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.

If an ERISA-covered qualified plan, it must have a written trust instrument somewhere unless an exception to ERISA’s trust requirement applies. As noted by @Susan Labove, I believe the only exception is through the use of qualifying insurance contracts or other arrangements exempted under ERISA §403(b) The trust provisions do not have to be in a separate stand-alone document, but generally they must be in writing—either integrated into the plan document, in a separate trust agreement, or in another written instrument incorporated into the plan arrangement. DOL Reg. § 2550.403a-1(a) states plan assets must be held by trustees “pursuant to a written trust instrument.” Like above the only authorities I see from the IRS on this point is the Reg that @Peter Gulia points out. This is reiterated in IRS Publication 560. For a preapproved plan, the written trust terms may be buried in the basic plan document, an adoption agreement attachment, or the provider’s trust/custodial document. Also I note some other less than spectacular authority but nonetheless a statement by the IRS at https://www.irs.gov/retirement-plans/preapproved-retirement-plans-adopting-employer? telling adopting employers of pre-approved plans to retain the signed adoption agreement, main plan document, and trust, which implies or reflects the expected written-document structure. But if you have reviewed all governing documents and there are no trust provisions and no incorporated trust instrument, seems to be a document problem.

Dont believe SECURE 2.0 permits the plan to disregard the expiration of the five-year statutory repayment period. Under your facts, the loan should ber a deemed distribution after the applicable cure period as stated above. And finally the participant may still repay the debt, but repayment does not erase the deemed distribution.

Agree if (i) the plan document states a plan year match with true-up rather than a per pay period match with true up and (ii) this occurred with all participants. It appears that this happened with all participants, but if instead it involved just a portion of the eligible participants arguably that match would need to be contributed at the same time the participants who received the match received their match. Otherwise, the plan sponsor could be administering the plan differently for one group of participants than another similarly (identically?) situated group of participants. Treating the participants differently could raise fiduciary duty issues.

I think that yes is generally the better answer if, as you state, the spin-off is intended to be a continuation of the portion of the existing plan attributable to those entities, rather than the establishment of a brand-new plan. So, for the first year Form 5500: In Part I For … fiscal plan year beginning “spin off date (whatever that is)” and ending “end of plan year (whatever that is) Part IB mark “first return/report”, Part II 1b likely “001” 1c “original effective date (whatever that is). Nothing in line 4 That coincides with your facts: • 401(k) plan has existed for years. • The two entities participated in that plan for years. • Assets and liabilities attributable to those subsidiaries are being spun off into a separate plan under IRC §414(l). • The intent is for the new plan to be a continuation of the benefits previously maintained for those employees, not a newly established retirement program. I mean the Form 5500 instructions ask for the plan's effective date, not the date the plan first filed a Form 5500 or the date of the spin-off. Legally, speaking, a §414(l) spin-off is generally treated as a continuation of the transferred portion of the original plan. Participants' accrued benefits, vesting service, distribution restrictions, and other plan rights continue uninterrupted. The spin-off itself is a transfer of assets and liabilities, not the creation of new retirement benefits. The legal substance (a continuation through a §414(l) spin-off) should drive the reporting, rather than simply using the date on which the separate trust or separate Form 5500 first comes into existence. That said, make sure the plan documents are drafted consistently. E.g., the AA says: Effective Date: January 1, 2026 while the Form 5500 reports: Original Effective Date: January 1, 2012 (or whatever the date is), that inconsistency could create unnecessary questions. So, make sure ALL plan documents and communications are consistent (AA or individual plan doc, first 5500, new SPD, resos, etc. If an IRS agent or DOL investigator were to ask: "Your Form 5500 says the plan's original effective date was ___ Why is this the first Form 5500 filed on ____?" the answer is straightforward: "Because, this is the first annual return filed for the XYZ 401(k) Plan as a separately maintained plan following a spin-off from the ABC Corporation 401(k) Plan effective January 1, 2026. Prior to the spin-off, the transferred participants and assets were reported as part of the ABC Plan on Forms 5500 filed for plan years 20__ through 2025. The XYZ Plan is just a continuation of the prior ABC Plan"… or something like that. That's a perfectly logical explanation. Perhaps memorialize this statement to put in the administrative file (for those folks who work on this 5 years from now when everyone has forgotten the transaction). No authority for anything said above except maybe the Form 5500 instructions.... so caveat emptor

As reflected in @Peter Gulia posts, whether a plan can or should accept a POA is not at all clear. There is definitely no requirement under ERISA to accept a POA and there is split views on what can be permitted even if the POA is accepted. The conservative view (which I usually adhere to) is that unless the plan's governing documents state that a POA will be accepted, it won't be... and most, if not all, of the plans we deal with do not address them. We do, however, often suggest and include in plans we work provisions that may permit benefits to be paid on behalf of physically or mentally incapacitated participant. Perhaps look to see if your plan has a provision of that type. For example, we recently assisted with payments under a POA, not due to the POA itself, but because that person qualified as a person who could receive that benefit under the plan's incapacity provision. Here is their provision: Even in this case, there is essentially totally in the Committee's discretion to provide benefits. In the instance, we concluded that "it would be reasonable for the Committee to determine" this paragraph fits we insisted on the POA providing quite a bit of documentation including driver's licenses or official ID of participant and agent, electric, sewage, utility bills showing residence address, the POA, signed letter from physician supporting disability claim, any SSA determination, any LTD determination, affidavits from POA, children of POA, release/hold harmless/indemnity from POA and children of POA, affidavits from supervising manager of participant. Also, we requested and received a HIPAA Privacy Authorization because we called the physician to confirm the facts i their letter. Like your case, part of the affiants' and the doctor's statements stated that the participant was in some type or nursing home. Even after the Committee determined that it would make payments under this provision, the recordkeeper was directed that the agent could not change the beneficiary and distributions could be made only an account held solely in the participant's name, an IRA fbo participant, or another qualified plan account in the participant's name. I believe the account was transferred in part to the participant's bank account and the remainder an IRA fbo participant. Our view was that if the POA is valid (it met all of the requirements of the state in which they resided..PA, which was amended sometime in the 2000s to add the requirements of specific direction), the agent would have access to the bank account (which they did). There was a little less fear here since the agent was the spousal primary beneficiary. However, we had the children, the contingent beneficiaries, sign releases in the event the spouse primary beneficiary died before the participant (the participant was 71 and the spouse was 74). Alot of time was spent on this but the participant did have around $4M in the account. Last but not least, a substantial file was built on this process and is being retained by the plan just in case.

I guess I failed to respond to this but it seems like full vesting should just be given. Why wouldn't the employer want to vest them? Seems like their issue would be the ongoing contributions not partial term.

Assuming this person is an employee... why not just leave them an employee and add a 1,000 hour allocation condition prospectively? or excludable employee classification.... but would have to pass 410(b), nondiscriminatory classification rules (wouldn't pass ratio so probably have to look at average benefits testing)? These by pass the contractor classification issue. also assuming no gateway or cross-tested allocation issues (think not but just in case)

Seems that this should be corrected as an operational failure and an amended 1099R issued showing a $0 distribution. I mean the participant remained continuously employed and was in compliance with the loan repayment schedule until the TPA or payroll screwed up the coding. Then, payroll deductions stopped and the loan was incorrectly processed as a default with a QPLO solely because of the TPA's or payroll's error. Sure, the participant has some responsibility in this but they simply missed the opportunit(ies) to correct the error at an earlier date; but, not picking up the error doesn't mean the error didn't occur. Seems that the error was an operational failure in plan administration, not a participant default. Look at Rev. Proc. 2021-30 §6.07(3) which let's you restore the loan to the status it would be in absent the administrative error through reamortization, etc. Since the participant didn't terminate or have any other distributable event (at least not under your facts), issuing Form 1099-R and reporting a QPLO (Code M) was wrong and should be corrected. A Code L wouldn't be appropriate either because there should never have been a distribution at all. The cure period issue concerns me but arguably there really was never a "failure to repay" under 72p legally speaking. The cure period exists because a participant fails to make a scheduled payment. Your facts seem different as the participant didn't stop the payments, the error caused it. The Plan (through the TPA or payroll) unilaterally made the participant's performance impossible. If just looking at the regs, this argument might not float (doesn't matter what reason the payments stopped) but this should be looked at under EPCRS. There go back to 6.07(3). IIRC there is an example in there about not starting payroll payments when a participant enters into a loan, the cure period runs out, and EPCRS still stated to correct by reamortization, make-ups, etc. I think that what happens..... sorry no time to check. If so, you should be able to fix after cure period. Experientially we have no support for this as we've never submitted a VCP or Audit Cap on that, nor have we ever taken part in an audit where SCP was used after the cure period. So,, again just thoughts....

I am assuming TSA = transition services agreement. Either way, first place to start are the transaction documents (including the TSA). The threshold question really boils down to who is the common-law employer during the TSA period? or like @CuseFan suggests, maybe the buyer/newco adopted the seller plan for a transition period. I would first look to the APA, as it usually states, in black-and-white, "Effective as of the Closing Date, Buyer shall offer employment and Seller shall terminate employment." If that language exists, it likely overrides any inferences you may be able to draw from the TSA's payroll provisions. Then you would need a buyer/newco adoption agreement for the seller plan for those employees to participate in the seller plan. If it doesn’t have those types of provisions, then look at TSA or perhaps an Employee Matters Agreement. If the TSA, EMA and/or APA expressly provide that seller remains the employer through a transition period, that could be the foundation for continuing participation in seller's safe harbor 401(k) through the end of the TSA period. Those documents—not the payroll mechanics—are likely to determine the answer. Note that many TSAs (or employee leasing/secondment arrangements) state buyer acquires the business, seller continues to employ workers through the TSA, seller runs payroll, seller issues W-2s, buyer reimburses seller. Employees are "assigned" to buyer operationally but legally remain seller's employees until a later transition date. All those facts would provide evidence that the seller remains common law employer (the "best case" scenario). If seller remains the common-law employer through say December 31, 2026, then seller's plan can continue to cover seller's employees til then at which time transition to buyer's plan at end of TSA period--becomes a normal plan transition. This is by far the cleanest outcome. If not, back to prior discussion. Point of concern in your last post, "the buyer then hires all the employees of seller..." that sounds like common law employer changed—i.e., employees terminated employment with seller on 4/2 and entered into employment with newco on 4/2—then TSA may not overcome that. A TSA can outsource payroll and HR functions, but it generally doesn’t change who the common-law employer is.

What does the transaction doc say? EPCRS = how to correct the mistake, but APA = what the correct result should be. In my view, that should drive the correction analysis. Not sure what should be done but I would work toward putting everyone in the position they should be in if this problem didn't occur. The big question I have is not provided in your facts: does buyer or newco sponsor a 401(k) plan as of 4/2? If yes, were the affected employees eligible for the seller/newco 401k or after a short waiting period? If they should (or perhaps ever could) be participating in buyer/newco plan, I would ask seller to transfer the elective deferrals (and earnings), the matching contributions (and earnings to the buyer/newco plan. (Seems like someone thought deferral elections carry over.) If there is a buyer/newco plan but a transfer is not technically available, the seller should return the contributions and buyer/newco should make corrective contributions to a buyer/newco plan. If newco/buyer doesn't have a plan, the deferrals should not remain in seller's plan... seller's plan has an operational failure. Those funds don't belong in seller's plan. Why should seller profit off this? Also, seems like it cant leave the money in the trust... presumably, that would be inconsistent with plan docs, transaction docs, and the parties' intent. For example, if buyer accidently wired $500K to the seller 401k trust, seller can't say... oh well, it's in the trust now. The trust only exists to hold assets for participants who are entitled to benefits under the plan--these individuals weren't participants. (I think there is a line of authority and trust law that distinguishes between where money is a plan asset and whether the plan has a right to retain it. but i have not looked at those in a long time. there is a subtle distinction here, especially from a fiduciary perspective.) If there is no qualified plan available seems like the deferrals (plus earnings) should be returned to the affected employees and are simply taxable comp to them subject to income and employment taxes. The employer match (plus earnings) should be returned to newco/buyer. So my view the objective should be to restore all the parties to the positions they intended and would have been in absent this screw up. If can't because no buyer/newco plan, unwind the transaction. This is an asset acquisition. Participation normally ends due to termination of employment. Payroll screwed up. (another thought...Was there some type of transition services agreement in place (sometimes the seller might continue providing payroll services so one could easily seem them not changing their systems to reflect these employees were no longer eligible)?) As always, just throwing darts....