C. B. Zeller

This is literally the definition of a 401(k) arrangement. Can you elaborate on what you are concerned about? Maybe provide some specific examples with numbers? When you said "They also allocate the 3% to all participants" does this mean a safe harbor non-elective contribution? If so there is no ADP test, so there is nothing stopping HCEs from contributing up to the annual limit.

The sections Peter refers to were added by SECURE 2.0 section 301, titled "Recovery of Retirement Plan Overpayments." The gist of this section is that plans do not generally have to seek recoupment of inadvertent overpayments. One of the exceptions however is that this does not entitle a plan to violate IRC 415. If the participant died in 2022, then presumably they had no compensation for 2023 and consequently their annual additions limit for 2023 would be zero. Thus any amounts allocated to their account for 2023 would violate 415 for 2023, and would not be eligible for the treatment afforded under 414(aa).

If it wasn't withheld from payroll then it isn't a deferral. It should be returned to the owner, adjusted for earnings. The earnings would be taxable.

Are we certain it was a genuine Roth contribution, and not a voluntary after-tax contribution? Roth contributions are 401(k) contributions, so they have to be made by the employer with money withheld from the employee's paycheck. VAT, on the other hand, is money contributed by the employee and generally doesn't need to come directly out of the employee's paycheck. If this was truly a Roth contribution, then what happened to the money that was withheld from the employee's paycheck? Is it still sitting in the employer's bank account?

I usually let the auditor make the call on this one, and do it however they prefer. Some of them have strong feelings about it one way or the other.

That's right.

Yes, exactly. Section 310 of SECURE 2.0 added a new paragraph to IRC 416 which says that employees who have not met the minimum age and service requirements of IRC 410(a) are not considered when determining if a DC plan satisfies the top heavy minimum.

I don't think that would be allowed. Sec. 603 notwithstanding, part of the definition of a Roth contribution is that it has to be made at the employee's election. If you force certain contributions to be Roth then they're not valid Roth contributions. Likewise, catch-up contributions have a requirement that if any employee is allowed to make a catch-up, then every employee has to be able to make a catch-up. So you couldn't take away somebody's ability to make a catch-up merely because they didn't make a Roth election.

Yes, but not exactly. Since there is a portion of the plan that is not safe harbor (the portion of the plan covering employees with less than 1 year of service), the entire plan loses its top heavy exemption. So all employees are now eligible for the top heavy minimum. The top heavy minimum can be satisfied by the matching contributions, but if you have an employee for example who defers only 2% of their pay and receives a 2% match, the employer would need to make up the additional 1% to get them to the 3% top heavy minimum. All non-key employees who receive no match - whether because they have less than 1 year of service and are not eligible, or because they are eligible but simply do not contribute - would need to receive the entire 3% top heavy minimum as an additional employer contribution, if they are employed on the last day of the year. It's worth noting that SECURE 2.0 changed the rules a little. Starting in 2024, employees who have not met age 21 and 1 year of service do not have to receive the top heavy minimum. This doesn't entirely fix your situation though, as your plan would still lose its top heavy exemption and still need to provide a top heavy minimum to those employees who have completed a year of service.

I imagine that the recordkeeper would want the Plan Administrator's acknowledgement that they do not have any actual knowledge to the contrary of the information provided on the participant's self-certification.

Neither farming nor cold storage are one of the specified fields in the regulations, and it sounds to me like capital is a material income-producing factor for both businesses. So I would say that neither one could be a service organization, so you don't have an ASG.

What fields are the two companies in? Is capital a material income-producing factor for either business?

Generally, you can only withdraw money from a 401(k) plan upon attainment of age 59½, termination of employment, financial hardship, or termination of the plan (there are a few other special distributable events like QBADs and QDDs as well). IRC 72(t) imposes a 10% penalty on any distribution from a plan, with exceptions for distributions made after age 59½, or after the death or disability of the employee, or if termination of employment occurred after age 55, or various other reasons. So it's not that the plan allows a penalty-free distribution at age 55 - it's that the plan would generally allow distributions after termination of employment (at any age), but if termination of employment occurred after age 55, then the 72(t) excise tax does not apply. The plan doesn't need to specifically allow this or really address it in any way; it's simply a consequence of the way the tax code is set up. However, a 401(k) plan may not permit distributions at age 55 in the absence of another distributable event. To get back to the original question, I personally see little to no point to defining an early retirement age in a typical 401(k) plan.

To comply with ERISA 404(c), participants must have an opportunity to exercise control over the investment of their accounts. Failure to offer that opportunity does not result in disqualification since it is not part of the tax code, but it could result in loss of relief of co-fiduciary liability for the plan's other fiduciaries. If the plan document says that participants will be given the right to direct the investments in their account, then failure to follow the plan document is an operational failure that is potentially disqualifying. The right to direct investments is considered a benefit, right or feature that must be available to participants on a nondiscriminatory basis. If HCEs have the right to direct their investments but NHCEs don't, you could have a 401(a)(4) violation, which is disqualifying. That aside, what is a "catch up profit sharing contribution?" And when you say "It was requested for these funds to be deposited into specific accounts" - requested by whom, and what accounts? The plan doesn't have to let participants invest in anything under the sun; in fact, it would probably not be prudent to do so. The plan can restrict the participants' options to a menu of investment alternatives.

With the very big caveat that IRS has not issued any guidance on how elapsed time or eligibility computation periods will apply with respect to LTPTs, here is my analysis of the situation: For purposes of determining eligibility under the LTPT rules using the counting-hours method, the first eligibility computation period is 2/7/23 - 2/6/24, and the employee worked 500 hours during that period. The second eligibility computation period is 2/7/24 - 2/6/25, and the employee also worked 500 hours during that period. So, as of 2/6/2025, they have completed two consecutive eligibility computation periods with 500 hours of service, and they would enter the plan on 7/1/2025. Under elapsed time rules, you are correct that there was a greater-than-12-month period of severance, so you don't count the time during the period of severance. However, unless the rule of parity applies, you still count months (or days) before the period of severance in determining when a 12-month period of service is completed. Before termination, the employee completed 5 months and 25 days of service. After re-hire, they had 5 more days (making a 6th month) on 8/14/24, then will have completed an additional 6 months for a total of one year period of service on 2/14/25. So they still enter the plan on 7/1/2025. Now it's possible that the IRS will require plans which shift the eligibility computation period to the plan year for normal eligibility purposes to also apply the shift for LTPT eligibility purposes. If that's true, the 2nd eligibility computation period would have been the 2024 calendar year, in which case the employee would have entered the plan on 1/1/2025. All that said, it wouldn't take too much to stretch your example a little further and come up with a situation where the employee could actually complete 2 consecutive eligibility computation periods with 500 hours of service under the counting-hours method without completing a 12 month period of service under the elapsed time method. So I should refine my earlier statement and say that it would be "mostly" impossible, and "almost" no one would enter.

Form 2848 is used to give an individual authority to represent a taxpayer before the IRS. It is not used to designate someone as the ERISA 3(16) plan administrator, which is who signs the 5500. It is possible to have a 3rd-party 3(16) plan administrator, and there are service providers out there who will do that. As a side note, if you are doing freelance work (you said this is for your former employer), make sure you have adequate E&O insurance for yourself. Your former employer's policy probably won't help you.

In addition to everything CuseFan said - which I wholeheartedly agree with - my opinion is that the mere fact that they adopted a plan together shows some coordination between their businesses and likely invalidates the spousal attribution exemption. So you probably have a controlled group on that alone. I don't know if this is a "red flag" per se, but it would look suspicious to me to see a plan filing its first 5500-EZ and showing an opening balance greater than $250,000. I would try to get the delinquent filing submitted before the 2022 5500-EZ is filed.

As you mentioned, this is ok under the 2-year eligibility rule, because someone who was hired on 1/3/2023 would complete 1 year on 1/3/2024 and then enter the plan on 1/1/2025. This requires that the match and PS both have 100% immediate vesting. For deferrals, the plan could have a single entry date, as long as the application of that entry date with the associated service requirement does not result in any participant entering the plan later than either the first day of the plan year or 6 months following the date they complete a year of service. For example, the plan could impose a 6-month service requirement with entry on the first day of the plan year only. The participant hired on 1/3/2023 would enter on 1/1/2024 (six months earlier than they would with semi-annual entry dates), but a participant hired on 12/29/2023 would enter on 1/1/2025, the same as if the plan had semi-annual entry dates.

It's not that they wouldn't be subject to the LTPT rules, but rather that it would be impossible for someone to have 2 consecutive 12-month periods of 500 hours of service without satisfying 1 year of elapsed time along the way. No one would ever enter as LTPT because they would have already satisfied the plan's normal eligibility requirements.

Reasonable assumptions about things like salary increases are fine, but I don't think you can make assumptions about plan provisions that will be adopted or amended in the future. 1.430(d)-1(d) lays out rules for what plan provisions may be taken into account when determining the funding target and target normal cost. With limited exceptions, only plan provisions actually adopted by the valuation date may be taken into account, unless the sponsor makes a 412(d)(2) election.

Corp B adopted the plan as a sponsoring employer on the date of the sale? Did Corp A revoke its adoption of the plan, or does A continue to sponsor the plan? If A still sponsors the plan, then John is still a 5% owner and continues to be a Key employee. If A no longer sponsors the plan, then, although it's less than crystal-clear under the regulations, I would agree with your analysis and treat John as a former Key employee for plan years after 2022.

A forfeiture allocation is an annual addition. So you can't allocate it to participants whose annual additions limit is zero (because their comp is zero) in the current year. In what year did the forfeitures arise?

That is a question for the insurer. Read the actual contract - it will define what is and isn't a covered loss.

ASG determination is highly fact-dependent and needs to consider things that don't fit nicely into a spreadsheet. I find the flow charts on pages 45-46 of this document to be very helpful in analyzing potential ASG scenarios. https://www.irs.gov/pub/irs-tege/epchd704.pdf

There is no one right answer that is going to apply to all employers. It depends on this particular employer's appetite for risk, their assessment of the likelihood of experiencing a covered loss, and their ability to cover losses without regard to the insurance. Cyber security insurance is strongly recommended, however there is no need that the insurance be obtained from the same vendor that provides their ERISA fidelity bond. The employer might want to see if they already have insurance that would cover cyber-related losses to the plan, or consider shopping around before making a decision.