"SH 401(k) plan (SH NEC), two entry dates (Jan-July), eligibility is age 21, 1,000 hours; plan is top heavy. Employee hired 6/8/2020, worked 986 hours in 2020. Employee worked 300 hours in 2021 before stopping full-time work 5/21/2021 (so over 1,000 hours in first 11 months). Employee was then available on as-needed basis. Employee worked 156 hours between 8/5/21 and end of year. (total hours worked in 2021 was 456 hours)

Did this employee enter the plan? She had 1,000 hours in first 12 months but was not there on the entry date although she was available 'as needed.' Is she entitled to any contribution for 2021 (such as SH)? What about top heavy?"

"401k plan excludes post-severance compensation from definition of compensation for purposes of deferrals and matching contributions. Employer improperly withheld deferrals and made matching contributions on last paycheck received after participants terminated. What is the correction? Does it depend on whether the participant has received a distribution of their plan account?

I initially assumed the correction would be to return the improper deferrals to the participant (and issue a 1099?) and forfeit the matching contribution. That works if the participant has not yet received their distribution. If they have already received their distribution, then they have received those improper deferrals.

Is the correction then to issue a 1099 for the matching contribution only (assuming they have already received a 1099 for the distribution of their plan account)?"

"Wrap plan with 12/1 - 11/30 plan year. Employer wants to change to a calendar year. Can the effective date of the amendment be 12/1/21 (resulting in a short plan year of 12/1/21-12/31/21 and new plan year of 1/1/22 - 12/31/22) or do we have to use a 12/1/22 effective date?

I have seen references in articles that an amendment to change the plan year cannot be effective until the first day of the next plan year, but they do not provide any citations. I guess technically if we use a 12/1/21 effective date the amendment will be retroactive since it will be adopted after the end of the new short plan year."

"This small CPA firm has 6 employees. A receptionist is leaving and is 80% vested at best. The owner wants her to receive her full account balance. The 2/20 TH vesting leaves her just short. I suggested with the Cycle 3 restatement requirement change to a 3 year cliff which would also be TH compliant. He wants to just give her the full account balance (her money is segregated, all segregated investment accounts). He asked me, "What if we call it a mistake, we paid her out everything by mistake, what harm would there be?" I said it would be an operational failure due to a failure to follow the document. Would the IRS come down on them if by chance there is an audit? He wants to just do it."

"A 401(k) plan operates on a fiscal year - July 1st through June 30th. The plan document defines the limitation year as the plan year for everything (except for the deferral limit). For the plan year ending June 30, 2022, an employee under the age of 50 has contributed $25,000 in 401(k) deferrals during the plan year (though never exceeding the calendar year limit). The annual additions limit is $58,000. The deferral limit is $19,500. Had the employee deferred only $19,500 during the plan year, he would receive an employer contribution of $38,500. By deferring $25,000 during the plan year, is this employee limited to $33,000 of employer contributions for the plan year ending June 30, 2022?"