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Jakyasar, a reasonable classification is only necessary for passing coverage when the 70% ratio test for coverage is not satisfied. If there are only two employees and both are HCEs, then coverage is deemed to pass, so the exclusion can be done by name without creating any issues.

Super helpful, thank you @Peter Gulia!

If there is a doubt about whether an asset is a qualifying or nonqualifying plan asset, here’s another opportunity: A plan’s administrator might take protective steps as if the asset is nonqualifying. That includes paying for whatever extra fidelity-bond insurance would be needed. Acting as if the asset is nonqualifying might be less expensive than getting a lawyer’s advice that the asset is a qualifying plan asset. On a different point, a plan’s administrator, trustee, and every other fiduciary might take steps to satisfy all of them that “the indicia of ownership of [all] assets of [the] plan [are within] the jurisdiction of the district courts of the United States.” ERISA § 404(b), 29 U.S.C. § 1104(b). Asking whether the plan’s trustee or § 3(38) investment manager sufficiently analyzed whether the asset is a prudent investment might be a point you prefer not to mention. This is not advice to anyone.

TPA for a small PBGC covered plan, with various HCE and NHCE A portion of the plan's money has been transferred to what appears to be a pooled off-shore account with a wealth management firm. No annual statements are produced, just a letter that says something like your starting interest as of 12/31/2024 is $X, P/L during the year was $Y, and end value of your interest in the pooled investment is $Z. The letter explains that statements are not available due to the pooled nature of the investment with lots of other investors. Off-hand I do not see anything prohibiting a pooled investment interest that would impact either an ERISA bond (non-qualified assets), or filing of a Form 5500-SF (must be eligible plan assets). Is there one? Other potential restrictions that should be asked about? There really isn't enough information to go on, so right now the goal is to make a list of questions for the sponsor and the wealth management company to address. So far: I intend to ask which is the categories of "qualifying plan assets" the investment is, in case the bond is not sufficient to avoid audit. What other questions /issues should be addressed? I feel like there are things we should ask about that I just don't even have an inkling about. Not a producing TPA, do not get involved in investment discussions, other than what is necessary for compliance, testing, reporting etc. Thank you all in advance for your insight.

I thought exclusion by name was a BRF issue and not considered a reasonable classification!! I would have written as any HCE not an owner is excluded.

Might it be as simple as EBSA’s software was not told to apply the holidays tolerance? Some plan administrators might incur an incremental DFVC expense because that expense might be less than an expense to explain that the report is not delinquent. Is $750 less expensive than one hour of a professional’s time? Or less expensive than a minimum fee for a new task? I’m curious: Does the DFVC require a user to state that the report is delinquent? Or may a user get DFVC protection without saying that the report is delinquent?

I brought up the DFVC Penalty Calculator for a plan with a late filing in 2024. But when the list of late filings in EFAST appeared, it showed two years, not just the 2024 filing. The other year, 12/31/2022, was filed on 10/16/2023 through EFAST. Since 10/15/2023 fell on a Sunday, the filing date of 10/16/2023 is timely. An extension was filed before 7/31/2023, and the extension box is clearly checked on the form. Am I missing something, or does it appear that the 2022 filing should not be considered late? Should they pay the penalty on 2022 as well, even though it's not late?

Does the RR plan document allow for the RR in? Are the NR union employees excluded by document and the benefit subject to good faith bargaining? If you are excluding the one group by document and they had good faith bargaining to that effect that is a statutory exclusion. They aren't in the coverage test. I am pretty sure you test the included union people separately from the non-union for 410b testing by regulation. But check me on that or someone tell me I am wrong. It has been a number of years since I had a mixed union and non-union plan. The first step is to make sure the groups are included and excluded per the document and contract and move forward from there.

Following this for Project Labor Agreement 401(k)s

for EPIC RPS (Remote / Norwich NY)View the full text of this job opportunity

We've known that our client NR is in a controlled group with RR (has their own plan but not our client) for several years, and we actually get the RR data every other year or so to prove that it passes 410b for all the various BRF, which it does. We've convinced the owners to let us take over the RR plan, and as part of the discussion they mentioned the RR plan includes union employees (they were included in the data we received, but not identified as such). NR's plan excludes union employees, and there are union employees that are excluded. They want to keep the two plans separate (getting close to the audit threshold, don't want a conversion, etc.). Is this union thing going to be a problem for coverage? I'd like to think that since we can exclude all union employees, it's OK to include some class of them. Thanks.

for Human Interest (Remote)View the full text of this job opportunity

Agree with @David D - including the 1099 situation not appearing correct unless something else going on. Are the owners each single member LLCs that own the company and company then pays the LLCs via 1099s. Even so, the LLCs would be either incorporated (C or S) or not (sole prop) and pay their owners via W2 or K1, respectively. Then (I think) the LLCs are disregarded entities and their earned income should count for 401k plan. If that's not the case then that whole 1099 situation is wrong IMHO - but I'm not an accountant.

for CBIZ, Inc (Remote / Saint Petersburg FL)View the full text of this job opportunity

Why would it negate the exemption, if the dollars are being used to fund solely SH matches? As soon as they let one penny get used for any other contribution under the plan, then sure I'd agree you lose the exemption. I suppose then you can debate theoreticals - lose the TH exemption, versus paying the extra PW amounts due in wages rather than benefits....

oh, upon seeing the correction that HCE 2 is specifically not a participant, then that makes it evident he wouldn't need to get a THM.

Plan is a safe harbor 401(k) using the safe harbor match to satisfy the safe harbor provisions. Plan includes a prevailing wage contribution that offsets employer contributions. My understanding is that the prevailing wage contribution negates the top-heavy exemption available to safe harbor plans. However, if in every instance the prevailing wage contribution is used to offset the safe harbor match does that conclusion change. Do they still get the top-heavy exemption?

for Securian Financial Group (Remote / Saint Paul MN / Hybrid)View the full text of this job opportunity

Keep in mind that if you have an eligible payroll large enough, 31% test may allow you to make a DC plan contribution (including all employer portion i.e. all match and PS) well in excess of 6%, all depends on the CB contribution level.

What you stated in your original question is why typically when you have a 401k plan with a cash balance not subject to PBGC, it is better to have a Safe Harbor Non Elective plan than a Safe Harbor Match plan in regards to staying within the deduction limits when trying to pass 401a4 testing.

I think clarification is needed on this. If the owners of the company are sponsoring a 401k plan, it's either an incorporated business for which they are not being paid wages, therefore cannot defer, or it's unincorporated in which their income should pass through to their Schedule C or K-1 as self employment income. Typically the business would pay independent contractors via 1099, but it doesn't seem right that the owners of the business would qualify as independent contractors. It seems to me they are already eligible for the plan they sponsor unless specifically excluded. The only potential qualification issue is if they sponsor a Safe Harbor Non Elective 401k plan and were entitled to Safe Harbor Contributions based on their SE income and did not make that contribution.

What is your role/concern? Are you starting with skepticism that their income reporting is incorrect? What if it is incorrect?

You say he's a participant, but you also say he's excluded from the plan by name. Why is he being deemed a participant? Because if he's really NOT one, then the THM would not apply. That's different from being eligible and just not accruing anything.

for The Pension Source (Remote / Stuart FL / Abilene TX / Nashville TN)View the full text of this job opportunity

We have a plan with 2 participants (correction: employees) 100% Owner and another employee who is an HCE (but not a Key Employee). The plan excludes the HCE by name and only the Owner contributes to the plan. The Plan is Top Heavy. The plan passes coverage testing, since there are no NHCEs. Does the plan have to fund the Top Heavy Minimum 3% to the HCE who is excluded from the Plan? Thanks!