C. B. Zeller

It sounds good to me. Obviously I am not reviewing your actual amendment but that is the general idea.

It could cause an issue if the employee will be HCE next year, so be careful. Especially if they are hired in the second half of the year, meaning that their statutory entry date would be 1/1 of the year after they first become HCE. Remember that the coverage test has to be done using the most lenient age and service criteria that applied to any employee in the plan. Since this one person had no age or service requirements, all employees would need to be considered in the coverage test. There is also the nondiscriminatory timing rule. Even if the numerical test passes, you can still have a nondiscrimination issue if the amendment was timed such that it disproportionately benefits HCEs.

Assuming the receptionist is a NHCE, then go ahead and do an amendment to give her 100% vesting. If you are using a preapproved "fill-in-the-blank" style document it probably has a spot for special vesting provisions. You can enter something like "Jane Smith is 100% vested as of 6/8/2022" or "Receptionists who were hired in 2018 are 100% vested as of 6/8/2022" or whatever language will accomplish the desired result, as long as it is definitely determinable and not subject to employer discretion. Do not attempt to get "cute" - one of the requirements to be eligible for self-correction under EPCRS is that the plan must have processes and procedures in place to reasonably promote compliance. If you are knowingly and willfully flouting the plan document then you are not promoting compliance.

There is a life expectancy rule, a 5-year rule, and a 10-year rule. Which of these applies will depend on who the beneficiary is, and what provisions are in the plan document. Read the plan document and see if it answers your questions.

The short answer is yes, there is an RMD requirement. The details of how much, to whom, and when, will depend on who the beneficiary is, and the provisions of the plan document. In the plan document there is probably a section titled "Death before required beginning date" - start there. Don't forget to read the amendments for the SECURE Act.

You could but there is absolutely no point to it. It will end up in exactly the same situation as if you just took the taxable offset. Situation 1: Direct rollover of $14,000 to IRA, loan offset of $3,000. Amount in IRA: $14,000. Taxable income: $3,000. Situation 2: Take cash distribution of $3,000 and roll over the remaining $11,000. Use the $3,000 cash to repay the loan. Now there is $3,000 in the 401(k) plan from the loan repayment, so roll that over to the IRA. Amount in IRA: $11,000 + $3,000 = $14,000. Taxable income: $3,000 from the cash distribution. Note in this case the cash distribution would have mandatory 20% withholding applied, so the participant would have only received $2,400 cash and would have to come up with the extra $600 out of pocket in order to fully repay the loan. It wouldn't change the outcome though.

Would it still be deductible if the total amount of the contribution doesn't exceed the 2021 deduction limit determined without regard to the amendment?

The question remains, if a plan answers "No" to this question, meaning they treat an employee who terminates on 12/31 as not being employed on the last day of the plan year, and they use a safe harbor allocation formula with a last day requirement, would they still be treated as meeting the requirements of the design-based safe harbor in the 401(a)(4) regs?

The participant received $3,000 in taxable income in the form of a loan offset, which is basically loan forgiveness. If they want to defer taxation on that, then they need to recontribute that amount to an IRA or another plan. It's true that no cash distributed to them at the time of the offset, but that doesn't matter. They need to come up with $3,000 for the rollover, or pay tax on it.

Interesting - my feeling would be that almost any classification you could come up with for a group this small would have the effect of classifying employees by name, and therefore not be reasonable. If you said that employees are in component 1 if their desk faces the street, and component 2 if their desk faces the parking lot, maybe you could argue that is a classification by work location, but seems like a stretch to me.

Without looking to the statute or regulations for an answer, I did find that our plan document contains this language in the section describing what rollover contributions may be accepted by the plan: The amount of the IRA attributable to non-deductible contributions is basis, and therefore would not be otherwise includable in gross income, and as such would not be accepted as a rollover by a plan that uses this language. See if your document has something similar.

Unless the employees are assigned to components based on a reasonable classification, the ABT wouldn't be available for the component plans to satisfy coverage.

I'm not exactly sure what you're trying to ask with respect to "annual method" and "component rule." But a component plan has to pass coverage on its own. A component plan which covers 50% of the HCEs and 33.33% of the NHCEs will have a ratio percentage of 66.67% and will fail coverage.

Another requirement to be eligible to use SCP is that the employer must have processes and procedures in place to promote overall compliance. Intentionally ignoring a loan that they know is in default is not promoting overall compliance. That, or re-amortize the outstanding balance into level payments over the remaining term of the loan. The law in most (all?) states allows an employee to terminate any payroll withholdings other than those required by law (such as federal and state taxes). So the employer can not force the employee to repay the loan, even via payroll. If the employee asks the employer to stop withholding loan payments though, be prepared to deem the loan as soon as the cure period expires.

The "somewhere" you're thinking of is Treas. Reg. 1.401(a)(4)-11(g)(4). This section provides rules for retroactively amending a plan after the end of the plan year to correct a failure of nondiscrimination or coverage testing. If the allocation made under the terms of the plan document satisfies coverage and nondiscrimination, then there is no need to invoke -11(g).

When did the failure occur? There is a special correction for auto enrollment failures that is 0% as long as the correct deferrals start within 9½ months after the end of the plan year, and a notice is provided.

Is it a safe harbor plan?

So? The rule under 1.401(m)-3(d)(2) doesn't say discretionary matching contributions. The overall rate of matching contributions does not increase as the amount of deferrals increases in this scenario.

Do they provide any services (not just legal work) to the accounting firm? Does the accounting firm provide any services to the attorneys? If yes, is the amount of services provided significant? Look at the service receipts/total receipts tests. Are the corporations professional service corporations? Are the firms associated in any way in providing services to third parties?

Who is "us" in this scenario? Plan administrator? TPA? Recordkeeper? Was the DRO accepted as qualified before the death of the alternate payee? Does the DRO itself address what happens if the alternate payee dies before the distribution date?

In the event of an IRS examination of a plan, the goal of any service provider should be to get the audit closed as quickly as possible with minimal penalties assessed to the plan sponsor. If one of my clients' plans were audited, I might be able to explain to the agent why a benefit accrual of less than 0.5% should be considered meaningful, and they might even accept that explanation. However, even if they do eventually accept it, it is almost certainly going to cause the audit to take longer, as the agent may have to consult with their supervisor or actuary. To avoid putting my clients in that situation, I would recommend that they use the 0.5% standard as outlined in the Shultz memo.

I agree with BG. This seems like it would meet the criteria for a discretionary ACP safe harbor match.

Also https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2021

The IRS might find that this is an abusive plan design relying on "short service employees" to satisfy testing. There is no regulation defining it so it would be up to the agent auditing your plan.

Was there a partial plan termination? If so, all of the affected employees would become 100% vested.