Paul I

The text does not say the months have to be consecutive. If so, then look at count any month in which the employee works 83 hours as one month. The employee will enter the plan on the entry date after their total number of months equals six months. It also appears that the count of months resets with the start of a new plan year. I note that the text is merely an example and does not cover all of the details surrounding statutory eligibility rules. I suspect the text is from a Summary Plan Description and not from the formal Plan Document. If so, you should ask the Plan Administrator for a copy of the Plan Document (name and contact information is in the SPD).

Since the plan uses hours rules, the plan has to allow an employee (not in an excluded classification) to participate if the employee works at least 1000 hours in their eligibility computation period (commonly first 12 months of employment) - a provision commonly defined as the One Year of Service eligibility rule (1Yos). This applies to both deferrals and profit sharing. For deferrals, an employee working 498 hours in 6 months would be eligible earlier than they would be under the 1Yos rule. The plan document would have to specify in this rule is applicable solely to the first 6 months of employment, or if it applies to a rolling 6 month period. For profit sharing, an employee working 1000 hours in 6 month would be eligible earlier than they would be under the 1Yos rule. Again, the plan document would have to specify how the 6 months are administered.

Granted this is an unusual set of circumstances. If the assets in the Company A plan were distributed, Company A still should be able to purchase Company B and become the Plan Sponsor for the Company B plan. The violation of the 12 month rule would occur if Company A employees are allowed to participate in the plan Company B (now Company A) plan within 12 months of the termination of the original Company A plan.

A workable approach (read somewhat practical, but not necessarily by the letter) is very much like the approach you are considering. The only difference is to include anyone who is an active employee in the splitting of the correction. You also could consider giving each active employee in the split the greater of their MDO or a per capita split of whatever is left over.

The compliance question on the 5500s asks: "If this is a Code section 401(k) plan, check all boxes that apply to indicate how the plan is intended to satisfy the nondiscrimination requirements for employee deferrals and employer matching contributions (as applicable) under Code sections 401(k)(3) and 401(m)(2)." It does not ask if the plan passed the test. Check the box indicating what the plan document specifies as the testing method - safe harbor, prior year, or current year.

I agree this approach sounds reasonable, but the example in Notice 2014-35 references the using DFVC to file for plan year for which the filing is missing.

If you are looking for relief using DFVC and Notice 2014-35, you need to file a Form 8955-SSA for each year. Inclusion or exclusion for each year's filing will depend on the participants' circumstances for that year. I can understand that it seems counterintuitive to include in a prior year's filing a participant who was paid out in a following year. If there is any logic to including, it would be that the DFVC is applicable to individual years and future events for each year are not considered.

There is a plausible path forward if the employer is establishing a new plan and that plan will continue administering the loans. In a MEP, the employer is a co-fiduciary so a written representation that the loan will be permitted in the new plan could suffice to issue the loan. Without that representation, then the loan should be denied and the participant informed they can take up the refusal with their employer.

The test failure occurred a few years ago, so the refunds were not made timely (i.e., assuming a calendar year plan year, by March 15th following the close of the plan year being tested). The implication is the refunds became taxable for the plan year being tested, the refunds would have remained in the plan, there would be an excise tax of 10% of the unpaid refunds due by March 31st following end of the plan year in which the refunds should have been paid, and then refunds would be taxed again when distributed. There is the additional complication of the plan made rollover distributions to IRAs or other qualified plans. So yes, the plan needs to issue amended 1099-R for the year in which the refunds should have been taxed, and the participants should be made aware that they have to deal with amending their tax returns for that year. The plan needs to pay the 10% excise tax that were due once the refunds were not made timely, along with interest due from the original excise tax due date. The IRA or QP that now holds the funds should distribute the refunds (as an ineligible rollover) along with related earnings. The amounts will be taxable currently and, if they are the payor, they would issue the 1099-R. Make sure your get paid for your work. The client should review its service agreement with the prior TPA if the client wishes to try to recover anything.

The original topic is "Ideas for Improving lagging retirement savings for lower- and moderate-income workers". The challenge is LMI workers do not earn enough to save a meaningful amount for retirement. For an LMI worker, decisions about prioritizing how to use their income is a zero sum game where increasing retirement savings means decreasing another equally or more impactful expenditure. Having ideas for improving lagging retirement income for LMI workers is a different challenge. Almost by definition, the ideas to improve retirement income will need to focus on a funding source that is not solely from the LMI employee's paycheck. Excluding government resources, this leaves the employer as the most likely funding source to improve retirement income to a meaningful level that is above what an LMI employee can fund through their own contributions. The retirement income improvement will come from a plan that receives employer contributions. Match contributions basically provide an incentive to an employee to save at least up to the contribution level that is matched. This is somewhat effective for moderate-income workers, but not so much for low-income workers. Defined contribution plans are popular with employers because the provide the employer with a lot of flexibility with respect to funding. Once the employer contribution, it then often become the responsibility of the employee to make investment decisions hopefully to grow the contributions into a meaningful retirement income. Too often, LMI employees make conservative investment decisions which reduces their potential retirement income. Defined benefit plans and cash balance plans are administered professionally and are more likely to improve LMI retirement income. Having a relatively flexible funding schedule, benefiting from mortality, and using professional asset management can help reduce the employer's overall cost over time. ESOPs are a type of defined contribution plan where the retirement income is based on employer contributions. They are not savings plans. As @ESOP Guy notes, well run ESOPs are very successful. This in part is due to worker identifying themselves as owners, and to worker involvement in decision-making. Notably, all workers are subject to the same investment performance of the plan assets (aside from diversification provisions), and workers can enhance that performance by making a positive contribution to the success of the company. I, too, have seen long-term LMI employees become relatively wealthy by having participated in a well-run ESOP. ESOPs are far from being a one-trick pony answer to improving retirement income, but they should be included in the conversation. DB and CB are more likely to be embraced by employers. If the task at hand is to increase LMI retirement income, then there are concepts in some of the defined contribution plan designs that could possibly be adapted to DB/CB plan design. For example, match rates can be higher and decrease as the deferral rate increases. A DC/CB benefit formula could be similarly structured to be decrease as compensation increases. Elsewhere, there can be opportunities to constrain the extent to which currently permissible plan designs can discriminate in favor of high-paid employees. Let's help @Cynthia Van Bogaert by being outlandishly creative.

Check out the EOB discussion on this topic. It presents both sides and says neither is conclusive.

The conundrum is a disconnect between the IRS attribution rules and the DOL definition of an employee which reads: "(c) Employees. For purposes of this section and except as provided in § 2510.3-55(d): (1) An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse, and (2) A partner in a partnership and his or her spouse shall not be deemed to be employees with respect to the partnership." The IRS could look at the 318 rules and conclude the children are owners, and the DOL could look at the definition of employee and conclude that the children who get paid from the company are employees. Translating this into the world of 5500's, the IRS could conclude the plan in the OP is an owners-only plan and can file a Form 5500-EZ. This is an IRS-only form which the DOL does not recognize as a 5500 valid 5500 filing, although they possibly could let a 5500-EZ filer retroactive 5500s or 5500-SFs without assessing big penalties. Each side - IRS or DOL - has a reasonable supporting argument. The client or its advisors should consider all of the potential consequences of filing the "wrong" form (as viewed by each agency). Definitely file one of the other, document the decision, and keep copies of every filing.

The 5330 excise tax form is based on the plan year in which the deposits should have been made timely. The amount of taxes are due for a plan year (generally by 7/31 of the plan year following the close of the plan year in which the deposits should have been made). The excise taxes do for a plan year are based on the lost earnings due for that plan year. The excise tax calculation repeats year over year with a separate filing due for each year. The IRS then reserves the right to calculate additional interest and penalties to be billed subsequently to the filing. Use the VFCP calculator. It will ask for the date of the payroll, the date of deposit and the amount, and to the calculations for you.

Roth gets very convoluted because in addition to the missed deferral corrections, the year of taxation comes into play along with tracking the first year in which the participant has a Roth contribution. There was an outstanding presentation made at the ASPPA Spring National Conference titled Double the Roth: Understanding Catch-Ups and Employer Roth Contributions"? (Workshop 10 presented on Day 2). It goes into a deep dive on the various fact patterns and related correction methods. You may be able to access either as an ASPPA member or possibly by doing a search for the session title.

I agree with @ESOP Guy's observations about the positive impact of ESOPs for all employees, although ESOPs are not a favorite type of plan for many entrepreneurs and private equity investors. ESOPs for LLCs do seem to attract more attention now from these groups. The biggest challenge to improving retirement savings for low-to-moderate income workers is their not having discretionary income that can be directed into retirement savings. The middle class demographic is shrinking while both the upper and lower classes are both expanding (hence the common graphic of a K-shaped demographic). With a national debt now exceeding $40 trillion, there likely is little appetite for programs or solutions at the national level. Many business owners who are amenable to trying to increase employee retirement savings are unlikely to voluntarily raise wages and hope employees will "do the right thing". Given the types of plans that exist today, cash balance plans and defined benefit plans are the best bet for providing more affordable retirement income to low-to-moderate income employees. This is a different from focusing on savings.