Doc Ument

There appears to be a comment flag on my earlier post suggesting that what I wrote was confusing. Perhaps that is because I was trying to say that solo plans are, by definition, confusing because the word "solo" does not appear to have a uniform definition across the industry. From my view, the word "solo" implies only that the plan was optimized (whatever that means) in some way for small businesses (whatever that means). Such optimization is not required by law but is discretionary for the vendor. For example, one vendor has a DC plan available for every employer, and also has an alternative DC plan available for any company that wishes to use the alternate DC plan, and the latter product is something that vendor calls a "solo" plan. The only reason that vendor is offering such a plan is because there is a market that generally coincides with the employers that historically would have used a Keogh plan. Rather than forcing such employers use the equivalent of a Keogh plan, they might have a plan that is much more flexible that a Keogh plan. Each vendor will take its own course, which is why I cannot answer questions about solo plans (as if all solo plans are the same) unless I can examine the document (since not all solo plans are the same). The word "solo" in and by itself offers no clue as to the nature or the extent of how a plan product has been optimized for the targeted market, but tells me only that such optimization has occurred. It therefore would not surprise me if I saw a solo product that didn't cover common law employees or that prohibited MEPs, but I would not make such assumptions. For example, I believe that you will not find any reference to solo plans in any regulation or IRS Revenue Procedure (not even the Revenue Procedure for Cycle 3 and which governed the approval of Cycle 3 solo plan products). I am relying on Window's file search function in making this statement (I have a folder that contains 90% of the guidance issued on retirement plans over the past decade). In contrast, when I do a general search for "solo plan" on the internet, I find many listings on the first page, each presenting a different definition, such as "an account for the self-employed," or "a single-participant plan," etc. My favorite one states: "A solo 401(k) is a traditional 401(k) plan, except that it covers only one employee -- the sole proprietor of a business -- and, at most, a spouse." Notwithstanding such definitions, the solo plan with which I am the most familiar covers every employee other than certain statutorily excluded employees (e.g., nonresident aliens with no US income), with no option to exclude any more. If I used only the internet for my answers, then the solo plan I am using shouldn't be called a solo plan. The IRS didn't mind, though, because they (apparently) don't have a definition of solo when reviewing solo plans. Consequently, when I see an inquiry that poses an inquiry regarding solo plans as if all solo plans are alike, I am usually quick to indicate to that person that I am unable to generalize anything about the nature of the solo plan without knowing a great deal more about THAT particular solo plan. For example, knowing that the plan is a solo plan does not inform me of the nature or scope of that vendor's optimization for the targeted market. The fact that it is a solo plan does not tell me what consequences will arise if another employer adopts the plan or if any adopting employer hires an employee. Even if that vendor's software does not automate any additional employer participation agreements, it is conceivable that the BPD not only allows additional adopting employers, but also allows MEPs. That means I must scour each specific "solo" document to answer questions about the nature and degree of its being "solo," such as its restrictions on additional participating employers and on which employees may be or must be covered (or cannot be covered).

I agree that ADPSH contributions are preferable to relying on QNECs and QMACs, but I hesitate to say that the latter are obsolete. While not every plan product will necessarily contain a preapproved option for making non-corrective QNECs and QMACs, there's nothing to preclude a document architect from presenting drafters with such sources that can be funded ahead of time, i.e., regardless of the outcome of an ADP test. For example, some plans allow prevailing wage contributions to be treated as QNECs, which would allow such contributions to either be used to help pass an ADP test or be used as an offset to an ADPSH nonelective contribution. Such a plan might prefer having an ADP test rather than an ADPSH obligation. In addition, there might be a use for treating ADPSH contributions as a QNEC or QMAC for a plan year that the employer discontinues its ADPSH. There was a time when any ADPSH contributions that had already made for such a year could be automatically treated as being a QNEC or QMAC for that purpose. However, now that plans with QACAs can have deferred vesting on the QACA contribution, employers may be unable to use such contributions to help pass the ADP test unless an amendment is adopted to fully vest the QACA source, i.e., turning the deferred-vesting QACA contribution into a QNEC or QMAC. The biggest problem I see with QMACs and QNECs (and occasionally non-QACA ADPSH contributions) is with people thinking that full vesting is sufficient for calling a contribution a QNEC or a QMAC. I don't know why, but I see many instances of people forgetting about the distribution restrictions that are required for all these contributions. I like the idea of having a plan product that gives me a QNEC or QMAC source that has all the requirements built-in, if only to facilitate quick amendments with reliance when the facts and circumstances change.

It might be that the commentators thus far know more about the marketplace than I do. As a technician, however, I have some observations that might potentially be useful, or perhaps they are entirely out of date. I second the motion that CuseFan has made about inquiring about "other participating employers." Allow me to provide more detail that I suspect is behind that suggestion. More than once, I have seen people mistake a contemporary "solo" plan with what used to be called a "Keogh" plan. There's a reason why document vendors have stopped referring to plan being "owner-employee" plans or "Keogh" plans, and that is because there is no longer a legal need or any legally motivated desire for having separate plans for only a certain type of business or a certain type of "employee." However, from my limited perspective, that's not to say that some vendors haven't chosen to continue using ancient (pre-EGTRRA) legal divisions for "Keogh" plans and given the product, thus designed, a new name of "solo." You could have two very different documents calling themselves "solo" plans. Until you know the nature of the vendor's solo document, i.e., the philosophy that underlies its construction, you cannot be certain whether it makes any difference whether it is a single employer plan or a MEP. Some solo plans might preclude a MEP, other solo plans might preclude additional employers even if related, and some solo plans might allow for all of those possibilities. Some solo plans might preclude having any common law employees, and some solo plans might not. That is because there does not appear to me to be any "solo" qualification rules except for the rules that the document vendor has designed into their product, and if they have done so, then you are required to abide by the document even if the document has restrictions that are quite unnecessary. It is quite possible that a vendor has continued to have restrictions that are no longer necessary. Perhaps it was deliberate. To summarize thus far, "solo" is not a term that has a definite meaning to me unless everyone is convinced that every document vendor attaches the same meaning to the word "solo." For example, the <only> difference I see in the particular solo product that I use is that the solo AA is a subset of the "regular" AA's options. There's been no deletion of any provisions regarding common law employees nor any restriction on the nature of additional participating employers. There is no difference in language between the "solo" BPD and the "non-solo" BPD. That means that nothing bad happens (under this "solo" plan) if the employer ends up hiring a common law employee or having a related or unrelated employer adopt the plan as an additional participating employer, other than the indirect costs associated with having a plan document with pre-selected AA options that cost more money (in operation) than having a more efficient plan design that is built using the "regular" AA. For example, maybe the solo plan provides only full and immediate vesting, whereas the regular AA has options for deferred vesting. Or perhaps the solo product lacks annuity options whereas the regular AA does. I made up those two examples, as I don't have the documents in front of me. I merely am illustrating that I know that the primary reason for my vendor's separate "solo" product is so that advisors can offer simpler looking documents to certain employers (or their advisors), i.e., those who don't need or don't want a zillion AA options, and consequently the advisor knows that the record keeper can make presumptions about every "solo" plan's provisions (i.e., presumptions that cannot be made about the "regular" plan's provisions from that same vendor). The advisor can then design uniform administrative procedures for all its solo plans and give such projects to staff having less expertise than the staff who administer more sophisticated plans. Perhaps an advisor limits their practice to employers that fit on a particular vendor's solo product. However, it is possible that you have a plan that is designed from the ground up to be limited to only a specific type of employer, or that prohibits having any common law employees from becoming participants. That is why I recommend that you determine exactly what "solo" means to your document vendor. (You might be able to get all the answers by examining the document's language.) As you suggest, it is conceivable that the plan is designed to accommodate only single-employer plans. If the plan does not permit a MEP, then don't forget to also consider the possibility of an affiliated service group of any type of businesses, regardless of their format or their manner of taxation. For example, even if Mom only makes and bakes the pizza using her corporation (or "company") taxed as a proprietorship and Dad delivers the pizza using his corporation (or "company") taxed as a proprietorship, then although they might not be a controlled group (due to the spousal rules), they might be an affiliated service group, especially if all of Mom's pizza gets delivered by Dad, and Dad distributes only Mom's pizzas. To summarize, maybe it does matter and maybe it doesn't matter what type of company is adopting the plan or how each entity is taxed. (It may or may not matter if there are common law employees.) Unless we agree that all document vendors mean the same thing by the word "solo," then such matters depend upon that particular document vendor's definition of "solo."

I have no opinion on the administration of the plan. From an IRS perspective, though, I recommend reading Revenue Ruling 96-47 (i.e., potentially a “significant detriment” as applied to only terminated participants), and from a DOL perspective, I recommend reading the NAPA article referenced below. That article cites DOL guidance and concluded that “a plan may charge administrative expenses to terminated participants, while not charging active participants, provided the method is not a breach of fiduciary responsibility, and the expenses are proper, reasonable and done in a nondiscriminatory manner.” https://www.napa-net.org/news-info/daily-news/can-plan-charge-fees-terminated-participants-not-active-ones#:~:text=The%20DOL%20and%20IRS%20have,done%20in%20a%20nondiscriminatory%20manner

Your question strongly implies that you have found the hold-out language (or option), but I point out that not every document contains that rule or offers it as an option. If it's there, ask the document provider. If it not there, you cannot use that rule.

I see two murky issues here, the “mistake of fact” issue and the “forfeiture suspension” issue. I urge you to do as much research as possible into the examples of why the IRS has allowed a return of contributions due to a “mistake in fact.” In this case, I do not think (based on my research years ago) that forgetting a fact is a mistake of fact. A mistake of fact would be more in the nature of allocating an amount in reliance upon a W-2 that subsequently was determined to be inaccurate (i.e., there was a correction to the W-2 after the time of the contribution). In this case that you present, however, the employer had all the facts available and could have and should have ascertained whether or not the true-up had already been deposited. The mistake that was made was the failure to confirm that the deposit had already been made. I think the IRS would view the earlier deposit as being a correct fact, and the employer’s only mistake was to forget that correct fact, which the IRS would call a mistake of plan administration. If forgetting facts justified asset reversions, I think many more employers would be forgetting many more inconvenient facts. I have heard stories of unhappy audits involving the defense of having made a “mistake of fact.” Because this topic is so murky, many plan documents do not attempt to define what is meant by a mistake of fact. When that is so, I suspect it is because the provider believes that the definition of a mistake of fact is that “the IRS knows a mistake of fact when it sees one.” I recommend that counsel be obtained before an employer relies on any plan’s vague “mistake of fact” language. If you see plan language covering this situation, then sure, you can go ahead. I don’t think you will find such language. Starting with the PPA cycle, the IRS has not allowed provisions in preapproved plans for “forfeiture suspension” accounts. The IRS caused quite a ruckus several years ago when they published an article in their retirement plan practitioner newsletter “reminding” the community that forfeitures cannot be carried forward to future plan years in any discretionary manner for any extended period. It is my understanding that the deadline (by which forfeitures must be disposed of) must now be stated in the document, and so far as I know, the most liberal standard currently permitted is that forfeitures that arise (i.e., are declared) in one year must be disposed of by the end of the subsequent plan year. (I acknowledge that a plan might have suspension accounts, but I suspect that a preapproved plan does not have a forfeiture suspension provision that is longer than I have described.) In fact, that newsletter article, as I recall, was written so as to discourage even the short delay that I have described in this paragraph, but I know of preapproved plan documents that use the short delay described in this paragraph. I had a link to the IRS newsletter but it no longer works. The approximate time of publication was 2015. A forfeiture is “disposed of” when the employer uses forfeitures for a purpose stated in the plan, e.g., paying expenses, reallocating such amounts, or reducing contributions, etc. Some plans provide flexibility in this regard, others do not. Some plans have ‘ordering” of methods of disposal, and others do not. Bear in mind there might also be a delay between the time that a termination of employment occurs and the time the resulting forfeitable amount is declared. That period might be as long as a 5-year break in service, depending upon the terms of that document. The time (if any) that a plan provides for disposing of a (declared) forfeiture starts to elapse only after the time period, if any, that elapses between the forfeitable event and the declaration of the forfeiture (which will vary from plan to plan in accordance with the language of the document and, usually, the employer’s elected provisions in that regard. It is also possible that the plan document does NOT contain the provision that the employer can wait until the end of the year following the year that the forfeiture is treated as arising, in which case the employer should (conservatively) dispose of the forfeiture in the same year that the forfeiture is declared, in which case the subsequent valuation report for the year (normally not done until the year has ended) should reflect the disposal of the forfeitures declared during the year covered by the valuation report. It might well be that the IRS doesn’t find that short delay for disposing of forfeitures to be objectionable when there is no language in the plan supporting that practice, but I cannot say for sure that that is the case. I acknowledge that the IRS does not necessarily catch everything that it says it will enforce uniformly for a particular Cycle. As a result, some preapproved plans end up having provisions that were not allowed by the IRS for other provider’s documents. For that reason, if you find preapproved plan language that is more liberal than what I have described, I suspect such language was an oversight by the IRS, and if so, then you should feel free to follow the terms of the document so long as you are confident that the document currently has reliance. You might want to take a look at the subsequent Cycle’s document’s language in this context when the time comes to see if the language changes, as the IRS often notices things in a new cycle that it realizes it should have already noticed in a previous cycle.

I agree that the ADP safe harbor match gives a free pass with regard to ADP testing, but I believe that (1) the free pass does not extend to the ACP requirements, and (2) that there is more to the ACP safe harbor than just complying with the percentage limits and avoiding any allocation conditions. My reading of the regulations is that you cannot have an ACP safe harbor without putting that provision on the AA (for a preapproved plan). That is why it is on the adoption agreement. There needs to be plan language adopted that sets forth the promise of maintaining the ACP safe harbor as the plan's specified method for complying with the ACP requirements, just as there must be plan language adopted for the ADP safe harbor that sets forth the promise of maintaining the ADP safe harbor as the plan's specified method for complying with the ADP requirements, which is why an amendment is required to get out of either an ADP SH or an ACP SH midyear. I say that because... Regulation 1.401(m)-3(f)(1) states in pertinent part: (emphasis added) “(1) General rule. Except as provided in this paragraph (f) or in paragraph (g) of this section, a plan will fail to satisfy the requirements of section 401(m)(11), section 401(m)(12), and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of that plan year and remain in effect for an entire 12-month plan year.” This rule’s language is identical to the ADP safe harbor regulation’s language. I believe it means you are committing, via a timely AA election, to (1) maintaining both the ACP safe harbor and an ADP safe harbor (of any type) for the entire plan year (since you need an APDH to have an ACPSH), (2) limiting any discretionary match to 4%, (3) not recognizing deferrals in excess of 6% for any match, (4) not increasing the rate of match as deferrals increase, (5) not giving a better match to any HCE than what any NHCE would get at the same level of deferral, which I believe to be the basis for plans stating that no allocation conditions can be attached to the additional match. In other words, you can completely avoid allocation conditions on the additional match and still violate the last item I’ve listed in some other way, such as by having an HCE get more than an NHCE inadvertently because you have multiple matching contribution formulas. And I believe you can't overlook item #1) and say you have an ACP SH by observing items #2 through #5. In addition, not that anyone in this tread is claiming otherwise, I believe Regulation 1.401(m)-2 states that ADP safe harbor contributions are generally subject to the ACP test. However, most plans don’t need to do that ACP test for an ADP SH match because there is a special ACP testing rule that exempts the first 4% of compensation provided under the ADP safe harbor match (3.5% in the case of a QACA) from needing to conduct the ACP test. For example, if the plan has an ADP non-QACA safe harbor match and there is no ACP safe harbor, and if the ADP safe harbor match is 100% of the first 4% of compensation, then that ADP safe harbor match would not require an ACP test. In contrast, an ADP safe harbor formula of 100% of the first 5% would require an ACP test (in the absence of an ACP safe harbor). When an ACP test is required, I believe that administrator can choose to test either the full amount of the ADP safe harbor match or just the portion that exceeds the stated threshold (that rule is probably found elsewhere in the same regulation). The second sentence of the ACP test provisions of §1.401(m)-2(c)(2)(iv) states: (emphasis added) “In addition, a plan that satisfies the ADP safe harbor requirements of § 1.401(k)-3 for a plan year using qualified matching contributions but does not satisfy the ACP safe harbor requirements of section 401(m)(11) or 401(m)(12) for such plan year is permitted to apply this section by excluding matching contributions with respect to all eligible employees that do not exceed 4 percent (3 1/2 percent in the case of a plan that satisfies the ADP safe harbor under section 401(k)(13)) of each employee's compensation.” So unless the employer has committed to using an ACP safe harbor on the adoption agreement and that provision was both adopted and in effect at the start of the plan year, and all the other conditions are observed, I believe that (1) not only is the additional match always subject to the ACP test (no matter how many of the other conditions you satisfy), but also (2) maybe the ADP safe harbor contribution itself also needs to be ACP tested (depending on how generous it is).

I often don’t see these posts until days later, but since no one has responded to you and you are still following this, I will give you my two cents. (That’s another way of saying that if you respond, it might be a while before I see your response.) While it is true that many employers make a discretionary match every payroll, even they do not know how much the contribution is going to be if they are not using each payroll period as the matching computation period, since there will be a potential true-up owed after the end of the year. Many other employers won’t put any money in. Many participants won’t share in earlier contributions if they leave during the year and there is a requirement that they be employed on the last day of the year to get an allocation. As I understand it, document providers wanted a preserve having discretionary matching contribution allocations after the IRS said they were taking that away. So the providers proposed to the IRS that the IRS allow such discretionary allocations in the same way that nonelective contributions are made “definitely determinable” for a cross-tested plan, i.e., by putting the formula (or the arbitrary amounts) in writing. The IRS said “okay, but since this is a match, you need to tell the participants how much the employer decided to allocate for the plan year.” So many employers don’t know how much they are going to contribute until, say, the tax deadline after the end of the plan year. Under the regulations (and some documents), matching contributions can be as late as the end of the year subsequent to the deferrals for purposes of the ADP/ACP test. So in order to have a simple universal deadline, the IRS and at least one Provider agreed upon a notification to participants within 60 days of when the employer declared its last matching deposit for a particular year, at which point that became a standard that presumably ever provider now needs to meet. For PPA documents, participants didn’t’ get any notification of how much was allocated to them for the plan year as a discretionary nonelective contribution or as a matching contribution. So they’ve been making deferral decisions knowing only that there might be a match. Their SPD might say that the amount of their match will be a discretionary amount. This will be a step up. To put it another way, this is not a law where Congress thought about the best approach for informing participants as to make to make the best elective deferral decisions for a coming year. It is an IRS policy to make employers “definite” as to which deposits over the past dozen or more months they are associating with a particular year’s discretionary match, and having done that, how much of that overall amount is going to each participant (e.g., a formula, a list, whatever). Or, the employer can choose to make the allocation formula "definite" in the document, and then no notification is required.

Sorry for the delay, I wasn't on the forum yesterday. What you describe certainly looks good to me, but out of an abundance of caution, I would maybe do an electronic search for "prevailing" on the AA and make sure there is not any other election that seems pertinent. I am perhaps thinking of a document I saw where there was an election to use prevailing wage as an offset to any other nonelective contribution (which would include a QNEC or an ADPSH NEC) but there was a separate election to treat the PWC as a QNEC, and I advised a drafter to check that other box before applying the PWC toward a QNEC (or ADPSH NEC). Of course, that plan might have had something in the BPD that covered that generic "offset" election, but it just seemed like the best advice to check two AA options rather than just the "offset" one. If there is no such box for the plan you have, you should be good to go. I think it's pretty clear that the plan you describe is not the one I am thinking of so I am probably being unnecessarily thorough.

QNECS are subject to both 100% vesting and the distribution restrictions of Regulation 1.401(k)-1(d). To amplify Bri's response, the PW contributions also would need to be subject to the distribution restrictions in order to be treated as a QNEC (or as an ADP safe harbor contribution). That is why there is typically a specific election when drafting a document to treat such contributions as a QNEC (which would generally include treating them as an ADP safe harbor contribution).

I agree with CuseFan for both the notice and the amendment. I speculate that there is language in the plan document reflecting both of the following regulatory deadlines. Regulation 1.401(k)-3(e)(1) states the general rules that a safe harbor method must be in place (adopted) before the first day of the plan year (i.e. 12/31/20 for a 1/1/2021 safe harbor). The only exception to that general rule appears to be only for a plan that is “activating” a nonelective safe harbor method midyear, as follows. Regulation 1.401(k)-3(f)(1) states that the deadline for both the amendment and the supplemental notice regarding that amendment to change from the ADP test method (using current-year data) to the nonelective safe harbor method is 30 days prior to the end of the current plan year. Thus, subsection (e) applies if the plan that was already a safe harbor plan on the first day of the current plan year, and subsection (f) applies if the plan meets the requirements for converting into a nonelective safe harbor midyear and chooses to do so, in which case there is an earlier amendment deadline.

TPG: ESOP Guy says the unallocated shares need to reside in an ESOP. That renders most of what I have to say irrelevant. But pretend you really could merge the ESOP into a K plan, or that you allocate all the shares beforehand, or that you want to be prepared for the next time this situation comes up (which is why I am jumping in). I am not convinced you’ve begun to think about the other hassles that could be presented by your proposed merger, so let me talk you out of considering a merger for another reason besides the presence of unallocated shares. For anyone else reading this, this post deals only with a few general document-related issues I see as being potentially relevant. Those of you having no interest in documents are advised to bypass this post. My post arises from my experience with plan documents in general, not from having expertise with ESOPs. I am not an ESOP expert. The reason why I started this project was out of curiosity, and having finished it, I figured I would post it. My comments are offered only because all too often I have found that many transactions occur without first considering (1) the impact of the transaction on the document(s) and (2) the impact of the document(s) on the transaction. TPG, let me remind you that you used the word "case study." (Here is a case study.) The Documents If the K plan is not a preapproved plan, bear in mind that if the plan already has a determination letter, then the employer cannot obtain another determination letter except upon plan termination (IRS Revenue Procedure 2016-37). I would think twice before having a K plan with merged ESOP funds that cannot obtain a current determination letter covering the merger, even if both plans have pre-merger reliance. I would also think twice about having a merger like this be the subject of an initial determination letter request, since the entire history of both plans will be under the IRS microscope in that case. If the surviving K plan is not going to be a preapproved plan, there is nothing of interest in what follows. If the K plan is going to be a preapproved plan, you have a better potential path toward reliance, but I recommend that you proceed with an abundance of caution. You are likely to have 411(d)(6) protected benefits in the ESOP that are not compatible with any preapproved non-ESOP plan document, such as unallocated suspense accounts, the treatment and distribution of dividends, separate accounting and vesting for tax credit contributions, synthetic equity (probably not in this case, but just saying), and/or provisions relating to the forfeiture or distribution of company stock, etc. My concern is not related to the fact that ESOPs could not use preapproved documents prior to Cycle 3. My concern is that even if a provider has a Cycle 3 preapproved ESOP, that firm’s preapproved non-ESOP 401k plan most likely is not designed to accommodate any provision that is unique to an ESOP. [Background: My reading of Revenue Procedure 2017-41 is that the IRS did not allow providers to submit an “all-purpose” AA for a K plan’s Cycle 3 approval. Although that Procedure provides that providers could have provided an AA that has combined its K plan, PS-only plan, and non-target-MP plan features into a single AA, a provider could not combine ESOP features into that same AA. It appears to me that the cited Procedure required any plan with ESOP provisions to be the subject of a separate submission by the document provider. I suspect that the IRS would therefore have declined to review any non-ESOP K plan that contained any ESOP-unique provision, such as provisions containing details regarding a merger of an ESOP into the K plan. I am familiar with three Cycle 3 preapproved K documents, and none of them have ESOP-like provisions.] If the K plan is still in its PPA incarnation, and you conclude that modifications to that PPA preapproved document are necessary to accommodate protected benefits arising in the ESOP, then I think you should presume that you would potentially transform the preapproved K plan into an individually designed plan. I say that because no ESOP feature was permitted under the preapproved program for the PPA remedial amendment period. For that reason, I recommend that the K plan be restated to a Cycle 3 plan document prior to the merger, as then you could argue that modifications (if any) to any preapproved plan on account of an ESOP protected benefit is at least a modification that is within the subject matter that is now covered by the preapproved plan program. Even if you would lose reliance (in the absence of an IRS 5307 submission), you wouldn’t necessarily drop out of entitlement to six-year restatement cycles. And if you decided to submit the modifications to the IRS, you could start by using Form 5307 (though I would be prepared for a request from the IRS to re-submit using a Form 5300). That is why I stated earlier that there appears to be a potential path to formal and full reliance via a preapproved K document. You would not be asking for a determination letter for an ESOP, but for a modified preapproved Cycle 3 401K plan to protect 411(d)(6) benefits upon plan merger, and the fact that the modifications are ESOP-related is no longer going to throw you out of the preapproved plan program. You might also want to ask the provider of the K preapproved plan whether that provider thinks that their non-ESOP Cycle 3 K plan can be used as-is or modified for this purpose. However, I highly recommend that you provide a list of the specific ESOP-related protected benefits that you have identified as needing continued protection in the non-ESOP K plan as part of your inquiry to the document provider, especially if the provider does not provide a Cycle 3 ESOP (which would be a general indicator of how much experience they have with ESOPs). You want the provider to be clear as possible about what exactly you have in mind. Making such contact with the provider might be one of the first tasks to assign to the expert ESOP counsel that has been recommended by prior commentators in this thread.

BG5150, yes I meant keys / non-keys (thank you for the catch).

There are other possibilities: 1 - This is a boilerplate provision designed to make sure that non-keys get the TH allocation regardless of hours (i.e., a 416 fail-safe provision, possibly required for IRS approval), and SOME OTHER provision of the plan turns on/off TH contributions to key employees (such as an AA option). 2 - This is saying that the allocation to TH contribution to HCEs is conditional upon meeting an HoS requirement that is stated somewhere else (e.g., AA). 3 - Both of the above.

On the subject of fees for participants who either cannot be (or choose not to be) cashed-out, the IRS doesn't like to see a "significant detriment" on their ability to leave their money in the plan. See Revenue Ruling 96-47 and Revenue Ruling 2004-10. (That doesn't mean you can't charge reasonable fees.) There might be language in the plan document reflecting this guidance that you would need to observe if the plan's language is more conservative than what you think the law provides. The document might also fail to contain a mandatory cash-out at age 62/NRA even though a plan can be drafted to contain a mandatory cash-out at age 62/NRA. I have seen documents that continue to require consent even after the time described by IRC 401(a)(14), i.e., participants may choose to keep their money in the plan for life. For such a document, you would want to establish what preapproved cash-out provisions are available and which are not (as a matter of product design) before signing on the dotted line.