Artie M

Yep, need to read the rules... do they need to make sure the amendment explicitly states they are taking advantage of this rule? I worry when it says "may be excluded".

agree with above. In your facts, the new employee presumably is an NHCE for 2026 and sounds like the only person in the early-entry component. If properly drafted, that component should have no meaningful ADP problem because there is no HCE in it. So you should be able to let them defer immediately without giving them the 3% NESH, but only if the amendment deliberately creates that otherwise-excludable/separate-testing structure. see @CuseFan I haven't scrutinized the TH rules recently but not sure there isn't an issue if the plan is already TH. I thought that if an OEX is actually made a participant in the TH plan then they are not excludable. one of the Reg 416 Q&As says that every non key who is a participant in the TH plan must receive the minimum. I remember one that says something to the effect that if employed at year end they get it even if fail to complete 1,000 hrs. I think there is a distinction... if don't admit early, no DC TH minimum... if amend the plan to let them defer immediately, they become a participant even though not age 21/1year. Agree that they can separately test for ADP but not sure that gets them out of TH. If in TH then, also its 3% of full year comp and not just the part year comp. This then gets you to economically no difference in excluding them. also combined DB/DC safe haven minimum should apply since they don't participate in DC plan... I think.... I point you to the 416 regs... I definitely could be wrong but always look at the source authorities.

it is also common in a stock sale that a buyer will want the seller to terminate its 401k plan immediately prior to closing. See 401(k)(10)(A); Reg. 1.401(k)-1(d)(4)(i).... a 401(k) plan termination does not permit distribution of elective deferrals if the employer (determined on a controlled-group basis) maintains or establishes an alternative defined contribution plan, subject to the regulatory exceptions. So after closing, if the 401k is not terminated, it generally would nave to be merged into the buyer's 401k (assuming they have one). Also almost everyone vests, the contributions have already been made and the loss is just the forfeitures that may be generated in the future (SH plan so the matches are already 100% vested).

Agree with @WCC, especially the caveat "unless the plan document says otherwise." 401(a)(17) does not itself provide that the first dollars paid during the year eat up the annual comp limit. If the plan defines comp for matching purposes as salary excluding bonuses, the excluded January bonus ordinarily doesn't eat up the limit. However, the plan document controls, including whether compensation is determined annually or by payroll period and the order in which the bonus exclusion and §401(a)(17) limitation apply. See Code §401(a)(17) and Treas. Reg. §1.401(a)(17)-1(b). That is, what if the plan stated Compensation means the first $360,000 of W-2 compensation paid during the year. Bonuses are then excluded from compensation used for matching contributions. plus, if the plan expressly calculates the match separately for each payroll period, the document and administrative procedures become especially important. Treas. Reg. §1.401(a)(17)-1(b)(3)(iii) recognizes formulas that determine comp and accruals for periods shorter than 12 months and generally requires a prorated comp limit. That said, merely depositing the match each payroll period doesn't make each payroll period a separate determination period. Many plans fund matches per payroll but calculate matches on annual comp, sometimes with an annual true-up. Presumably, the bonus exclusion satisfies the applicable 414s, 401a4, and 401m requirements.

Generally speaking, terminating the plan at closing by September 30 should not be a real issue. Seller should adopt the termination resolutions and amendment before closing, effective September 30 subject to and contingent upon closing. Note that legally terminating the plan does not mean that all the amounts must be distributed by that day, etc. Basically, what would occur is that on and after that date of termination there would be no additional contributions or participants. The plan participants' accounts would, however, to the extent not vested, be 100% vested as of that date (SH so should already be vested). The plan also would still have to be administered until the distributions are made. In an asset sale, the seller normally remains the plan sponsor after closing. The transferred employees generally incur severances from employment with the seller, potentially creating distributable events independently of plan termination. The seller doesn't lose authority over the plan in the way it usually would in a stock sale so it can continue administering until all amounts distributed, but the transaction agreement should address final contributions, payroll data, loan administration and post-closing costs. Neither ERISA nor the Code generally requires this type of plan to give participants a specified advance notice merely because the employer adopts an amendment terminating the plan. (204h applies to DB plans or MPPs when benefit accruals are significantly reduced, but not to ceasing contributions under a 401k/PS plan). Under your facts, no 204(h) notice, no separate 30-day SH suspension notice assuing the termination qualified under the transaction exception, blackout notice only if the RK will impose an actual terporary freeze exceeding 3 consecutive busines days and at the distribution stage, participants must receive the usual §402(f) rollover notice, direct-rollover election, §411(a)(11) consent notice, where applicable, QJSA notice and consent, if the plan is subject to §417; and loan-offset information, including qualified plan loan-offset treatment if applicable. SMM will be needed but practically speaking issue a combined termination/SMM notice before closing communicating the termination to the participants and that likely would suffice. Separately, termination of the seller’s entire workforce should be reviewed under WARN and applicable employment-notice rules, but that is distinct from your 401(k) notice question.

On your second question... if a P dies, a distribution from their designated Roth account to the Bene will be a qualified tax free distribution if the P’s applicable 5-year period has been satisfied. If it hasn't, the portion attributable to basis is tax-free, but the portion attributable to earnings is taxable. The available forms and timing of payment are determined by the plan's terms, including §401(a)(9)... also, they may or may not be the same as those applicable to the P’s pre-tax account.

In your facts it appears that the client has gone to the EOR and seen what they provide and is disheartened, mainly because the packages won’t be the same in each country. Well, sorry, they just won’t be. In certain jurisdictions certain benefits may be unavailable (insurers may not cover a low number of employees for certain benefits), the tax treatment might be untenable, benefits may be duplicative of government required benefits, or the EOR’s systems may not be able to administer the desired benefit. The first thing to look at is the EOR package (default or other) for each of your jurisdictions. A good EOR ordinarily knows mandatory local benefits and social contributions, what’s market in that jurisdiction, potential insurers, tax treatment, nondiscrimination or equality requirements and can its systems administer the benefits. Meanwhile, the client should establish a limited set of global minimum benefit principles/framework. This would be like standards of protection, not actual benefit designs. Eg, employees should receive employer-sponsored medical coverage or access to a national healthcare system that provides reasonably comprehensive local care. That works better than requiring every employee, for example, to receive the same US PPO coverage. The idea is to have kind of a minimum that the client feels the employees must have no matter what jurisdiction—again, this minimum is not specific coverage—and is just a generalized standard. So, look at the EOR’s standard local package(s) first, evaluate them against the client’s short global-minimum framework and local market data. The EOR’s standard local package or default offering shouldn’t necessarily become the client’s benefit policy. Then, for each jurisdiction, ask the EOR for specific local data/info, including what does local law or social insurance already provide, what’s automatically included, and what comparable employers provide. Then ask the EOR to provide information as to what kind of supplements are available in that jurisdiction, either through the EOR or through insurers (tell them for this it doesn’t matter if the EOR can administer it, you just want to know what is available), how those supplements will be taxed (or even if they think a gross-up should be considered—beware of tax equalization), and now whether the EOR can administer it through payroll or insurance. We usually like to put the information in tabular or matrix form. This exercise generally reveals that some apparent disparities are justified or unavoidable. A US employee may receive expensive employer medical insurance, while an employee elsewhere has national healthcare plus a modest supplemental policy. The employer costs are different, but the employee protections may be reasonably comparable from an overall perspective. One legal biggie--avoid providing the employees some kind of enforceable promise of “equal” or “equivalent” benefits unless the client itself has specifically defined, with advice of counsel, how equivalence will be measured. Here is some language pulled just now from GitLab’s employee Benefit “handbook” online that illustrates their philosophy https://handbook.gitlab.com/handbook/total-rewards/benefits/general-and-entity-benefits/ Global Baseline & Local Nuance: GitLab’s goal is to provide a baseline of benefits for all team members globally... However, because benefits are highly dependent on local laws, statutory requirements, and market standards, specific plans and offerings will vary significantly by country. EOR & PEO Alignment: For team members employed through our professional employer organizations (PEOs) or Employers of Record (EOR), benefits are primarily administered through the local employing entity's statutory and sponsored plans. GitLab reviews these programs to ensure they align with our global standards, but they are governed by local provider agreements. Supplemental Coverage: Where local statutory programs or EOR options fall short of our global philosophy, GitLab may offer company-sponsored supplemental allowances or stipends (such as wellness or remote-work allowances) to harmonize the team member experience, subject to local tax compliance.

The W-2 year does not automatically determine the Form 5330 year. The key for §4975 is when did the PT begin? Under the rules it begins when the withheld deferral became plan assets—i.e., when is the earliest date the amount could reasonably have been segregated from the employer’s assets. The critical factual issue is the actual payroll/pay date for the 12/31 compensation. 2510.3-102 adds that, for withheld wages, the small-plan SH is the date the amount “would otherwise have been payable to the participant in cash.” Your facts: 12/31/2025: Comp is treated as 2025 compensation; reported on the 2025 W-2. 1/5/2026: check is actually cut, employer's regular annual practice. ~6 months later: deferral and lost earnings are deposited. If the normal payroll records show that the owner’s paycheck was actually payable on 1/5, and the deduction/withholding did not occur until 1/5payroll, then there is a reasonable position that the PT began in January of the following year. Look at constructive receipt here also…. i.e., confirm, owner had no right to receive net pay before 1/5. In that case, very good argument that the late deposit would be reported only on the following year’s 5330, even though the deferral is treated as attributable to the prior year for 401(k)/W-2 purposes. But, if the payroll records show pay period ends 12/31 and 12/31 is the pay date, and 1/5 merely is the date the physical check was printed or delivered, perhaps the safer conclusion is that the PT began in December (also when/if Q4 2025 Form 941 treats the wages and withholding as being paid in December). The 1/5 merely looks administrative. Note if it did occur in December and remained uncorrected into the next year, then there’s a §4975 transaction in both years. RR 2006-38. Bottom line: your “next-year-only Form 5330” theory is viable if 1/5 is genuinely the payroll/payment date. If 12/31 is the actual payroll date, don’t push it. Also, the fact that this is an owner-only plan helps some, but doesn’t drive the 5330 analysis unless the owner is self-employed rather than a W-2 employee of what I assume is a corporation. As noted by @Peter Gulia the owner only plan is generally outside Title I of ERISA because the owner is not treated as an employee for that purpose. But that doesn’t make 4975 disappear because the regs say its plan asset rule applies for 4975 as well as ERISA. So go back to the rule above. The Pub 560 rule allowing owner deferrals elected by year end to be contributed by tax filing deadline, including extensions, seems potentially significant but here they’re receiving W-2 comp not self-employment income as a partner or sole proprietor so, conservatively, we advise caution trying to use this rule.

Why don't they sign the participation agreements? What's the downside of just requesting it so there is no issue. As to @Paul I, based on the facts presented this would not be a conventional controlled group but likely is an affiliated service group with each PSC as an A Org and the Physic Corp the FSO under 414m. Otherwise, this could be a multiple employer plan, in which case, confirmation that the document permits non-controlled group/affiliated service group members to participate.

That's 9 years ago...so this might not work. In this situation on two occasions I can recall, we had an officer who was around at the time of the amendment sign an affidavit attesting that they knew that the amendment was signed timely and also certify that the board had approved the amendment and that they knew of no reason why the board approval would no longer be effective. The Service accepted the affidavit.

I mean under the new rules 8868 extends only the time to file, not the time to pay. If underestimate, probably results in interest, maybe late-payment penalty, though can argue reasonable cause, while overestimate maybe results in a credit or refund. no authority for this but seems like I would estimate the excise tax conservatively (generally erring high), remit estimated amount, and maybe a short explanation. That’s assuming can estimate something. If you truly cannot estimate, seems you can only complete the Form 5330 as quickly as possible and explain why late. Again likely interest and penalties but again also RC argument.

Presumably deal hasn't closed so you can still address this in the SPA. Also, presumably, you want Company L's current employees to be able to participate in a 401k for the transition period (9/1/26 - 12/31/26). If that's the case, they have a lot of options depending on what the Buyer and Seller will agree to and what the facts are. Who are you advising/working with? Best is buyer has a plan and they adopt it but it seems like Buyer doesn't or you probably aren't asking this question. Do they? Is there going to be a TSA.. transition services agreement? what is happening with other benefits? Sorry all I have is questions... There is no issue with Company L adopting the Seller's plan now assumed by the old controlled group member... it would just make it a multiple employer for the transition period, which isn't usually that much of a problem. Then when the transition period ends, withdraw as an adopting employer, at which time they could do a plan to plan transfer... assuming buyer now has a plan for them... or simply take their distributions/rollover as separated from service with the employer maintaining the plan. speaking in generalities unless have some facts but that is one possible....

Yea, a true POP-only plan can use a broad §125 nondiscrimination safe harbor by passing the eligibility safe-harbor percentage test. But, it seems that this plan doesn’t pass that test. Under those proposed §125 regs, a POP-only plan is deemed to satisfy the remaining §125 nondiscrimination rules if it satisfies the safe-harbor percentage test for eligibility. It has to be POP-only, so verify that. The way I am reading your facts 500 W-2s mean there are 500 unique, nonexcludable common-law employees who worked during the plan year; The 40 eligible employees include the 1 HCI; and There are no other HCIs. The 500-person annual census, rather than the approximately 190 employees on payroll at a particular moment, is likely the relevant starting point. Som the plan’s ratio percentage would be: (39/499) / (1/1) =7.82% Because 99% of the workforce consists of NHCIs, the §1.410(b)-4 safe-harbor percentage is 20.75%. The unsafe-harbor percentage is 20%. A ratio below the unsafe-harbor percentage is considered discriminatory rather than merely subject to a facts-and-circumstances inquiry. So, the actual ratio percentage of approximately 7.82% fails by a substantial margin. Even if the “40 eligible” meant 40 NHCIs plus the HCI, the ratio would be only about 8%--same result. The uniform measurement-period rule doesn’t solve the issue. The one-year measurement period and identical 30-hour rule may satisfy the second requirement of 125(g)(3) and may constitute a reasonable business classification—but they do not establish that the resulting group passes the numerical coverage test. In particular, employees are not excluded from §125 testing merely because they are in an initial ACA measurement period or an ongoing measurement period; variable-hour, part-time, or short-term employees; or terminated before year-end. The facts that everyone eligible receives identical benefits, pricing and election terms are helpful for the benefits-and-contributions component of §125 testing but they don’t cure a failure of the eligibility percentage test. Similarly, actual enrollment generally is not the issue for the POP safe harbor. The proposed-regulation example expressly contemplates all HCIs enrolling while only 20% of NHCIs enroll; the POP still passes because the employees were eligible on nondiscriminatory terms. Here, the problem isn’t that the HCI enrolled—it’s that 100% of the HCI group is eligible, while only about 8% of the NHCI group is eligible. Given the high turnover, perhaps permissive disaggregation might help… not sure it will but the proposed regs permit disaggregating the plan into: Employees with at least 1 day but less than 3 years of employment; and Employees with at least 3 years of employment. Each group is then tested separately.

not sure how to respond... at the top you say "Company L is being purchased in a stock sale" and then later you say "since it's an asset sale with...". Those are two different scenarios.

SECURE Act expanded who could correct it didn't expand how a §72(p) loan may be corrected once the statutory five-year repayment period has expired. See §305 of SECURE 2.0 implemented on an interim basis by Notice 2023-43. Rev. Proc. 2021-30 expressly says that its tax-free correction methods for §72(p) failures are not available once the maximum repayment period under §72(p)(2)(B) has expired. §72(p)(2) and Reb. §1.72(p)-1, Q&AQ-10, for cure period. See also the loan snapshot at https://www.irs.gov/retirement-plans/issue-snapshot-plan-loan-cure-period The authority for paying back the loan is that the loan is still live though deemed distribution. This is stated in Reg. §1.72(p)-1, Q&A21 that specifically asks "Is a participant’s tax basis under the plan increased if the participant repays the loan after a deemed distribution?” and responds yes. NOte the deemed distribution is a distribution only for certain tax purposes. It does not extinguish the note or the loan obligation. Paying off the loan satisfies the contractual debt owed to the plan. See also Q&A19. Interest keeps running on the loan until paid.