C. B. Zeller

It is possible to revoke an S corp election, but you have to notify the IRS. https://www.irs.gov/forms-pubs/revoking-a-subchapter-s-election

My mistake then - I misread the post as a CB plan. Anyway, DB top heavy minimum is defined in 416(c)(1)(B) if you want to check the 2% number. It should also be spelled out in your plan document.

Well you're not asking the question clearly - you want to know what WHAT percentage would be? The pay credit? The DC contribution? The increase in the DB accrual? I think what you were asking is what would the pay credit be. And my answer was that the top heavy minimum, when provided in a DB plan (even in a cash balance plan) is NOT a pay credit. It is a life annuity benefit.

The top heavy minimum benefit in a DB plan is a 2% of the participant's highest 5-year average comp multiplied by years of service, with a maximum of 20%. Years in which the plan was not top heavy may be excluded. If you're asking what is the pay credit, I suppose the plan could define it as whatever amount will make the accrued benefit equal to the top heavy minimum benefit. You would need to see if your plan document is written that way however. I don't think I've ever seen that in a plan document. Usually it will just say that the accrued benefit is the greater of the actuarial equivalent of the hypothetical account balance, or the top heavy minimum. If the participant's accrued benefit is the top heavy minimum (and not the hypothetical account balance), then 417(e) applies.

1.401(k)-1(b)(4)(iv)(A) says that if a plan is using the option to disaggregate otherwise excludable employees for 410(b), then it must also disaggregate for ADP testing. There is nothing that permits disaggregation for ADP if the plan is not utilizing the disaggregation option for 410(b). A similar rule is found in 1.401(m)-1(b)(4)(iv)(A). 1.401(k)-2(a)(1)(iii)(A) and 1.401(m)-2(a)(1)(iii)(A) provide for a special "early participation" rule that allows you to include otherwise excludable HCEs (but not NHCEs) in the ADP/ACP tests. But again, this only if you are using disaggregation for 410(b).

If the test fails, it fails. Since it's prior year testing, you don't have the option to contribute QNECs to make the tests pass. At this point you are looking at refunding the excess contributions and excess aggregate contributions for the HCEs. Nonvested excess aggregate contributions for HCEs would be forfeited instead of refunded.

No. You must use the same aggregation/disaggregation options for coverage and ADP/ACP. If you are using the ratio percentage test for coverage, and it fails, have you looked at the average benefits test?

When you say "disaggregate method," you're referring to the permissive disaggregation of otherwise excludable employees - correct? You can elect to use this option or not on a year-to-year basis; it is not required to be specified in the plan document. If you disaggregated otherwise excludables last year, but you don't want to this year, then you will need to re-calculate last year's NHCE ADP on a non-disaggregated basis to use in the current year's test.

Yes No. BUT this is only the case if the employees are eligible solely because they met the LTPT criteria, and only if the employer elects to exclude LTPTEs from the application of ADP/ACP, 401(a)(4), 410(b), and the 401(k)/(m) safe harbors. See 1.401(k)-5(f)(1) of the proposed regulations: https://www.federalregister.gov/d/2023-25987/p-230

A couple of notes regarding option #2 (self-correcting via amendment): This option isn't available if the affected employee is an HCE (unlikely, but worth mentioning) If the plan is top heavy, make sure to also include the employee for safe harbor matching contributions. Otherwise the plan will lose its top heavy exemption. Those points aside, the amendment method is explicitly blessed by the IRS so you should have no issues on audit if you use it. See Rev. Proc. 2021-30 app. B 2.07(4)

If money is being withheld from your paycheck and not deposited to your 401(k) that is a serious concern. If your employer is not giving you a straight answer and you feel that you have exhausted your options internally, you can reach out to the US Department of Labor who has enforcement authority when it comes to employee rights in retirement plans. Here is their website: https://www.dol.gov/agencies/ebsa/about-ebsa/ask-a-question/ask-ebsa By the way, a blackout period is not an excuse to not deposit your contributions or loan payments. The only thing that is restricted during a blackout period is that you can not change your investments, and you might not be able to request a new loan. Your money that comes out of your paycheck still has to be deposited to your account in a timely manner.

ERISA 4021(c)(2) defines Question 1: is the business owned by a professional individual? A pharmacist certainly needs an advanced course of study and to me, would fall under the category "other licensed practitioners of the healing arts." So I would say yes. Question 2: is the principal business the performance of professional services? I would say probably no. A pharmacy's primary business is retail. So my feeling is that they are not exempt and would be covered. But the best way to know for sure is to submit a coverage determination request.

If I'm understanding correctly, the question is this: Say a plan provides that the normal retirement date is the later of attainment of age 65, or the 5th anniversary of the first day of the year in which the participant commenced participation in the plan. Is the "year" in this case the plan year, calendar year, participant's anniversary year, or something else? Kent has obliquely observed that the "year" for this purpose is not defined in the IRS regulations or other guidance. However, regulations relating to computation periods for purposes of IRC sections 410 and 411 (as well as ERISA 202, 203 and 204) are under the authority of the DOL. DOL reg 2530.200b-1 notes that "Under sections 202, 203 and 204 of the Act and sections 410 and 411 of the Code, an employee's statutory entitlements with regard to participation, vesting and benefit accrual are generally determined by reference to years of service and years of participation completed by the employee and one-year breaks in service incurred by the employee." I note the use of the word "generally" because in this instance, the employee's right to vesting is not based on the hours definitions of years of service or participation. However a computation period still applies, because the 5 year period must be measured somehow. DOL reg 2530.203-2 defines the computation period for vesting purposes, i.e. for purposes of ERISA 203 and IRC 411. Paragraph (a) reads: From this I would conclude that whichever 12-month period the plan designates as the vesting computation period would also be the "year" used to measure the 5th anniversary of participation for determining the normal retirement date. Kent, if this analysis was helpful to you at all, I would love to get a verbose thank-you note written in your signature flowery and archaic style! It would really make my day.

Is there a question here?

Sounds like you are experiencing the Baader–Meinhof phenomenon!

Based on this, it looks like the 415 comp would be 300,249.62 + 19,500.00 = 319,749.62 (e.g. box 1 + deferrals), if the plan defines 415 comp using the W-2 safe harbor. But the plan might exclude some portion of compensation for allocation purposes. You said you were "told no" regarding the S corp shareholder medical premium, told no by whom, and why? Does the plan document exclude S corp shareholder medical premiums from compensation for allocation purposes?

The only answer to you question is.... What does the plan document say? The plan document defines compensation for allocation purposes. Now, about Box 5... Box 5 is not the answer. Yes, it's grossed up for 401(k) deferrals but it excludes section 125 deferrals. It also excludes S-corp shareholder medical premiums. Both of which are 415 compensation. A lot of ink has been spilled on the definition of compensation elsewhere so I won't go on at length here. But you can't rely on just the W-2 for compensation data.

This is a pet peeve of mine, you can't "fail" the top heavy determination (aka top heavy test). You are just top heavy or not top heavy. In this case you're top heavy. Not a failure. The actual rule is that in a top heavy DC plan, each participant who is a non-key employee must receive an employer allocation equal to at least 3% of their compensation, or a percentage equal to the highest percentage allocated to any key employee if it is less than 3%. This allocation may impose a last day rule, meaning employees who are terminated before the end of the plan year do not need to receive the top heavy minimum. The rule was modified by SECURE 2.0 so that employees with less than 1 year of service or who have not attained age 21 do not need to receive the top heavy minimum contribution. This is effective starting for 2024 plan years. Since your plan is profit sharing only with a pro rata allocation, you shouldn't normally have any issues with the top heavy minimum, as each non-key employee would receive the same percentage of employer contributions as each key employee. However a couple of things to watch out for: If the plan excludes any compensation for allocation purposes (for example, pre-entry compensation), that definition of compensation may not be used for the top heavy minimum allocation, even if it is a 414(s) safe harbor definition. The plan must use full year (415) compensation. If the profit sharing allocation has a service condition, for example, the employee must complete 1000 hours of service in the current year to be eligible for a contribution, then an additional top heavy minimum might be needed for participants who were active on the last day but did not complete the 1000 hours. Employees who are not participants (have not met the plan's eligibility requirements) do not need to receive a contribution.

"Matching contribution" is defined in IRC 401(m)(4)(A) Since a loan payment is not an employee (i.e. voluntary after-tax) contribution, nor an elective deferral, nor a qualified student loan payment, an employer contribution made on behalf of a plan loan payment could not be a matching contribution.

Amendments increasing benefits for HCEs are excluded from the calculation of the cushion amount only. In other words, the maximum deduction is equal to Funding target + Target normal cost + 50%*(Funding target without amendment) - Assets Since the amendment didn't affect the funding target, there is no adjustment to the cushion in your case. You will most likely have to do the adjustment for 2025, as the increase in the 2024 accrual (evident from the increase in the target normal cost) will become part of the 2025 funding target.

Notice 2013-74 Q&A-3

No. Only distributions that would otherwise be eligible rollover distributions may be used to satisfy the RMD. See 1.401(a)(9)-5(g)(2)(ii).

This is true, but since the two companies are an affiliated service group, they must be considered a single employer for coverage testing. The NHCEs in Business 1 are not benefiting in the match/after-tax portion of the plan so the NHCE coverage ratio is zero and therefore the coverage test will fail.

I've also seen it done as a negative amount on the employer contribution line.

Excellent point. In that case, I might still try to allow it to stay in the plan, but only with a VCP.