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new ER adopting MEP mid-year; pro rate limits?


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In this MEP, eligibility for deferrals is immediate and for SH/PS it's 1 YOS and semi-annual.  I know, yuck.  But all the members follow it.

A new company (a partnership, if that matters) wants to join 7/1/24.  The entity was established 3/31/24.  Presuming there is no prior service to count:

Deferrals - this is an individual calendar year determination.  The only thing that might cause an issue here is if I have to pro rate comp and someone ends up with a pro rated amount less than they defer.

SH/PS - typically, this wouldn't be an issue (however, see TH discussion below).  Let's say that they want to do an immediate entry waiver for all those employed on 7/1/24 so they are eligible for the SH/PS on 7/1/24.  Again, no short plan year, with the only possible issue if someone defers so close to a pro rated 415 limit that any ER contribution puts them over the top.  And PS has no last day or hours requirements, so if I have to allocate something to pass cross-testing, that's fine.  Plus it's 100% vested, so no vesting service counting potential issue.

TH - many of the smaller companies in the MEP have it where the owner(s) defer the max in the initial year and the regular employees don't defer much, so it's TH and the nonkeys have to get 3% even though they aren't otherwise eligible.  Fine, granting immediate entry would cover that.

Based on the no "short plan year", my gut says that I get to use full-year numbers for everything.  Could it be that nice and simple? 😁

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Not referring to any regs here, but my understanding is that a single employer who joins a MEP mid-year, their plan follows them into the MEP.  It is the same as if they switched recordkeepers, you need to gather asset data from the prior recordkeeper, but the plan and compliance is run on the 12-month period.

I get confused when a single employer plan joins a PEP mid-year, say on 7/1.  The single employer's plan files a final 5500 and joins the PEP, which files one 5500.  If the new plan is selected for audit in the PEP, the auditor wants the census data from the date they joined the PEP through year end.  However, the plan has to be compliance tested for the 12-month period.  The prior tpa would file the final 5500, but when the employer wants to calculate their true-up their match or make a profit-sharing contribution, which may have a last day requirement, the PEP tpa will need annual census data for those calculations.  If the plan is ADP / ACP tested that has to be completed for the 12-month period, even though there are "half" plan years as a single employer plan and then a PEP adopter.    I am not aware of any specific guidance that deals with annual compliance testing when a plan joins a PEP mid-year.

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