C. B. Zeller

If you're talking about SECURE 2.0 sec. 312, it says "the administrator of the plan may rely on..." which implies that is is not mandatory. If the plan allows self-certifications and it later turns out that the employee lied about the hardship, I do not believe that there would be any penalty on the plan or on the plan administrator, unless the plan administrator had actual knowledge that the hardship did not exist and allowed the distribution anyway. That is what it means to "rely on" the self-certification. The law does say that the IRS may issue regulations addressing what happens if it turns out that the employee misrepresented their hardship. If the plan does not allow self-certification, and the plan administrator allows a distribution for a hardship which later turns out not to exist, then the plan faces disqualification.

You have one gateway for your one aggregated plan. You can't test the gateway on a restructured or component plan basis. I'm disregarding disaggregation of otherwise excludable employees here, since I don't think that's what you're asking about. This person would need the 7.5% gateway (if that's the gateway minimum).

The wording here confuses me a little - I'm going to assume you mean that the employee met the 1,000 hours of service required to enter the plan in one year, but has not and is not expected to complete 1,000 hours of service in any later year. Otherwise your post does not make sense. Since the employee has met the plan's eligibility requirements, they will continue to be a participant for as long as they are an employee, and will be non-excludable for purposes of the coverage and nondiscrimination tests. So they have to receive whatever contributions are necessary to satisfy those tests. They could be required to receive a top heavy minimum contribution, too. Even if they never attain 2 years of vesting service, they could still become vested if they reach the plan's normal retirement age, or if the plan terminates. The one-time irrevocable waiver of participation would not be of any help in this case, as it a) must be executed before the employee first becomes eligible in any plan of the employer, and b) does not get you a free pass on coverage; the employee who waived participation is treated as non-excludable and not benefiting in the coverage test. This situation could have been avoided by designing the plan with the 2-year eligibility rule, but it is too late for that now.

If you mean "solo CB" as a plan which is exempt from Title I of ERISA, then I agree. However, a plan can be subject to Title I and exempt from Title IV. ERISA 4021 defines several categories of plans which are exempt from PBGC coverage, including a plan "which is established and maintained exclusively for substantial owners." It then goes on to define substantial owner, and says that in the case of a corporation, constructive ownership rules apply.

Attribution of ownership for purposes of the substantial owners exemption applies only in the case of a corporation.

Who are the owners and in what amounts? What type of entity is the sponsor (corporation, partnership, sole proprietorship)? Is the sponsor a professional service employer?

If no HCEs benefit in the plan, then the plan automatically satisfies 401(a)(4), including the gateway.

Does the plan have a determination letter? If so then there's your written evidence that the IRS finds the plan is compliant (in form, at least) with the qualification requirements, including sec. 401(a)(31). You could also point them to code sec. 401(a)(14) which says that a plan does not have to begin distributions before the latest of the year of termination, age 65, or 10 years of participation. But for real, the participant clearly doesn't really understand what they are reading in the regs, or they are just seeing what they want to see. You can explain to them that the reg doesn't say what they think it says, and if they really feel they are being denied a benefit that is due them under the plan, then you can always point them to the plan's claims procedure.

In a non-PBGC combo, the maximum deduction on the DC plan is usually 6% of comp. At maximum comp, that means the total contribution to the DC plan will usually be $19,500 (deferrals) + $6,500 (catch-up) + $18,300 (6% of 305,000) = $44,300. If they are ok with Roth contributions, what you could do is contribute $61,000 - $19,500 - $18,300 = $23,200 as voluntary after-tax contributions and then immediately do an in-plan Roth conversion on that amount. That lets you get your total contributions up to the 415(c) limit. Of course, voluntary contributions are subject to the ACP test, so this design falls apart if there are any NHCEs in the plan. It also only makes sense if they want to do Roth contributions, which will not appeal to everyone.

Correct. Refunds have to use the method described in the regulations.

No, you can't pre-emptively reclassify as catch-up to improve your testing results. You perform the test as normal, and then the amount that would have otherwise been distributed as a refund gets reclassified as catch-up. If there were another reason that the deferrals could be reclassified as catch-up, such as exceeding the 415(c) limit when combined with a profit sharing contribution, then you would exclude those deferrals from the ADP test.

I think your terminated NHCE is nonexcludable. You can treat a terminated employee as excludable if they terminate in the current year and worked less than 500 hours, and only if they did not benefit in the plan solely because they terminated with less than 500 hours. In your case they worked more than 500 hours so they have to be included in your coverage and nondiscrimination test. If the plan has a last day requirement to receive a contribution, then you will either need to rely on a 410(b) failsafe (if the plan has one) or do a 1.401(a)(4)-11(g) amendment to waive the last day requirement for this employee.

Are you asking whether a plan which is an EACA could exclude LTPT employees from automatic enrollment without violating the EACA uniformity requirement? We don't have any guidance from the IRS on this, but my guess would be no.

Bonding is a Title I requirement. Plans which are exempt from Title I, including plans which cover only a 100% owner and their spouse, or only partners and their spouses, are therefore exempt from bonding. Prior to 2020, these were also the only plans that were able to file 5500-EZ, but that distinction has been modified slightly with the new rule for 2% shareholders in an S corp.

I don't think that an amendment to change the testing method can be adopted retroactively. In other words, if they wanted to change from current year to prior year testing for 2022, they would have had to do so by December 31, 2022. For determining the earnings on excess contributions that are being refunded, the regulations allow a plan to use any reasonable method, but you need to check your plan document to see what method it specifies.

For Key/HCE determination purposes, I believe the answer is no. Ownership is attributed under 318 for Key/HCE determination, and 318(a)(2)(B)(i) excludes stock owned by a qualified plan trust. Since you have access to Who's the Employer, also see chapter 13, example 13.3.17.

IRC 401(b)(3), as added by SECURE 2.0 sec. 316, says that for an amendment meeting the requirements, "the employer may elect to treat such amendment as having been adopted as of the last day of the plan year in which the amendment is effective." I am reading this to mean that you treat it as if it were actually adopted on the last day of the plan year. So there would be no need to worry about 1.401(a)(4)-11(g) or 1.401(a)(26)-7(c) issues, since those only apply to amendments adopted after the end of the year. If the plan's valuation date is the last day of the plan year, then the amendment would also be taken into account for minimum funding and maximum deduction purposes. If the plan's valuation date is not the last day of the plan year, then a 412(d)(2) election would be needed if you wanted to take the amendment into account. Reminder that this is only my best guess at this point, we will have to wait and see what the IRS comes out with.

If I am understanding you correctly, Jane has never been a 5% owner in any year. So her required beginning date would be April 1 of the year following the later of: The year in which she attains the applicable age (70½, if her date of birth was before July 1, 1949), or The year in which she retires from employment with the employer maintaining the plan Since it is clear she has already attained the applicable age, the question is, has she retired? Neither Code section 401(a)(9) nor the regulations thereunder provide a definition of "retires" for this purpose. Your question indicates that she is still performing some personal services for the business. It might be reasonable to consider her to still be an employee (and not retired) in any year in which she receives earned income (within the meaning of section 401(c)(2) of the Code), although that could be problematic if is is not known whether she received earned income until after April 1 of the following year. Another possibly reasonable approach might be to simply ask the plan sponsor whether they consider Jane to be retired, within the common meaning of the word. Ultimately this will be a matter of the plan administrator making a reasonable interpretation of the law and regulations.

No. It doesn't matter what you call it, it is not an RMD until the first distribution calendar year, and for a non-5% owner, that means the later of the applicable age or the year of retirement. Since they have not retired there is no RMD. This is assuming that the plan terms do not require participants to commence RMDs earlier than the latest possible date allowed by law. Only if the distribution was actually contrary to the terms of the plan; if the plan permits participants to take amounts in such amount and at such time as they may choose, and the participant affirmatively consented to the distribution, then there is no reason to treat it as a mistake that needs to be corrected.

One would hope that the loss of the top heavy exemption was discussed with the plan sponsor before they decided to remove the safe harbor match from their plan. Therefore, they should not be surprised that they are now subject to the top heavy minimum. As you noted, there is the 2002 IRS Q&A suggesting that they would accept the use of an accrual method for determining the top heavy ratio in a profit sharing plan, even though that is contrary to the text of the 1984 regulations. You might want to explain the situation to the client and let them decide if they are comfortable relying on the opinion from the Q&A, if it means they can save the cost of a top heavy minimum contribution for 2022.

Participants in an excluded class typically continue to earn vesting service as long as they remain an employee of the employer, they just can't accrue additional benefits.

For a corporation, the corporation is a separate legal "person" from the owner, so it's easy to see how someone could separately be a shareholder and an employee of the corporation. For a self-employed individual (partner or sole proprietor) you are right that they can not really be their own employee, which is why IRC 401(c) has to explicitly say that the term "employee" includes a self-employed individual.

I was thinking S corp, but even C corp compensation has to be reasonable. It's more of an issue in the other direction (paying too-high salary) for C corps though, since the idea would be that the corporation could deduct the salary paid to the employee, as opposed to paying them a dividend, which is taxable both to the corporation and to the shareholder. I don't see how $0 salary could be legitimate. If memory serves me right, Steve Jobs took a $1 salary from Apple for a number of years; if this company wanted to pay their shareholder a token salary I think that would be more reasonable than $0 which essentially makes them a volunteer.

It's important to make sure that they really are Leased Employees as defined in 414(n) - not every person who works for one company but gets a paycheck from another is a true 414(n) leased employee. Who's the Employer has a good chapter on the issues that need to be considered. If they really are 414(n) leased employees, then the correction (that doesn't involve retroactively letting them into the plan) would be to move the money out of their accounts and reallocate under the formula in the plan document for the year(s) in question. You would have to go back and re-do the testing for those years too; 414(n) leased employees are non-excludable so now you have to watch your coverage test.

How are they complying with the reasonable compensation requirement?