Form 5500-SF - 2024. Q 14(a)

Am I correct in the fact that, if a client  has a DB plan as well as a 401(k) that cover the same participants AND each plan satisfies 401(a) on it's own, the answer is "no"?

The clint thinks if we answer no, this indicates the plan(s) out of compliance, which would not be the case.

Here are the instructions for Line 14a on the SF:

"Line 14a. A multiple-employer plan should skip this question. Check "Yes" if this plan was permissively aggregated with another plan to satisfy the requirements of Code sections 410(b) and 401(a)(4). Generally, each single plan must separately satisfy the coverage and nondiscrimination requirements. However, an employer generally may designate two or more separate plans as a single plan for purposes of applying the ratio percentage test of Treasury Regulations section 1.410(b)-2(b)(2) or the nondiscriminatory classification test of Treasury Regulations section 1.410(b)-4. Two or more plans that are permissively aggregated and treated as a single plan for purposes of the minimum coverage test of Code section 410(b) must also be treated as a single plan for purposes of the nondiscrimination test under Code section 401(a)(4). See Treasury Regulations sections 1.410(b)-7(d) and 1.401(a)(4)-9(a) for more information."

Unfortunately, the question is structured where the answer for most plans is "No", which is a negative response, which leads clients to think something is wrong.  Something like:

"Did this plan satisfy the coverage and nondiscrimination requirements without relying on permissive aggregation with one or more other plans?"

Absolutely, just wanted to hear this from another TPA as the question is vague. Client has can balance and 401k, separately pass 401a4 on their own.

He was reviewing my 5500s (2023) and thought the answer should be "yes", he may be audited if the answer "no".

I mentioned the wording is ambiguous, issue is whether the two plan NEED to be aggregated in order to pass a4.; and not "does the plan pass 401a4.

My question, for 2024, the CB does not pass but the 401k does.

Which 5500-SF should be answered with a "no".

The cash balance plan satisfies 401(a)(4) on its own. Frozen plan? Just curious.

In this particular case, the CB does not automatically pass and needs to be adjusted.

I find it odd they have this question, but there is no question about Safe Harbor contributions yet.

Over the history of 5500s, the IRS has added (and removed) questions about compliance tests.  Typically, this foreshadows their launching a project once the data are in for 2 or 3 years to study if there is a need to investigate plans or to see if additional regulations may be needed.

This type of analysis is part of the reason 5500 was created starting in 1975.