Adopting new profit sharing formula - is there a cutback?

There are 5 HCEs operating their solo 401(k) profit sharing plans with pro rata profit sharing allocation formulas.  NHCEs were hired in 2024 and became eligible in 2024 but there was no plan covering them.  The employer wants to retroactively adopt a PSP effective 2024 covering the NHCEs as permitted under SECURE 2.0 with a new comparability allocation formula, and cross test the contributions in all six plans.  To me, this seems permissible and not a cutback, because the NHCEs had not earned a right to the allocation formula.  Am I missing something?  Thank you!

yeah, you kinda missed the part where you explained who the employer is here....

But, if I am to assume this is some sort of ASG where these plans all have to be tested together, the fact that you've made them retroactively eligible for a new plan with a different allocation method than the others is not a problem.

But again, what specifically is making this NHCE ineligible for ANY of the other plans to begin with?

And why wouldn't you test the guy separately as otherwise excludable by himself?

The 5 HCEs have their own individual corporations.  The new entity has employees effective in 2024.  The reason we can't test otherwise excludable separately and automatically pass is because the HCEs have spouses who are participating in the separate plans who are statutorily excludable.  The six entities are related under the rules.

[I was trying to keep the question simple - focusing on the cutback and 401(a)(4) testing issue].  Thanks.

Remember, each contribution source - 401k, 401m, 401a is a "plan" that must satisfy coverage.

If the solo 401ks have deferrals and PS, then adopting 2024 retro PSP for NHCEs fixes the PS but not the 401k. Not sure how you fix the 401k part when the missed deferral opportunity is because there was no plan.

The deferrals could still have the one-year wait, and maybe the individual corporations' documents grandfather everyone employed by 12/31/2023 so that the spouses stay 401(k) eligible without triggering it retroactively for the new NHCEs?

If the documents were written that way. 

All -- As Elmer Fudd would say "Be vewy vewy careful ..."  First, it is common that so-called solo 401(k) plans are documented to include everyone immediately (since the presumption is that there is no one else).  So, it is possible that each of the five plans, by their terms, include all employees.  If that is the case, then you might have a tougher nut to crack, because the folks ARE eligible for stuff in those plans.

Second, be sure that the plans have common provisions that permit aggregation for coverage and nondiscrimination.  For example, you can't aggregate SH plans with non-SH or, I believe, different types of SH plans. 

Finally, the coverage and nondiscrimination concerns related to the salary deferrals when no plan existed for these guys at the time could be a real issue.  It might be worth a VCP filing to ensure that the IRS agrees with what gets done, but it may be possible to design the employee plan (assuming that the stuff I noted above all aligns properly) to have a QNEC equal to the MDO that would have applied had the employees been covered by the 5 guys' plans.  So, they are getting what they would have gotten had the correction been made in the individual "solo (k)" plans.  However, if you do file VCPs, you might need one for each plan so that each of the plans is protected (or, alternatively, you could take the IRS's approved correction on one VCP and extend it in theory to a self-correction in the others, which would be relying on the idea that one VCP's approval can be considered agreement in principle to the other plans).  Remember, however, that the IRS is strained both by a lack of personnel and a lack of expertise of the personnel that is still there, so this all may be hard to achieve.