2022 deferral and terminated employee

Hi

I am no 401k expert so looking for any suggestions on options.

PS plan signed Sept 2022 for 2021. Only PS provisions. Covered owner+employee.

Now in year 2022, wants to add 401k deferral option but the problem is, the employee was fired (embezzlement of company assets) in May with over 500 hours. No other employees.

I know that I have to provide PS allocation to the employee for 2022, if owner decides to make one.

What can I do if the owner wants to defer (will take full year salary next week)? Employee never had a chance for deferrals.

Owner is over 50 and expected 2022 w-2 is 100k and employee's final w-2 is 15k.

QNEC is an option, may be 4%SH additional is an option, what else can be done? 5% limit of deferral to the owner?

Any thoughts are appreciated.

Thank you.

Daily rather than annual coverage testing perhaps?

How much is he looking to put in for the year? Prior year testing with owner at 5% + catch-up is ~$11,500. I mean if he's looking to put in that or less you could do it with no contribution to the employee.

Daily is not an option but 5%+catch-up is but what happens with top heavy issues?

May be put in 3% of PS?

Any other thoughts?

Thank you

3 minutes ago, Jakyasar said:

Daily is not an option but 5%+catch-up is but what happens with top heavy issues?

May be put in 3% of PS?

Any other thoughts?

Thank you

TH not an issue. In DC plan TH goes to non-key employed on the the last day of the year. You have none as only other EE terminated. Now if you make a PS, the terminated EE would need one or you'll fail coverage.

Depending on ages, and if I recall correctly, a 5% gateway contribution (a $750 allocation to the NHCE) would satisfy the safe harbor requirements and allow the owner to be allocated $20k or $30k as a PS contribution with a new comparability allocation, maybe more. 

Lou

Sorry for being dense here but I am confused about the TH, how can I not provide it, sorry cannot get my head around it, last day rule or not? There is no safe harbor provisions on this plan.

I think i will advise the client to make 3% contribution and be done with it. If he wants more then will do the gateway testing.

Look at §416 on who must receive a top heavy minimum contribution in a DC plan.

I did but solved my problem by providing contribution. Thank you

Follow up question, not sure what the answer was.

As the 401k deferral is being added now for a plan in existence since 2021, can the owner satisfy ADP with deferral limited to 5% of salary plus catch up now?

He will also make PS contribution for both himself and the terminated employee.

Thanks