C. B. Zeller

Without going back to check, iirc code M has been around since the 2018 Form 1099-R following the changes made by TCJA. Regardless, the only difference between a code M and a code 1/2/7 is that the participant gets extra time to roll it over. If they were not intending to roll it over then it doesn't matter. If they do want to roll it over and are going to rely on the extended deadline, they might be able to get away with just attaching a note to their tax return, but it would be safer to issue a corrected 1099-R.

Yes, top heavy minimum is subject to coverage. If an allocation only to the non-keys employed on the last day fails coverage then you will need to make additional contributions to NHCEs to pass. Don't forget about the average benefits test.

You might have a partial plan termination under these circumstances. If so it would require the terminated employees to become 100% vested.

The force out threshold is based on the vested balance. Check your plan document for "deemed cash out" or similar language. What it usually says is that when a participant terminates with a $0 vested account balance they are deemed to have received a distribution of their vested account, and the unvested amount is immediately forfeited. From a practical standpoint, this means the sponsor would contribute the amount to the participant's account and then immediately forfeit it. Note that if the correction was done with a retroactive amendment, a.k.a. an -11(g) amendment, then this goes out the window. The -11(g) rules require that the benefits granted by the amendment "have substance" which means an allocation to a 0% vested terminated participant does not count. You have to grant them some vesting, not necessarily 100%, in order for it to count. After applying the vesting, if their vested balance is less than the applicable limit then they can be forced out. You didn't specify the nature of the coverage failure. If this is a correction of a coverage failure on profit sharing, maybe there were non-key HCEs who received the top heavy minimum, then this is fine, but $5k as a 3% contribution for an NHCE seems like a lot. However if this is a correction of a 401(k) coverage failure which you are correcting with a QNEC then disregard what I said, since a QNEC must be 100% vested. In that case you have a participant with a vested balance over the involuntary distribution threshold, just like anyone else. They can not be required to take a distribution until age 72 (or plan termination). As always, more facts are better.

If a plan sponsor does not want to have to test their allocations under the general test of 1.401(a)(4)-2(c) then they must use one of the design-based safe harbors. Generally this is not a big deal as most allocations which would satisfy one of the design-based safe harbors would readily satisfy the general test. An allocation formula which includes permitted disparity at an integration level less than 100% of the taxable wage base is an acceptable design-based safe harbor under 1.401(a)(4)-2(b)(2)(ii) and 401(l)(5)(A)(ii) which requires that the integration level "not exceed" the TWB. However it is not permissible to use anything other than the full taxable wage base when imputing permitted disparity on the general test under 1.401(a)(4)-7(b). Therefore a contribution allocated in this manner is not guaranteed to automatically satisfy the general test. A sponsor who wishes to allocate their contributions in this manner might prefer to rely on the design-based safe harbor.

What is the highest DB+DC allocation rate for any HCE? If it is 35% or higher then your gateway minimum is 7.5%. Each NHCE then has to have DB+DC allocation rate of at least 7.5%, or alternatively, a DC allocation rate of 4.00% since the average 3.5% allocation coming from the DB plan gets them up to the 7.5% gateway. If the highest DB+DC allocation rate for any HCE is less than 35%, these numbers will be less. If the plan top heavy? If so you may be stuck giving the NHCEs (plus non-key HCEs, if any) 5% profit sharing regardless.

Barring any further regulatory action, I agree. However, a typical class exclusion has the guardrails of the coverage test to prevent it from being discriminatory. With LTPT employees this doesn't apply. I wouldn't be surprised to see something that prevents a class exclusion being used to get around the LTPT rules. It's also possible I am overthinking this.

Most 401(k) plans nowadays will contain the Microsoft language, which excludes (as a class) employees who are treated as independent contractors. I don't think we know yet how class exclusions will interact with the long-term part-time eligibility rule. If I had to take a guess I would expect that you would be permitted to exclude them as long as the classification is reasonable and not related to the number of hours they work.

Bringing in the ideas from this other thread, is there anything stopping them from adopting a new plan and excluding vesting service prior to that plan's effective date?

Anyone paid on a 1099 is by definition not an employee and therefore not eligible for any qualified retirement plan, since such a plan must be maintained for the exclusive benefit of employees and their beneficiaries.

Well for one the SPD and SAR wouldn't be required for the owners' plan. If the company is just husband & wife owners plus 1 long term part time employee, they might not want to give the employee a SAR that says "we contributed $120,000 to the plan this year" alongside a participant statement showing $0 of that was for them.

My small-plan bias is showing, apologies for jumping to an unfounded conclusion. If you posted numbers (how many HCE/NHCE are FT/PT and <30 days,30 days-1 year, and >1 year) it might help. Back to the original question, the directive on plans benefiting short service employees that I think you are referring to is the so-called Carol Gold memo. My understanding of the memo is that it is intended to address plans which are abusive by design, not corrective measures. One thing to watch out for, if you are retroactively correcting a coverage failure, is 1.401(a)(4)-11(g)(3)(vi)(A) which disallows the correction if it is part of a pattern of amendments being used to correct repeated failures. A one-time or occasional correction should not be an issue.

I don't have any first hand experience in this area, but I will merely observe that there is a separate penalty for failure to file the 5500 under IRC 6652(e) and for failure to file the actuarial report under IRC 6692. This might suggest that (for IRS purposes at least) the 5500 would be accepted without the schedule SB but you would start accruing the $1,000/day penalty under sec. 6692 at that point.

If you are asking about the extension granted under the CARES Act, then no. The CARES Act only extended the deadline for plans for which the minimum contribution is determined under sec. 430. See Notice 2020-61 Q&A-1

How are they HCE with less than a year of service? Are they the owners' kids? At the risk of stating the obvious ... letting the owners' kids in after 30 days but making regular employees wait a full year is exactly the kind of behavior the coverage rules are intended to prevent. Have you checked the plan document to see if it says what happens when coverage fails? Some documents will provide that non-excludable NHCEs are brought in automatically.

Yeah, I think that is Nitro's biggest failing. I got used to it eventually. If you right-click on any tab you can open it in a new tab group, which helps for looking at documents side-by-side. Sometimes I resort to opening a PDF in a browser window if I really need to see it on a different monitor.

One "trick" I have used in the past, if your keys are >50 years old, is to set a maximum deferral limit of $0 for key employees. Then their contributions (up to the catch-up limit) will be automatically reclassified as catch-up, and since catch-up is disregarded for top heavy purposes, it doesn't trigger the top heavy minimum. However, I don't think you could add this limit mid-year without it being a 411(d)(6) problem. Maybe you could get away with it if none of the keys have contributed more than the catch-up limit year to date.

Usually you can't actually defer 100% of pay, since medicare and social security tax have to be withheld. Medicare is 1.45% and social security is 6.2% so the max she could actually defer would be about 92%. That should leave plenty of room for a 4% safe harbor match. That said, the plan document should specify how 415 violations are corrected.

Maybe someone with more expertise in this particular area will chime in, but I have a hard time imagining the DOL getting involved in a situation like this. The DOL exists to protect the rights of employees, and a service provider is not an employee. This sounds like a contract dispute between two businesses.

For Nitro you only get the version that was current at the time you bought it. They did contact me at one point offering upgrade pricing (cheaper than the full purchase price) to get us on whatever the newest version was at the time, but I don't know if that's something that's always available. The way the software industry is today, you will usually only get upgrades forever if you pay forever, i.e. subscription model.

We switched from Adobe to Nitro in our office a few years ago. https://www.gonitro.com/ They have both a subscription option and a perpetual license option. We went for the perpetual license.

Using a combination of a mortality assumption, an interest rate assumption, and the participant's age, you can calculate a factor called Annuity Purchase Rate or APR. This is equal to the amount needed to buy an annuity commencing immediately of $1 per month until the participant dies (or in the case of a 100% joint & survivor annuity, $1 per month until the participant and their spouse both die). The mortality, interest, and age assumptions are all specified in the DOL rule. You should be able to plug those into your software to get the APR. (If you are interested in the math behind the calculation of the APR, be warned you are delving into the realm of actuarial mathematics. I recommend the text Life Contingencies by Jordan. Theory of Interest and Life Contingencies With Pension Applications by Parmenter is also very good.) Once you determine the APR, divide the account balance by the APR to get the amount of the monthly annuity.

Is the new doctor a 5% owner? If not then they would be NHCE in their year of hire.

The metadata on the file will show the date the file was created or last updated. If we are talking about scanning documents, the date in the metadata would be the date the document was scanned, not the date of the original document. If you wanted to set the timestamp on the file to something other than the date it was scanned, you would need to do so manually. Every file manager in existence lets you rename files. It is not usually so easy to modify a file's timestamp without some specialty software. This kind of metadata is also sometimes lost when files are backed up or restored. Well-designed software would carefully preserve it but sadly that is not always the case. The information contained in the file name is much more likely to survive.

If you format it as YYYY-MM-DD and put it at the beginning of the file name, it makes it easy to sort chronologically.