C. B. Zeller

This seems like a procedural question. The employer should come up with something reasonable, document it, and apply it consistently.

It will depend on whether or not LawLLP is a predecessor employer with respect to Joe's PLLC, within the meaning of 1.415(f)-1(c). This is a facts-and-circumstances determination, so BG's recommendation may be apt if there is any ambiguity.

No, LTPTEs do not need to get SH match. However the plan document needs to say that they won't get it. (proposed) 1.401(k)-5(e)(2)(i) The plan also does not lose its deemed top heavy exemption merely because it excludes LTPTEs from the safe harbor contribution. 416(g)(4)(H)

Tom, the issue is not the 415 limits but the combined deduction limit under IRC 404(a)(7). A substantial-owner DB plan would be exempt from PBGC coverage so the maximum deductible contribution between the two plans is limited to 31% of compensation, unless the deductible contribution on the DC plan does not exceed 6% of compensation. I am not sure how you could "re-classify" contributions as employee after-tax contribution after they were made, since those types of contributions must be designated as such at the time they are contributed to the plan. But if you can figure out how to make that work then you could stay at the 415 limit in the DC plan since those contributions do not count towards 404, while keeping your deductible contributions to no more than 6% so you can make a large deductible contribution to the DB plan. Another option would be to design a DB plan with a small contribution for the first year, such that the combined contributions between the two plans do not exceed 31% of compensation, and then increase the contributions next year. If you are close to retirement (within the next 10 years) and want to accrue the largest possible amount, this could be advantageous as it gives you another year of accrual towards your eventual 415 maximum.

RTFD

Yes, I guess I was thinking about a 2023 plan year based on a 0% ADP for 2022. But a 3% SHNEC could be adopted for 2024 before 12/1/2024.

Agree that HCEs over age 50 could make catch-up contributions during the current year. If they are key employees and the plan is top heavy, this would also allow them to make contributions without triggering the top heavy minimum for the non-keys, since catch-up contributions in the current year are disregarded for top heavy. Assuming that the plan did not switch to prior year testing during the last 5 years, then it could switch to current year testing. However if none of the NHCEs defer in the current year then you are back in the same situation. Another option would be to do a 4% safe harbor non-elective contribution for the NHCEs.

I'd also be concerned that the change to the method used to calculate the safe harbor match would have to be disclosed in an updated safe harbor notice. Which obviously you can't do after the end of the year, so it would be impossible to make this change and retain the safe harbor. The result being that you lose the safe harbor and have to be ADP/ACP tested if you fail the 414(s) test.

Yes, a participant must become 100% vested upon attainment of normal retirement age as defined in the plan.

Is there anything in this particular plan document that says a loan becomes payable in full immediately upon the employee becoming a union member (or more generally, transferring to an excluded class of employees)? Usually I would only see that kind of provision apply upon termination of employment, but I suppose it could happen. Absent that, I don't think so. The employee continues to repay it through payroll deduction (assuming that's what the loan policy says). Transferring to an excluded class means you are not entitled to future contributions. Loan repayments are not contributions.

Yes. Safe harbor non-elective is considered to be the same as profit sharing for 410(b) and 401(a)(4) purposes.

No they don't need to become vested. The language will be in your plan document regarding the timing of forfeitures. It will (should) say that a participant incurs a forfeiture immediately when they take a distribution of their vested benefit. For participants who don't take a distribution, they will (should) incur a forfeiture after 5 consecutive 1-year breaks in service. The termination requires that all participants become 100% vested as of the date of the termination. The people who took their distributions don't have any unvested balance as of the date of the termination, so they don't get the 100% vesting. This is typical language, but read your plan document carefully. It might differ.

I don't think it's a coincidence that your set of roles for this hypothetical adviser matches with the list of persons described in Circular 230. With regards to providing written advice to a taxpayer, Circular 230 § 10.37(a)(2)(vi) instructs that a practitioner must "Not, in evaluating a Federal tax matter, take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit." I read this, perhaps expansively, to mean that a practitioner may not discuss the subject of "getting away" with questionable transactions. Under that guideline, I would find it inappropriate to discuss the capabilities (or the lack thereof) of the IRS to detect this issue. Even were I not myself subject to Circular 230, I would still not discuss it, as the only possible result of bringing it up would be to serve to encourage them to illegally treat the distribution of excess deferrals and earnings thereon as a qualified Roth distribution. My job is to help my clients get the tax results they desire, within the bounds of law and regulation.

Agreed. EPCRS can let you correct a qualification failure, and 401(a)(30) is a qualification requirement, but neither plan violated 401(a)(30) so there is nothing to correct under EPCRS. Also agreed.

IRC 402(g)(2)(A)(ii) and treas. reg. 1.402(g)-1(e)(2)(ii)

Sure, they could take an in-service distribution in 2024 (assuming there is a distributable event) but it would be taxable in 2024. Presumably BG is looking for a way to help the participant avoid being double-taxed on the excess, but at this point, it's too late.

IRS just published a fact sheet about Qualified Disaster Recovery Distributions: https://www.irs.gov/newsroom/disaster-relief-frequent-asked-questions-retirement-plans-and-iras-under-the-secure-20-act-of-2022 (Thanks to the BenefitsLink bulletin for the timely notification!) Under Q9, "May an individual repay a qualified disaster recovery distribution?," the guidance given states I realize this guidance is in relation to QDRDs and not QBADs, but the statute under 72(t)(I)(vi) says that rules for repayments of QDRDs shall be "similar to" those for QBADs. So it seems reasonable that the same guidance would apply.

Yes, it's too late; the deadline is April 15, as per 1.402(g)-1(e)(2). It's probably also in the plan document. I assume this person isn't eligible for catch-up?

Section 414(k) is still in the law but my understanding is that IRS does not approve any plans permitting those accounts in DB plans.

Does the plan use the rule to switch the eligibility computation period to the plan year?

2024 is a distribution calendar year. He will have to take his RMD before he can do a rollover. Sounds like the accountant was thinking ahead on this one! Now when the IRS disqualifies the plan, it will only be the one dentist who gets hit with it.

There is no change to the question asking about the number of active participants. There is a new line item (6g(1) on the 5500, 5c(1) on the 5500-SF) which asks about the number of participants with account balances at the beginning of the year, and that new item is the one used to determine whether the plan is required to have an audit.

Assuming that B's federal income tax filing for 2023 is on extension, how about having them adopt the plan retroactively under 401(b)(2)? Of course, if this is a 401(k) plan and B's employees are deferring then you have a problem since deferrals can't be effective before the employer adopts the plan. I think this would be an easy VCP, just get the IRS's blessing to adopt the plan retroactively and let the contributions stay in the plan.

EPCRS is used to correct plan qualification failures. Typically those are operational failures, which means a failure to follow the plan document. Most profit sharing plans these days will say that the contribution is totally discretionary, but not all. Does your plan document actually say that the contribution is discretionary? If the 10% contribution is required under the terms of the plan, then not making it would have been an operational failure that could be corrected (probably self-corrected) under EPCRS. Failing that, did the employer make a corporate resolution, or notify the plan administrator, or otherwise memorialize their intention to make the 10% contribution for 2022? If so you may have something to lean on to call it an operational failure.

Whether it is an employee or an employer contribution has no bearing on whether or not the employee can have basis in the account. An employee can have basis in employer contributions. For example, if they took a loan which was deemed and later repaid. The employee would not be taxed on the amount of basis upon distribution. Again, this is true regardless of whether it was employee or employer contributions.