All Activity

This stream auto-updates     

  1. Yesterday
  2. 5500 / ERISA to Non-ERISA Plan

    Plan sponsor terminated it's sole employee. Only remaining employees are partners. Sole employee takes a distriubtion in 2017. I assume I can just start filing a 5500-SF as a 1 participant plan, correct?
  3. Guidance perhaps seemed rather unclear as to whether one may implement an involuntary distribution of $1K or less lacking any mutually exclusive expressed selection of the participant or the participant and/or the distributee (the latter term can obviously include the respective beneficiary of the participant). To describe a perhaps sort of Venn diagram: Participant: this term may include an employee or a person who had previously at some point served as an employee standing severed from respective current employment who participated in the respective plan and/or in certain circumstances independent contractors (particularly, so circumstances may seem, independent contractors who have something approximating a franchise situation with insurance companies as insurance sellers). Sometimes the term extends to include the respective beneficiaries of employees, though this perhaps stands as perhaps less common. The attachment of the term "participant" to describe a person extinguishes per regulations upon the distribution of the entirety of the respective account balance of the person and/or the occurrence of five one-year breaks in service/periods of service, the latter depending upon the calibration of the plan to hours of service for vesting or otherwise. Distributee: Can seemingly usually include the participant and/or as anticipated the beneficiary of the participant (one uses "and/or" as a person could engage in employment for a company that a discrete, separate person who designates one as a participant also engages in employment for) Notice 2005-5 features the following sample 401(a)(31)(B) amendment, with emphasis added with asterisks: Section 401(a)(31)(B) Sample Amendment “In the event of a mandatory distribution greater than $1,000 in accordance with the provisions of section _____, if the ***participant*** does not elect to have such distribution paid directly to an eligible retirement plan specified by the ***participant*** in a direct rollover or to receive the distribution directly in accordance with section(s) _____, then the plan administrator will pay the distribution in a direct rollover to an individual retirement plan designated by the plan administrator.” The use of the term "participant" rather than the "participant and/or the participant's respective beneficiary" seems to suggest that only the participant's volition/predilections affect the situation. I found in Notice 200-5 something that seems rather definitive to indicate that only the participant's volition, applies, with emphasis added with asterisks: Q-2. What is a mandatory distribution? A-2. A mandatory distribution is a distribution that is made without the ***participant’s*** consent and that is made to a participant before the participant attains the later of age 62 or normal retirement age. ***A distribution to a surviving spouse or alternate payee is not a mandatory distribution for purposes of the automatic rollover requirements of § 401(a)(31)(B)***. Although § 411(a)(11) generally prohibits mandatory distributions of accrued benefits attributable to employer contributions with a present value exceeding $5,000, the automatic rollover provisions of § 401(a)(31)(B) apply without regard to the amount of the distribution as long as the amount exceeds $1,000. So, Notice 2005-5 seems to suggest _________________________________________________________________________________________________________ I will include asterisks for emphasis for subsequent guidance: https://www.irs.gov/pub/irs-tege/dc_lrm.pdf In the event of a mandatory distribution greater than $1,000 in accordance with the provisions of section _____, if the ***participant*** does not elect to have such distribution paid directly to an eligible retirement plan specified by the participant in a direct rollover or to receive the distribution directly in accordance with section(s) _____, then the plan administrator will pay the distribution in a direct rollover to an individual retirement plan designated by the plan administrator. For purposes of determining whether a mandatory distribution is greater than $1000, the portion of the participant’s distribution attributable to any rollover contribution is included. http://uscode.house.gov (B) Certain mandatory distributions.- (i) In general.-In case of a trust which is part of an eligible plan, such trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that if- (I) a distribution described in clause (ii) in excess of $1,000 is made, and (II) the ***distributee*** does not make an election under subparagraph (A) and does not elect to receive the distribution directly, the plan administrator shall make such transfer to an individual retirement plan of a designated trustee or issuer and shall notify the distributee in writing (either separately or as part of the notice under section 402(f)) that the distribution may be transferred to another individual retirement plan. http://uscode.house.gov/view.xhtml?req=(title:26 section:401 edition:prelim) OR (granuleid:USC-prelim-title26-section401)&f=treesort&edition=prelim&num=0&jumpTo=true#substructure-location_a_31_B To retrieve a Treasury Regulation: https://www.ecfr.gov/cgi-bin/text-idx?SID=a8b706a80a2b8db6ac915cae77083717&mc=true&node=se26.6.1_1401_2a_3_231_3_61&rgn=div8 Q-1: What are the direct rollover requirements under section 401(a)(31)? A-1: (a) General rule. To satisfy section 401(a)(31), added by UCA, a plan must provide that if the ***distributee*** of any eligible rollover distribution elects to have the distribution paid directly to an eligible retirement plan, and specifies the eligible retirement plan to which the distribution is to be paid, then the distribution will be paid to that eligible retirement plan in a direct rollover described in Q&A-3 of this section. Thus, the plan must give the ***distributee*** the option of having his or her distribution paid in a direct rollover to an eligible retirement plan specified by the ***distributee***. For purposes of section 401(a)(31) and this section, eligible rollover distribution has the meaning set forth in section 402(c)(4) and §1.402(c)-2, Q&A-3 through Q&A-10 and Q&A-14, except as otherwise provided in Q&A-2 of this section, eligible retirement plan has the meaning set forth in section 402(c)(8)(B) and §1.402(c)-2, Q&A-2. https://www.irs.gov/pub/irs-drop/n-05-05.pdf Section 657 of EGTRRA amended § 401(a)(31)(B) of the Code to require that mandatory distributions of more than $1,000 from a plan qualified under § 401(a) be paid in a direct rollover to an individual retirement plan (i.e., an individual retirement account as described in § 408(a) or an individual retirement annuity described in § 408(b)) of a designated trustee or issuer if the ***distributee*** does not make an affirmative election to have the amount paid in a direct rollover to an eligible retirement plan or to receive the distribution directly. Section 657(a) of EGTRRA also added a notice provision to § 401(a)(31)(B)(i) of the Code which requires that the plan administrator notify the distributee in writing (either separately or as part of the § 402(f) notice) that the distribution may be paid in a direct rollover to an individual retirement plan. I found in Notice 200-5 something that seems rather definitive, with emphasis added with asterisks: Q-2. What is a mandatory distribution? A-2. A mandatory distribution is a distribution that is made without the participant’s consent and that is made to a participant before the participant attains the later of age 62 or normal retirement age. ***A distribution to a surviving spouse or alternate payee is not a mandatory distribution for purposes of the automatic rollover requirements of § 401(a)(31)(B)***. Although § 411(a)(11) generally prohibits mandatory distributions of accrued benefits attributable to employer contributions with a present value exceeding $5,000, the automatic rollover provisions of § 401(a)(31)(B) apply without regard to the amount of the distribution as long as the amount exceeds $1,000. Q-3. How is the automatic rollover requirement of § 401(a)(31)(B) satisfied? A-3. In order to satisfy the automatic rollover requirement of § 401(a)(31)(B), a plan must provide that, when making a mandatory distribution that exceeds $1,000 and that is an eligible rollover distribution, if, after receiving the notice described in § 402(f), a ***participant*** fails to elect to receive a mandatory distribution directly or have it paid in a direct rollover to an eligible retirement plan, the distribution will be paid in a direct rollover to an individual retirement plan. _________________________________________________________________________________________________________ Some perhaps items to inquire on: The use of the term "participant" rather than the "participant and/or the participant's respective beneficiary" seems to suggest that only the participant's volition/predilections affect the situation. Therefore, if an administrator decided to implement a direct rollover to an individual retirement plan (i.e., an individual retirement account as described in § 408(a) or an individual retirement annuity described in § 408(b)) of a designated trustee or issuer), the predilections of a surviving spouse or alternate payee do not affect the situation (e.g., the affirmative election to have the amount paid in a direct rollover to an eligible retirement plan or to receive the distribution directly). A perhaps intriguing situation; if the surviving spouse or alternate payee also happens to stand as a participant in the plan, must one obey the predilections of said individual? The term participant in the 401(a)(31)(B) sample amendment in Notice 2005-5 does not seem to qualify the term to just the participant from whose respective account the amounts ensued. Admittedly, one can perhaps not disambiguate for every conceivable permutation. To present a hypothetical scenario: X and Y both work for E- E-, which sponsors a plan in which both X and Y stand as participants. X and Y occur to each other as: (1) spouses or (exclusive or) (2) only individuals who only platonically appreciate each other mutually/distributively X names Y as X's respective beneficiary. Upon X's demise, must the plan administrator heed the predilections of Y for the handling of X's account (e.g., the affirmative election to have the amount paid in a direct rollover to an eligible retirement plan or to receive the distribution directly) or may the administrator decide to implement a direct rollover to an individual retirement plan (i.e., an individual retirement account as described in § 408(a) or an individual retirement annuity described in § 408(b)) of a designated trustee or issuer) unaffected by Y's predilections?
  4. https://www.irs.gov/pub/irs-drop/n-10-84.pdf Q-3. Is an in-plan Roth direct rollover treated as a distribution for all purposes? A-3. No. Because an in-plan Roth direct rollover merely changes the account in a plan under which an amount is held and the tax character of the amount, a distribution that is rolled over in an in-plan Roth direct rollover is not treated as a distribution for the following purposes: (c) Section 411(a)(11) (relating to participant consent before an immediate distribution of an accrued benefit in excess of $5,000). The amount rolled over continues to be taken into account in determining whether the participant’s accrued benefit exceeds $5,000, and a notice of the participant’s right to defer receipt of the distribution is not triggered by the in-plan Roth direct rollover.
  5. I found some helpful guidance. https://www.irs.gov/retirement-plans/cumulative-list-of-changes-in-retirement-plan-qualification-requirements https://www.irs.gov/pub/irs-drop/n-10-90.pdf https://www.federalregister.gov/documents/2007/04/30/E7-8125/designated-roth-accounts-under-section-402a https://www.federalregister.gov/documents/2006/01/03/05-24495/designated-roth-contributions-to-cash-or-deferred-arrangements-under-section-401k First, these regulations clarify and expand the rule in § 1.401(k)-1(f)(3)(ii) to provide that the balance of a participant's designated Roth account and a participant's other accounts under the plan are treated as accounts held under two separate plans (within the meaning of section 414(l)) for purposes of applying not only the special rule in A-11 of § 1.401(a)(31)-1 for de minimis distributions (reasonably expected to total less than $200) but also both the automatic rollover rules for mandatory distributions under section 401(a)(31)(B) and the rules in A-9 and A-10 of § 1.401(a)(31)-1 on the extent to which plans must allow split distributions. Thus, for example, if a participant has less than $1,000 in the participant's designated Roth account and less than $1,000 in the participant's other accounts, the plan will not need to provide the participant with an automatic rollover with respect to the designated Roth account or the other accounts even if the total accrued benefit of the participant under the plan exceeds $1,000. https://www.federalregister.gov/documents/2006/01/03/05-24495/designated-roth-contributions-to-cash-or-deferred-arrangements-under-section-401k In addition, a plan is permitted to treat the balance of the participant's designated Roth account and the participant's other accounts under the plan as accounts held under two separate plans (within the meaning of section 414(l)) for purposes of applying the special rule in A-11 of § 1.401(a)(31)-1 (under which a plan will satisfy section 401(a)(31) even though the plan administrator does not permit any distributee to elect a direct rollover with respect to eligible rollover distributions during a year that are reasonably expected to total less than $200). Thus, if a participant's balance in the designated Roth account is less than $200, then the plan is not required to offer a direct rollover election with respect to that account or to apply the automatic rollover provisions of section 401(a)(31)(B) with respect to that account.
  6. Contributions deposited prior to payroll

    Assuming that all the deferral amounts for the next pay period are identical to the excess amounts mistakenly deposited, that leaves investment earnings to evaluate. Chances are that the interim earnings are immaterial and the "do nothing" approach (other than documenting the error and the consideration of correction) could be reasonable. A participant with even an immaterial amount of negative earnings might complain, but that is another question for another time. Keep in mind that one of the primary principles of correction is that the plan be put in the same position as if the error had not occurred, so some serious attention and thinking should be applied to the interim earnings. The IRS has no express "de minimus" standard for these circumstances.
  7. Last week
  8. Who prepares Form 990-T?

    And that has pretty much been my approach!
  9. Contributions deposited prior to payroll

    Well, I did say as a self correction, not purely ignoring any problems. If the only thing going on is that the employer deposited salary deferrals for two pay periods at the end of the firist pay period, and the employee worked through the end of the second pay period (and thus earned into the deferrals) I just don't see much of an issue.
  10. Yes, I agree with your 1 and 2 calculations. Match would be 3,600 in your scenario. In regards to the ABT.... I don't know to be honest, but I think the answer is that you use the participating compensation. I will defer to the smart ones around here.
  11. Contributions deposited prior to payroll

    "IRS will allow just about anything" Does that include doing nothing other than not truly doubling the contributions, as suggested by the post (although I don't really understand what "change the effective date" of the deposit means)?
  12. Mr. Bagwell, Thank you so much for your feedback! Your assumptions are correct that the plan did not make everyone eligible at 5/1/16. All employees have to meet eligibility requirements. The plan uses participating compensation and the entry date for the match is monthly. The adoption agreement states - "Each participant who satisfies the eligibility requirements for a Plan Year shall receive an allocation of Employer Matching Contributions for that Plan Year. Such allocation shall be an amount equal to 100% of the Salary Reduction Contributions that were deferred during that Plan Year while he satisfied the participation requirements for Employer Matching Contributions, and that do not exceed 6% of his Compensation received during that Plan Year while he satisfied the participation requirements for Employer Matching Contributions." Based on the adoption agreement and assuming the hypothetical employee in my original post has been making 10% deferrals since 5/1/16, am I correct in saying that for purposes of ADP test, his ADP % would be $8,000/$80,000? for purposes of calculating the match, his deferral % is $6,000/$60,000 because he became eligible for match on 7/1/16? Additionally, the plan excludes a group of employees from receiving the match and fails to satisfy the ratio percentage test. To run the average benefit test, do we calculate his Ebar using his annual gross comp($120,000), comp since plan inception($80,000) or participation comp for match($60,000)?
  13. My question relates to 29 CFR 2510.3-2(b) Severance Pay Plans The Regulations state "the total amount of such payments does not exceed the equivalent of twice the employee's annual compensation during the year immediately preceding the termination of his service." What does the phrase "the equivalent of" mean? Is the DOL referring to the time value of money? Additionally, in referring to the annual compensation, how is that determined? Is the annual compensation the employees previous years salary or is it the salary it would have been if he had continued working? Essentially I'm asking if anyone knows what they mean by "usual rate of compensation". Any thoughts? Thank you!
  14. Who prepares Form 990-T?

    My guess is that nobody on here knows, or nobody on here cares to risk making an error in giving an answer. So- I handed the ball off to someone else. I told the client that I believe that he owes tax on UBTI, provided him with what information I could, and sent him off to see his CPA or to find one familiar with such matters.
  15. Perhaps you are overthinking it. A FORMER employee paid a premium - this is not a tax deferred event. How would you normally handle it with an identically situated departing employee when you do have adequate notice of their termination? Do you withhold balance-of-the month premiums from final pay, pre-tax? If so, I suppose you could have the employee pay back his final pay and reverse the payroll transaction, then re-run the final paycheck to withhold the premium. Puts everyone in the same position as if you had had proper notice of his termination. Seems like way too much trouble unless the former ee is putting up a big stink about the taxability issue. We have lots of situations where employees and former employees write a check to self-pay their health benefits. It's always with their post-tax dollars and will never impact W-2 reporting.
  16. Changing Admin Software

    No specific concerns, more of a general inquiry towards user friendliness comparison of both systems, and preferences from those who have used both systems. I have used their document system and did not find it easy. We are thinking of changing due to $$ considerations.
  17. Contributions deposited prior to payroll

    These sorts of errors happen all the time with 401(k) plans. Unless there is some funny business with respect to moving deductible amounts between fiscal years the IRS will allow just about anything that seems remotely reasonable as a self-correction. I dare say that every 401(k) plan in the country would be disqualified if the IRS were sticklers on the "don't contribute deferrals before the actuall payroll date" rules.
  18. Partial termination

    also, if the comp limit comes into play for the owner, if you terminate before year-end then you have to pro-rate the limit, right?
  19. Contributions deposited prior to payroll

    Are you not worried about the risk to the employer, such as disqualification? Disqualification would not serve the participants very well, either.
  20. Partial termination

    Thank you for the responses. To Belgarath - very good points - which I have been pondering. Re contributions, the owner does want to give the contribution to everyone who would otherwise be eligible, so the the fail-safe language won't work. So I think we will have to amend the plan to remove year-end requirement. Re rush - yes, there is sort of a rush in that the owner wants to allow these people to rollover their money right away and be done with it. I am going to re-confirm with owner that above is what he wants because I agree that the easiest thing is to just wait until 12/31 and remove the year-end requirement. We know that it really makes no difference if participants have their money in the old plan or the new, but on the other hand the new plan is a 401(k) where they would have control over the investments (existing plan is pooled PS).
  21. prior year testing-no match made in prior year

    No. "Employee Contributions" means after-tax contributions. See Treas. reg 1.401(m)-1(a)(3) as referenced in the m-5 definitional reg.
  22. JJ, I'll point you in the right direction on a couple of these. 1. The plan document is your best friend here. Did the plan get written to make everyone eligible at 5/1/2016 or did all employees have to meet eligibility requirements? What about full year comp or participating comp? Let's suppose they had to meet eligibility requirements and participating comp. Deferral comp would be $80,000, May to December. True up deferral contribution? I'm leaving that alone for now except to say the employee needs to have a deferral election in place rather than no deferrals and then two months deferrals..... then no December. 2. You didn't tell us the entry dates. Monthly entry? Let's suppose monthly entry. Match entry date would be 7/1/2016. $60,000 compensation. He didn't defer greater than 6% so the match is going to be $2,000. Nothing to true up. 3. Class exclusion. Don't have enough information.... Make sure you know the plan limitation year for 415 test. It may or may not be an issue. BTW... 100% match of 6%. Why isn't this plan a safe harbor match with same entry date requirements for simplicity? No ADP or ACP tests...... you aren't worrying about who is excluded.... and who want's to try to figure out compensation amounts for deferral and then for match.....
  23. failure to stop withholding

    We just dealt with this exact scenario & distributed with earnings, forfeiting match. It wasn't bundled, so the recordkeeper complied with the Trustee's instructions, but it took some doing to find the right forms & explain the situation to the right person. The recordkeeper had the same knee-jerk reaction as most though--Said it was too late, pointing to the 90-day rule.
  24. Hurricane Irma - Outside Florida

    I can't see a reason why the relief in Announcement 2017-13 would NOT apply to Georgia. It wouldn't make sense grant 7508A relief while not granting hardship and loan relief. 2017-13 did refer to Florida counties but also included the following: I would also note that 2017-13 refers to areas identified for individual assistance, because that was how the IRS initially limited the relief in Florida. The subsequent expansion to individual OR public assistance would include all of Georgia just like the 7508A relief.
  25. Hurricane Irma - Outside Florida

    Thanks RatherBeGolfing, I am aware that Georgia has now qualified for for the 7508A relief. However, I am curious about the special retirement plan relief under Announcement 2017-13, not the 7508A relief, for Georgia individuals. Any thoughts on that?
  26. I don't believe there is any advance notice requirement, even if ERISA applies, correct? Yes, any eligible expense incurred prior to the amendment date would need to be covered, but still no legal/regulatory requirement for advance notice, similar to a 204(h) notice in the qualified plan world? Thanks.
  27. Changing Admin Software

    Why the switch then? I agree with RBG about the level of their customer service. While not as stellar as it once was, it is still top notch among the vendors I deal with - and have dealt with. I haven't used their admin platform, but have used their docs and Form 5500 platforms - and both are pretty intuitive and easy to use.
  1. Load more activity