500 will be the 2025 form, due 7/31/2026 or 10/15/2026 on extension. You will check the box for a retroactively adopted plan on the 2025 form. You do not file a 2024 Form 5500 at all. However you will need to attach both the 2024 and 2025 Schedule SB to the 2025 filing.

The 204(h) notice applies to all DB plans, plus DC plans that are subject to IRC 412, such as money purchase plans (but not profit sharing plans). The notice has to be given 15 days in advance for small plans, but 45 days in advance for large plans. There are some exceptions in cases of mergers and acquisitions - the rules are in 54.4980F-1. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.4980F-1

I think it's pretty clear from the reg section you quoted that UCE benefits are not included in the exception. The sole exception is for prohibited payments under 436(d) and 1.436-1(d) that are made to carry out the termination of the plan in accordance with applicable law. That is separate from UCE benefits under 436(b) and 1.436-1(b). Now, let me ask you - do you have an actual plan that is terminating, provides UCE benefits, has an AFTAP less than 60%, and has had an unpredictable contingent event occur after the plan's termination date? Or is this simply a question of academic curiosity? If it's a practical situation, and if the sponsor feels strongly about having the plan continue to provide UCE benefits after termination, then you might want to put it in the termination amendment and see what the IRS says when you submit the 5310.

Yes.

If the 402(g) excess was also a 401(a)(30) violation, then the plan would have to distribute the excess now in order to correct the qualification failure. If it was not a 401(a)(30) violation - for example, because the participant exceeded the 402(g) limit only when combining their deferrals in this plan with another plan of an unrelated employer - then that excess couldn't be distributed until the participant has a distributable event from this plan. In either case, the participant will experience double taxation on the excess; once because it exceeded the maximum they could deduct on their 2022 income taxes, and again when it is distributed.