401k/PSP for 2023

I'm doing the plan document for another TPA, 401(k)/PSP with effective date of 1/1/2023 except there will be no deferrals for 2023, deferrals to start 1/1/24 and the other TPA says to me- leave the effective date 1/1/23, we won't use the 401(k) portion until 2024.

I am more inclined to do a 401(k)/PSP effective 1/1/23 for the profit sharing with a "special effective date of 1/1/24 for deferrals, which I think makes more sense.

Owner only plan, no employees.

Other thoughts?

In general, I agree with your sentiment.  However, for an owner-only plan the situation is different.  There are no effective availability issues, no operational failures, and no fiduciary concerns, etc.  Since the owner is the participant, it really is a just a plan where the participant(s) has elected to not defer, as opposed to a plan where the employer decided to not facilitate, implement, or promote to the employees a plan feature the employer agreed upon when adopting the plan document.

In short, I'd suggest that the document include the delayed special effective date for deferrals, but IMO, it is not a hill to die upon.

Assuming the owner is not a sole proprietor as you can retroactively have 401k for 2023, if the plan is set up by 4/15/2024 - no extension. Otherwise, no biggie as David stated, assuming it is an entity other than a sole-proprietorship.

If sole prop - no issue, if done by 4/15. Otherwise, special effective date for salary deferrals should be date of adoption or a later date, not 1/1/2023 or 1/1/2024.

On 3/28/2024 at 3:14 PM, David Schultz said:

In general, I agree with your sentiment.  However, for an owner-only plan the situation is different.  There are no effective availability issues, no operational failures, and no fiduciary concerns, etc.  Since the owner is the participant, it really is a just a plan where the participant(s) has elected to not defer, as opposed to a plan where the employer decided to not facilitate, implement, or promote to the employees a plan feature the employer agreed upon when adopting the plan document.

In short, I'd suggest that the document include the delayed special effective date for deferrals, but IMO, it is not a hill to die upon.

Yes.  in fact, what downside would there be to just letting it be 1/1/23?

1 minute ago, acm_acm said:

Yes.  in fact, what downside would there be to just letting it be 1/1/23?

Well...technically, a 401(k) feature cannot be retroactively adopted but that is what is being proposed.  Again, I don't think it is a big deal in this situation, BUT it is technically a violation of the rules and if even a technical violation can be avoided by simply adding a delayed effective date (especially when it was suggested on the front-end), why wouldn't you?  What is the harm in adding the 1/1/24 effective date for the 401(k) features?

I believe that thepensionmaven is asking the right questions and is giving the right advice, and he should continue to do so; but where I'd now walk away from many a client who refuses to take sound advice, my initial comment was intended to reflect that, IMO, this isn't much of a concern.

I just got off with the client, after designing both plans, emailing them to the client and of course billing him.  

I was lead to believe that here's a Dr. who wants to shelter $x, and I designed these two plans based on the guy's budget. From what the client has mentioned only just now is totally opposite from what I was originally told.  The client is telling me he's got an inherited IRA that he must drawn down on over the next 7 years.  Apparently, the accountant had a brainstorm that the client, (he's a sole member P.C., no employees) gets a 1099R each year for the next 7 years, pays the taxes, then contriubtes directly to the two retirement plans. The funds come to him on a personal level, and the client can contribute this money to his retirement plan.

The only problem I see is that this is passive income, so this scheme will not work.  I certainly do not relish the idea of being the one with the bad news, especially if I am off base here.