C. B. Zeller

The average benefit test is only satisfied if the plan satisfies both a) the nondiscriminatory classification test, and b) the average benefit percentage test. The nondiscriminatory classification test looks at the ratio percentage for the plan, and compares it to either the safe harbor or unsafe harbor ratio (depending whether you are using the safe harbor test or the facts-and-circumstances test). Only the employees benefiting under the plan being tested are treated as benefiting when performing this test. The average benefit percentage test is performed for the entire testing group; in other words, all benefits under all plans of the employer are aggregated and there is only a single average benefit percentage for all plans in the group.

Does the plan permit hardship distributions? If so, from what sources? What is the amount of the financial need? Does the plan use the safe harbor definition of financial hardship, or does it use the facts-and-circumstances definition? If it uses the safe harbor definition, under which reason does the participant purport to qualify? No. Suspending deferrals after a hardship distribution has not been required (and has been illegal, actually) since 2019. A hardship distribution is not an eligible rollover distribution so the automatic withholding rate for federal income tax is 10%. The participant could waive that, or elect a different amount. If the participant is under age 59½ and does not meet any of the exceptions under IRC 72(t), then the distribution would be subject to the 10% penalty tax, in addition to income tax at the participant's normal tax rate.

Sure, as long as they don't mind disqualifying their CODA. Think of it like a participant who made a deferral election, then got their paycheck but decided they contributed too much to the 401(k), and wanted some of it back after the fact. What would you tell them?

There was a bill proposed last year that would have required automatic re-enrollment of participants who opted out or who enrolled at a lower percentage than the auto-enrollment default. If a new law would be needed to require auto re-enrollment, then it stands to reason that auto re-enrollment is not required under current law.

The section you quoted is about the requirement that the safe harbor provision be in effect for the entire plan year. A participant is considered benefiting under a 401(k) plan if they have the option to make a deferral election, regardless of whether they actually make one. If the plan terminated in a prior year and no participant had the option to make a 401(k) election in the current year, then no one was benefiting, and I would check the N/A box.

Yes, it is only the election that has to be made before the end of the year. The actual deposit of the contribution might take place some time later. Since exact comp is unknown, instead of a percentage election, they might want to make an election for a dollar amount. For example they might elect to defer the amount of the 401(k) limit (plus catch-up if applicable) for the year in question.

I don't see an issue with this design necessarily, although it is a little unusual. What is the goal of using this design? If it's to pass nondiscrimination testing by including short-service employees who will never become vested, that is generally frowned upon even if the numeric tests are all satisfied.

Even though the individual's compensation may not be known until after the end of the year, it is deemed to be available to them on the last day of the tax year. That is why the election has to be in place before the end of the tax year (SECURE 2 exception for first-year sole props aside). See 1.401(k)-1(a)(6)(iii).

Yes. https://www.federalregister.gov/documents/2019/09/23/2019-20511/hardship-distributions-of-elective-contributions-qualified-matching-contributions-qualified

I can't offer any quantitative insights, and I'll refrain from anecdotal observations or conjecture. However, I'll note that there are at least 3 distinct definitions of "actuary" when it comes to retirement, and which of these you mean might affect your analysis: Enrolled actuaries Individuals with a credential from any of the five U.S.-based actuarial organizations Individuals working in an actuarial capacity, regardless of whether they have obtained any credentials For example, federal law only recognizes definition 1 with respect to ERISA and the tax code, and only those actuaries may certify a plan's actuarial report, its funded status, its PBGC variable-rate premium, or its sufficiency for a standard termination. However state law might expand that to include actuaries under definition 2 for some purposes. And some people under definition 3 might have a job title of Actuary.

Not all self employed, only sole proprietors. And it was not IRS, it was Congress, in SECURE 2.0.

Not really...just exclude them by name.

In general, I'm ok with this sort of exclusion, as long as it is carefully worded. Top heavy status is definitely determinable - it is based on the account values at the determination date. In theory one could know on January 1 whether the plan is top heavy for the year. In practice, it may take a little longer to run the test. If you have this language in the plan, and a Key employee contributes for the current year before it is known that the plan is top heavy, you have an operational failure, since the employee was not properly excluded. You could self-correct the failure by removing the contributions (with earnings) and refunding them to the employee. Or, instead of excluding Key employees entirely when the plan is top heavy, consider keeping them eligible, but imposing a contribution limit of $0. That would let Key employees who are over age 50 make a contribution which would be immediately reclassified as catch-up, due to exceeding a plan-imposed limit. Catch-up contributions for the current year are excluded from top heavy, so this would allow them to make a contribution without triggering the top heavy minimum. Paul's point about non-HCE Keys is a good one, and interesting. For a long time it would have been very unusual to see any non-HCE Keys, unless you had a top-paid group election and your officers and/or 1% owners were not among the highest paid employees. Now, however the HCE compensation threshold has risen higher than the compensation threshold for a 1% owner to be a Key employee* so I suspect we will start seeing this situation more and more in future years. If you had a non-HCE Key who was prevented from making deferrals due to this language, that's not necessarily a problem, but you would have to keep an eye on your coverage test and nondiscrimination tests for availability of BRFs. * The $150,000 dollar limit was in section 416 when it was added by TEFRA in 1982 and has not been adjusted ever. One inflation calculator I found online tells me that $150,000 in September 1982 is worth over $475,000 today.

No

After reading Calavera's comment, I realized I had earlier replied under the assumption that Joe and Mary were (or at some point had been) married. I re-read the original question and that was not part of the facts. So, my mistake. Anyhow, whether or not Mary's company has to be aggregated with the partnership for purposes of 415 depends on whether or not the partnership is a "predecessor employer" with respect to Mary's company under 1.415(f)-1(c). This is a facts-and-circumstances determination, but I would lean towards yes since she is continuing to do the same business with the same clients. Maybe she knows an ERISA lawyer who can give her an opinion.

There is no issue with using accrued to date testing, but in the first year with a typical cash balance/profit sharing combo, it's going to be equivalent to doing annual testing. You only count years in which the employee was eligible to accrue a benefit under the plan, so unless you have a DB plan that grants accruals for prior years of service, your years for accrued-to-date testing are just years of participation, which will be 1.

Clearly the contribution can't be allocated to Mary since she isn't an employee. It would need to be treated as an employer contribution and should be allocated to the participants in the plan according to the plan's allocation formula.

I agree. The good news is they also get credit for years of participation in the old plan for 415. They could also possibly spin off one of the plans to avoid the termination and offset.

The rule is that they may be excluded if: They terminated employment with less than 500 hours of service; They did not benefit in the plan; and The sole reason they did not benefit is because they terminated with less than 500 hours of service. In your case #2 is not satisfied, because they did benefit. Safe harbor non-elective is aggregated with profit sharing for 410(b) and 401(a)(4) purposes, so they are considered benefiting for PS because they received a safe harbor contribution. So they can not be excluded.

See Notice 2023-54, particularly the bit about guidance for plans that did not make a "specified" RMD.

What do you mean the sponsor has "opted" for a loan offset? The plan has a written loan policy, the sponsor needs to follow those procedures which will dictate when a default and offset will occur. A distribution upon plan termination would apply to a participant's entire account, including their outstanding loan. So the loan offset should just be a matter of reporting correctly. If the participant elected a cash distribution (not a rollover) don't forget to take the amount of the outstanding loan into account when calculating the amount of withholding.

Yes. From a reporting perspective it works just like a 60-day rollover.

You can't have a loan in an IRA, so they would not be allowed to roll over the loan itself to the IRA and continue paying it back in installments. However, a loan offset due to plan termination is a qualified plan loan offset (QPLO) so they could do a roll over by repaying the amount of the offset to the IRA before their tax filing deadline. Of course, this requires them to have enough cash on hand to contribute the amount of the offset. Which would be functionally the same as repaying the loan, just with an extended deadline. So if they don't want to/can't repay the loan in full, then the option to roll over the QPLO probably may not interest them either.

It is ultimately the Plan Administrator's responsibility to send a 1099-R to any participant who received a distribution during the year. If the Plan Administrator's agreements with their service providers don't cover providing a 1099-R under a specific set of circumstances, then they should make other arrangements to have the 1099-R sent to the participant. For example, maybe their TPA or tax preparer could prepare the form, given the necessary information.

Cuse, thank you for the support. Basically, if you're new to the world of ACP safe harbor matches, here is a great article that talks about how to use them. In your situation, you couldn't do the third "stack" described in the article, since that would had to have been in the document before the beginning of the year, but you might find it interesting nonetheless: https://ferenczylaw.com/the-triple-stack-match-its-not-just-for-pancakes-anymore-autumn-2015/