C. B. Zeller

Does the plan document address it?

L needs a new W-2, or the payroll records need to be updated before the W-2 is generated. The participant did not have a valid cash or deferred election on file so there can not have been 401(k) deferrals. L's withholding is going to be off since the loan payments were treated as deferrals and not counted in taxable wages. They may end up owing more taxes when they file. If you wanted to pretend that somehow the loan payments were actually deferrals (I don't suggest this) then the loan would be in default and the participant would have a taxable deemed distribution. I suggest having a chat with the office manager and explaining how 401(k) loans work. Besides getting the coding straightened out, they also need to be aware that the loan payments are scheduled to end at some point in the future and they need to stop withholding from the employee's paycheck.

Not to be snarky but... you can read IRC 415(b) and the 1.415(b)-1 in the regulations https://uscode.house.gov/view.xhtml?req=(title:26 section:415 edition:prelim) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(b)-1 In short, the 415(b) limit is equal to the lesser of: a) 100% of average compensation, or b) the dollar limit in effect for the year. The compensation limit is prorated for less than 10 years of service with the employer. The dollar limit is prorated for less than 10 years of participation in the plan. Average compensation is defined as the highest 3 consecutive years' compensation. The dollar limit is actuarially adjusted for benefit commencement before age 62 or after age 65. The adjustment is done using either plan factors, or the 417(e) applicable table and 5% interest, whichever produces a smaller result. The compensation limit is not adjusted for age. Forms of benefit other than a single life annuity are adjusted to a single life annuity for purposes of applying the 415 limit. However the QJSA need not be adjusted. Lump sums are limited to the amount determined using plan factors, or the present value using the 417(e) applicable table and 5.5% interest. This should be enough to get you started, but there is a lot of subtlety and special circumstances and other "gotchas" that I left out! Like I said, you should read the code section and the regulations if you really want to understand this.

Is it possible that the participant would be considered to be on a leave of absence which would allow them to suspend repayments under 1.72(p)-1 Q&A-9 (assuming such suspension is permitted by the plan)?

Is this actually a QDRO? Meaning it has already been approved by the plan administrator? If so, the plan administrator erred, because one of the requirements for a DRO to be a QDRO is that it may not require increased benefits, see IRC 414(p)(3)(B) and ERISA 206(d)(3)(D)(ii). The plan administrator should have adopted a set of QDRO procedures, I know that our document provider has a checklist to determine if the DRO can be a QDRO. One of the items on that checklist is "Does the order require the plan to provide greater benefits than would be available to the participant without regard to the QDRO?" and if the answer is Yes then the DRO can't be qualified. Did the plan administrator follow their procedures? If it is not a QDRO, meaning the plan administrator has not yet qualified the DRO, then it should be rejected.

What does the plan document say? In our document, the definition of "Annual Addition" includes the following:

The loan must bear a reasonable rate of interest in order to be exempt from being a prohibited transaction under IRC 4975(d)(1)(D) and ERISA 408(b)(1)(D). Since a plan fiduciary (and the plan administrator, even in a non-Title I plan) may not enter into a prohibited transaction, the loan could not be made in the first place. So, I suppose I agree with your conclusion that making a loan with an unreasonable interest rate would not be a 72(p) violation. It would however be a disqualifying failure and a fiduciary breach.

Whether or not the individual is a 5% owner for RMD purposes is determined only during the year in which they attain the applicable age. Let's say this person's applicable age was 72, which they attained during 2021. If they started the business in 2022, then they were not a 5% owner during 2021 because the business didn't exist in 2021. So they are not required to commence RMDs before their actual retirement, because they don't meet the definition of a 5% owner for RMD purposes. Regarding the comment about the contribution being made after the end of the first plan year, there is a rule in 1.401(a)(9)-5(b)(2)(i) which says that you may determine the account balance on either a cash basis or on an accrual basis. So using zero is not incorrect, because you are permitted to ignore contributions actually made after the end of the calendar year.

General Instructions for Certain Information Returns (2024) (Forms 1096, 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) https://www.irs.gov/instructions/i1099gi In short, if the sponsor is required to file 10 or more information returns during the year, then they must e-file. This probably covers nearly every business in the US that has employees.

Yes, as long as you use the same definition of compensation for all participants. You might also consider restructuring your test into component plans to avoid testing the young HCE on accrual rate.

This is correct.

It depends on whether they were a 5% owner in the year that they attained the applicable age. If they were a 5% owner at any time during that calendar year, then they must take an RMD. If they were not, then they can delay RMDs until their actual retirement. Age 75 in 2024 means DOB was in 1949, which was the SECURE transition year. If the DOB was on or before 6/30/1949 then it is age 70-1/2 and the applicable year would be 2019, if was on or after 7/1/1949 then the age is 72 and the applicable year would be 2021. Regardless, the 2024 RMD would be zero, since as you note, the 12/31/2023 account balance was zero.

Assuming C has no employees, then A: (2/80)/(1/22)=55.00% B: (79/80)/(21/22)=103.45% So plan B passes the ratio percentage test, plan A fails ratio percentage but might pass average benefits. If A fails average benefits, then it would need to be aggregated with B for coverage. Whatever aggregation options you use for coverage, you have to do the same for nondiscrimination (i.e. 401(a)(4) and ADP/ACP). If A and B are aggregated for nondiscrimination, then A's safe harbor formula won't do you much good and you'll have to general-test them.

If the match formula is 100% of deferrals up to 2% of compensation, then that is a safe harbor formula. So as long as the document says that the 3% nonelective contribution is being used to satisfy both the ADP and ACP safe harbors, then no testing should be needed.

Absolutely correct and this slipped my mind when replying earlier. So either the safe harbor non-elective contribution is being used to satisfy the ACP safe harbor, which means it has to remain current year testing, but then there's no testing needed as long as the match formula meets the safe harbor requirements. Or, the safe harbor non-elective contribution is being used to satisfy only the ADP safe harbor, in which case ACP testing is required but could use either prior year or current year.

Not explicitly. However the regs do contain a general anti-abuse clause which the IRS could point to in the event of an audit. https://www.ecfr.gov/current/title-26/part-1/section-1.401(m)-1#p-1.401(m)-1(b)(3)

Does the plan currently permit a discretionary matching contribution, but the employer simply chooses not to make one? If so then the prior year's NHCE ACP is 0% since there were no matching contributions. If the plan does not currently permit matching contributions, then there is a special rule that deems the prior year NHCE ACP to be 3% in the first year that the plan permits matching contributions. 1.401(m)-2(c)(2) However, you said the plan is currently using the 3% safe harbor non-elective contribution, so the plan could be exempt from the ACP test, as long as the match satisfies the ACP safe harbor. Depending what you mean by a "small" match it very well might. Finally, you could just tell the client that if they want to add a match, there is required testing. If the test fails and can't be corrected until after the deadline, because they sent you the data late, then they will be subject to a penalty. It's their decision whether they want to figure out how to get you the data on time, or risk the penalty.

With regard to question 1, the rule is under treas. reg. 1.401(k)-3(e)(2) which says that if you are adding a 401(k) feature to a profit sharing plan for the first time, it can be safe harbor for the first year as long as the 401(k) feature is in effect for at least the last 3 months of the year. For a calendar-year plan, that means the 401(k) feature must be effective no later than October 1st. https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-3#p-1.401(k)-3(e)(2)

There is no 45-day requirement in the law or regulations. 1.401(k)-3(d)(3)(i) requires that the safe harbor notice be provided to participants "within a reasonable period before the beginning of the plan year." Subparagraph (ii) provides a safe harbor that the timing requirement is deemed satisfied if the notice is provided no less than 30 and no more than 90 days before the beginning of the year. The service provider may have an internal process that they can not update the plan specifications less than 45 days before the end of the year and still comply with the 30 day safe harbor. Plans using the nonelective contribution to satisfy the ADP safe harbor are no longer required to provide a notice at all, since SECURE 1.0. However a notice is still required if the plan wants to satisfy the ACP safe harbor, even if using a nonelective contribution.

Is this a DC plan or a DB plan? Also, he was working for 5 days after he died???

It's not straightforward to convert from the table to a factor. You really have to use software to do it. I posted a spreadsheet here a couple of years ago that will calculate the factors for you, if you paste in the table and enter an interest rate. Let me see if I can dig it up again. Edit: here it is

Paragraph 1.401(a)(4)-11(g)(3)(vi) of the regulations provides conditions for amending a plan to correct a failure of the nondiscriminatory availability of benefits, rights, and features in a prior year. The paragraph says: I have never needed to use this to correct an availability failure. It does seem a little strange to me as, if I'm reading it correctly, it only says to correct the failure effective prospectively and keep that amendment in place until the end of the next year. It doesn't seem to do anything to relieve the participants to whom the benefit, right or feature was unavailable during the prior year. Would be curious to know if anyone has actually relied on this method in practice.

...which would be a significant problem in a DB plan, as opposed to an IRA or DC plan. Based on the 2025 limits, the 415 maximum lump sum is about $3.5 million. If the husband and wife are the only participants and the assets grew to $5 billion, then they would be stuck with $4.993 billion that could not be distributed, but would be a taxable reversion to the employer, plus subject to $2.5 billion in excise tax.

It's probably merely a warning, not an actual error. If you have read the instructions and you are confident that you are eligible to file Form 5500 (and not required to file Form 5500-EZ) then I would say proceed.

If you have access to "Who's the Employer" by Derrin Watson, I have found it to be a very valuable and accessible resource for researching these kinds of questions. The original question was about attribution of ownership for HCE determination purposes; keep in mind that HCE determination uses attribution under section 318. IRC 318(a)(2)(B) contains rules about attribution of ownership from trusts.