C. B. Zeller

At 50% ownership there is not a controlled group. It would depend on whether the new company is a "successor" within the meaning of 1.415(f)-1(c).

I have a feeling I know which recordkeeper you're talking about. I agree completely, applying additional payments of principal to offset future interest is unsound. I don't think you'll find that rule in any IRS regulation; it is simply not how loans work. If you are going to stay with this recordkeeper then you may want to modify the plan's loan policy to disallow repayment amounts other than the scheduled amount. A participant could request a re-amortization if they want to accelerate their payoff. Again, if I know which recordkeeper this is, then they have a function to request a payoff quote for an employee who wants to repay their loan in full; if the amount generated by the quote is deposited within a certain timeframe then it will correctly apply it to principal and treat the loan as fully repaid. If allowing random repayment amounts is important to the plan sponsor, then they should find a new recordkeeper, as the current one does not meet the plan's requirements. They should let the recordkeeper know why they are leaving, if they choose this route.

Have they ever worked 1000 hours in a year? If not could you test coverage on the basis of disaggregating otherwise excludable employees?

Earlier this year, the IRS released proposed regulations under section 414A. Proposed 1.414A-1(d)(4)(ii) says that "For this purpose, the number of employees that the employer normally employs for a taxable year is determined using the rules of Q&A-5 of § 54.4980B-2 of this chapter." https://www.federalregister.gov/d/2025-00501/p-188 54.4980B-2 Q&A-5 defines "employer" by reference to Q&A-2 of the same section. Q&A-2(a) defines employer as " (1) A person for whom services are performed; (2) Any other person that is a member of a group described in section 414(b), (c), (m), or (o) that includes a person described in paragraph (a)(1) of this Q&A-2; and (3) Any successor of a person described in paragraph (a)(1) or (2) of this Q&A-2." For an employer who chooses to rely upon the proposed regulations in their current form, I would conclude that they are required to include other members of their related groups when determining if they meet the exemption of 414A(c)(4)(B).

If you're using the average benefits test to pass coverage, then remember the average benefits percentage test is only part of it. You also have to pass the nondiscriminatory classification test, and part of that test is that you have to have a reasonable classification. Excluding (or including) people by name is deemed not reasonable. So if you pick and choose which of the people who would otherwise be not benefiting to now receive a benefit, I think you fail to have a reasonable classification and therefore would lose the ability to use the average benefits test. But like Bri said, check your document. If it has a 410(b) failsafe, then it probably brings people in automatically, but chances are it brings in enough people to pass the ratio percentage test. Which might be more people than you were expecting.

Rev. Rul. 84-69 (emphasis added):

A TPA, actuary, or other service provider assisting the sponsor with their submission should naturally charge a reasonable fee for their time. However the PBGC does not charge a fee for a coverage determination.

PensionPro might be a little overkill for just plan restatements, but it can certainly do the job. They will help you customize data fields, projects and cycles for your needs.

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.