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Many questions have no one “right answer”. But if one seeks a mainstream answer, it’s what the Labor department published: “In the view of the Department, the monies which are to go to a section 401(k) plan by virtue of a partner’s election become plan assets at the earliest date they can reasonably be segregated from the partnership’s general assets after those monies would otherwise have been distributed [paid] to the partner[.]” Once one knows the partner’s payday: “[I]n the case of a plan with fewer than 100 participants at the beginning of the plan year, any amount deposited with such plan not later than . . . the 7th business day following the day on which such amount would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer [the partnership] from a participant’s wages [or self-employed compensation]), shall be deemed to be contributed . . . to such plan on the earliest date on which such contributions . . . can reasonably be segregated from the employer’s general assets.” 29 C.F.R. § 2510.3-102(a)(2)(i) https://www.ecfr.gov/current/title-29/part-2510/section-2510.3-102#p-2510.3-102(a)(2)(i). Simplified example: A partner of International Man of Mystery LP gets a monthly draw, paid on the 15th of each month (or the next day that is a regular business day for both the partnership and the bank it uses). Vanessa Kensington’s draw is $100,000 a month. For 2026, Vanessa specified an elective deferral of $3,000 a month through October, and $1,250 in each of November and December. On May 15, 2026, the partnership pays Vanessa $97,000. The $3,000 not paid to Vanessa is included in the money paid to the retirement plan’s trustee 12 days later on May 27, 2026. Applying the small-plan safe-harbor rule quoted above, that delay would be deemed reasonable. I confess that’s a simplified example in many ways, including that the date a partner’s self-employed compensation is paid might be ambiguous. Many might reason that a partner’s draw during a year is not pay (at least not in a sense of treating it as akin to an employee’s wages) because it might be an advance against anticipated self-employment income, not yet determined, which might not be realized.

When is the following rehired employee eligible? John was hired in 2019 and worked very part time generally speaking, never working 1000 hours... until he did. The Plan at that time was a Profit Sharing Plan and it was frozen. John's service history is: 2019 370 hours 2020 111 hours 2021 393 hours 2022 1000 hours (age > 21) 2023 516 hours and Terminated 7/2023. Because the Plan is frozen John does not enter the Plan, is not a "Participant" even though he completed 1000 hours and min age 21. No account balance, 0% vested. 2024 -0- hours [1st One-Year Break-in-service] 2025 Rehired Dec 2025, 71 hours TO NOTE: The frozen PSPlan was Amended and Restated effective 1/2024 into a Safe Harbor 401k PSPlan, eligibility is 12 mos / 1000 hours, min age 21. [LTPT eligibility is based on the standard provisions.] The A&R Plan document provides the new eligibility provisions apply if an Employee is not yet a "Participant" as of the effective date of the change. Further it defines "Participant" as an Employee having satisfied eligibility AND entered the Plan. [X] This amendment or restatement (or a prior amendment or restatement) modified the eligibility and/or entry date requirements and the prior eligibility and/or entry date conditions continue to apply to the Eligible Employees specified below. If this option is NOT selected, then all Eligible Employees must satisfy the eligibility and entry date conditions set forth above. 1. [X] The modified eligibility and entry date conditions above only apply to Eligible Employees who were not Participants as of the effective date of the modification. QUESTION: is John eligible and his Entry Date is as of Rehire in December 2025 or must he wait until he completes 1 year/1000 hours (or LTPT elig reqs) and enter per Plan Entry Dates? Thank you.

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There is no lack of trust here, no one is worried about this, they just want to know what the right answer is.

Working with a 401k plan that had mistakenly defined 401k compensation as W-2 wages with no exclusions. This of course, resulted in several defects - not enough was withheld from employee earnings because of the improper definition of compensation. (Payroll team was only withholding from regular wages, OT and bonuses). The plan was amended effective 12/1/25 to exclude several earnings types, including equity income, from compensation. Additionally, the payroll team would not regularly record W-2 stock transactions as they happened throughout the year. Many were held until the last payroll and reported in December, even though the transaction occurred in July/August. As I am going through the process of self-correction, I am left with a couple of questions on how to handle some transactions 1) If an active employee exercised stock in July of 2025, but it was not reported in payroll until December of 2025 (when the plan was amended to exclude stock comp), would that stock transaction be considered compensation for the 401k plan? The option was exercised when it would have been considered compensation, but not reported in payroll until later when the transaction would be excluded? 2) For a terminated employee, similar question. I believe if payment is made within 2.5 months of termination or by end of year (whichever is later), then the payment is to be considered compensation. However, do I use the exercise date or the date in which the payment was made in payroll? Thanks for any help I can get on this one. ,

A punctilious independent qualified public accountant auditing a plan’s financial statements might consider these points. If a partner’s participant contribution—even if timely enough for Federal income tax purposes—was not paid over to the plan’s trust or otherwise treated as plan assets until long after the specified amount was segregated (or reasonably could have been segregated) from the partnership’s assets AND the contribution lacked an adjustment for lost investment value, should the financial statements’ narrative (but not the displays) note a contingent gain, describing (but not putting an amount on) the restoration that belongs to the plan? Even if the narrative omits a note about a contingent gain, should the plan’s financial statements note a related-party transaction or a nonexempt prohibited transaction because the partnership had the use of what was plan assets? Under AICPA guidance, an IQPA must read the plan’s administrator’s Form 5500 report to consider whether it seems reasonably consistent with the audited financial statements. Some IQPAs read the response to the Schedule H query “Was there a failure to transmit to the plan any participant contributions within the time period described in 29 CFR 2510.3-102?” If the administrator’s response is No when the IQPA thinks a truthful answer ought to be Yes, the IQPA might not release its “clean” report. Further, some auditors might treat what the auditor finds is a less-than-truthful response as a reason to doubt management’s honesty or control, even about other information. I recognize these and other points are way beyond norms for small-business retirement plans. But you mentioned it’s an auditor who seeks your help. So I’m spinning out a little imagination about why an auditor might question when a partner’s participant contribution becomes plan assets.

If it was my plan from the jump, totally. But this is showing up at my door with this problem. I had intended on amending this provision out (and I still probably will), but this employee is kinda adamant.

Don't allow participants to irrevocably waive their benefit in the plan in small plans, it's just asking for trouble in cases like this. Also did the person make an irrevocabale election to waive before they became eligible? If not, then I'm not sure their election is valid. Lastly would adding an in-service distribution for employer contributions at say age 30, age 40 or whatever age the participant is be away to fund the contribution and then if the participant "want's nothing to do with the plan" take an in service distribution of the employer contribution each year after it is deposited? Though I can't recall if that would work with safe harbor Non-elective as that might have the same age 59.5 withdrawal restrictions as elective deferrals.

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Truth be told this was a question from an auditor I am friends with, so I don't even know the identity! This is what I can tell you. I have been a TPA for about a million years. Partners fund their contributions at any time through the date of their 1040 due date (or partnership return if earlier) and the words "late deposit" never left my lips in those conversations. And I don't think I missed anything by not mentioning it. Tell me I'm wrong :).

Anyone know of a brokerage account solution, no advisor attached, for these types of plans? I need a solution where we can have it registered to the trustee of a rabbi trust. In my experience advisors do not like working on these because the opportunity for accumulation is retty low. So I'm looking for a Fidelity/Charles Schwab type retail account where we can just fill out an application and open the account, no advisor comp. Anyone know of a solution?

So we learn something together (and only if you can describe a situation without revealing your client's identity or other confidence): For which task in a retirement plan's administration does one seek to discern when a working owner's amount withheld for a participant contribution becomes plan assets?

Lets break is down further. Merging plan Participant terminates in 2025. In calendar year 2026, the plan files a 2025 8955 and reports the participant with Code A. In calendar year 2026, the plan merges mid year into the surviving plan. The merging plan files a final 5500 for the short plan year ending on the date of the merger. The plan files a 2026 8955 reporting the participant as Code D Surviving plan In calendar year 2026, participant has vested account balance transferred into the surviving plan. In calendar year 2027, the surviving plan files a 2026 8955. The participant is reported on the 2026 8955 with Code A.

For ERISA Advisory Opinion 1999-04A, a multiemployer pension plan asked “individuals who own business enterprises, either wholly or in part[.]”

Treasury Reg. (26 C.F.R.) § 1.401(k)-1(a)(6)(iv) allows § 401(k) elective deferrals from an advance on compensation not yet determined. The Treasury’s interpretation of Internal Revenue Code § 401(k) does not interpret ERISA § 3(42)’s definition of plan assets. ERISA Advisory Opinion 1999-04A (Feb. 4, 1999) expresses Labor’s Pension and Welfare Benefits Administration’s view “that there is nothing in the definitions of Title I of ERISA that would preclude a pension plan . . . from extending plan coverage to ‘working owners,’”, such as self-employed individuals Internal Revenue Code § 401(c) treats as deemed employees. This Opinion does not interpret when a working owner’s participant contribution becomes plan assets. Yet, those interpretations suggest treating a working owner as if she were an employee, as nearly as reasonable for the question of law involved, with some tolerances for differences about a self-employed individual’s compensation.

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/1999-04a I saw this but I cannot figure out where the relevant part is. Anyone? Also this is the 100% owner of the business. I see the point of course about PriceWaterhouseCoopers (just to use an example that makes sense to all of us) withholding partners money and holding onto for it for 6 months... But this is definitely that.

To rephrase the question ... ees who terminated in 2025 and have balances need to be reported as A on the 2026 form, but they also have to be reported as having their benefit transferred to the surviving plan. So are they reported on two lines? Thanks.

Yes, a 2025 1099R still needs to be prepared and included as 2025 income on the participant's tax return. If they already filed their 2025 return, then they need to file an amended return. If the refund is not made by April 15, 2025, it is still taxable for 2025 and the excess amount must remain in the plan and cannot be removed until a distributable event occurs (or is corrected under EPCRS). When the excess amount subsequently is paid, it is taxed again in the year of distribution. The taxation in 2025 does not create tax basis in the plan.

If for a nonelective contribution a plan provides no election against participation: A participant might refuse to direct investment, and the plan’s administrator could apply the plan’s default investment. A plan might not provide a small-balance involuntary distribution, or the individual’s account on severance-from-employment be more than $7,000. Or if an involuntary distribution is a rollover to a default IRA, an individual who does not want the benefit might become the IRA custodian’s responsibility. A plan might not mandate an involuntary distribution until the participant’s required beginning date following her applicable age (75 for many people). If a distributee neither deposits nor negotiates a minimum-distribution payment, a plan’s administrator might wait out a relevant State law’s abandonment period. A person who’s then nearing 80 might change her mind and accept a benefit. But if not, the abandoned property and any later claim to it becomes a State treasurer’s responsibility. Or if a participant’s death occurs before a distribution to the participant was paid, the plan might provide a benefit to a participant-named beneficiary or, if none, the plan’s default beneficiary. And if a distributee of a § 401(a)(9)-required involuntary distribution neither deposits nor negotiates that payment, repeat the abandoned-property administration. About a nonelective contribution, does anything require the participant’s cooperation?

This issue has been addressed by each both the IRS and DOL. See IRS §1.401(k)-1(a)(6)(iv) and DOL Advisory Opinion 99-04A.

Partner who is Active and not eligible to take an inservice went ahead and rolled over his account to an IRA without informing Plan Administrator. No 1099-R ever issued. (Reason was to get more control over his assets.) Looks like under Self Correction it needs to be returned to the plan with earnings. Questions: Does a 1099-R need to be issued at all for either transaction? The first one was in prior year. Can a 'Rollover IRA' that holds only this account be re-stated as a Plan account?

Thanks for all the comments. And fyi, David Rigby, this is not addressed in the plan document.