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Brenda Wren

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I believe I understood Ilene Ferenczy to say that if a LTPT employee exists, and chooses not to participate, the plan is subject to ERISA and can no longer file a 5500EZ in 2024 if it otherwise qualified to file as an EZ filer in past years.  So if the plan is subject to ERISA, the plan is also now subject to the bonding rules in 2024.

Case in point:  Husband/wife plan only with an ineligible part-time employee for many years.  Part-time employee is defined as LTPT employee on 1/1/24; chooses not to participate.  Plan holds $5 million in non-qualifying assets.  Now they have to get a bond in place on 1/1/24 for $5 million to bond their OWN assets (as if they would steal the assets from themselves, seriously!) or subject themselves to an audit for 2024.  And they also have to disclose to the DOL, and the public, information about their plan.

Any thoughts?   I think I would choose to terminate the plan at this point.  


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One other alternative, keep the plan but eliminate the 401(k) feature - make it profit sharing only starting in 2024. The LTPT rule is only for 401(k) plans.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.

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Not only for the circumstances you describe but also for other interests that might be met by segregating owners from employees, many practitioners set up two plans.

The first plan has only owners (including spouses of owners), excluding employees.

The second plan has only employees, excluding owners and deemed owners.

To the extent a test of coverage or nondiscrimination is needed, one looks to the appropriate aggregation of the two plans.

In this setup, the first plan is a non-ERISA plan, and the second plan is an ERISA-governed plan.

For the second plan, it might happen that no participant chooses for her investment any nonqualifying asset. If so (and if the count of participants with balances remains small), ERISA § 103 would not require an independent qualified public accountant’s audit of the plan’s financial statements.

About an ERISA § 412 fidelity-bond insurance for the second plan, if that plan’s assets is less than $10,000, the required coverage is $1,000. (I don’t know what price an insurer seeks for a $1,000 coverage limit, perhaps a minimum premium based more on the records bother than the risk insured.)

If, as you conjecture, the one LTPT participant chooses no elective deferral (and gets no employer-provided contribution), the second plan’s Form 5500 report would show one participant, zero participants with a balance, $0 in plan assets, and so on. Yet, the employer/administrator would want to file the reports.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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