Jakyasar Posted November 1, 2021 Share Posted November 1, 2021 Hi I have almost no experience with missed funding deadlines - dealt with twice in my life time but both deposited prior to December 31st of the same year, following 9/15 deadline. A brand new cash balance/401k-ps plan combo for 2020. Was told that 401k deferrals and safe harbor match was contributed timely. The issues are the CB deposit and PS deposit. I was approached for advice on the following: As the plan sponsor is totally broke, they can not make the 200k CB deposit (assume it is the minimum required - do not have the report to check), whatever the PS amount due (must make it to pass combo plan testing) or the 10% penalty on missed contributions. It is very unlikely that they will come up with the monies by 12/31/2021 and possibly never - business went south suddenly. Possibly covered by PBGC, not even sure if PBGC was alerted about missing contributions - I believe form 10? All participants were provided statements of benefits for both CB and PS for 2020 They want to send the IRS form 5330 with a letter explaining their situation and ask for any kind of relief. Based on my understanding, they may be late for filing 5330 unless they filed 5558 for a possible 6 month extension, but definitely late for 10% excise tax, correct? From what I read, IRS may impose additional late interest charges. Not even sure if AFTAP was done and/or 101j notice was provided by 10/31/2021. My immediate reaction was to freeze the plan asap but apparently they were told by the actuary, not doable. What??? Given that they may never be able to make any of the contributions, what can they do? If anyone has any experience, would appreciate any comments/suggestions. What a mess. Link to comment Share on other sites More sharing options...
CuseFan Posted November 2, 2021 Share Posted November 2, 2021 Had a similar situation in 2008, a company with 2 or 3 owners and 40+/- employees put in a CBP just before the economy crashed in the great recession. They could not afford their first year funding or likely near future years as well and survive in business. It was definitely PBGC-covered, and I think their premium/filing was the only filing with any governmental entity at the time we approached PBGC to explain the situation (no IRS submission of plan and no 5500 filed yet, if I remember). They were allowed to rescind the plan and were refunded their premiums. I do not recall if benefit statements went out to employees in addition to SPDs. If PBGC-covered, then you could try that route. PBGC gets off the hook for under funded plan. Employees - the message is we can afford to keep you employed or we can fund the CBP, we would prefer to do the former and rescind the plan, any problems with that? BUT - if tax returns were filed claiming deductions for contributions that were never made, the first order of business is to file amended returns. Kenneth M. Prell, CEBS, ERPA Vice President, BPAS Actuarial & Pension Services kprell@bpas.com Link to comment Share on other sites More sharing options...
Luke Bailey Posted November 3, 2021 Share Posted November 3, 2021 8 hours ago, CuseFan said: It was definitely PBGC-covered, and I think their premium/filing was the only filing with any governmental entity at the time we approached PBGC to explain the situation (no IRS submission of plan and no 5500 filed yet, if I remember). They were allowed to rescind the plan and were refunded their premiums. I do not recall if benefit statements went out to employees in addition to SPDs. CuseFan, my guess is that the PBGC may have included a disclaimer that whatever action they took did not bind IRS or DOL or participants under ERISA, just like VCP compliance statements say they do not bind DOL or participants under ERISA. But after 13 years, the employer is probably safe.😀 Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
Jakyasar Posted November 3, 2021 Author Share Posted November 3, 2021 Thank you both your comments. Unfortunately, looking for a solution now and I do not think they will be this lucky. Any other thoughts out there? Link to comment Share on other sites More sharing options...
Nate S Posted January 3, 2022 Share Posted January 3, 2022 May be theoretical at this late point, but what do you have that says a Plan even exists at this time? If they've never made a contribution to the CB, then there's no trust, and no qualified plan. Under the old rules, a last minute plan was impossible because you couldn't open an account and make a deposit in time for the trust to exist as of 12/31. Regardless of what you told the participants, SPD, statement (remember, all statements are just estimates until benefits are actually to be paid), etc; the Plan hadn't been properly established and couldn't be effective for that year. If zero contributions were made, then same situation. Rescind any filings, amend for any deductions that were claimed/anticipated, and keep beating that drum until people leave you alone. John Feldt ERPA CPC QPA 1 Link to comment Share on other sites More sharing options...
Mike Preston Posted January 4, 2022 Share Posted January 4, 2022 7 hours ago, Nate S said: May be theoretical at this late point, but what do you have that says a Plan even exists at this time? If they've never made a contribution to the CB, then there's no trust, and no qualified plan. Under the old rules, a last minute plan was impossible because you couldn't open an account and make a deposit in time for the trust to exist as of 12/31. Regardless of what you told the participants, SPD, statement (remember, all statements are just estimates until benefits are actually to be paid), etc; the Plan hadn't been properly established and couldn't be effective for that year. If zero contributions were made, then same situation. Rescind any filings, amend for any deductions that were claimed/anticipated, and keep beating that drum until people leave you alone. This is 100% not the way to go. Strong letter to follow. Link to comment Share on other sites More sharing options...
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