C. B. Zeller

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.

I really like the Corrections eSource; it is like a searchable, indexed, and hyperlinked version of EPCRS with examples. I almost always find it much faster to find what I'm looking for in the Corrections eSource, then follow the reference from there into RP 2021-30. Basically, they said that it's their opinion that the corrective contribution takes the place of the missed contribution and wouldn't be counted in 401(a)(4) testing.

"Must" you say? Strong assertion there. Unfortunately EPCRS is silent on the matter. If you have access to ERISApedia, chapter 9.8.5 of the Plan Corrections eSource addresses this question.

No. To satisfy the combo gateway, the aggregate normal allocation rate (ANAR) has to be at least 7.5% for all NHCEs if the ANAR for any HCE is greater than 35%. Aggregate means the sum of the DB and DC allocation rates. You convert the annual accrual in the DB plan into an allocation using the interest rate and mortality selected for testing. For NHCEs getting an accrual in the DB plan, you can also substitute the average DB allocation rate for all NHCEs instead of using each individual's allocation rate; this avoids having different PS allocation rates needed for every employee to satisfy the gateway.

This should be fine. The group of employees who met age 21/1 year of service are all covered by the safe harbor, so no ADP test on that group. The otherwise excludable group has to be ADP tested, but you could count the SHNEC as a QNEC in the test if you wanted. None? Why safe harbor at all then? If they really want to make a 3%, fully-vested contribution, just do it as a discretionary contribution, that way they're not subject to the rules of 2016-16 if they want to change it later.

Don't forget about the ability to use 430(i) assumptions to determine the maximum deduction.....

The notice has to be provided within 45 days. I don't see anything that says the QNEC has to be made within 45 days. Rev Proc 2021-30 Appendix A .05(9)(c) (emphasis added) Your notice can contain language that says "If applicable, a corrective contribution pursuant to IRS Revenue Procedure 2021-30 will be made to your account" or something vague like that.

Then put in a limit of $0.01 instead.

Yes, they would be excluded, unless the plan specifies otherwise. They would be non-excludable for your coverage test if they met the age and service conditions. The plan document should contain a section that describes what happens when an employee moves from an eligible class to an excluded class.

Ok, then you have the option to allow them to participate early by retroactive amendment. Be mindful of the impact on your coverage test.

I agree with Lou that a $0 plan-imposed limit on deferrals for HCEs will accomplish what you want. If we're talking about 2022 then amend the plan now to put the limit in, as long as no HCE has already contributed more than $6,500. If we're talking about 2021, and the owner already contributed $6,500 then you are probably out of luck. One exception might be if none of the NHCEs deferred, because then the ADP maximum for HCEs would be 0%, so the HCE would have to take a refund of his entire contribution, which would then be reclassified as catch-up, which would then not trigger the top heavy minimum. It's ironic that NHCEs contributing less actually yields a better result for the owner in this case. I think there is an argument to be made that you can set up that same result intentionally, even if NHCEs deferred, by shifting all NHCE deferrals to the ACP test. The ACP test will pass both before and after the contributions are shifted - since the HCE ACP would be 0% in both cases - and once they are shifted, the remaining NHCE ADP is 0%, causing all of the HCE's contribution to be reclassified as catch-up. Mind you, this is just my pet argument and I have no idea if it would actually hold up if challenged. Amending the plan to put in a $0 limit for HCEs is a much safer and cleaner approach.

I don't think there is anything that requires the sponsor to make the correction immediately. It might make sense to wait until the end of the year to determine the missed deferral opportunity, so that the participant's actual contributions can be taken into account to determine the MDO and the corresponding QNEC.

Are either of the affected employees HCEs? If so, you do not have the option to let them in early. You would have to refund the contributions with earnings. If you allow the employee in who didn't meet the plan's age and service requirements, it will affect your coverage test. Make sure that will not be a problem if you decide to go that route.

If it's a 401(a)(30) violation, e.g. they allowed the participant to exceed the limit in that plan (or in multiple plans within the same controlled group), then they have to distribute, as the plan never should have accepted the contribution in the first place. In other words, the plan document probably says that a participant will not be allowed to contribute more than the annual limit, so by allowing the participant to contribute in excess of the limit, there is an operational failure and that can be corrected by distributing the excess under EPCRS. If it's only a 402(g) failure, and not a 401(a)(30) failure in any plan, then there is no qualification issue and no need to distribute any of the contribution. In fact, there is no ability to distribute the excess unless the participant has a distributable event, such as age 59½ or termination of employment. There is a tax consequence for the participant but that is not the plan's problem.